America's power company or an agency past its time?

America's power company
or an agency past its time?

By Wesley Loy
News-Sentinel staff writer

Trumpeted as a grand social and economic experiment in 1933, TVA has tamed floodwaters, put thousands to work and provided cheap electricity. Now, 64 years later, TVA finds itself at a fiscal and political crossroads.

In the 1960 film "Wild River," Montgomery Clift plays a government land buyer sent south to do the impossible for the fledgling Tennessee Valley Authority — dislodge a stubborn, 80-year-old woman from her island home before it is inundated by a new lake.

The movie is a showcase of Depression-era Tennessee. Floodwaters rage. Houses and cars and even children are swept away. Humble houses and mules and poverty prevail.

The TVA aims to change all that.

But when Clift crosses the Hiwassee River to visit the old woman's island, he's greeted by a testy sign: "TVA keep off."

In the end, of course, the old woman goes — TVA wins. But the victory comes at a terrible cost.

Flash to 1997, and replace Montgomery Clift with Craven Crowell.

Today, on the 64th anniversary of President Franklin D. Roosevelt's signing of the landmark act that created TVA, it is Crowell who faces the impossible task.

The chairman of TVA's three-member board is attempting a virtual makeover of the agency, and the challenges, like the floodwaters and the stalwart matriarch in "Wild River," are formidable.

TVA, since its creation in 1933, has been hailed as a grand social and economic experiment.

It tamed the floodwaters of the Tennessee River and its tributaries. It put thousands of people to work. It cured agricultural ills and, in its earliest days, helped stamp out malaria and even contemplated model

Unfinished nuclear power plants like the abandoned Phipps Bend project, left, near Surgoinsville pock the Tennessee Valley, rusting reminders of TVA's ill-fated embrace of nuclear energy. TVA once planned 17 nuclear reactors at seven sites in Alabama, Mississippi and Tennessee. Today only five reactors work, including one at Watts Bar, above, and the abortive nuclear program accounts for much of TVA's $27 billion debt.

Profound change is coming to the $200 billion power business, which is following phone companies and airlines down the path to deregulation. It means choice — a chance to shop around for our electricity.

How TVA fares in this competitive battle is critical to the life of the agency — and our power bills.

"Nobody in their right mind would order 17 nuclear plants, but TVA did."

Stephen Smith
Executive director of the Tennessee Valley Energy Reform Coalition and staunch critic of TVA

"Even in our residential rates," says Earl Weeks, general manager at 4-County Electric Power Association in Columbus, Miss. Weeks' company is one of TVA's 169 local distributors, who, along with 67 big companies like ALCOA, Saturn and Champion comprise the agency's customer list. Keeping these customers is critical to TVA. But Weeks and other municipal distributors are unhappy — unhappy that TVA doesn't allow them to shop around for cheaper power, unhappy that they must buy TVA for their 20-year contracts with TVA. Don't fret TVA anymore, unhappy with TVA's tactics in trying to keep them as customers.

In December 1993, Weeks and 4-County Electric gave TVA its 10-year notice. Weeks subsequently got about 30 bids from other power suppliers and discovered he could save at least $7 million a year in wholesale power costs.

TVA responded with a vigorous appeal to 4-County's customers "to put pressure on us to rescind that notice." Weeks says he was angered that TVA representatives "questioned my integrity" by suggesting to customers that perhaps Earl Weeks didn't know what he was doing.

The final straw, says Weeks, was TVA's thought to call off construction of a lignite-burning power plant in 4-County's region — a big disappointment for a section of Mississippi hungry for jobs.

Today 4-County Electric is back in the TVA fold, and plans for the lignite plant are deferred by its critics as pure pork — are back in.

There is no reason the only restless TVA distributor, Matthew Cordon, president and CEO of Nashville Electric Service, is leading TVA's "Big Five" electric utilities in pressuring TVA to give them freedom to buy power from other suppliers. Together, the Big Five account for about 30 percent of TVA's electricity sales. It's simple, says Cordon: The electric consumers of Nashville deserve the lowest cost electricity available. And Nashville Electric ought to be allowed to buy from other suppliers if they can beat TVA's rate, or even build its own power plants.

