MLGW may need 20% rate hike, TVA says
TVA statement conflicts with previous studies, findings
The Tennessee Valley Authority said this week that it believes the detailed study that showed potential cost benefits to Memphis Light, Gas and Water leaving TVA is wrong.
TVA argues that MLGW, the city-owned utility, would have to hike rates by 20% if it left TVA, not save more than $100 million a year, according to a letter it sent to MLGW leadership and an interview with The Commercial Appeal on Tuesday. The claim from TVA contrasts with several studies and projections about Memphis’ future power costs and adds to the already confusing hodgepodge of power cost estimates.
As it disputes those potential cost savings, TVA is also trying to sweeten the deal and keep Memphis, its largest customer, in the fold. At present, Memphis receives all of its power from the New Deal-era power provider.
In July, TVA plans to offer Memphis significant economic investments in core, inner city neighborhoods, programs aimed at reducing energy burdens
and a “significant number” of new jobs to join the 100 or so employees TVA has in Memphis right now.
The study TVA is disputing, known as an integrated resource plan, released late last month, estimated Memphis could save about $120 million a year on power between 2025 and 2039 if it left TVA, built some of its own power and joined the Midcontinent Independent System Operator, known as MISO.
TVA, unsurprisingly, disagreed with that.
“Bottom line, our analysis indicates the preferred portfolio from the Draft IRP would likely cost MLGW customers an additional $261 million annually rather than saving $122 million per year,” TVA CEO Jeff Lyash wrote in a letter to MLGW CEO J.T. Young, Memphis Mayor Jim Strickland and MLGW board chair Carlee Mccullough on Monday.
The letter, and a one-sheet provided the CA, argue that Siemens, the firm that conducted the IRP, is underestimating how long and how much it would cost to build the transmission lines and power facilities necessary for MLGW to leave TVA as well as pay down the debt associated with those investments. It also argues Siemens is overstating TVA’S long-term rates.
But while TVA disagreed that there were any MLGW cost savings to be had by leaving, it said the IRP proves that several studies that projected much larger annual savings weren’t accurate.
Lyash wrote, “The Draft IRP’S analysis and conclusions prove that the previous studies significantly underestimated the true costs of constructing the necessary transmission and generation infrastructure to leave TVA.”
In short, TVA’S analysis of the IRP is arguing that instead of saving $122 million, Memphis could lose $261 million a year by leaving — a $383 million difference. TVA’S assertion that MLGW would lose money if it left is quite the departure from what the IRP stated and several other studies have suggested. While TVA’S letter was responding to just one about a dozen options outlined in the IRP, Siemens estimated that nearly every option studied would result in cost-savings of some sort. Other studies have claimed that MLGW could save up to $400 million a year if it bought power elsewhere.
MISO agreed that MLGW would see savings north of $100 million a year if it joined the marketplace and transmission network.
Entergy Arkansas and Entergy Mississippi, which serve parts of two states that border Memphis and Shelby County, have also told local leaders that they believe a partnership between MLGW and the forprofit Entergy could result in mutual savings.
One advocate for MLGW leaving TVA, Steven Reid, local political operative, noted that the IRP had estimated TVA rates would stay roughly flat for 20 years and attacked the power provider’s critique.
“The IRP underestimates the savings by over calculating the need for self-generation & provides a widely discredited assumption that TVA “could” experience a rate reduction. Either way, TVA’S statements still lack any credibility,” Reid said. He has been employed lobbying for a TVA departure on behalf of Chattanooga businessman Franklin Haney.
Karl Schledwitz, CEO of Monogram Foods and one of the founders of $450 Million for Memphis, a group that advocates leaving TVA, also took issue with Lyash’s comments.
“It is truly astonishing and almost beyond belief that TVA now is criticizing the exact same IRP report that they have been championing for over a year. This now makes five separate reports from five different qualified entities that have estimated savings between $150 million and $450 million a year if Memphis Light Gas and Water were to leave TVA,” Schledwitz said.
In an interview with The Commercial Appeal, Lyash said its public comments on the IRP is just one piece of the feedback it is offering Memphis. He said TVA would make the city and utility an offer that would add “significant additional value” to the current partnership, one that has existed for more than 80 years.
The offer would not have a time limit on it and it will most likely be made in the first week of July, Lyash said. However, he said that if MLGW proceeded to issue a request for proposals — and receive bids on its power supply — there would be years of opportunity cost involved in that decision, meaning that some of the benefits the federal power provider is offering wouldn’t be realized fully.
“It is truly astonishing and almost beyond belief that TVA now is criticizing the exact same IRP report that they have been championing for over a year.” Karl Schledwitz
CEO of Monogram Foods and one of the founders of $450 Million for Memphis group that advocates leaving TVA