Memphis, Light, Gas and Water should remain with Tennessee Valley Authority, CEO says

The conclusion of Memphis, Light, Gas and Water's bidding on its electricity supply showed cost increases, not savings if MLGW left the Tennessee Valley Authority and purchased electricity elsewhere.

MLGW should stay with the TVA and consider signing a long-term 20-year agreement with the federal power provider, its CEO, J.T. Young, told the MLGW Board of Commissioners Thursday.

He said the utility should sign a long-term deal with TVA because it demonstrates "greatest value and least risk." The decision will have to be approved by the Memphis City Council, setting up a political showdown over whether MLGW will actually be able to sign the long-term contract.

The 20-year deal TVA has offered MLGW is identical to one 146 other local power companies have signed with the federal power provider. Local nonprofits, represented by the Southern Environmental Law Center, have sued TVA over the deal, arguing its illegal. The deal would offer a 3.1% base rate reduction and let MLGW receive up to 5% of its electricity from renewable energy it own

Young's recommendation to the board Thursday answers a many-billion-dollar, four-year-old question — MLGW, TVA's largest customer, will likely remain with the federal power provider.

The MLGW CEO noted Thursday that the process had taken years and he was sure it would be challenged, but he felt the "patient and deliberate" path MLGW took was the right process.

The decision follows a detailed analysis of the private sector bids by GDS Associates, a Georgia-based firm hired to run the bidding on the electricity supply for Memphis and Shelby County.

The company gave a short presentation Thursday morning where it said inflation and the continued climb in natural gas prices had swallowed up the projected savings Memphis could find by leaving TVA and instead showed potential cost increases of $70 to $80 million a year.

A GDS slide described natural gas capacity as "quickly eroding, difficult to procure long-term capacity."

"This is nothing like it was three years ago, four years ago," Chris Dawson of GDS said.

The savings, according to GDS, have essentially evaporated with new prices from bidders, not the hundreds of millions that studies projected throughout 2019 and 2020.

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MLGW's decision to stay with TVA was not unexpected. For months, groups and interested parties advocating that Memphis leave TVA have felt MLGW management's analysis was flawed and skewed toward staying with TVA.

They have argued that MLGW and GDS have played up the risks of leaving TVA and downplayed the upside — cost-savings on electricity that could be in the tens of millions or hundreds of millions.

What Young told the MLGW board Thursday is the first step in unwinding the years-long search for an alternative energy supply and is not final. The board will have to vote to approve Young's recommendation and the Memphis City Council will also have to sign off.

More than 24 companies bid on Memphis and Shelby County's electricity supply. A short list of  13 companies were asked to update the electricity pricing they provided MLGW in recent months.

Dawson described the increases as "tremendous," largely due to hikes in solar costs from bidders.

"This is what real-world pricing as of 2-3 weeks ago was telling us," Dawson said.

What happens next

MLGW is giving the public at least 30 days to comment on its plan but that period is likely to last longer. That period, given the billions of dollars at stake, is sure to attract heavy input from interested parties.

The city-owned utility is also poised to reveal the contents of the bids it received on its power supply. The unsealing could give bidders reason to talk about bids they made and whether they feel GDS and MLGW's analysis is correct.

One bidder, Franklin Haney Company, owned by Tennessee businessman Franklin Haney and his family, has for months argued that MLGW is biased and its proposal would save the city-owned utility $350 million. It was the first private bidder to go public, and, when it did, cast aspersions about MLGW.

"The only thing we've ever asked for and the only thing we want anyone to consider now -- we want to see a fair objective process... Right now it does not appear there is an open and transparent process," Bill McCollum, CEO of Franklin Haney Company said in June.

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Haney's company and other groups interested in Memphis leaving TVA are expected to be vocal in the coming weeks during the public comment period. Their allies on the Memphis City Council could be, too.

There will also be considerable pressure on two separate consultants — one employed by Memphis Mayor Jim Strickland and another just hired by the Memphis City Council.

Strickland's consultant, Enervision, has worked throughout the past two years as a sort of electricity translator for the city administration, which has been lobbied by all sides in the TVA-MLGW debate.

In early August, Strickland said Enervision would begin reviewing the unsealed bids on Sept. 1 and report its findings to the administration in the weeks after.

Karl Schledwitz, a Memphis businessman who has advocated MLGW leave TVA for years and criticized MLGW as biased publicly, singled out Strickland's consultant in an editorial published in The Commercial Appeal.

"After MLGW’s president presents his recommendation about our future power source to the MLGW board, we will wait for a professional and transparent RFP analysis from Mayor Jim Strickland’s energy consultant who, we believe, will be the independent voice that has been lacking so far," Schledwitz said.

The City Council also has its own consultant, Tabors Caramanis Rudkevich.

If MLGW opts to stay with TVA, Tabors Caramanis Rudkevich doesn’t have much else to do. The contract between the firm and the city says that "TCR will not perform any services regarding Phase 2 unless and until MLGW makes a formal recommendation for procurement of alternate power supply components."

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. 

This article originally appeared on Memphis Commercial Appeal: Memphis, MLGW should stay with Tennessee Valley Authority