"People have walked in the door here, says Cordon, "and offered me cheaper electricity."

The Big Five — they include the Knoxville Utilities Board plus distributors in Memphis, Chattanooga and Huntsville, Ala. — are awaiting a report on their options from consultant R.J. Rudden Associates Inc. It is the same company that helped TVA craft its 1995 landmark planning document, "Energy Vision 2020."

If necessary, if TVA continues to strictly enforce its contracts, if it "tries to strong-arm us into falling into line," then the Big Five will consider alternatives, Cordon adds.

TVA already has proven a sore loser. Bristol, Va., recently decided to leave TVA, its supplier of 52 years, and buy its electricity from Cinergy of Cincinnati, Ohio.

On April 10, U.S. Rep. Rick Boucher, R-Va., a member of the Commerce subcommittee on energy and power, complained in a letter to Crowell that TVA was using tactics to punish a former customer for exercising its legal right to obtain power from a less expensive supplier. "Among the tactics," wrote Boucher, "TVA went to the Bristol Utility Board's industrial customers and offered to sell them power directly for 2 percent less than Bristol's rates."

"Now that TVA has lost the power supply contract to a lower-priced competitor, TVA should acknowledge gracefully this loss and desist in its efforts to undermine the city of Bristol," Boucher told Crowell.

Even as TVA claims it is anxious to jump into the coming era of open competition for electricity customers, it is zealously clinging to its special status as a federal utility.

Stephen Smith, shown here with two TVA security officers who escorted him out of an April board meeting in Tullahoma, Tenn., has been the agency's most persistent critic in the side. Yet, TVA included him among citizens who collaborated at its "Energy Vision 2020" planning.

A fisherman casts a line from his boat near the bottom of Chilhowee Dam, a hydroelectric plant that feeds into the TVA system.

Last month TVA's general counsel, Edward Christenbury, fired a letter to Attorney General Janet Reno to complain that the private power companies aren't playing fair, that they're smearing TVA through the propaganda efforts of outfits like TVA Watch.

Christenbury said the private companies are trying to "undermine TVA's ability to compete" and invoked a provision in the TVA Act that forbids "any conspiracy, collusion, or agreement" designed to thwart the federal power agency.

Reno's office has passed along Christenbury's complaint to the FBI.

Those stingy contracts with TVA's distributors are not the only hammer TVA can use to keep competitors outside the fence. By law, TVA is not obligated to allow other power companies to move or "wheel" power over its grid to customers inside the TVA territory one option: Buy from TVA or go dark.

Stephen Smith, TVA's most persistent critic in the right mind would order 17 nuclear plants, but TVA did," says Smith, executive director of the Tennessee Valley Energy Reform Coalition.

Smith is ever-present at TVA board meetings — largely cosmetic, scripted affairs that weren't open to the public until 1974. He asks pesky questions, and his persistence recently got him tossed from a meeting.

The reason is debt — if, by an act of Congress or force of the courts or the unpredictable dynamics of deregulation, TVA loses its customers and can't pay its bills, rates could spiral.

Of course, TVA could default on the billions in bonds it has sold to build its power system — an unlikely scenario.

And then there's the option of a general taxpayer bailout.

With deregulation looming, TVA is saddled with more white elephants than most, in particular nuclear plants such as the two-reactor Bellefonte plant in Alabama, known as "stranded" costs — stranded because in open competition customers and rates might not be sufficient to pay for them.

TVA's huge $27 billion debt is not necessarily "stranded." In fact, according to Resource Data International, a respected Colorado energy analyst, TVA actually has about $3.1 billion ahead when tallying the value of its power plants and its contracts with its distributors.

Still, "I wouldn't really say TVA's in an enviable position," says RDI senior associate Al Pearson. Why? Because those contracts are requiring the distributors to pay more than the current market price for power. And those contracts — that cash flow — might not last forever.

