FERC on Thursday declined a request to open the Tennessee Valley Authority’s monopoly to competition, suggesting it was up to Congress to change the rules for the nation’s largest public power system.

The commission voted 3-1 to deny a petition by three municipal and cooperative utilities to order TVA to provide them unbundled transmission service so they could purchase cheaper power from outside the TVA “fence.” Commissioner Allison Clements dissented.

Athens Utilities Board, Gibson Electric Membership Corp. and Volunteer Energy Cooperative filed their petition in January seeking relief from what they called TVA’s excessive rates and anticompetitive practices. They contended TVA does not offer transmission service to “local power companies” (LPCs) such as themselves at rates or terms that are comparable to those TVA charges itself. (See TVA Munis, Co-ops Appeal for Unbundled Tx Service.)

But the commission voted against exercising its discretion to act under Federal Power Act (FPA) Section 211A, saying “there are no established requirements under Section 211A that an unregulated transmitting utility must meet, so there can be no ‘violation’ of Section 211A by an unregulated transmitting utility.” The commission also dismissed the petitioners request for interconnection service under FPA Section 210 as moot (EL21-40, TX21-1).

At a press conference after Thursday’s open meeting, FERC Chair Richard Glick said his hands were tied by the FPA and called on Congress to eliminate restrictions on TVA customers purchasing power from outside the TVA “fence.”

“It wasn’t appropriate to use 211a to achieve what the TVA customers were trying to achieve here,” he said calling the restriction an “anachronism.”

“Not only is it unfair to TVA’s customers to not allow them to shop for cheaper power or power that has other attributes,” such as cleaner resources, but it also “gives TVA carte blanche. They know that they can run up costs if they want to. And no one’s there to make sure that they don’t gold-plate everything,” he said.

TVA’s Monopoly

TVA, which serves 10 million people in seven states, owns 36.9 GW of generating capacity and 16,000 miles of transmission. It reported annual revenues of $10.2 billion in 2020.

Athens Utilities Board, owned by the city of Athens, Tenn., provides power to 13,000 commercial and residential customers. Gibson EMC serves 39,000 commercial and residential customers in western Tennessee and Kentucky. Volunteer serves more than 120,000 commercial and residential customers in eastern Tennessee.

The petitioners say TVA owns all the transmission capable of serving their loads. “Short of taking the very expensive and duplicative step of constructing its own transmission lines, no LPC can feasibly reach an external supplier without service across TVA lines,” they said. “…TVA has taken advantage of this arrangement to charge unreasonably high bundled rates, with no incentive to efficiently manage the costs it imposes on its captive wholesale customers.”

The petitioners said they “wish only to avail themselves of the right to unbundled transmission that is readily available to virtually all of the country’s load-serving entities, and to better serve their members/customers at competitive prices.”

The petitioners said they have been receiving bundled power and transmission service from TVA for decades under 20-year contracts that require five-years’ notice before cancellation.

They sought relief from FERC after refusing to sign new power supply contracts from TVA that allow termination only after 20 years’ notice. All but 11 of the 153 LPCs in TVA’s footprint have signed the new contracts, according to TVA.

(Joe Wheeler EMC, the fourth largest member-owned electric cooperative in Alabama with more than 43,000 members, also joined in the petition but withdrew its participation on Aug.   30, saying it has reached an agreement on a new power supply arrangement with TVA.)

TVA said its policy is consistent with FPA Section 212(j), enacted by Congress in 1992 to prevent outside power suppliers from “cherry-picking” TVA’s customers by using FERC’s open access rules to wheel power across TVA’s transmission facilities to LPC load.  Congress added the section to balance the Tennessee Valley Act’s prohibition on TVA selling power outside the “fence.”

It contended FERC lacked the authority to provide the petitioners’ requested relief, saying “the decision about whether to provide the service the petitioners request lies with the TVA Board,” a nine-member panel nominated by the president and confirmed by the Senate.

TVA also challenged the petitioners’ claim that they and their potential suppliers are “similarly situated” to TVA transmission customers that serve load off the TVA system.

Because TVA is barred from selling power to customers outside the fence, it is unable to recoup lost revenues that would result from allowing use of TVA’s system to deliver alternative supplies to customers inside the fence. “In contrast, this cost-shift problem does not arise when the TVA transmission system is used to deliver third-party power to customers outside the fence,” it said.

Undermining the Mission

TVA also said FERC action would undermine TVA’s ability to fulfill its mission by causing cost shifts to customers left behind. “It is not hyperbole to say that the petition threatens to destroy the TVA model that has been in place for nearly nine decades,” it said.

FERC “is responsible for the just and reasonable regulation of wholesale sales and transmission of electricity in interstate commerce by public utilities, along with more limited jurisdiction over government-owned utilities. TVA is responsible for supplying power to customers in the Tennessee Valley, but it also is responsible for promoting the prosperity of an entire region and of the people who live there,” it said. “Last year, for example, TVA took a number of pandemic-related measures, including providing financial assistance, reflecting its mission to promote the general welfare of those who live in the Tennessee Valley in the broadest of ways.”

“The TVA board is statutorily required to balance these and other considerations to fulfill Congress’ directive to improve the lives of the people living in the Tennessee Valley region. And the TVA board already has balanced all of these considerations.”

