By Jim Gilliland Jr.
We all support Memphis Light, Gas and Water’s upgrades to our electric grid. It is desperately needed and predates Doug McGowen’s tenure as head of MLGW by decades.
However, pay close attention to the power-generation piece of MLGW’s capital plan: The $120+ million potential purchase of ‘aeroderivative’ (AD) gas turbines. MLGW’s rationale is that many wholesale power providers, including TVA, are having problems meeting peak customer demand.
What hasn’t been reported is TVA’s new and oxymoronic “Reliable Growth Plan.” Only one bullet point in MLGW’s November 9, 2023, 51-page City Council presentation described it: “new projects larger than 5MW will be subject to interruption through 2031 when additional generation comes online.”
This means that January 2032 is when ‘new projects larger than 5MW (megawatts)’ can expect reliable electricity. (High-end, TVA “Direct Serve” customers such as Blue Oval, however, are likely exempt; it likely applies only to everyone else who do not benefit from confidential terms and preferential treatment.)
It is a staggering admission. TVA cites high population and economic growth as its reliability problem, but this growth is not in Shelby County.
The Memphis Chamber of Commerce should publicly acknowledge that TVA’s 2032 debacle badly kneecaps local economic development efforts. One or two AD turbines won’t help that much.
Why is MLGW paying for aeroderivatives? Why the silence?
TVA just launched a massive, 3-year, $15 billion CAPX plan, and basic math reveals its debt limit is the hold-up. Gallingly, MLGW executives know this but won’t admit it to the public. It is suspicious that MLGW prefers to generate power — TVA’s job — rather than publicly admit TVA is hobbled. Whose interests are being protected?
Just prior to McGowen’s arrival, MLGW executives recommended TVA for the Wholesale Power RFP based on TVA’s reliability and financial strength, after years of fighting an RFP. Then came TVA’s 2022 blackouts, followed by Mayor Strickland’s RFP audit that lambasted MLGW.
An inquiry with the midwestern Midcontinent Independent System Operator (MISO) grid, our next-door neighbor, has yet to reveal any similar date-specific restrictions for its generation entities. If MLGW can prove otherwise, then provide the documentation.
Amnesia
Don’t forget that MLGW ventured into power generation in the late 1950s/early 1960s with disastrous financial results, reflecting the risk of expanding beyond core competencies. Nor do MLGW executives want the public to recall that the pre-McGowen RFP it sandbagged called for over 4,000MW of new power exclusively for Shelby County in just 5 years.
Now TVA says it can’t provide reliable new 5MW+ power for 8 years. TVA was also granted a 10% RFP long-term rate cut assumption, but it’s October 4.5% increase debunked that fantasy. Strap on your helmets for near future TVA rate hikes to pay off billions of upcoming debt.
Inefficient TVA
TVA’s own consultant says its power plants are last-in-class for efficiency, and almost worst for overhead expenses. Its 10k SEC filing even reveals it buys a whopping 15% of its power from MISO.
In spite of these facts and the 2022 blackouts, TVA just awarded itself over a quarter billion dollars in ‘performance bonuses’, and its CEO remains the nation’s highest paid federal employee, dwarfing the President and Secretary of Defense, for example.
Missing documents
Mayor Strickland’s consultant confirmed MLGW never turned over critical documents related to power transmission to the Mayor’s taxpayer funded audit, which ought to be illegal. The documents in question were related to MLGW’s ability to leave TVA without issuing MLGW debt, a core element that MLGW blocked.
Remember, MLGW has the right to start afresh without paying TVA debt — a fact that is more relevant now than ever before.
Lack of respect
TVA only has about 0.5% of their 10,400+ employees in Shelby County, but we pay 10% of their total employee salaries, 10% of their 19,000+ retiree pension contributions, and 10% of their overhead and debt service.
TVA coal ash not only threatens our aquifer and Memphis residents, but TVA blocks third-party testing, just as in the situation documented in the movie “Erin Brockovich”. TVA has also refused to move the coal ash outside of residential areas.
The final insult is TVA’s status as MLGW’s largest water customer — over 1.5 billion gallons per year — which TVA uses to cool its power plant in Memphis before dumping that water in the river.
Despite all this, MLGW executives have protected TVA over residential ratepayers for years, which is the heart of the matter.
A compromise is in order
We firmly support McGowen’s focus on grid upgrades, but honest discussion regarding TVA and rate hikes is in order given TVA’s 2032 debacle. If MLGW senior executives don’t like it, they ought to retire and give McGowen the latitude he needs to fix the grid — and stand up for the community as well.
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Jim Gilliland Jr. has worked 22 years in the project finance and public finance sectors in the municipal bond market and has focused on electric utilities and independent power producers. He is currently in municipal bond investment management at Diversified Trust Co. He is a member of $450 Million for Memphis, which advocates an open bid process for the city’s power supply.
