Can Southern Cities Sever Ties with Tennessee Valley Monopoly? — Episode 107 of Local Energy Rules Podcast

Maggie Shober:

Now we hear a lot about solar from TVA, but from what we’ve seen, it’s a lot of talking the talk and we have yet to see them actually walk the walk

John Farrell:

Nearly 100 years ago, the federal government set up the Tennessee Valley Authority to help provide electricity to rural Appalachia for, for profit companies, refuse to invest in service. The federal authority grew from hydro dams to coal power plants to nuclear power plants. And today provides electricity to over 150 local power companies across seven States. But as Maggie Shober director of utility reform for the Southern Alliance for Clean Energy explains in this interview, these local power companies are looking for something different in 2020 than they were in 1930. Listen in to hear how a federally controlled power service has come into conflict with the many communities it serves over clean power, local self-determination, and how they could find a way to move forward together. I’m John Farrell, director of the energy democracy initiative at the Institute for Local Self Reliance. And this is local energy rules, a biweekly podcast sharing powerful stories about local, renewable energy. Maggie, welcome to the program.

Maggie Shober:

Thank you for having me, John.

John Farrell:

So I wanted to start out, you know, you’re based in the Southeast, you’re working on clean energy and lately there’s been a lot of discussion about this power company that was formed during the great depression. Can you just explain a little bit for folks who are not familiar about the Tennessee Valley Authority and how it has traditionally delivered electricity to communities in the Southeast?

Maggie Shober:

Absolutely. The TVA was established in the 1930s, as you said, as a way to electrify a part of the country that was slow to electrify overall Tennessee Valley cities in that area were actually already electrifying. The TVA also was set up to provide flood control and jobs to the region. The Tennessee Valley area that we’re talking about here is an area that covers most of Tennessee, Northern parts of Mississippi, Alabama, and Georgia, and then a few Southern parts of Kentucky and small pieces of North Carolina and Mississippi. So a number of, of different States now, depending on who you ask, the TVA is sometimes portrayed as a great savior for the region. And sometimes it’s portrayed as having a storied past all in all TVA did a lot of good in the area, but could have done better, particularly by, uh, poor and nonwhite communities in the area since its founding TVA has been the sole electricity provider for municipal and cooperative utilities in the region today, that number is 154, what we call local power companies. This number has varied a little bit over the years, as a handful of utilities have left the system and a few have even left the system and then come back. Federal law protects TVA from competing for its customers through two clauses, the fenceline clause and the anti cherry picking clause. These together mean that no other utility can provide power to TVA’s 154 local power companies. These local power companies are in what we call all requirements contracts with TVA. So that means TVA provides all the required power to the LPC and the LPC cannot contract with anyone else for power or self generate any of its own power.

John Farrell:

Could you just talk briefly about where TVA has sourced most of its ener—, you talked about flood control. So I imagine hydro power has been a big part of the kind of energy that they’re supplying. Where else are those communities getting electricity from, from TVA?

Maggie Shober:

Yes. So TVA has actually gone through a number of waves throughout its history of the kinds of technologies that uses to generate electricity. So in the early years it was a lot of hydro power and then starting in the forties and fifties, TVA built a large number of coal fired power plants, and they moved pretty heavily over the next decades after that into nuclear. So TVA system, Gil has a large amount of hydro nuclear and some coal, although lately a lot of that coal has been replaced by gas and building new gas, combined cycle plants.

John Farrell:

[inaudible] I’d imagine that it’s been a good period of time for the Southern Alliance for clean energy, given how competitive solar and wind power have become. I’m kind of curious, I didn’t hear solar and wind mentioned there as you were describing what TVA has been producing. So how have they responded to the availability of low cost, clean energy? You know, are they adopting a lot of solar and wind power for the 154 local power companies they’re serving?

