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A Mississippi Business Journal Q&A

TVA's Glenn McCullough speaks out on energy

In 2001, President George W. Bush appointed former Tupelo Mayor Glenn L. McCullough Jr., chairman of the Tennessee Valley Authority, which serves 8.5 million customers.

In 1999, President Bill Clinton had appointed him to the three-member board of TVA, the nation`s first regional public power company borne from a disagreement in the 1920s between Sen. George Norris and automaker Henry Ford over public ownership of Wilson Dam in Alabama.

In less than three years, McCullough has led the charge at TVA to reduce a heavy statutory debt load, forge strategic partnerships in an industry fraught with controversy over deregulation and other matters and improve reliability.

A 1977 agricultural economics graduate from Mississippi State University, McCullough presided over his family`s steel company, McCullough Steel Products in Tupelo, and directed the Mississippi Office of the Appalachian Regional Commission before governing the Northeast Mississippi city that the National Civic League designated as one of the nation`s 10 All-American Cities in 1999.

McCullough chatted with the Mississippi Business Journal about the memorandum of understanding signed recently by TVA, Entergy and Mississippi Power, the reopening of the Brown`s Ferry nuclear plant, the status of TVA`s debt reduction plan, its “Green Power” program, its favorable arrangement with Memphis Light Gas & Water and the lawsuit filed against TVA coops to reduce reserves and refund money to its members.

Mississippi Business Journal: TVA, Entergy and The Southern Company (Mississippi Power Co.) have signed a memorandum of understanding to clarify opportunities for TVA and other entities to work together to insure the reliability of electric power in common protocols. How is this arrangement working?

Glenn McCullough: The memorandum of understanding in place is working very effectively. We also have the “seams” agreement with the Midwest Independent Transmission System Operator, an independent, nonprofit grid operator for the transmission of high voltage electricity across much of the Midwest, part of the nation`s first FERC-approved regional transmission organization and also with PJM (Interconnection, operator of the largest competitive wholesale electricity market in the world). In other words, we will pursue common transmission build out strategies and tariffs that are consistent with keeping the rates low and keeping the lights on for people in the Southeast.

TVA is coming off the best reliability year in our 70-year history. And we’re committed to working with our neighboring utilities to insure that not only in the Tennessee Valley, but also in other areas of the Southeast, the consumer can count on power and reliability. Take a look around the country. The lights do stay on in the Tennessee Valley and the Southeast, and the rates are comparatively low. We’re committed to consumers continuing to have good value in electricity.

MBJ: You’ve testified before Congress about your support of clear skies and other energy matters, including the safe expansion of nuclear power. With the large debt load TVA is carrying, many long-term contracts expiring in 2007, the expenses involved in the reopening of the Brown`s Ferry nuclear plant and the demands on TVA to meet environmental standards, what steps are you taking to be competitive and profitable and what kind of maneuvering room will you have in which to operate?

GM: TVA has 158 power distributors under contract today. We’re working with our distributors to implement new pricing products, to come up with transmission policy and transmission pricing that will enable us to craft contracts for the future, that the end result will be for the people in the Tennessee Valley to derive great value in both the price and reliability of electric power. We’re preparing for competition by continuing to reduce delivery cost of power relative to the market, by controlling our fossil power units through the safe, reliable expansion of nuclear and also modernizing our hydroelectric capacity. Those are some of the things we are doing to prepare for a marketplace that we believe will be more open and competitive in the future.

MBJ: In a deregulated environment, will TVA remain as involved in economic development efforts at the local level in its service area?

GM: TVA basically has a three-fold mission. We’re in the business of generating and delivering affordable, reliable electric power through local power distributors. Secondly, we have a responsibility to be good stewards of the environment and to manage the Tennessee River system in a way that provides value for the people of the valley. Third, we’re in the business of attracting better job opportunities through economic development, which means fostering a strong economy for the 8.5 million people in the Tennessee Valley. Our stool sits on those three legs and that`s what TVA will continue to do in the future.

MBJ: What is the status of your debt reduction plan, and what kind of timetable do you have for meeting your goals?

GM: TVA`s debt went up for 35 consecutive years until 1997. At that time, TVA`s statutory debt was $27.4 billion. Today, in 2004, TVA`s statutory debt is $23.3 billion. That`s a $4.1 billion reduction since 1997. We’re now implementing a strategic plan, which we’ve worked on for over a year, that calls for TVA to further reduce debt by $3 billion to $5 billion over the next 10 to 12 years. Now, debt reduction actually will only happen after we maintain a safe, reliable system. The most important thing TVA must do is to continue to keep the lights on for the people of the valley and to make sure that our rates are competitive.

We`ll also maintain system reliability. We`ll have new pricing products, new contracts of the future. We’re going to be a more efficient operation. In fact, we’ve already identified over $247 million we’re going to reduce for the 2005 fiscal year budget so we`ll be more efficient.

