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Chattanooga: Distributors to the rescue

By: Dave Flessner
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Jack Simmons

For the first time, municipalities and power cooperatives that have bought TVA-generated power for the past 75 years hope to buy part of the generating plants that produce their power.

The arrangement — similar to what’s been used by power cooperatives and cities in Georgia over the past two decades — could give local power distributors such as EPB an ownership share in power-generating assets while helping to control TVA’s debt.

TVA’s assets now are owned by the U.S. Treasury.

“It just doesn’t make sense for us in the Tennessee Valley to pay for these generating assets and then turn the title over to the U.S. Treasury, which could take these assets from us and sell them if TVA was ever privatized,” said Jack Simmons, chief executive of the newly formed Seven States Power Corp., organized by distributors to finance TVA-operated plants.

But one critic called the distributors’ financing plan “a scheme” to skirt a Congressionally imposed borrowing limit on TVA. By law, the agency is allowed to have only $30 billion in debt, and TVA officials have said that to build new facilities, including nuclear power plants, that debt ceiling may need to be raised.

“I think it would be very hard to say that the distributors financing new power plants with TVA involved doesn’t provide some liability for TVA that could, in difficult situations, exceed the $30 billion limit on TVA’s debt,” former TVA Chairman S. David Freeman said. “If TVA wants to retain its unregulated position in the world as the only utility organization in America without some form of regulation, it needs to be very, very careful about obeying the one law on the books that puts some restraint on it.”

TVA is a federal corporation and wholesale power producer that sells electricity primarily to cities and power co-ops in its seven-state region. The federal utility enjoys a top triple-A rating on its bonds because of the implied backing of the U.S. government. TVA only has $4.9 billion left under its $30 billion cap.

A cooperative of TVA distributors, including EPB in Chattanooga, is finalizing plans for a $420 million loan to buy 90 percent of a gas-fired plant that TVA bought in January in South Haven, Miss. Over the next couple of years, the loan could be converted into a financial arrangement that will give local distributors an ownership interest in part of TVA’s power generation and help the federal utility limit its overall debt.

TVA will continue to operate the power plant and distribute its power under a lease arrangement with Seven States, Mr. Simmons said. But if properly structured, the financial arrangement could give the Tennessee Valley more power generation without TVA or its distributors assuming more debt on their balance sheets.

“We hope within the next two weeks to have finalized our financial deal,” he said.

So far, 147 of the 159 distributors of TVA power collectively have joined into Seven States and agreed to buy power generated by any plants bought or financed by the corporation. TVA directors voted earlier this year to allow distributors to finance up to 5 percent of TVA’s total generation.

The federal utility initially will help the start-up of Seven States by agreeing, if needed, to repurchase any of Seven States’ holdings in the next two years. But over time, the distributors’ co-op should be a stand-alone entity that can help finance TVA generation by buying or financing some or all of new plants build or bought by the agency.

EPB President Harold DePriest, who serves as vice chairman of Seven States Power, said EPB and other distributors won’t have to put additional debt on their balance sheets but will make a 20-year commitment to buy the power generated from the plants owned by Seven States.

“EPB itself won’t have to borrow money, but what we will be able to do is effectively monetize the cash flow from our energy purchases,” he said. “If we make that work, we should have a lot of credit to make more and more purchases and help TVA build more of the generation it needs.”

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