Maggie Shober:

We at Southern Alliance for clean energy are very excited about the pace at which solar and wind power costs have dropped, but unfortunately TVA has been slow to respond and, and that’s the TVA customers are really missing out on these low cost resources now to understand more about why and how TVA has failed to adopt these resources. We have to know a little bit about TVAS regulatory structure or lack thereof

John Farrell:

Mhmm

Maggie Shober:

Until the early 2000’s TVA was run by a three person full time board of directors. These directors were appointed by the president and approved by the Senate, TVA being a federal agency in all in the early two thousands. However, that model shifted so that TVA could be run more like an investor owned utility, but you invest your own utilities are regulated by state public service commissions, usually in exchange for being granted a monopoly since TVA is a federal entity, it isn’t regulated at the state level. So now it’s overseen by a nine person part-time board of directors where directors are still appointed by the president and approved by the Senate. This board chooses a CEO to run the TVA, making it more like an IOU, but with significantly less regulatory oversight because the board tends to be very hands off. So TVA CEO has a lot of power and lacks oversight when making decisions about the, of energy in the Tennessee Valley customers and other States can intervene on issues they care about and elect public service commissioners that care about their issues, but that’s just not how things work with the TVA. So a couple of examples of this TVA had the option a few years back through the clean line project to open up a lot of inexpensive wind for its customers and to customers throughout the Southeast. Bill Johnson, who was then the CEO of TVA turned down the deal without fully presenting it to his board. And we still don’t know exactly why he said no to the deal. Another example is that TVA is a laggard on solar when compared to others across the Southeast, we put out an annual solar report that compares utilities on how much solar they’re they’re doing for their customers. And TVA continues to be labeled a sun blocker according to our, our metrics. Now we hear a lot about solar from TVA, but from what we’ve seen, it’s a lot of talking the talk and we have yet to see them actually walk the walk. In fact, TVA’s board approved a budget that includes funding for up to five gigawatts of solar over the next 10 years. And that’s less than half of what similarly sized Florida power and light is planning over that timeframe. So all in all, since the change in the regulatory structure in particular, we’ve seen what happens when you let a utility, the size of TVA, essentially self-regulate TVA staff and board committees meet behind closed doors to make major decisions that impact cities and customers across the Valley. And some of these decisions like to pass on the clean line project, or just slow walk solar additions or out of the control of the cities and customers that have no choice to rely on the TVA for power. And that would like to TVA to take advantage of the low cost solar and wind resources.

John Farrell:

I think you kind of alluded to this in the overview of how TVA works. I think my gut reaction here is, well, can these cities go it alone? You mentioned sometimes they’re able to leave TVA service. Sometimes they’ve come back. Is there a way for cities in the Southeast that are communities rural or urban to say, Hey, we see the opportunity, maybe we could get part of a clean line project. Maybe we could develop our own solar. Are there things that TVA is doing to hold back cities? Our communities are these local power companies from disconnecting, from TVA, and from going to get those low cost, clean energy resources elsewhere?

Maggie Shober:

So cities can choose to leave the TVA system. But what that looks like depends on two factors. One is what kind of contract the city has with TVA. And two is where it’s in TVA system. That city is located. So one example that’s looking at this issue right now is the city of Memphis. So Memphis is located at the edge of TVA system, and they’re currently going through a process to evaluate whether or not to break free from TVA, Memphis. This current contract with TVA allows it to leave TVA after providing a five-year notice. So that means that once Memphis tells TVA, it is leaving that decision, doesn’t go into effect for at least five years while Memphis has the power and positioning to leave TVA. Other cities across the system would have a more difficult time breaking free through the process going on in Memphis, TVA has been very clear that if a city or co-op decides to leave TVA, they will no longer have access to TV’s transmission system.

Despite the fact that rates from the city or co-ops customers have paid for TVA infrastructure. So again, I just want to emphasize that customers have paid for these transmission lines through their rates, but if their local power company decides to leave TVA, they will be cut off from using those lines. So with this, it’s pretty clear why local power companies feel chained to TVA and are reluctant to look for alternatives for power supply cities that are not on the edge of TVA territory. Like Memphis would then have to build expensive and redundant transmission in order to bring in power from outside of TVAs and fine. And even though TVA, sinful and already limits what cities and communities can do, TVA is further backstopping, it’s complete control for the region in a new way. Since last fall, the TVA has been pressuring city and co-op utility to sign longer and more limiting contracts with TVA by dangling a very small discount on what the utilities pay TVA for power, the contracts cap local utilities can do on their own.

