Privatizing Bellefonte: The Good, The Bad and The Ugly

Stephen Smith | December 21, 2013 | Coal, Energy Policy, Nuclear
Dennis Bottorff, presenting the Bellefonte privatization scheme to U.S. Senators Corker and Alexander on September 13th, 2013. (Image from linked Chattanooga Times Free Press story)

You might think that if some prominent power brokers pitched a plan that promised to shut down more than twenty coal-fired power plants owned by the Tennessee Valley Authority, that an organization like the Southern Alliance for Clean Energy might sign on without hesitation. But we did hesitate, and what we have found as we reflected on this plan is that it seems to be driven by political and profit opportunism.  Choosing to privatize Bellefonte, and letting that choice drive TVA’s financial and infrastructure priorities for the next decade, would be a disaster for the Valley.

The plan I’m describing has been quietly circulated for several months by former TVA Chairman Dennis Bottorff and Franklin L. Haney, a former Chattanooga financier (retired in Florida).  U.S. Sens. Bob Corker and Lamar Alexander brought the plans forward at a public briefing on Sept. 13.  The Senators deserve credit for bringing this into the light of public scrutiny, as the briefing was the first time that the plan was shared with TVA’s CEO, Bill Johnson, who was pressed to respond to the plan’s misleading appearance of specificity. Bottorff and Haney claimed that their plan would avoid a scheduled rate increase, cut industrial rates by 30 percent, retire over twenty coal-fired power plants, and finish two nuclear units with a combination of projected cost savings and private financing.

Unfortunately, the plan is too good to be true. Our review shows that the Bellefonte privatization scheme is  simplistically constructed, contains numerous factual errors, and offers unrealistic promises on rates and timeline. And by relying on uninformed political pressure that places the aspirations of power brokers representing sub-regions of the TVA service territory in direct opposition to the common interests of the entire Tennessee Valley, we view this plan as contrary to the intent and mission of TVA.

And, while there’s nothing illegal about it, we view the bold attempt by former board members and political donors to enrich themselves along the way through the operation of a federal agency established to benefit the region as a whole … well, we view it as cynical and reprehensible.

Privately financed nuclear power is still unwise

TVA CEO Bill Johnson included this slide in his presentation (linked to image) to Senators Corker and Alexander on September 13, 2013. The slide implies that Bellefonte units 1 & 2 are not needed to meet TVA's basic power needs in the near future.

The first problem with the Bottorff and Haney plan is that it picks the wrong horse, so to speak. Those who know anything about SACE will be familiar with our longstanding opposition to investing billions of dollars in the Bellefonte nuclear reactors. But you don’t have to take our word for it, TVA itself is methodically backing away from Bellefonte simply because it really isn’t needed, as illustrated in the sidebar.

In fact, as TVA itself suggests, in spite of being “partly completed,” Bellefonte remains very expensive. If completed at TVA’s current cost estimates, TVA estimates that it would be more than twice as expensive as Watts Bar 2 and about four times as expensive as a new natural gas power plant. Annual costs to TVA customers are projected by TVA as:

  • $575 million per year for Bellefonte,
  • $250 million per year for Watts Bar 2, and
  • $140 million per year for a new natural gas power plant.

Privatization would only make the project more costly. Bottorff and Haney acknowledge a minimal cost premium for private finance as compared to TVA finance. But their plans assume very little impact on the cost, while providing no explanation of who would bear the risk of cost overruns or delays, and many other risks inherent in owning and operating the power plant. Since their business model doesn’t appear to include carrying operating reserves to manage such risks, one can only assume that TVA and its customers would bear those risks.

Privatization does offer TVA one very large and undeniable benefit: a way to achieve an end-run around TVA’s $30 billion statutory debt limit. But TVA doesn’t currently view that debt limit as a firm obstacle to its investment plans.

Coal plant retirement confusion

Even after our press conference, reporters continued to refer to Bottorff and Haney’s plan as retiring “29 coal-fired facilities.” In fact, the “29” referred to in their proposal is almost surely a typo, and should refer to 39 units not facilities or plants. Pointing out the typo is necessary to correct Bottorff and Haney’s mistakes in representing TVA’s current coal retirement plans. In fact, 22 of the 39 units they propose for retirement have already been announced by TVA for retirement (or idling, in TVA-speak), including 5 units at Colbert, 4 units at John Sevier10 units at Johnsonville, and 3 additional units at Paradise and Widows Creek announced at the November board meeting.

Once all these mistakes are cleared up, TVA’s ability to pay for the privatization of Bellefonte with savings from coal plant retirements isn’t as great as the scheme’s proponents suggest. In fact, about 45% of the $875 million in avoided capital expenditures and 15% of the $694 million in avoided operation and maintenance costs come from units that TVA has already idled or scheduled for idling.  And that doesn’t even consider the additional costs associated with keeping two Johnsonville coal units in service.

