TVA's biggest customer in Alabama is signing on to buy power from the federal utility for the next 20 years.
The Huntsville City Council on Thursday night approved a 20-year power purchase agreement between Huntsville Utilities and the Tennessee Valley Authority.
Following last month's decision by Chattanooga's EPB to sign a similar 20-year agreement with TVA , 137 of the 154 local power companies that buy their power from TVA have now signed on to the long-term agreements.
Previously , most of the municipalities and power coops that buy and distribute TV-generated electricity operated under 5- to 10-year purchase agreements with TVA. Huntsville Utilities previously had a 10-year agreement with TVA to buy all of its power from the federal utility.
TVA began last year offering the 20-year purchase contracts — along with 3.1% rebates for those that signed up for the long-term agreements — as part of a long-term strategic plan to maintain stable base rates for the next decade while still paying down TVA's current $22 billion debt.
For Huntsville, the rebate offered in exchange for the new long-term contract should save Huntsville Utilities about $9.9 million a year, according to a TVA presentation to Huntsville Utilities.
In a letter to the Huntsville City Council, Huntsville Utilities President Wes Kelley said the new agreement "provides several benefits to accompany the long term," including enhanced flexibility and a 3.1% rebate.
"TVA pledges to provide better engagement opportunities related to strategic resource and financial planning decisions," Kelley said. "Finally, TVA promises to limit future wholesale rate increases to less than 10% over any five years."
TVA President Jeff Lyash thinks TVA will keep rates stable for the next 10 years.
Despite the endorsement this year of the long-term TVA contracts by three of the five largest municipal power utilities in the Tennessee Valley — Nashville Electric Service, EPB in Chattanooga and Huntsville Utilities —Knoxville Utilities Board has yet to sign the 20-year agreement and TVA's biggest customer, Memphis Light, Gas and Water (MLGW) is still studying a potential split with TVA altogether.
Knoxville is wary about committing to buying power from TVA for such an extended period, given the changing nature of the energy market. Studies done for MLGW suggest that Memphis can buy power cheaper than TVA, although the utility would still have to spend money to make more hookups or backup power arrangements.
MLGW must give five years notice to TVA before it may leave the TVA fold, but the Memphis utility is studying the feasibility of buying or producing its own power to replace TVA.
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.
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