MBJ: Deregulation will, of course, also allow TVA to sell excess power out of its service area. Is this the main thrust of why you want to get the nuclear program back on track?

GM: The short answer is no. TVA`s nuclear program is on track. We’ve got five reactors at three sites that are operating in a safe, reliable manner today and will be in the future. We are recovering Brown`s Ferry Nuclear Unit One, bringing on line our sixth reactor, which is projected to be going commercial in May 2007 to meet the increased demand for electricity in the valley. As the valley`s economy continues to grow, there`s an increased demand for baseload electric power.

We only did that after analyzing every possible option for baseload power. We took a look at combined cycle natural gas. We looked at IGCC (integrated-gasifier/combined cycle) and clean coal technologies. We looked at every possible baseload option, and the recovery of Brown`s Ferry Nuclear Unit One was the most cost-effective and environmentally responsible choice for TVA to make.

MBJ: TVA has also been involved with developing “Green Power.” What programs do you have in progress and what percentage of overall production of power by these alternate means do you see achieved by 2025?

GM: TVA and local power distributors across the valley developed and designed in close cooperation with our environmental community the “Green Power” switch program. TVA today offers electricity through local power distributors in the valley that is generated from renewable sources from solar sites. We have 15 solar sites across the Tennessee Valley. Of particular interest to folks who read the Mississippi Business Journal, we have solar sites on the campuses of Ole Miss and Mississippi State. We also have three wind turbines on Buffalo Mountain, just a few miles to the west of Knoxville. We have an agreement in place with Invenergy, a corporation based in Chicago, where they will install 18 new wind turbines on Buffalo Mountain, and we expect for those turbines to be in place this calendar year. That will provide an additional 27 megawatts of renewable wind energy by the end of t
he yea
r. We also generate electricity from a methane gas facility at the Allen Fossil Plant in Memphis.

By the end of the year, our total “Green Power” energy portfolio will be 33 megawatts of electricity, and we think that through research and technology, “Green Power” can grow and be a more prominent part of America`s energy future. I don`t know what the percentage will be by 2025, but we believe making “Green Power” available as a choice through local power distributors in the valley is a responsible business practice.

MBJ: Memphis Light Gas & Water (MLGW) recently made a pre-purchase of $1.5 billion of power from TVA. How does this arrangement help both MLGW and TVA? Is this arrangement feasible for the other coops in the TVA system?

GM: The MLGW and TVA pre-pay agreement is a win-win. First, MLGW commits to buy 50% of their electricity needs for 15 years into the future. So their contracts extend to 2018 for half their load. They prepaid TVA $1.5 billion, which we used to reduce statutory debt. We are in positive discussions with distributors throughout the valley on possibilities going forward, and we’re encouraged by their interest. We’re optimistic we`ll come to a beneficial conclusion. But we have to carefully look at a pre-pay agreement and how it stacks up with our statutory debt bonds and the call dates. We’ve got to carefully structure any agreements going forward that enable the distributor to drive a proper cost-savings and also for TVA to have appropriate value. Again, this was an opportunity for TVA to reduce debt and to have at least half of MLGW`s load for 15 additional years. It made good business sense for MLGW and TVA.

MBJ: A recent lawsuit wants to force the coops of TVA to reduce their reserves and refund money to its members. TVA is on record as opposing the suit. How has the present system been more beneficial to the members as opposed to what the plaintiffs in the suit are trying to achieve?

GM: TVA supports the leadership of our cooperative customers, and we have confidence in the coop board`s ability to manage their operations. The members of consumer-owned power companies elect their boards, and we believe in that structure. They can reduce rates as a mechanism for returning any surplus revenues to members. That`s an option to coop boards. We believe that option is consistent with the TVA Act, that`s our act of how we conduct business. This will play out in the court system. But we support our coops in this issue.

MBJ: How is TVA helping Mississippi grow its economy?

GM: TVA works through 28 power distributors in the northeast region of Mississippi. These 14 electric cooperatives provide great value to people in more than 300,000 households and over 76,000 businesses. We’re committed to our relationship with our power distributors to provide power that`s both affordable and reliable, to do so in a way that we’re good stewards of the environment.

In Mississippi, the Tennessee-Tombigbee Waterway flows from the Tennessee River, so we think that`s proven to be a tremendous resource and will be even more valuable in future years, and we’re committed to growing this economy. We’re doing that with our distributors in the Mississippi Crescent Initiative, which is already paying dividends. The recent American Eurocopter location at the Golden Triangle Regional Airport is a tremendous project all of Mississippi can be proud of. We’re optimistic about the future.

Contact MBJ contributing writer Lynne W. Jeter at mbj@thewritingdesk.com.


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