Memphis Energy Burden 2: TVA

In our first piece on the Memphis Energy Burden, we outlined the recent history of energy prices and proposed a program to address the Energy Equity problem, as a way of mitigating excessive energy costs.  This is the next step.

We noted that per-unit energy prices, poverty and the energy efficiency of the housing stock were the major components of the Energy Burden, and made the initial assumption that energy prices, being dictated by TVA contracts, and poverty, being a systemic issue, could not be addressed.

By the time we had considered a massive energy equity program as the immediate solution, we found three things:

• Due to the viciously cyclical nature of poverty, and its relation to energy burden, addressing the equity issue also addresses poverty.
• The scheme as outlined assumes that political will, and the support of the Mayor and a majority of Council members would be required for the Energy Equity scheme.
• We suggested that in the current anti-Trump democratic (small “d”) uprising, the MLK50 anniversary and the pocketbook appeal of the utility burden problem would make this politically possible, via campaign platforms in the 2019 City elections.

The outcome is, given these new assumptions, that direct action to reduce MLGW electricity pricing is now possible.

How electricity prices can be cut.

The TVA sold electricity to MLGW at 7.7 cents per KWh in 2016 (pdf), who sold it on to consumers at 9.4 cents per KWh on average.    These numbers are taken from the MLGW 2016 annual report.    These prices will rise.  The $11.60 fixed MLGW monthly charge is averaged into these costs.

Clean Line Energy of Houston proposed a project to TVA which would bring 3.5 gigawatts (GW) of power to Shelby County.    They proposed spending $2B on the project, including a transfer station at Millington budgeted at $240M.  The price to TVA would have been two cents per KWh.  This project died on the vine when TVA failed to engage.

The average peak MLGW system load was just over 2.5GW in June of 2012, so the Clean Energy supply seems to be approximately right for Memphis’s needs.

Proposal

With the assumption that the political will required to implement the Energy Burden plan has been achieved, the following could happen:

• MLGW provides the required five year’s notice of intent to terminate its TVA supplier contract. However, the MLGW distributor contract with MLGW is coming to an end in 2019 and this notice period may have changed by 2020, when the new City Council will be installed. Some TVA distributors (Nashville) have 10-year termination notice requirements.   Proponents of the scheme might engage with MLGW to ensure that the contract termination notice is not increased in the new agreement.
• MLGW enters into a contract with a reconstituted Clean Line Energy to take the majority of its supply, possibly selling some of it on to neighboring utilities.  By the time MLGW solicits bids for the supply, it might end up being another vendor.
• Clean Line builds the transmission line and a transfer station within City limits, investing $2B.
• Changeover to Clean Line happens after about five years.
• MLGW prices its energy to consumers at the 2 cents it pays to Clean Line plus its existing markup of 1.7 cents, or less than four cents per unit. That’s a 60% price cut.
• JT Young has just started at MLGW and we don’t know what he thinks.

It’s not quite that simple.

The scenario above is complicated by a few factors.

Spinning Capacity:

Utilities need to have spare capacity ready to throw online at a moment’s notice in order to keep the system stable.

There are several ways this could be done.

• Contract with TVA for spinning capacity at the Allen Gas Plant. TVA would otherwise have to send the output of Allen to Jackson and Nashville to sell it, and transmission is expensive.  MLGW could negotiate for some of this capacity.
• Contract with surrounding utilities to obtain spinning capacity. A swap with cheap Clean Line power might be negotiated into this.
• Utility-size battery storage is available in the megawatt range, ideal for direct current sources and with instant availability.
• Any type of potential energy storage would work. This Irish project at Turlough Hill pumps water into a reservoir at the top of a hill during periods of low demand, and runs the water back down the hill when instant capacity is needed.   Flywheels and almost any method of storing potential energy would work here.
• The Memphis energy demand peak is in summer and during the afternoon, so augmenting supply with solar power would be a good match.
• The energy of the Mississippi could be exploited by in-river turbines.

