Three questions and 5 takeaways about the potential Memphis, Light, Gas and Water-TVA split

Three questions and 5 takeaways about the potential Memphis, Light, Gas and Water-TVA split

Samuel Hardiman

Memphis Commercial Appeal

June 9, 2022, 9:00 p.m. CT

Consultants poured cold water Thursday on the idea that Memphis, Light, Gas and Water could receive hundreds of millions in annual savings if it left the Tennessee Valley Authority.

Early returns from the bids submitted on Memphis' power supply showed far fewer savings than anticipated — in the tens of millions annually versus the much-talked about hundreds of millions.

TVA, a federal agency, supplies Memphis and Shelby County with all of its electricity now and is offering Memphis a 20-year, perpetual contract. MLGW could also continue with its current rolling agreement.

The findings made public Thursday prompted immediate pushback from some local leaders and members of the public who don't trust MLGW and the way it has conducted its years-long evaluation of its power supplier. Whether that pushback is justified or if it's noise encouraged by people with an interest in selling Memphis power remains to be seen.

MLGW's consultant, GDS Associates, released the early returns of the power supply bidding during a three-plus hour joint Memphis City Council- MLGW Board of Commissioners meeting Thursday. No names of bidders were released and no documents were made available beyond a PowerPoint presentation.

The information shared raised further questions about Memphis' power future and how the mechanics of leaving TVA, if it were to come to pass, would work.

The meeting and the release of some information about the power supply bids make Thursday a crucial milestone in a generation choice for the city of Memphis. Multiple times throughout the meeting, elected officials acknowledged that what was being talked about is a 40-to-50-year decision, with implications for every Memphian.

Here are five takeaways and two lingering questions about the MLGW's power supply bidding — which goes by the term request for proposals:

Transmission lines are crucial

The crucial piece of MLGW leaving TVA are transmission lines — the giant lines you see alongside interstates.

Memphis needs transmission lines that connect to the Midcontinent Independent System Operator, which is the power marketplace and transmission network MLGW would join if it left TVA.

Cost estimates for transmission lines came in $465 million higher than expected by the 2020 study MLGW published, bringing the projected cost of transmission lines into MISO to $1.2 billion.

"Who owns the transmission controls their own destiny," Seth Brown of GDS said Thursday. "Lack of transmission would make it very very difficult to do anything else but renew with TVA."

Last year, the Federal Energy Regulatory Commission ruled that three utilities looking to leave TVA could not use TVA transmission lines to bring in outside energy. MLGW and Memphis had filed as interested parties in that case.

The commission recommended congressional action — the U.S. Congress could vote to take down TVA's 'fence' and get rid of its monopoly power.

Councilman Jeff Warren, a longtime TVA skeptic, called for that Thursday.

Expect the stay-or-leave choice to take a bit

MLGW started studying whether it should leave TVA in 2018. The public dialogue about whether it should leave has been going on for roughly the same amount of time.

It's going to take longer. The current timeline has MLGW leadership giving the MLGW board its preferred option about power supply on Aug. 17. At that time, all of the bids and accompanying documentation will become public. That likely won't be the end of it.

While the MLGW board gets the first say, it does not get the final one. The Memphis City Council can vote yes or no on MLGW's decision. It can also delay a vote on it, too.

Councilwoman Cheyenne Johnson expressed concern Thursday about whether the City Council's still not hired consultant would have time to review all of the bids after they're made public in August.

The skepticism about the results — and the fact that the projected savings came in far less than expected — opens the door for further analysis — outside MLGW — that the utility can't control and could lead a further elongation of the process.

Warren, who once pushed for a quick decision about TVA, said Thursday, "It seems like moving quickly on this may not be very prudent…"

More calls for transparency coming

From a public relations standpoint, MLGW did not do itself any favors. It only allowed questions about the bidding — request for proposals — from members of its board or the City Council, not the public.

For months, advocates of leaving TVA have criticized the process for not being transparent and the fact that the bidders remain a secret. The decision not to allow questions from the public likely didn't help the transparency concerns.

Sarah Houston, the executive director of Protect Our Aquifer, said, "Despite the importance of this decision, MLGW has shut the public out of its process. The public still lacks critical information, including basic details like the names of firms, groups, or companies that have submitted proposals to supply MLGW with power.

