A Utility Game Changer

 | Oct 21, 2011 | 12:00 PM EDT
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Some big changes are planned for one of the nation's largest utilities. The Tennessee Valley Authority (TVA) has approved their "Integrated Resource Plan" (IRP), which outlines the agency's long-term building plans for their huge fleet of power plants. The plans are detailed and thoughtful. They also provide insight as to where regulated utilities are heading.

TVA is an independent federal corporation that reports to Congress and only indirectly reports to the executive branch. The president nominates the corporation's board of directors with confirmation from the Senate. Unlike other federal agencies, there is no direct command and control over the TVA by the White House. Further, the agency is financially independent and does not need, nor does it request appropriations from Congress.

Nevertheless, TVA's long-term year-by-year plans to year 2029 are bold and include all the resource options that present and past administrations have been advocating. TVA has become an excellent platform to implement energy policy because the agency is not only a utility, it is also a public utility commission. As a public utility, TVA sets rates for itself. As a federal corporation with all stockholder equity owned by the U.S. Government, it has the independent ability to provide government guarantees. For example, building a new nuclear power plant for TVA would not have any of the financing challenges normally associated with the private sector.

And that is exactly what their plan calls for. TVA's announced two new nuclear power plants will be in production as early as 2018. Watts Bar Unit 2 is expected to come online in 2013. Bellefonte Unit 1 is due to come on line between 2018 and 2020. Both units' construction were started decades ago, partially completed, suspended and now re-started. The decision to restart Bellefonte was announced last August.

According to TVA, finishing Bellefonte Unit 1 would meet a substantial portion of TVA's future generating needs at a lower cost per installed megawatt. They estimated this approach would save them approximately $1 million per megawatt when compared to the alternative, Westinghouse and The Shaw Group's (SHAW) AP1000.

According to TVA, the cost to complete Bellefonte is $3.12 million to $3.36 million per megawatt. They estimate the cost to build an AP1000 like those being considered by Southern Company (SO), Progress Energy (PGN), Duke Energy (DUK), and NextEra Energy (NEE), would cost $3.30 million to $4.90 million per megawatt. But TVA does not seem to be taking credit for resuscitating a stranded asset.

Nevertheless, TVA plans more nukes after Watts Bar and Bellefonte are on line. By 2029, TVA could have up to 5,900 megawatts of new nuclear capacity. The question is whether they will resuscitate more stranded assets or join their colleagues and go for an AP1000.

New nukes are needed because TVA plans to retire 20 aging coal-fired units by 2017. Bellefonte would only replace five to 10 of those units, leaving the utility with a capacity gap. That gap climbs to about 6,500 megawatts by 2020.

Part of TVA's gap will be filled by aggressive implementation of demand-response and energy efficiency programs. Companies like Constellation Energy Group (CEG) and EnerNOC (ENOC) offer utilities like TVA out-of-the-box solutions to manage system-wide and local energy demand.

By 2020, TVA's generation mix will be remarkably different from 2010. TVA will increase their dependence on nuclear power from 18.5 percent to 26 percent. They will reduce their coal fleet from 40.1 percent to 23 percent. They plan to reduce the natural gas fleet from 25 percent to 21 percent. They plan to increase their hydroelectric/pumped storage from 12.4 percent to 15 percent. They plan to increase demand-response and energy efficiency from 0.8 percent to 10 percent. In 2010, TVA had zero renewables and they do not plan any significant additions.

The environment is the biggest winner in TVA's plan. By 2020, TVA expects to reduce their carbon footprint by up to 30 percent. Their sulfur dioxide emissions will be reduced by almost 80 percent. Their reductions nitrous oxides will be reduced by almost 85 percent. Their mercury reductions will be in the neighborhood of 80 percent. In all cases, reductions begin immediately with year-over-year improvements.

Air is not the only beneficiary. Some of TVA's power plants, particularly coal plants, currently generate tons of waste streams that require disposal. TVA's plan reduces volumetric wastes. It also reduces the thermal load on cooling water.

TVA's objective for 2020 is a safe, economic and reliable energy system. This means maintaining low rates, achieving high reliability, introducing greater efficiencies from the utility and from customers, and providing much cleaner air.



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