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As Memphis, Tenn., explores power supply options, TVA wants to work things out

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As Memphis, Tenn., explores power supply options, TVA wants to work things out

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TVA President and CEO Jeff Lyash speaking Sept. 18 in Washington, D.C.
Source: S&P Global Market Intelligence

The Tennessee Valley Authority's largest customer, the city-owned utility serving Memphis, Tenn., is considering buying its electricity from another supplier, but the federal utility's new executive says there is no real alternative.

Speaking at a Sept. 18 media briefing in Washington, D.C., TVA President and CEO Jeff Lyash acknowledged the authority's shortcomings in its partnership with Memphis, which accounts for about 11% of TVA's load. "We haven't always been the partner that we ought to have been," Lyash said. "But we've learned a lot and we're adjusting … not just for Memphis but for all 154 local power companies that we partner [with]."

Straddling the edge of TVA's territory and unsatisfied with its current electricity rates, the municipal-owned Memphis Light Gas and Water Division, or MLGW, is currently evaluating alternative power suppliers as the city considers giving TVA a five-year notice this year, as required by contractual obligations of TVA power purchase agreement, to sever ties. In 2017, MLGW sold just over 13,300 GWh of electricity, at a cost of $991.5 million, or 7.45 cents per kWh, according to the utility's 2017 annual report.

MLGW started weighing its options in 2018 after Franklin Haney Sr., a real estate developer and would-be buyer of TVA's unfinished Bellefonte nuclear power plant in Alabama, offered to meet 80% of the city's power needs at half the cost of TVA's rates. That offer has been put on hold as TVA terminated its sale of Bellefonte over Haney's failure to obtain, in time for the deal's closing, the transfer of construction permits issued by the U.S. Nuclear Regulatory Commission.

"Memphis has some very difficult issues to deal with," Lyash observed. With Memphis in need of capital to invest into its system to address "some reliability issues," he explained that the city is "questioning whether there is a better lower-cost power supplier than TVA" to help "reorient" its resources to meet those needs.

"Our position with Memphis is [that] we want to help them make the best decision," Lyash said. As a result, he said TVA has been engaging with the community in Memphis and is supporting the city in its studies of alternative suppliers. "I hope their decision is to stay with TVA," Lyash said. "I firmly believe that we are the best [choice.]"

A January study by consulting firm The Brattle Group said that Memphis could save between $240 million to $333 million a year on wholesale power costs by importing or producing its own electricity, at projected 2024 prices of 5.0 to 5.7 cents per kWh, with most of that power coming from about 3 GW of natural gas-fired generation. In a Sept. 9 supplement to the study, which was commissioned by advocacy group Friends of the Earth, The Brattle Group concluded that its "higher renewable penetration" scenario for 2024 could actually deliver more than $240 million in savings, thanks to cheaper solar and solar-plus-storage resources. Former MLGW President Herman Morris is an adviser to Friends of the Earth.

While The Brattle Group assumed that Memphis' transmission ties with the Midcontinent ISO's regional wholesale market would "be limited," a city-commissioned study by GDS Associates Inc. suggested Memphis could save money by interconnecting with the larger, "well-supplied" power market.

Coal plant retirements, emissions reductions

Lyash, who took over at TVA in April, cautioned that "few other utilities" have lowered fuel risks as significantly as TVA has as the U.S. undergoes a transition of its power supply mix. He said TVA delivered $1 billion in reduced fuel costs per year over the last decade as the share of coal-fired generation within the utility's footprint has shrunk from more than 60% to about 20%. Those fuel cost savings have offset any necessary base rate increases in the last six years, he said.

Amid national debates over climate change and energy, Lyash stressed the need for continuity in following TVA's 86-year-old mandate to deliver "high-quality, safe, reliable electricity at a competitive price that people can afford and will attract economic investment to the Valley. We're going to focus on doing that against an ever-shrinking environmental footprint and that includes continuing to drive down CO2-intensity of this system."

TVA is set to achieve a 60% reduction of its carbon dioxide emissions from 2005 levels by 2020 and is on its way to achieving a 70% cut by 2030. One contribution to that target, he said, is planned 4%-5% uprates of the output of its nuclear plants.

Lyash said TVA's recent decision to shutter in coming years the coal-fired Paradise plant in Kentucky next year and Bull Run plant in Tennessee in 2023 was based on economics and not environmental issues. "We had more economic alternatives available to us," he said. "This isn't about whether coal is good or bad."

Looking forward, Lyash said coal's share of TVA's generation portfolio will likely decrease as the coal fleet continues to age. "I suspect that we will have more coal retirements over the next decade, but we don't have a plan to phase out coal as just an objective on its own," he said.