In short, says Pearson, TVA has big-time obligations to worry about.

And despite TVA's public pronouncements that it is ready to jump headlong into competition, private companies also lugging heavy debt know it is not wise to carry such a handicap into a fight.

"The financial reality is that TVA faces is, it has a debt that is much larger than any of its potential competitors," says Allan Pulsipher, director of the Center for Energy Studies at Louisiana State University and former chief economist for TVA.

Says Eric Hint, a corporate fellow at Oak Ridge National Laboratory, who leads a study group on stranded costs in the electric power industry: "TVA benefits from delay, despite what Craven says, the more time it has to pay off' debts."

But TVA's aliments run much deeper.

Smith and many others believe that TVA's management structure is archaic and flawed. Unlike private power companies, TVA's three-member board, appointed to staggered, nine-year terms by the president, does not answer to state or federal utility regulators and sets its rates as it sees fit.

It is a board that, under the TVA Act, and supposedly have experience running private power companies. On Crowell's resume: former Nashville newspaperman, lobbyist and hack for a side to former Tennessee Sen. James Sasser.

Congress reviews TVA's budget, but only about 2 percent comes from the government. That money, about $106 million annually, is for flood control, dam maintenance, navigation, land management and other nonpower functions that Crowell has offered to give up.

TVA remains a largely closed institution whose board meetings are mainly for show and do as it pleases, says Pulsipher. He suggests a larger, part-time board for TVA, perhaps drawn from across the nation, with an "independent, statutory responsibility to evaluate TVA management."

U.S. Sen. Bill Frist, R-Tenn., in April proposed expanding the TVA board to 15 members, mirroring many big corporations.

Smith and Pulsipher agree that a sale of TVA is an idea its owners, the public, ought to view with extreme skepticism.

After all, we ratepayers have invested billions in our power system.

Smith also argues that spinning off TVA's nonpower functions is tantamount to giving what justifies TVA in the first place. The Supreme Court probably wouldn't have validated TVA as "just a power company" in 1939, he believes.

Rep. Clement, the former TVA board member, has proposed a Tennessee Valley Regional Commission to make recommendations to the president and Congress on how TVA ought to be structured for the future.

TVA is chiding to the idea. A disappointment, Clement is seeking a $1 million appropriation, to be made up of representatives of TVA and its distributors, industrial and small-business interests, environmental and other activists, and ratepayers. The commission's work would last one year.

TVA is chiding to the idea. A disappointment, Clement says, "If we do not do this commission, how else will we involve TVA's ratepayers and distributors in this important discussion?" We must act now while we still have the time. With the recent statements by Chairman Crowell, which are revolutionary in nature, we must slow down the clock and evaluate what TVA's future will be in the 21st century.

Deregulation

would allow consumers to choose their electricity provider just as they now can pick their long-distance phone company.

U.S. Rep. Bob Clement, a Nashville Democrat and former TVA board member, has proposed a Tennessee Valley Regional Commission to make recommendations to the president and Congress on how TVA ought to be structured for the future.

The Southern Company, along with other neighboring power behemoths, twice have sued TVA in federal court claiming it "launched" power, selling to buyers outside its fence in violation of the TVA Act. An Alabama federal judge pronounced TVA guilty in the first case; the second is pending.

In the coming era of deregulation, TVA is saddled with more white elephants than most, in particular nuclear plants such as the two-reactor Bellefonte plant in Alabama that have been built but mothballed, earning nothing.

TVA long has been a candidate for privatization. Republican presidential candidate Barry Goldwater in 1963 suggested TVA be sold, and for the past couple of years, U.S. Rep. Scott Klug, a "deficit hawk" from Wisconsin, far from TVA's service area, has pushed a bill to sell the agency.

About 33 cents of every TVA dollar goes to pay interest on the approximate $27 billion debt the agency has run up by its penchant for costly nuclear power plants.