Memphis may leave TVA to reduce costs and carbon. That could raise bills in Nashville.

By Caroline Eggers

August 30, 2022

In 2022, groundwater near the Tennessee Valley Authority's now-retired Allen Fossil Plant in Memphis had arsenic at levels nearly 300 times what's considered safe by the U.S. Environmental Protection Agency, according to a report by Earthjustice.

For years, the local power company in Memphis has been weighing whether to leave the Tennessee Valley Authority.

That decision could happen soon, as Memphis Light, Gas and Water staff are expected to share a recommendation to the company board during a special meeting on Thursday.

MLGW is the largest customer of TVA, representing about a 10th of its total power load.

If MLGW leaves the system, TVA will have to get the lost revenue, which helps cover the costs of power plants and transmission lines, elsewhere, according to Daniel Tait, the research manager at the Energy and Policy Institute, a utility watchdog group.

"Losing your largest customer is quite the hit, so I think you could reasonably suspect that all local power companies, including Nashville, would have a decent increase to their local bills," Tait said.

Memphis has a 5-year rolling contract with TVA

A 2019 financial analysis found that Memphis' departure would raise average rates by 7 to 7.5% for the remaining companies on the TVA system.

But Memphis utility bills could decrease. MLGW requested bids from electricity suppliers for alternative portfolios and predicted an annual savings of about $55 million.

"At the end of the day, all of this is about money," Tait said. "How much savings are on the table and is it enough to act? Because these are monumental decisions that take … years if not decades to execute."

MLGW is on a five-year rolling contract with TVA, so it must give a five-year notice before switching suppliers. Back in 2002, the contract was negotiated so that Memphis would not have to assume any portion of TVA's debt, which has remained above $20 billion in recent years.

Most other local power companies are on 20-year contracts and are landlocked in the TVA transmission system, but Memphis sits on the edge of a regional transmission network called the Midcontinent Independent System Operator, or MISO.

To plug into MISO, Memphis will need to build about $1.2 billion worth of transmission facilities, a process that MLGW has said could take seven or eight years.

Memphis could reduce its carbon footprint

Clean energy advocates have been supportive of the possible departure because of the potential reduction in climate pollution.

One of the proposed, low-cost portfolios would involve MLGW getting 75% of its electricity needs from renewable sources. Memphis received more bids for solar than requested, with proposals for about 2,000 megawatts of local solar and nearly 5,000 megawatts of out-of-state solar.

TVA has suggested that Memphis would have reliability concerns with MISO, but TVA and MISO are both regulated by the North American Reliability Corporation. The two systems are also connected: the Southern Alliance for Clean Energy estimated that TVA imports from MISO were about 8% of TVA's total demand in 2021.

MLGW provides electricity for 431,000 electric customers in Memphis and in Shelby County. The company set its operation budget for 2022 at about $1.1 billion, higher than the city of Memphis' $715 million.

The six Shelby County suburbs, which represent about a third of MLGW's customer base, drafted a joint resolution urging MLGW to stay with TVA, the Commercial Appeal reported last week.

The Nashville Electric Service said that MLGW's decision will not affect them.

"NES entered into a 20-year, long-term partnership agreement with TVA in September 2019. It would have no impact on NES if MLGW chooses to end their agreement with TVA," NES said in a statement.