Karl Schledwitz 09-22-20 Op Ed

Approximately two years ago, Memphis Light Gas and Water (MLGW) was presented with the idea that it could save hundreds of millions of dollars a year by leaving TVA and buying electricity on the open market. This idea was supported by several independent studies and even by one study ordered by MLGW itself. The estimated savings are between $220 and $450 million per year as compared to current TVA rates. It has been contemplated that these savings could be used for three purposes:  i) significantly reduce MLGW rate payer bills; ii) invest more in MLGW’s infrastructure, and, iii) fill current budget gaps of the City of Memphis. To put this in perspective:  In 2019, MLGW paid TVA $1.04 billion for electricity, whereas the city annual budget is roughly $700 million. Our tax base revenue increases by less than $10 million dollars per year, which does not even keep up with inflation, never mind the Covid-related shortfall. These numbers are so large and the potential is so great that one would think a sense of urgency to investigate savings would be on the front burner. 

Instead, let’s look at what has happened. Almost two years ago MLGW’s consultant, GDS, recommended MLGW do an expensive Integrated Resource Plan (IRP), which is a type of study used largely for electricity generation studies, not for open market savings analysis. This is a critical distinction because the last thing MLGW should do is get into the power generation business. It is too expensive and risky and entirely unnecessary.

What the IRP concluded – even with its highly questionable assumptions – is that MLGW could save $220 million per year from open market electricity based on TVA’s current rates. If TVA’s rates in the future go up or down that number would follow accordingly. The problem is we never needed an IRP in the first place because we knew that open market electricity savings could be immense. IRP studies are simply not used for the purpose of calculating savings, they are used for building power plants. For example, the other unhappy TVA power distributors who are also contemplating leaving TVA, Volunteer Electric Corp and North Georgia Electric Membership Corp, did not do an IRP, they went straight to a request for proposal (RFP) format to ascertain power delivery market quotes. In concert with that, our neighbors at Entergy Mississippi said “The important thing to recognize is that MLGW does not have to become an operator of power plants.” Interestingly, Entergy has written two letters to MLGW offering assistance and yet neither has been responded to.

So what’s next?  What should be next is a simple RFP to validate whether electricity can be reliably bought on the open market at prices that produce savings. This RFP step could be complete in four months. It is a simple, fair, open market comparison. If the RFP conclude there are savings, then proceed to steps two (transmission of this electricity) and three (renewable self-generation, think solar) of the RFP. If the RFP does not indicate savings, then the entire process is over, and we re-sign with TVA. Instead, MLGW is going to propose to its Board an additional 18 month process, still wrongly focused on building expensive and risky power plants in Memphis, and dragging the “savings analysis” process out to over three years.

It is time to admit that the process has taken too long. We need a true RFP to determine what open market electricity savings could be. Enough is enough.