At 5% of their average hourly demand. We looked at what this meant for an example, city, Knoxville, Tennessee, and it limits the utility to about 32 MW total over at least the next 20 years is that is all solar. It would shave off only about 1% of the power Knoxville has to buy from TVA. That’s still recently passed climate emission reduction goals. And if the utility signs his contract with TVA, it could win that. How, and if the city is able to meet these goals, even though they’re a priority for residents and local utilities. So TVA has been touting these quote flexibility of these contracts to local utilities of the media. But in reality, these contracts are very limiting on what local utilities, cities and communities can do on their own on clean energy.

John Farrell:

If I remember in some of my background reading about these new contracts, they’re also trying to make it harder to get out of the contract. So you mentioned Memphis has this sort of like five-year notice where it can leave, but if I’m not mistaken, this is going to become much more difficult to leave. In addition to being captain on what they can do. If they stay with TVA, it’s going to be a lot harder to get out.

Maggie Shober:

Yes, the new contract would mean a 20 year lead time for leaving TVA. So instead of five years between when a city would give notice and when it would actually leave TVA that timeframe 20 years,

John Farrell:

Is there a particular city that’s been kind of engaged? You know, you’ve mentioned Memphis and Knoxville, both kind of either in the consideration of leaving or having these clean energy or climate goals that are in conflict with their continuing TVA contracts. Is there a particular example that you think is helpful for people to understand in terms of how this play has been playing out some lessons that are learned that you’ve learned from, from how those cities have engaged in that struggle with TVA?

Maggie Shober:

Yeah. So for this, I think it’s good to go back to Memphis where they’ve had a struggle with TVA for a number of years. Part of that started with how TVA contaminated groundwater in Memphis, from coal Ash, from TVA Allen plant that’s located nearby, and also how that is being cleaned up. Additionally, a few years back TVA got in trouble with the EPA again over its treatment of coal Ash and was required by the EPA to invest $50 million in low income, energy efficiency as a part of its settlements. Memphis actually has the highest energy burdens of any city in the entire country. So energy burden is the portion of household income that spent on energy and Memphian struggle with this more so than any other country, not just in TVA, but across the whole country, but contrary to where most people would think that TVA would been the funding for energy efficiency, TVA actually sent most of the funding to other cities. It’s also important to note that from a carbon emission standpoint, TVA has reduced their emissions above the national average over the last 15 years. Now that is in part because TVA emissions in the early two thousands were very high due to its high reliance on coal. But now it is also because since 2005, TVA has retired a number of coal plants while building new gas and nuclear. However, based on TV’s current plans for its future, we see a worrying trend. Those emissions are expected to level out and we don’t expect meaningful emission reduction after TVA retires its Bull Run coal plant in 2023. So, we expect emissions to stay at after 2023 through at least the late 2030’s. That leaves cities and communities that TVA serves on the hook for meeting emission targets themselves. And as I mentioned, TVA is limiting their ability to do that by pushing these long term contracts, that cap what cities and communities can do on their own.

John Farrell:

We’re going to take a short break when we come back Maggie and I discussed whether changing TVA’s governance structure or ownership could help, what she sees as the ideal solution, and where she looks for inspiration for the struggle of Appalachian communities seeking greater self-reliance. Hey, thanks for listening to Local Energy Rules. If you’ve made it this far, you’re obviously a fan and we could use your help for just two minutes. As you’ve noticed, we don’t have any corporate sponsors or ads for any of our podcasts. The reason is that our mission at ILSR is to reinvigorate democracy by decentralizing economic power. Instead, we rely on you, our listeners, your donations, not only underwrite this podcast, but also help us produce all of the research and resources that we make available on our website and all of the technical assistance we provide to grassroots organizations every year ILSR, small staff helps hundreds of communities, challenge monopoly, power directly and rebuild their local economies. So please take a minute and go to ilsr.org and click on the donate button. And if making a donation isn’t something you can do, please consider helping us. In other ways, you can help other folks find this podcast by telling them about it, or by giving it a review on iTunes, Stitcher, or wherever you get your podcasts. The more ratings from listeners like you, the more folks can find this podcast and ILSs other podcasts, community broadband bits and building local power. Thanks again for listening. Now, back to the program.

