The Future of Electricity
TVA's new day
Veteran observers of the Tennessee Valley Authority could read radical change into the bland headline on the news release:
“TVA Board to Hold Hearing on Transmission Access.”
For one thing, a rule known as The Fence draws a line around the utilities that buy electricity from TVA. The Fence decrees that TVA supply all the electricity for its customers. There’s no need to talk about transmission access.
Especially in public.
The three-member board that governs TVA has behaved much like a single executive. It has not been known for showcasing dissent.
So experts raised eyebrows at the news release announcing the meeting in Hopkinsville last May. Their eyes widened further as they scanned the agenda. The first panel would hear from utilities planning to leave TVA. Soliciting controversy this way has not been TVA’s style.
But a strong fence and closely held decision-making may be relics of TVA’s past.
Two years ago, Congress tripled the number of TVA board members to nine. That came at a time when some of TVA’s 158 utilities were announcing plans to leave TVA for other power suppliers, tearing holes in The Fence.
Clearly, it’s a new day in TVA’s 73-year history.
Congress created TVA in 1933 to develop the Tennessee River basin through economic development, flood control, and by generating electricity for co-op and government-owned utilities. As a federal corporation, TVA would support itself financially through electric revenues, and the White House would appoint the directors.
Today, TVA provides electricity for 8.5 million residents in seven states. Its service territory forms an arc covering about half of Mississippi, the northern parts of Alabama and Georgia, all of Tennessee, western North Carolina and West Virginia, and southwest Kentucky. In Kentucky, TVA serves five electric co-ops and 14 city-owned utilities.
For decades, TVA stood as a national economic icon. But criticism appeared in the 1970s when it started supplementing its coal and hydroelectric power production with nuclear plants, a move that resulted in large electric rate increases. Some TVA customers complained openly about their inability to negotiate with the agency. They felt hemmed in by The Fence. Some gave notice they would leave TVA for cheaper power providers.
In 2004, Congress acted to organize TVA into a more traditional corporate structure. The full-time, three-member board became a part-time, nine-member board that would hire a full-time chief executive.
The meeting in Hopkinsville last May marked the first appearance of the expanded TVA board. More than 200 observers came for the beginning of this next era in TVA history.
The first witness that day was Gerald Hayes, president and CEO of Warren Rural Electric Co-op based in Bowling Green. In 2004, Warren announced it would leave TVA in 2008 and buy its wholesale electricity from East Kentucky Power, a generation and transmission co-op based in Winchester.
“TVA has been an excellent provider,” said Hayes. But, he testified, in the process of trying to lower the cost of Warren’s wholesale electricity, “I tried very hard to negotiate a partial requirements contract with the TVA staff…but it fell through.”
The next panel of the day included the president and CEO of Warren’s neighboring co-op, Pennyrile Electric Cooperative based in Hopkinsville. Eston Glover told a similar story, with a different outcome.
“We visited with most every supplier of wholesale power and evaluated all the options relative to price, reliability, cost to move from TVA, generation capacity, and transmission issues,” said Glover. “But we decided early on that TVA was the best supplier for us at this time.”
Although Hayes and Glover reached different conclusions about TVA membership, their testimony reflected the messages of many of the 12 panelists that day. Namely, that to stay strong, TVA needs to change, to be more flexible in negotiating with both customers and noncustomers. They urged TVA to seek modifications to The Fence or, many witnesses predicted, Congress would do it for them.
One of those witnesses was Harold DePriest, president and CEO of the municipally owned utility in Chattanooga, Tennessee.
“We’ve been concerned for a number of years that a legislative solution may remove the fence around the valley and do so in a way that is perhaps a little bit precipitous,” said DePriest. He said TVA customers would like to see “that fence come down gradually in a very controlled manner to give both you at TVA and us the distributors an opportunity to respond to a more competitive wholesale market.”
A possible preview of that future came in the third and final panel of the day, made up of non-TVA customers with an interest in the proceedings. Among those on that panel was Roy Palk, president and CEO of East Kentucky Power Cooperative.
East Kentucky Power brought a special significance to the hearing because when Warren Electric co-op leaves TVA in 2008, East Kentucky will become its new power supplier.
But this story involved more than Warren’s current and future power providers facing each other in a meeting room. For months before the hearing, East Kentucky had been asking TVA for additional power line interconnections, and possible supplemental power sales to help East Kentucky Power supply electricity to Warren.
TVA had been resisting the requests.
“This is just kind of hard,” TVA Board Chairman William Sansom said to Palk during the question-and-answer portion of the panel. “I’m a business guy and somebody comes and takes one of my customers, I’m not going to…stand there and say, ‘Well, if they run out (of power), I’ll supply you.’”
“We didn’t take your customers,” Palk responded. “Warren exercised their right (to change suppliers) under the TVA contract.”
Sansom’s frustration is easy to understand. But in today’s utility industry, TVA may have to ignore short-term disappointments in order to realize long-term business gains.
It’s a point Palk made as he continued his response: “That may provide an opportunity for TVA, because we’re going to need to buy some power, and we’re one of the customers that are able to do business with you outside the TVA wall. So rather than lose load and revenue, if we can negotiate a power purchase, then you still have a revenue flow.”
The times are a-changin’ in the electric utility business. The Hopkinsville hearing indicates that TVA’s board restructuring may bring a willingness to openly consider innovative solutions that will serve it well in a future where new rules take over without notice.
A main feature of this new world is that utilities want more of a say in decisions about how they get the electricity they distribute to their customers. It’s a notion summarized well at the Hopkinsville hearing by George Kitchens, general manager and CEO of Joe Wheeler Electric co-op based in Trinity, Alabama.
“In the beginning, TVA…had a paternalistic relationship with its distributors. That relationship was necessary early on.” However, Kitchens continued, “Distributors have matured into sophisticated, professionally run organizations. And, folks, just like any parent-child relationship, sooner or later the kids want to eat at the grownup table.”
You can find more background on TVA at www.tva.gov/abouttva. For additional details on the Hopkinsville hearing, including complete transcripts, go to www.tva.gov/abouttva/hearing_info/index.htm.
Next month: Energy-efficient rooftop gardens