Guest Blog | April 21, 2011 | Coal, Energy Efficiency, Energy Policy

The recently announced settlement between TVA, the Environmental Protection Agency, several states and public interest organization should provide significant environmental and economic benefits to the Tennessee Valley. And no, it won’t raise our rates.

As we reported in our April 14th blog, TVA’s Board of Directors has approved a settlement agreement with EPA, the states of Alabama, Kentucky, Tennessee and North Carolina, as well as the Sierra Club, National Parks Conservation Association and Our Children’s Earth Foundation. The agreement settles lawsuits brought against TVA over a decade ago for violations of the Clean Air Act. It lays out a strategy for TVA to begin transitioning away from its reliance on coal-fired generation by retiring several coal-fired facilities and investing in clean and renewable energy resources.

Critics of the settlement have already begun claiming that it is an EPA “power grab” that will will lead to rate increases from TVA . However, a look at the details reveals that, in fact, it was TVA not EPA who initiated this agreement (see slide 87) and moreover, that this settlement should bring significant benefits to the Valley without increasing our rates.

The settlement has two primary components: requiring TVA to permanently retire a minimum of over 2,700 megawatts (MW) of its oldest and least efficient coal-fired units, and committing TVA to invest $350 million in various clean energy projects. Both of these represent significant shifts for TVA, which has historically produced the majority of its electricity from burning coal and taken a halfhearted approach to investing in clean energy. Both also offer Valley residents a host of economic and environmental benefits without forcing TVA to raise rates.

Retiring TVA’s dirtiest and least efficiency coal-fired generating units

TVA currently operates 59 coal-fired units at 11 facilities throughout the Valley. In all, these units account for approximately 15,000 MW of capacity and provide more than 50% of TVA’s electrical generation. Most of these units are more than 50 years old and as years go by they become less and less efficient, burning more and more coal and emitting more and more pollutants.

Through the approved settlement, TVA is committing to retire more than 2,700 MW of its oldest, dirtiest coal units. The retiring units include six of the 8 units at the Widow’s Creek facility in northern Alabama, all ten units at the Johnsonville facility in central Tennessee, and 2 of the 4 units at the John Sevier facility in northeast Tennessee. TVA also commits several other units over the next 8 years to retire, install pollution controls or convert to sustainable biomass.

All told, these commitments are estimated to result in a 69% reduction in TVA’s emissions of nitrous oxides, which cause a host of problems including smog, climate change, water quality deterioration and visiblity impairment, and a 67% reduction in TVA’s emissions of sulfur dioxide, which causes acid rain, respiratory and cardiovascular problems. These retirements will also produce significant reductions in TVA’s carbon dioxide emissions — likely over 15 million tons just from the guaranteed retirements.

Even putting aside the environmental and human health benefits of retiring TVA’s dirtiest coal units, the retirements will actually be less costly and financially risky than if TVA decided to keep these units running in large part because operating old and inefficient units is an expensive proposition. In fact, retiring even higher levels of coal-fired generation would provide additional benefits to TVA and its ratepayers.

TVA’s just-completed Integrated Resource Plan, also approved by TVA’s Board of Directors at the April 14th Board meeting, includes a detailed analysis of the potential costs and risks of relying on TVA’s aging coal-fired generation facilities over the next two decades. The results of this analysis clearly demonstrate that retiring at least 4,000 MW of coal-fired generation costs less, has less impact on rates and is less risky than keeping these units running.

These results may seem surprising at first glance, but when you consider the costs and risks associated with complying with environmental regulations, properly handling coal combustion waste and the general upkeep of plants that in most cases exceed 50 years old, you begin to see why TVA’s own analysis recommends even higher levels of retirements to minimize cost and risk to TVA and its ratepayers.

Investing in clean energy projects

The approved settlement also requires TVA to invest $350 million in clean energy projects over the next five years, or about $70 million per year. The money is divided into various energy efficiency and renewable energy projects that will be implemented across the Valley.

The agreed-upon expenditures include:

• $60 million split among Tennessee, North Carolina, Alabama and Kentucky for projects including:
  • solar PV and solar thermal systems;
  • vehicle idling reduction programs;
  • Energy efficiency programs for new and existing buildings;
  • Revolving loan programs to help finance efficiency and renewables; and
  • Carbon sequestration programs.
• $240 million for TVA sponsored programs, including:
  • $30 – $60 million for reducing transmission line losses;
  • $20 – $50 million for a “Smart Energy Communities” program to showcase available energy efficiency technologies and processes;
  • $45 – $50 million for whole-home energy efficiency retrofits;
  • $55 – $60 million for energy efficiency retrofits for commercial buildings; and
  • $45 – $50 million for energy efficiency retrofits at industrial facilities.
• $40 million for renewable energy projects, including:
  • $7 – $10 million for waste-heat recovery processes at industrial facilities;
  • $1 – $3 million for solar-powered electric vehicle charging stations;
  • $2 – $4 million for installation of solar photo-voltaic (PV) systems; and
  • $16 – $30 million to generate electricity from methane produced at landfill or waste treatment facilities.
• $8 million for clean-diesel and electric vehicle projects, including:
  • retrofitting publicly-owned diesel fueled vehicles with emission control devices; and
  • replacing diesel or gasoline fueled, publicly owned vehicles with electric vehicles.
• $1 million each to the National Parks Service and the National Forest Service to improve, protect or rehabilitate lands damaged by emissions from TVA facilities.

In all, the agreed upon expenditures will invest an average of $70 million per year for five years in the Valley’s local communities, help jump start the Valley’s growing clean energy markets and further reduce TVA’s environmental impact.

While this is a significant investment for the Valley, it certainly isn’t going to “break the bank” and force TVA to raise rates. When compared with what TVA spends annually on things like power plant construction, fuel for its power plants or interest on its current debt of over $25 billion, it becomes clear that TVA can make this investment in efficiency and renewables without impacting rates.

To put TVA’s commitments in context, the $70 million annually makes up about 0.7% of TVA’s $10.8 billion in 2010 revenues. Another way to look at this is that, according to TVA’s annual SEC report, during 2010 TVA spent approximately:

• $2.6 billion on fuel for its coal, natural gas, nuclear and fuel oil facilities;
• $3.2 billion on operating its current generation portfolio;
• $1.3 billion in interest on TVA’s current debt load;
• $690 million on construction at Watts Bar Unit 2 nuclear reactor; and
• $320 million on coal ash clean up and remediation.

In addition, TVA has already approved expenditures for 2011 that include $635 million for continued construction at Watts Bar Unit 2 and $248 million for preliminary activities at the Bellefonte nuclear site before construction of the proposed reactor has even been approved.

When put in this context, it is clear that the $350 million that TVA has committed to spending on clean energy projects over the next five years, while significant in terms of in-Valley investment, is relatively inconsequential when it comes to rates. Valley ratepayers have far more to fear from TVA’s expenditures on fossil fuels and nuclear construction than they do from these commitments to clean energy. And coal and nuclear provide far less in terms of economic growth, environmental health and public safety benefits than efficiency and renewables.

When you break it down, it’s clear that TVA’s obligations under the settlement agreement will bring tremendous environmental, economic and human health benefits to the people of the Tennessee Valley without impacting our rates. It’s a win-win and another example of how transitioning to a clean energy future is the right path forward for the Valley.