John Farrell:

You talked earlier about the governance of TVA, how it’s shifted from this three person federal board that was pretty active in management to one that is a little bit more like an investor owned utility, or they’re kind of sitting back, you know, that part time oversight of a CEO. Do you think that that, that governance structure affects how it’s creating this tension between communities and utility? You know, with the Southeast, for example, be better served if it was just a fully private utility where it was regulated by state commissions.

Maggie Shober:

So this is a pretty tricky question, but I think it’s an important one to look at.

John Farrell:

You’re welcome.

Maggie Shober:

So when we’re thinking about governance and utility models, I think it’s pretty easy to look at which model or model should be more responsive to what customers want in a theoretical sense. However, we also have to look at how these models have played out over the past century or more basically since utility electric utility models began to take shape in the country. We are open to exploring different options with the TVA model. And we think there could be more than one model that would open up the region to more affordable utility bills, not just low rates and more abundant, clean energy resources. So one such option would be for the TVA model to continue as a public power model, but with more oversight, this could mean another change to the role of TVA board of directors. And it certainly would include an increase in the transparency and public input process in how TVA makes decisions.

There’s absolutely no reason for a public power entity like TVA to be less transparent than a typical investor owned utility. Another option. And this is at the other end of the spectrum would be for the federal government to turn the TVA into a transmission organization or something similar and open up power markets in the region. The TVA fenceline would then be opened up so that TVA would have to compete with other sources of power. And that way cities and communities would be able to purchase power from the newly set up market. And then they could make their own decisions about clean energy resources. So again, we’re open to exploring different changes because we feel, you know, the current regulatory model is not working well for the people of the Valley.

John Farrell:

It’s such a thorny issue, this discussion about governance right now, because we have, I think fairly significant examples of poor actors and all types of governance models. We have Pacific gas and electric that’s being held liable for wildfires out in California. Obviously the climate has been stoking weather systems that have caused that, but it also looks like they under invested in maintenance and maybe in more resilient, localized power systems. You have investor and transmission companies in Maine that are being subject to legislation to take them over, to make them public because of really high costs and poor performance. And then here you have TVA as a public entity that is creating a lot of challenges. So I think I appreciate your hesitation in answering this question cause it’s a really challenging one to figure out what is the right structure that is going to enable people to make good choices. I think that second one that you mentioned is really attractive in the sense that it would allow more local choice. So it would simply say for people in Memphis or Knoxville who really are motivated by maybe it’s climate concerns, maybe it’s more access to clean energy. They could do that, but people who wanted to keep buying power from TVA’s nuclear or gas or coal plants could still do so.

Maggie Shober:

Yeah. And another example of that is what’s going on in South Carolina with Santee Cooper where they’re actually debating the legislature is debating whether or not to sell the state owned utility. They got into some trouble with the failed nuclear project, whether to reform it and keep it as a publicly owned utility or, or to sell it to an investor owned utility. So we’re on the front lines of trying to observe and see where the debate is going

John Farrell:

And that if I’m not mistaken, that also that failed nuclear plant fiasco also resulted in the sale of the investor own major investor owned utility in South Carolina to Dominion Energy already, which also has a history of throwing its weight around politically in his home state of Virginia in a way that has avoided public scrutiny. So sometimes just changing ownership is not necessarily sufficient to deal with some of these issues, but it is definitely, I can understand the appeal of, you know, fire the bums or, you know, get new bums in charge or something like that.

Maggie Shober:

Yeah. Yeah. I think of it like a sports team. If you’re having a bad record, you can try and fix that by firing your coach and hiring a new one. But that doesn’t mean that the new coach is going to be able to come in and affect change or at least not right away.

John Farrell:

So with that in mind, what do you see as the best outcome of this debate? Would it be that individual cities can peel off of TVA? Do you think it would be? I mean, and let’s go a little bit beyond sort of what we see as immediately politically feasible here. Would it be best if some reform efforts at TVA got it to back down on the contracts and want more cities to have some flexibility or like raised that percentage number from 5% to 20% that folks could generate locally, what would you see as kind of the right mix of things that would make it bring in some of that sense of accountability, but also give that flexibility to communities that have really looked to go further?

