Southern Cities’ Renewable Energy Push Could Be Stifled as Utility Locks Them Into Longer Contracts

As cities in the South start exploring ways to expand renewable energy, some are running into an obstacle that could set those plans back decades: The nation’s largest public utility, concerned about its income base, has started pressuring its customers to lock in long-term contracts that critics say could leave the region relying on fossil fuels for years to come.

The Tennessee Valley Authority, a public utility owned by the federal government, serves a population of 10 million in seven southeastern states through a distribution network of local power companies. While it has a lower carbon footprint than many utilities right now, its plans envision only modest improvements over the next 20 years.

Since August, TVA has persuaded more than 80 percent of the power companies that distribute the electricity it generates to agree to 20-year contracts—a much longer timeframe than its past agreements.

Conspicuously absent from that list, however, are some of the largest local power companies in the TVA system, including those that serve Memphis, Knoxville, Chattanooga, and Huntsville, Alabama. Together, the hold-outs account for nearly half of TVA’s operating revenues. 

“It’s not an accident that most of the distributors that haven’t signed up for this are the larger municipal utilities and co-ops,” said Amanda Garcia, a Nashville based attorney with the Southern Environmental Law Center, which sees the 20-year commitments as an impediment to renewable energy development within the TVA system.

The local power companies, and the communities they serve, are “feeling more pressure from their customers to have access to renewable energy,” she said.

At issue are agreements that tether the local power companies to TVA on a rolling, 20-year basis, instead of what had been a more typical arrangement that allowed them to break free with either five or 10 years notice. The fear is that signing long-term deals now will limit their bargaining power over everything from electricity rates to significantly boosting renewable energy, which some customers are demanding.

“Our concern is that this is a fundamental change in the relationship between TVA and the local power companies,” said Maggie Shober, director of power market analytics with the Southern Alliance for Clean Energy, a Knoxville-based advocacy group. “Local power companies already have limited control of what goes on at TVA, but they do have some leverage when they renew their contracts.”

TVA officials argue that the entire region will be better off with a stronger partnership that would be created with long-term commitments in a time of rapidly changing electricity markets.

This TVA effort “reinforces the Tennessee Valley public power model, which maintains our collective focus on the best interests of the people we serve,” and “more closely aligns with the long-term planning and investments needed to ensure reliable energy at the lowest feasible cost for the future,” said TVA spokesman Jim Hopson.

TVA Scrambles After Memphis Weighs Leaving

TVA is unlike most utilities in the United States. Born out of President Franklin Roosevelt’s New Deal to help lift the region out of economic depression, it is a federal corporate agency with board members appointed by the president.

The local power companies in states like Kentucky, Tennessee, Mississippi and Alabama that buy the electricity it generates have limited options for other sources of power because TVA controls the region’s transmission lines and is reluctant to share them.

Already more than 130 of 154 power companies within the TVA service area have signed the new longer-term contracts, most of them small and rural. Power companies that sign will get a small rebate on rates. They will also get the flexibility to either develop or purchase up to 5 percent of their electricity from other sources, such as solar power—an amount that critics say is woefully inadequate to meet the challenge of climate change.

TVA’s board in August approved a program to try to get all its local power providers to agree to provide two decades of notice to leave after its largest customer, the utility that serves Memphis, began to seriously look at other energy supply options.

Memphis Light, Gas & Water is in the middle of a study to explore whether it can save money by leaving TVA, possibly by developing or buying renewable energy sources like solar and wind. Because Memphis is located on the western edge of the TVA service area, it could tap into transmission lines just across the Mississippi River and electricity sources outside the TVA system, including western wind farms, for example.

The study won’t be completed until May, and Memphis won’t make any decisions on whether to sign a 20-year contract with TVA until then, a spokeswoman said.

In eastern Tennessee, the Volunteer Energy Cooperative, which serves 113,000 businesses and homes, is also weighing its future.

“We continue to study our options, which include looking at purchasing power from other sources or doing a combination of generating a portion of our own power and purchasing power from other suppliers,” said Rody Blevins, president of the co-op that serves East Tennessee. “If we were to move ahead with any of these options, we would consider renewable generation as well.”