The foregoing is included because the availability of peak spinning power is always an early objection to this scheme.   We think this is an engineering /costing problem by nature and that good options are available.

System Viability

The average cost of a unit of electricity will be a little higher than the two cents of the Clean Line proposal, as we need to figure that spinning capacity will come at a premium cost per unit.   MLGW will need to invest in or contract for a portfolio of additional sources.    Solar, at the industrial scale, appears to cost about 4 cents per unit.   We’d estimate that if 90% of capacity is 2 cent wind energy and the remaining 10% costs ten cents per unit, the average cost per unit would increase to under three cents per unit, bring consumer prices to about half of current prices, and the 5.1 cents per industrial unit could drop to three cents or less.

The average annual consumer bill would drop from $1381 to about $690, an average savings of around $58 per month.   We think that the extreme cost-savings measures used by poor customers might relax a bit in these circumstances, which would be the same as customers choosing to spend part of the savings on energy.

We find it hard to speculate on the combined effect of the energy efficiency program with the alternate sourcing.   We’d guess that some of the incentive to save energy will go away, but, on the other hand, there might be increased demand for replacement of gas central heating units, water heaters and clothes dryers with electrical units.  The savings would potentially provide an additional source of grant funds (as opposed to loans) to make an energy efficiency program more attractive.   There is an environmental benefit to using less natural gas and more renewable electrical energy.

MLGW could also be allowed to keep some of the initial windfall by phasing in the price cuts and using the savings to upgrade outdated infrastructure and bury some power lines.

Renters will benefit fully from this scheme.

In any event, we don’t think many consumers would reject a 50% cut in electricity rates, even if they were making payments on energy efficiency projects.

Political Considerations.

Changing TVA as the main utility source, because of the notice period the TVA contract requires, is a project that would span at least two City councils and administrations.     We can’t assume that the same political sentiment will exist at the end of the project.

On the other hand, at the end of a four year term, hundreds of millions of dollars worth of contractual obligations would have been delivered and the cost of abandoning the project would be large.

Other results.

Being able to provide industrial electricity in the region of three cents per KWh would make Memphis a very attractive location for various high-energy industries, including corporate data centers and cloud storage, bit coin mining, aluminum smelting, hydrogen production and companies desiring renewable energy.  This brings jobs and economic development, and we would not need PILOTs to make this happen.

The consequences of the city saving a combined $600M annually on energy, of which $250M would be in consumer bill savings, would be considerable and positive.   Project construction and the attraction of low energy prices for industrial development are significant drivers of industrial development.

Risk  Factors

The Clean Line proposal is currently shelved and we don’t know how the company will respond to a Request for Proposal from MLGW.   At the same time, the utilities process will allow other potential suppliers to quote, so the ultimate cost is dependent on a lot of factors.
Direct current transmission is unusual.   It is a natural for solar power, as it is produced as direct current, but wind energy is created as alternating current, so it is converted at both ends of the transmission line.   DC transmission has less energy loss than AC.   It is a mature technology used since the 1930s.

High voltage DC is considered risker than AC from the point of view of safety.   Electrocution injuries and fire hazards are worse with DC.

Conclusion.

Memphis is not married to TVA.  In many ways, despite MLGW being TVA’s largest customer, taking 30% of its capacity, Memphis has always been TVA’s bastard stepchild.   MLGW is obligated in its charter to provide utilities at the lowest practical cost.   It is obligated to review alternative suppliers.

A large part of the problem with TVA is the chilling effect it has on renewable energy generation.   JT Young said, on WKNO’s “Behind the Headlines”, March 30th 2018, that Southern Corp, his former employer,  sells 11% renewable energy.   This compares with about 1% by TVA.   This is a measure of the environmental damage TVA is perpetrating in the Valley.     That alone is good reason for re-examining MLGW’s relationship with TVA.