Maggie Shober:

Yeah. So what we would like to see come out of this is that we would like cities and communities in the Valley to have more choice. This means that they’d be able to leave TVA no matter where they’re located. It means that access to TVA’s transmission grid would be provided in much the same way that utilities are required to give access to transmission all across the country, especially since the local utilities have already paid for this infrastructure. And the special protections that the Tennessee Valley Authority has, we believe are outdated and should be looked at the industry across the country is transitioning towards clean energy resources and a model where more resources and more control are concentrated on the distribution system than ever before. But TV’s current plans do not reflect this nationwide trend and they don’t reap the benefits for customers or the environment.

So we think it’s time that the TVA model reflect the modern times in which we live. And there’s a number of different ways we can get there going either top down or bottom up. So thinking top down first, TVA is still a federal entity, so changes can be made. And in a lot of ways, the future of TVA depends a lot on the outcome of this November’s election, both for the president and the Senate, because they could have a lot of influence over TVA. The other side of things is to work bottom-up. And this is where local utilities in cities like Memphis can really play a key role and other local utilities across the Tennessee Valley to really put pressure on TVA and be responsive to their needs because it’s, it’s our opinion that the local utilities stepping up and putting pressure on TVA could really put some changes in place at the TVA model.

John Farrell:

I just want to ask you if, if there’s any example that you look to outside of the Southeast, kind of as a wrap up here that inspires you to think about how you might like to see this problem be addressed with TVA, are their communities and other places that have been successful. Getting more of that flexibility utilities that you look to as a model of like, if we could just wave a magic wand and TVA could become like that utility that would allow this to move forward better.

Maggie Shober:

I think it’s hard to find any one examples, but I think there are a number of places that are doing at least, you know, a lot of things, right? One example that’s used a lot compared to this TVA model is Tri-State G&T in Colorado. And they recently were trying to get stricter contracts with their local co-ops and the local co-ops. We’re not happy about that, and we’re not happy about the direction that Tri-State was going. And that’s really turned around the direction that Tri-State is going as far as clean energy resources. And they’re now planning for, you know, more solar and wind than they were previously and allowing their local co-ops that purchase power through Tri-State to really do more flexible projects on their own. So that’s one example of how TVA could be set up to work better for these cities and communities.

Another example to look towards is the Bonneville Power Authority, which is in the Pacific Northwest and is also a federal entity and was originally set up somewhat like the TVA, but it’s a, it’s, it’s a smaller system. At BPA–at Bonneville Power Authority. I’ll say them out because BPA and TVA sound kind of a, like, um, a Bonneville Power Authority. Um, one thing that happened is that in the 1970s, after some failed investments in nuclear, the Bonneville Power Authority is now required to have a outside entity do a lot of it resource planning, and there’s a lot more transparency and oversight in the process that has led Bonneville Power Authority and the region as a whole to invest a lot more in energy efficiency in particular, as well as renewables than we see in TVA. And I recently saw some statistics that estimated that, that process and the energy efficiency investment that’s now been going on for decades in the area has led to about a 14% reduction in customer utility bills. So that’s, I mean, that’s a really big deal for customers. So those are two examples that we would, we would pull from. I think there are also a number of local municipal utilities that are doing really neat things on renewable energy and distributed renewables and energy efficiency. And we would look to reform the TVA model so that, you know, more of those kinds of programs and resources could be brought into serve the people of the Tennessee Valley.

John Farrell:

Well, Maggie, thank you so much for joining me to talk about what’s going on in the Southeast and this tension with TVA. I think it really speaks to this sort of larger question people have about how do we advance solutions and how do we give communities more in their energy future. So keep up the good work and good luck figuring out how to deal with that, the behemoth of the Southeast. Um, and thanks for sharing your time with me today.

Maggie Shober:

Great. Thank you so much, John.

John Farrell:

Thank you so much for listening to this episode of local energy rules with Maggie Shelburne director of utility reform for the Southern Alliance for clean energy. To learn more about how clean energy has raised issues for many rural communities in their relationship with their electricity provider, see ILSR’s report on remembering the electric cooperative, which covers many of the contractual limitations placed on TVAs local power companies. Also check out our recent post on public power campaigns, featuring several cities that have considered whether or not to take over their local power company. We’ll look at the community power map, which lists every single city owned utility tune back into local energy rules and two weeks to hear more stories of communities building local power to transform the energy system until next time, keep your energy local. And thanks for listening.