MLGW chief on power future
CEO explains why he’s not ready to leave TVA
Memphis Light, Gas and Water CEO J.T. Young made a big announcement Wednesday morning— he wants to press pause on MLGW leaving the Tennessee Valley Authority, the only electricity provider it has known in 80-plus years.
In comments to the MLGW board, Young noted the risk of leaving TVA; dangers that had been highlighted by the rolling blackouts seen in Texas, Louisiana, Mississippi and Arkansas.
The events of the past several weeks were real-life events that Young had mentioned as hypotheticals throughout Memphis’ two-year evaluation of leaving TVA, noting the downside risk of being on the hook to buy power from a marketplace when pow
er is scarce.
On Wednesday afternoon, The Commercial Appeal spoke with Young about why he made his decision, which is not final and still has to be approved by the MLGW board. The CA’S questions and Young’s answers have been edited for length and clarity.
CA: What inputs did you use to formulate your recommendation to the board today?
Young: Some of what you heard me say today was not new. Some of this was already on the record, I’d already shared it both publicly and with the board.
Was it solely because of the events that happened in the last couple of weeks? No. Did the events that happened over the last couple of weeks have some influence? Yes.
And so it brought a more realistic view of what could happen in other markets. That certainly doesn’t mean that TVA would always be unscathed, but it gave me a lot of reasons to question the validity of the information that we would get if we went to the market now...
CA: When you say these events made you concerned about the validity of what you would get from the marketplace, do you think that these events exposed, maybe, the frailties of that private power marketplace model in your opinion?
Young: Possibly, but I don’t know enough yet to say for certain. I do think that it goes back to a point that I made with the board today and that is that electricity is not a commodity. The electricity markets are not perfect and it’s difficult to correct the electricity markets like you would some other type of market.
In my way of thinking, and that doesn’t mean this is correct, but in my way of thinking, obviously, there will need to be some changes made going forward and I suspect that those changes will mean additional cost will need to be somehow infused...
I don’t know that that’s the case but I suspect it would be.
CA: Do you think the events of the past two weeks changed public perception of whether or not leaving TVA was a good idea? Do you think it showed people more of the scenarios beyond the conversation just about money could be saved?
Young: I don’t know for sure. I suspect it has, but I don’t know for sure. I suspect it is causing people, the more they hear about this scenario, to think about things beyond dollar savings that make a difference in the lives of our customers. So, if I were to guess, I would say it probably had some influence but I don’t know for sure.
CA: Was there any action from TVA that signaled more willingness to negotiate? Has their stance changed in recent weeks?
Young: ... Other than talking about getting us through the water crisis and having some conversations with them about reducing usage at the Allen plant, we’ve had zero conversations, in detail, with them, about any of the proposals in quite a while.
CA: What impact do you think outside influence — those interested in selling Memphis, Tennessee electricity of the Tennessee Valley Authority — has had on the power supply process overall?
Young: My sense is that it caused a lot of folks — or allowed, I should say — a lot of folks to be engaged. I think that’s part of the value of being a part of a community that cares about what goes on and I think that a lot of folks got engaged in the process and thought more about it than maybe they had before. I don’t know everyone or all the entities that tried to influence the decision. Either way, I don’t know. I’m sure there’s a number of different ones.
At the end of the day, I felt an obligation and I still do, as president and CEO of MLGW, that it’s my responsibility to leverage my experience in this industry and consider what’s in the best interest of our customers and the community and that’s what I try to share with the board.
Those outside influences about what you spoke, certainly, I’m sure have had some influence on the way that folks thought about power. But, as you may know by now, there’s a whole lot more to this decision and to this issue than may have been readily communicated over the last couple of years.
CA: If you bring a new contract with TVA back to the Memphis City Council, how confident are you that the Memphis City Council will vote in the affirmative for that contract?
Young: The question is one that requires a little bit of dissection because, as you know, we’re on a current rolling contract with TVA and that requires no intervention by [the] council...
We can’t say what’s going to be in front of the council... It’s gonna probably depend on the nature of the substance of the contract, on what we put together, what that value would be for consumers... And so it’s hard to say without knowing really much about it. I think that the council, rightly so, is very concerned about the community, about our customers. I wouldn’t dare bring anything to the council that doesn’t offer value for the customers...
CA: What would you put the odds at that there’s going to be a new contract with TVA or is Memphis Light Gas and Water just going to remain TVA’S customer on its current, evergreen deal?
Young: I mean it’s a good question. I wish I knew, but I honestly don’t know...
And, again, I’ve used this analogy before: You’re driving a car that is five, six years old but it’s running great — low miles, good gas mileage. You’re kicking around looking at a car, but you’re not forced to buy a new car, because you got a good car, it’s reliable. We’re in a situation similar to that now where we know our pricing is going to be competitive pricing at the retail level for our customers.
We also know that reliability and deliverability and availability has been very, very high. That’s especially [true] for the last 20 years. So the platform is not burning for us to jump off into anything right now, but we do have to make sure that we look at options. That’s part of the reason why I think we need to look more closely at the proposals, what can be done. If there’s additional value that can be extracted that makes sense, then we will pursue that.
CA: If the GDS Associates contract to bid out Memphis’ power supply and transmission lines had not been voted down in October, would you have made this recommendation today?
Young: Let me answer it this way because that’s a hypothetical: Had the proposal accepted by the council, we would still have been on a journey within the GDS construct. At this point, [the bidding] would not have been completed. We would not have given notice to TVA. We would still be on a journey of getting pricing information, etcetera. Under that scenario, I can assure you that, when you take into account the events of the last couple of weeks, that would have given us an opportunity to consider where we were...
It’s a hypothetical. Right, so I don’t really know, but I can tell you that the marketplace, I believe, is going to begin to look very different to those who are trying to get market pricing in certain markets...
Where we are today is where we are, but had we gone down the road with the (request for proposal) process, it would not have been completed by now...
Why not just put the GDS contract back in front of the board and the Memphis City Council and go out for an RFP anyway, and continue to renegotiate with TVA. Why not do both?
Young: The board could make that decision if they wish and they may. That’s not my recommendation. For reasons that I shared this morning, my recommendation is what it is because we’ve got to make sure that we optimize the resources that we have to do what we need to do moving forward.
And, beyond that, you still have to ask this question: What are you going to do with whatever information you may obtain? Whatever information that you would get from an RFP, that you put out for bids. So you put an RFP out there and some information comes back on cost for transmission; costs for power; or costs for local generation or whatever. What would be a reasonable thing to do with that information in this current market situation? You would have to ask that question.
The FERC filing that’s out there, it could be over this year or it could be over 10 years from now. I don’t know. I have no idea. But that’s germane . ... I think the outcome of that would have an impact on what we would decide to do...
(MLGW filed a motion to intervene in a FERC dispute over use of TVA’S transmission lines. Four local power companies want to leave TVA and then use TVA’S transmission lines.)
Samuel Hardiman is a watchdog reporter who covers Memphis city government, politics and the pandemic response for The Commercial Appeal. He can be reached by email at samuel.hardiman@commercialappeal.com or followed on Twitter at @samhardiman.
“I’ve used this analogy before: You’re driving a car that is five, six years old but it’s running great — low miles, good gas mileage. You’re kicking around looking at a car, but you’re not forced to buy a new car, because you got a good car, it’s reliable. We’re in a situation similar to that now where we know our pricing is going to be competitive pricing at the retail level for our customers.”
J.T. Young
CEO, Memphis Light, Gas and Water