Johnson said during the meeting, and in an interview, that she felt the bidding process and presentation from GDS was slanted towards TVA. Warren, who has been critical of the process, said he felt the process has been fair.

Stephen Smith, executive director of the Southern Alliance for Clean Energy and a frequent TVA critic, offered a mixed reaction to the presentation and data.

"I wouldn't say it was out of the ballpark biased in one direction. I think it was heavily skewed towards emphasizing the risk over really talking about what the benefits are. And I would I heard more of the sort of negative exposure, the downside than I had heard about the upside," Smith said. "... We need to go in and dig in and see if that's legit or not."

GDS presented slides about how the projected $26 million to $55.3 million in savings could become projected costs if interest rates and natural gas prices continued to rise. That emphasis on risk and a few comments from GDS representatives caught the public's attention.

Chris Dawson of GDS said TVA would have scored very highly on the bidding scale — TVA did bid on the power supply. He also noted that the size of MLGW's electric load — how much energy it uses — made leaving TVA difficult and said that no one had successfully left TVA.

"You're a 3,000-megawatt load… Not everyone can tackle that…. If you're going to jump into bed with someone else they better be qualified on that front," Dawson said.

Uncertainty, inflation cloud future

When MLGW first deeply studied leaving TVA, it commissioned Siemens to produce what is known as an integrated resource plan or IRP.

That plan, which is available on MLGW's website, showed a handful of energy portfolios — various mixes of natural gas plants and solar farms — could bring annual savings of between $100 to $150 million.

In the time since, supply chain issues have made solar panels harder to import from overseas. The price of natural gas has skyrocketed. Two of the key components to Memphis' TVA-free future are now much more expensive.

In a sense, the world that the IRP was published in doesn't quite exist anymore, something Dawson of GDS acknowledged.

"If the IRP were developed today, there's a good chance that they developed slightly different portfolios," Dawson said.

Are the suburbs going to divorce MLGW?

Mitch Graves, the MLGW board chairman and CEO of West Cancer Center, asked Dawson and Brown a question about a topic that has bandied about in recent years — the Shelby County suburbs seceding from MLGW.

MLGW is a city-of-Memphis-owned asset. Memphis taxpayers own it. But it serves everyone in Shelby County. The six Shelby County suburbs each have a franchise agreement that tethers them to MLGW.

Graves asked what would happen to the analysis and GDS's projections if the suburbs elected to leave MLGW and remain with TVA — something TVA would not be against.

"All bets are off…," Dawson said. "It would probably be negative."

At least one suburb, Arlington, had representatives watching in the audience at Benjamin Hooks Central Library.

Interested parties watched in audience

There are billions of dollars riding on Memphis' decision. And there are a lot of interested parties with skin in the game.

TVA filled up almost an entire row at the meeting.

"This is a big decision and today's meeting highlighted the current volatility of the energy markets – we are all experiencing that at the gas pump. TVA has one of the nation's most diverse, reliable, and resilient energy systems. This provides our customers with affordable, stable energy costs," Buddy Eller, TVA spokesman, said.

The Southern Alliance for Clean Energy sat next to TVA. MISO had representatives 15 feet away.

Representatives of Protect our Aquifer and Friends of the Earth, two environmental advocacy groups, watched from the back row. A local attorney hired by businessman Franklin Haney also sat in the back row.

How is the public going to understand it?

Two members of the City Council — Patrice Robinson and Chase Carlisle — raised the question of how the City Council and MLGW were going to educate the public about a complex decision that has many moving parts.

Robinson said the public might need a cartoon to understand it.

"There's huge public education [campaign] that has to occur," Carlisle said.

How long would leaving actually take?

Carlisle also raised the question of how long leaving TVA would actually take. Memphis, under its current contract, has to give TVA notice and then would leave five years from that date.

Carlisle, whose family has developed One Beale over the past decade-and-a-half, noted the delays that came with that small-scale project and asked GDS how long it would take for the infrastructure — the transmission lines — to be in place.

Brown said, "You don't know what you're going to get into. On the transmission side, five years is not a reasonable assumption. It would be a 7 to 8-year time frame."

Samuel Hardiman covers Memphis city government and politics for The Commercial Appeal. He can be reached by email at samuel.hardiman@commercialappeal.com or followed on Twitter at @samhardiman.