Distribution utilities that buy power from TVA began talking last year about buying their power elsewhere, largely to save their customers money.
First, the municipal utility in Memphis considered ending its power purchase contract with TVA, to save its customers $122 million per year, with the option to “dramatically increase” purchases of solar and wind power, says a federal lawsuit.
Then, Volunteer Energy Cooperative, which serves member-customers in 17 Tennessee counties, considered a partial exit from TVA, asking TVA to bid on providing 50% or 75% of VEC’s wholesale power needs starting in 2025.
TVA’s response was to offer, first to VEC and then to all of the distribution utilities it serves, what the lawsuit calls a “never-ending contract.”
At least 138 of the 153 distribution utilities served by TVA have signed the standard contract, which runs for 20 years and automatically renews each year. Previously, the utilities’ contracts with TVA had a weighted average duration of seven years. All of the distribution utilities are either electric membership co-ops or municipal utilities.
Three Davids vs. Goliath
Three groups have filed a lawsuit seeking to invalidate the contracts, claiming that TVA’s contract program violates the National Environmental Policy Act, as TVA failed to document the harm to the human environment the program will cause.
The three groups are:
- Protect Our Aquifer, focused on protecting the groundwater supplies of drinking water for Memphis—one of the world’s largest metropolitan areas that relies exclusively on groundwater.
- Energy Alabama, supported by 400 members in working to accelerate the transition to sustainable energy.
- Appalachian Voices, working with 1,100 members to promote energy efficiency and clean, affordable energy.
The Southern Environmental Law Center is representing the three groups.
Under a “never-ending contract,” a distribution utility receives a 3.1% discount on TVA’s wholesale power, in return for signing a 20-year contract to buy nearly all its power from TVA. The contract automatically renews each year, and caps at 3-5% the amount of power a distribution utility can procure from non-TVA sources such as solar.
If a utility gave 20 years’ notice to exit the contract, the contract terms say “TVA will have no obligation to make or complete any additions to, or changes in, any [transformers] or transmission facilities” for service to the distribution utility, unless TVA agrees to amend the contract to do so. These are “severe penalties,” says the lawsuit.
Harm to air and water
The lawsuit says that TVA’s “never-ending contract” program required a detailed Environmental Impact Statement, which TVA did not prepare, as well as a public comment period before being implemented, as the program constitutes a “major federal action significantly affecting the quality of the human environment,” under the National Environmental Policy Act.
TVA’s board had approved the contract terms contingent on TVA’s “satisfactory completion of any required environmental reviews.”
TVA’s program will cause more air pollution, the lawsuit argues, as the “never-ending contracts effectively insulate TVA from competition,” with the result that “insulation from competitive market forces will forever constrain the development of renewable energy in the TVA region, resulting in greater emissions of greenhouse gases and other pollutants.”
Regarding water resources, the lawsuit says “TVA’s increased reliance on coal and gas-fired power plants, which must be operated with millions of gallons of water, will have lasting and harmful consequences for the Valley’s aquifers and surface water resources.”
By depriving the citizens’ groups of the disclosures and analysis of an environmental review, TVA prevented them from “commenting on, participating in, and influencing TVA’s planned course of action,” and from “effectively advocating to local distributors that they should eschew the never-ending contracts.”
Noting that a separate law, the TVA Act, prohibits a contract term of greater than 20 years, the lawsuit also argues that TVA’s self-renewing contracts violate that law. TVA’s “perpetual” contracts prevent the citizens’ groups from advocating for renewal or amended contracts that promote distributed and renewable energy, or for contract terms more favorable to the distribution utilities, says the lawsuit.
TVA’s generation mix as of 2019 is shown at right. TVA plans only a minimal increase in its solar generation by 2023. The utility is a self-regulated monopoly, not subject to federal or state regulatory oversight.
The federal lawsuit calls for setting aside and vacating the “never-ending contracts.” The suit was brought in the U.S. District Court in the Western District of Tennessee.
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