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Study finds Memphis utility could save $1.9B, add more renewables by leaving TVA

The Tennessee Valley Authority's largest customer, Memphis Light Gas and Water Division, could save more than $1.9 billion if it decides to end its contract with the federal power provider, according a report by Siemens PTI consultants.

The Memphis city-owned utility known as MLGW could also significantly increase its exposure to renewable energy by joining Midcontinent ISO and building a portfolio of its own generation, consultants said during a May 29 virtual presentation.

Exiting the TVA system could save MLGW about $120 million in 2018 dollars annually between 2025 and 2039 compared to a 20-year agreement with the TVA, said Gary Vicinus, the project director of the Siemens AG subsidiary's study. With its current contract, MLGW could save $150 million per year during the same period if it leaves TVA. The actual savings would ultimately depend on the resource portfolio MLGW pursues.

"This is not just about costs. Cost is certainly an important factor in the evaluation ... but we're also very concerned about reliability and resource adequacy," Vicinus said. "You'll see all of these have a great deal of renewables in them, but they also have some gas, particularly to achieve the reliability and resource adequacy requirements that would be a requirement of joining MISO."

MLGW commissioned Siemens in 2019 to prepare the report as part of the utility's ongoing analysis into alternative power supplies, as the utility and city officials consider whether there is a financial and environmental case to leave the TVA.

After analyzing 11 resource scenarios, Siemens found four potential scenarios comprising self-supply and MISO resources that could be beneficial for MLGW to consider, with two scenarios able to both save the utility money and reduce carbon emissions by nearly 50% compared to the TVA's levels.

Out of the 11 potential resource scenarios, "Portfolio Five" had the largest amount of renewable energy generation with 4,450 MW of capacity, with almost all of it coming online by 2028. This scenario includes a 450-MW combined-cycle gas turbine facility coming online in 2025, with four additional combustion turbines "selected optimally" to alleviate the increase in MISO capacity prices. However, Vicinus noted that this portfolio would require more investments in transmission because of higher risks of load shed.

Portfolio Nine offers the same level of renewables and combined-cycle gas as Portfolio Five but would require less investment in transmission. However, MLGW would need the four additional combustion turbines by 2025 to address reliability concerns.

If MLGW joins MISO, the utility should try to be part of MISO Local Resource Zone 8 instead of becoming an independent zone so that both the city utility and the current members in the zone could benefit from the load diversity and larger size of the new zone, according to the report.

In recent months, the TVA has been working to secure long-term contracts with its local power company partners. As of April, 134 of the authority's 154 customers, which consist of municipal utilities and rural electric cooperatives, have agreed to 20-year contracts in exchange for a 3.1% rebate of their wholesale purchases and a provision to procure up to 5% of their average energy needs from distributed generation within their own service territories.

The TVA's leadership has expressed confidence that MLGW, which represents about 10% of the agency's operating revenues, will ultimately stay. If the utility ends up staying with the TVA, Siemens said MLGW must work with the authority to increase the amount of local renewable generation allowed and to further assess the 20-year agreement.

Either way, Siemens concluded that MLGW should undertake a request for proposals before making a final decision.

"The best information to determine just how large those savings are and potentially evaluate some of the differences between the top four portfolios we looked at can be addressed with an assessment of bids, both local bids and bids within the MISO footprint," Vicinus said.