Unfairly shifting costs from industry to other business and residential customers

TVA CEO Bill Johnson included this slide in his presentation (linked to image) to Senators Corker and Alexander on September 13, 2013. The slide indicates that TVA's industrial rates are 29th among the top 100 US utility companies, and lower than all but five Southeastern utilities.

With a potential 30% rate cut being discussed in the media, you might think that businesses would be excited about this proposal. But to date, no public statement indicates that anyone from the industrial community is supporting the Bellefonte privatization scheme. This is probably for two reasons.

First, smart business leaders have probably done their homework and figured out that this scheme doesn’t make sense for the Valley, and there’s no sense in getting out in front of a dead proposal.

But the bigger reason is that most businesses would be paying for the rate cut. That’s because the 30% rate cut, we’re told, is targeted at about 51 large “directly served” industrial customers of TVA. The 30% rate cut is not possible without the $14 billion in private financing that would be sold by Bottorff and Haney. The repayment of that $14 billion obligation would be the responsibility of all the other residential, commercial and industrial customers served by TVA’s 155 local distribution utility partners.

What’s so distressing about this rate cut proposal is that it really isn’t necessary, as TVA already has very competitive industrial electric rates. (See sidebar) If implemented, TVA’s direct-serve industrial customers would be paying about 1/3rd as much as other customers, on a per kilowatt-hour basis, towards the cost of the power plants and transmission lines that generate the power they use. It would simply be an unfair and unsustainable rate

Reliability isn’t addressed in the Bellefonte privatization scheme

As TVA gradually winds down operations across most of its coal-fired power plants, its engineers are having to re-think the basic nature of how it will continue to provide highly reliable electric service to its customers. Two key elements to those reliability issues are the location of generation and the related transmission investments.

While Bottorff and Haney appear to agreeme with TVA that at least 3,000 MW of new natural gas power plants should be built over the next ten years, it isn’t clear that they view those plants as anything more than gap-fillers. In fact, TVA’s plans for natural gas are at least partly about meeting reliability needs.

We have not yet been convinced that such a large investment in natural gas is the best path for TVA to follow, but we do appreciate that TVA is looking at natural gas for more reasons than just the number of megawatts of generation it will need for coal plant replacement. Electricity isn’t a commodity that flows freely over its transmission system. To the extent that TVA needs to build new generation to replace coal-fired power plants that it retires, those new builds will be best justified if they are the only way to ensure reliable service in specific parts of the TVA region. For example, building out two Bellefonte units may simply be less essential to the system operations than building one small natural gas unit at the current Johnsonville site.

Furthermore, the Bottorff and Haney scheme doesn’t actually demonstrate how TVA should finance the natural gas plants it relies upon. Presumably, that’s because they assume TVA has adequate plans to build these plants and they don’t want to change those plans. Fair enough, I suppose, but surprisingly deferential for a plan being sold as a comprehensive financial solution.

But the most glaring reliability flaw in their plan isn’t the type or location of powerplants, its that rushing two Bellefonte units to completion doesn’t make sense from a reliability perspective. While TVA has a transmission plan to accommodate a single unit at Bellefonte, it is our understanding that a second unit would require an additional 500-kV transmission line to be sited and constructed, potentially taking ten years. Stepping back, its clear that TVA has not revisited critical engineering and planning for the second Bellefonte unit necessary to implement the Bottorff and Haney privatization scheme.

The good news is that TVA leadership appears to have sent a clear message that this concept is DOA. Following the November Board meeting CEO Johnson said, “Their proposal is not an operative proposal because we cannot justify, in the near term, completing the plant to meet the needs of our customers”. Of course this is not the first time TVA as given the Bellefonte nuclear reactor its last rites. Mr. Haney says he will never give up using his money and influence to breath new life into this bad deal for the valley.

Better solutions: energy efficiency, wind and solar power

It will come as no surprise that we are interested in seeing TVA substantially step up its investment in clean energy resources. And it will come as no surprise that we lack the political influence (not to mention $14 billion in financing) to push TVA to consider jumping the gun and adopting our preferences.

Our approach is a little different: we make the case that our approach makes the most sense for TVA’s mission in enhancing the economy and quality of life of its customers, as well as demonstrating stewardship of our natural environment. And as TVA engages in its 2015 Integrated Resource Plan, you can count on me and my staff at Southern Alliance for Clean Energy to be valued advocates for a better, cleaner Tennessee Valley Authority.

Stephen Smith
Dr. Stephen A. Smith has 30 years of experience effecting change for the environment. Since 1993, Dr. Smith has led the Southern Alliance for Clean Energy (SACE) as its executive…
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