Broad mission complicates future for government-run TVA

UTILITIES:
Broad mission complicates future for government-run TVA
Kristi E. Swartz, E&E reporter
EnergyWire: Wednesday, February 12, 2014

If there's one thing that stands out about the Tennessee Valley Authority's mission, it's this: The mission doesn't change, according to a company official.

That unwavering attitude falls in line with other utilities across the country that center a business model on selling electricity.

But TVA isn't like other utilities across the country. Its business plan -- the mission -- came from Congress in the 1930s and is broader than producing and selling electricity. This includes managing 11,000 miles of shoreline and the Tennessee River's main navigable channel, for example.

The mission -- energy, environment and economic development -- translates to keeping rates low and making sure the company lives within its means and that it helps take care of the natural resources and communities in the seven states its serves, CEO Bill Johnson said at the start of TVA's first-quarter earnings call last week.

"We have aligned our priorities for 2014 with our strategic imperatives ... and this is moving TVA forward," Johnson told analysts and reporters.

This includes major cost-cutting efforts, paying down debt and shifting its electricity mix away from coal and more toward natural gas and nuclear. A newly formed advisory council hopes to guide those efforts, which must be approved by TVA's board, scheduled to meet tomorrow morning.

The effort comes amid continued talk of privatizing the nation's largest public utility. The Obama administration last year called for a review of privatizing TVA as part of its 2014 budget request.

"I think the analytical work is about done. We will have to wait and see what the next steps for concluding that process are," Johnson said, adding that he couldn't add much more.

Meanwhile, environmental groups criticize TVA for hampering solar energy growth in Tennessee, and federal nuclear safety officials are keeping a more watchful eye on its nuclear plants, some of which had been flagged with major safety violations.

"It seems to me that TVA is sometimes losing its sight on the mission and is looking only at the bottom line," said Mary Mastin, a Tennessee native and chairwoman of the renewable energy committee for the Sierra Club's Tennessee chapter. "I know that to get electricity at low rates is part of their mission, but it seems that they've taken that bottom line and are forgetting to do other things."

TVA is preparing to begin operating the Watts Bar 2 nuclear reactor in 2015 after a protracted construction process.

The utility is building the reactor while trying to improve its nuclear performance, which Johnson told analysts and reporters last week "has not been as good as it should be over the last couple of years."

Roger Hannah, spokesman for the Nuclear Regulatory Commission's Region II in the Southeast, said TVA has made improvements at its reactors, all of which are under increased oversight.

"We would like to see that improvement continue," he said.

Restructuring

TVA gets its money by selling electricity to 155 power companies and 56 industry and federal operations. It used to get federal appropriations, but those stopped years ago. It is allowed to sell bonds and must operate under a $30 billion debt cap.

Slower electricity demand is helping TVA reduce its debt. Becoming more operationally efficient is the other factor, Johnson said last week.

The utility is in the middle of restructuring, including offering voluntary buyouts and eliminating contractors, to cut $500 million from its operating and maintenance spending by the end of 2015. Lower fuel costs have helped, and an ice-cold January and February will drive up electricity sales from higher demand.

But TVA lost a major customer, the U.S. Enrichment Corp. in Kentucky, and major capital expenses lie ahead. This includes completing the second nuclear reactor at Watts Bar and shuttering more than two dozen of its 59 coal units.

The utility warned in a recent Securities and Exchange Commission filing that environmental regulations could mean $1.2 billion in additional costs from 2014 to 2022 in the form of closing coal units, equipping them with pollution controls or switching them to run on natural gas.

The regulations helped shape TVA's last long-term energy plan, put together in 2011. Increased natural gas supplies at low prices combined with a lower demand for electricity are causing TVA officials to give that plan a second look.

"One of the key things that came out of [the last Integrated Resource Plan] was that we needed a more balanced portfolio, and the reduction in coal was part of that," said Joe Hoagland, TVA's designated federal officer for the newly created Regional Energy Resource Council.

The 20-member council includes major customers, environmentalists, academics, economists and policymakers from TVA's territory. The goal is to help guide the region's energy strategy and give those issues to the board to consider.

The plan also hinged on electricity demand growing at 3 percent a year. It's actually growing at less than 1 percent, Hoagland said. Officials also forecast natural gas prices to be around $6 per million British thermal units now, but instead they are hovering around $5 per MMBtu.

More nuclear, less coal in TVA's future

The long-term goal -- more of a wish list right now, officials hedged -- is to increase the percent of electricity TVA gets from nuclear to 40 percent from 31.7 percent, cut the use of coal nearly in half to 20 percent from 38 percent, and more than double the amount of natural gas from 8 percent to 20 percent.

The environmental group Southern Alliance for Clean Energy has publicly praised TVA for its plans to close more than 5,000 megawatts of coal-fired units over the next several years.

"These are impressive numbers, which represent a critical step toward mitigating climate change," said Stephen Smith, SACE's executive director.

Smith, a member of TVA's Regional Energy Resource Council, said he hopes that TVA will get more of its electricity from renewable fuels and that it will ramp up its energy efficiency efforts.

Hoagland said TVA will do that but also cites a frequent issue for utilities: being able to recover fixed costs and provide traditional base-load electricity. Electric companies often argue that users of solar power should pay an additional fee for backup power when the panels aren't in use. Some utilities are opting to build large, utility-scale solar farms instead now that the cost of solar technology has fallen.

"We will look more closely this time at renewables, energy efficiency and trying to understand better how demand-side resources play into it," he said. "It's a bit of a challenge."

Mastin of the Sierra Club said TVA had great solar programs to the point that she and her husband invested in solar panels for their rooftop because of the incentives they got from the utility. She wants the utility to expand its programs for residential and commercial users.

"TVA is aware of the issues, and they are looking at them," Mastin said. "They need to allow solar to grow according to market demand, and they need to work that market demand growth into their planning."