He lamented TVA’s monopoly on the region’s transmission system. “This puts local power companies and the ratepayers of the valley at a distinct economic disadvantage,” Blevins said. “Our goal at VEC is to do what is best for our members for the long term. That is why we have elected to not sign the TVA 20-year-notice contract.”

Knoxville’s Goals Don’t Match TVA’s Plans

Knoxville elected a new mayor in November, Indya Kincannon, who campaigned on advancing that city’s clean energy goals of reducing municipal government emissions 50 percent by 2030 and community-wide emissions 80 percent by 2050.

She said she is not yet certain how she feels about the longer-term contract offer, but added that she wants to help build a coalition of TVA customers to speed up a clean energy transition locally and in other TVA-served communities.

“We can’t wait for Washington. We need to act now. You hear this from elementary school kids to scientists at Oak Ridge National Lab,” she said.

The Knoxville Utilities Board, which serves 206,000 customers in a handful of counties around Knoxville, is still evaluating the contract proposal from TVA. Moving from a five-year contract to a 20-year contract “is a big decision” that “must be fully vetted before a decision can be reached,” said Stephanie Midgett, board spokeswoman.

Nashville Wants Its Own Special Deal

Nashville’s local utility is so far the only one of TVA’s largest customers to agree to a contract that requires a 20-year notice to leave. The Nashville Electric Service reached that decision even though TVA’s long-term clean energy plans are less ambitious than what’s been adopted by Nashville’s new mayor, John Cooper, who has pledged to reduce community-wide carbon emissions 70 percent by 2050, and metro government emissions 80 percent by 2050.

Decosta Jenkins, the president of the Nashville Electric Service, said he believes TVA has a good sustainability record and will work with Nashville to help meet its goals and eventually raise the 5 percent local cap on clean energy.

Hopson, the TVA spokesman, said that could be possible, but TVA has to be careful how it adds new electricity sources into its system.

But Nashville is looking for its own special deal with TVA.

Cooper announced on Dec. 5 that he intends to begin negotiating with TVA for more clean energy for Nashville municipal buildings. He wants the same kind of agreement for Nashville’s government that TVA reached in 2018 with Facebook, which provided that company with  377 megawatts from new solar farms for a data center in Huntsville, Alabama.

Power companies like Nashville’s face another challenge, Jenkins said. Unless they are located on the outskirts of the TVA system, like Memphis, they don’t have practical options to break away, he said. They would likely have to build their own transmission lines to outside the TVA service area.

Huntsville Utilities in Alabama, another of the larger TVA customers, declined to discuss its deliberations.

TVA’s Slow Shift Toward Renewables

If there are new doubts about TVA’s commitment to clean energy, they stem from its most recent 20-year integrated resource plan, a guide to how it sees its energy mix changing over the next two decades that offers a wide range of scenarios.

TVA has retired coal plants and added solar farms, reaching 56 percent carbon-free energy, a significant achievement. But its new 20-year plan envisions that number growing by only 5 to 7 percent over the next 20 years—a pace environmental advocates say is too slow to meet mid-century decarbonization goals of the Paris Agreement. 

Under one scenario, in fact, TVA could actually be emitting more heat-trapping carbon dioxide in 20 years if its unable to get approval to continue operating some of its nuclear reactors beyond the mid-2030s.

Hopson touted how TVA’s plan calls for “up to” 14 gigawatts of new solar power. But how much of that gets developed could vary, depending on economic winds. The integrated resource plan had to be flexible to account for rapid changes in the energy markets, Hopson said.

TVA’s slow shift to more renewables could create economic problems for its region. It could fall behind other regions’ utilities in attracting corporations and other employers who value clean energy and take their jobs to where they can find that.

“Large corporate, municipal and institutional customers of TVA are making commitments that appear to require more renewable power over the next two decades than TVA has committed to produce,” said Michael Vandenbergh, a Vanderbilt University law professor, whose research includes energy and the law.

In the TVA system, he said, “cities have an opportunity to work together to make sure TVA provides the power that will enable them to meet their commitments and to stay economically competitive with other areas of the country.”