It cited an affidavit from economist John Reed, who said if the four original petitioners were to obtain wheeling and switch suppliers, it would shift more than $3.3 billion in costs to the remaining LPCs and their retail customers through 2040.  “And if those LPCs obtained the requested wheeling service, it is likely that others would follow suit. If all eleven of the LPCs that have not yet signed new amendments were to shift suppliers [representing 15% of TVA load], that would impose over $14.9 billion in cost shifts and rate increases on remaining LPCs,” TVA said. “Without such rate increases, TVA would not be able to maintain its outstanding debt balance under the statutory $30 billion cap.”

High Prices

The petitioners said the concern over “cherry picking” of TVA customer is an “implicit … recognition that TVA is charging the LPCs for power supply and transmission at rates that would not stand up to outside competition or commission scrutiny.

“TVA’s policy is formal acknowledgement that TVA’s current rates grossly exceed those the LPCs would pay to outside suppliers and that LPCs would seek alternative suppliers if given the choice,” they said.

They cited Energy Information Administration data that TVA’s sales for resale rate increased by almost 10% between 2010 and 2019.

They cited an analysis conducted for them by consultant EnerVision that access to cheaper power would save Athens $25 million to $45 million (2025$); Gibson EMC $65 million to $115 million; Joe Wheeler EMC $75 million to $110 million and Volunteer Energy Cooperative $145 million to $480 million over 10 years.

TVA challenged the petitioners’ contention as “unsupported,” citing a 2021 assessment by Lazard, which it said concluded that TVA’s cost-of-service rates “fall within the second-best quartile both among the top 100 U.S. utilities based on sales and among its regional peers.”

It said TVA retail rates declined by 2.3% between November 2019 and November 2020, and that wholesale rates are expected to decline by 7.2% between 2019 and 2021.

Repealing the Fence

In the late 1990s, Congress heard testimony on legislation to give FERC more authority over TVA’s transmission by repealing both the prohibition against selling TVA power outside the fence and the prohibition against wheeling alternative power supplies to TVA customers inside the fence.

But the proposals failed to win support. Instead, Congress in the Energy Policy Act of 2005 gave FERC limited discretionary authority to order “unregulated transmission utilities” to satisfy “comparability” and nondiscrimination principles in the rates, terms and conditions for transmission service.

In a concurrence, Glick said he believed Congress did not intend to give FERC the authority to ignore the fence, but he said changes since it was erected call for a new look.

“In my view, the fence is a vestige of a bygone era and the region, and particularly its ratepayers, would be far better served by having access to alternative power supplies on a competitive and non-discriminatory basis. The benefits of competition and consumer choice far outweigh whatever benefits the region once derived from the current model. Accordingly, I urge Congress to consider enacting legislation to eliminate the fence and enable utilities in the region to access alternative sources of supply and likewise to allow TVA to make wholesale sales to new customers.”

In his concurrence, Commissioner Mark Christie suggested Congress could amend the law to ensure that power costs to TVA’s consumers are as “low as feasible” and require it to increase the amount of power supply it procures on a least-cost basis.

“Competitive procurements of power supply — versus allowing some customers, often the largest, simply to leave load and shop elsewhere — avoid the potential of cost-shifting to remaining customers, most of whom are small businesses and residential customers who do not have the bargaining power of very large customers,” he wrote. “Every [load-serving entity] has fixed costs, and when large customers leave load, those fixed costs must still be paid.”

Clements dissented, saying FERC has the authority to grant the petitioners’ request and that doing so would have been in the public interest.

She cited the commission’s 2011 order requiring Bonneville Power Administration to revise its dispatch policy consistent with Section 211A while also meeting its responsibilities under its governing statutes (137 FERC ¶ 61,185).

“The TVA board must adopt policies that follow its mandate to uphold the broad goals of the TVA Act in a manner that complies with any orders the commission may issue under section 211A, which may include requirements that it provide comparable transmission service,” she wrote.

TVA spokesman Jim Hopson declined to comment directly when asked if TVA would support a repeal of the fence.

“TVA’s mission is clearly established by Congress in the TVA Act and, among other priorities, ensures that we support the public power model within a defined service area,” he said. “… Arbitrary changes to this public power model, which has successfully operated for more than 88 years, could unfairly shift costs from some customers to others and negatively impact TVA’s mission established by Congress.”

Retaliation Claim

On Oct. 15, the three remaining petitioners filed a motion alleging that TVA has made statements that it is refusing to perform needed reliability upgrades due to petitioners’ challenge. In an Oct. 19 filing in response, TVA denied any retaliation and accused the petitioners of attempting to “distort the record.”

FERC said it “takes seriously allegations concerning retaliatory conduct” but that the allegations were beyond the scope of the proceeding. Glick said Thursday he has directed the Office of Enforcement to investigate the allegations.

Asked to comment on the allegation, Hopson said “it’s important to note that, over the past five years, TVA has invested more than $2 billion in improving our transmission system, which benefits all 153 local power companies we serve, who currently have received power at 99.999% reliability for 21 consecutive years. That includes the ongoing construction of a new $300 million System Operations Center located within the service area of one of the three petitioners.”

Michael Brooks contributed to this article.