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Lawsuit Against TVA Alleges Sham Transactions

Fortnightly Magazine - June 1 1997

Five utility companies have filed a lawsuit in U.S. District Court in Birmingham against the Tennessee Valley Authority to bar it from making sales to unauthorized third parties for resale outside TVA's service territory, claiming such sales violate the TVA Act.

"TVA is under more intense attack from private utilities than at any time in its history," said TVA Chair Craven Crowell at an April 15 at a meeting of the TVA Caucus in Washington, D.C.

The lawsuit alleges that TVA is engaging in sham transactions with East Kentucky Power Co-op., Louisville Gas and Electric Co., and Cinergy Corp., by using them to "launder" TVA power. Fourteen neighboring companies are authorized to purchase TVA power under a 1959 Bond Act, which prohibits TVA from selling power on the open market. Although the three utilities named in the lawsuit are authorized to purchase TVA power, the lawsuit alleges that electricity is merely being passed through other buyers.

(Last year, a judge had ruled that TVA had violated that act by selling electricity to LG&E Power Marketing Inc., an affiliate of affiliate of Louisville Gas and Electric, finding that the marketer could then resell power at wholesale outside the TVA "fence," effectively circumventing the TVA's own territorial restrictions first established during the New Deal. (See, Alabama Power Co. v. TVA, CV 96-PT-0097-S, Aug. 28, 1996 [N.D.Ala.].)

The five utilities that filed the new lawsuit include Duke Power, Entergy Mississippi Southern Co., and Alabama Power subsidiaries, Georgia Power, and Mississippi Power.

Crowell said investor-owned utilities have joined forces against TVA because they do not want to compete against the company in a deregulated marketplace. He pointed to the "TVA Reform Alliance" formed by neighboring utilities Southern Co., Entergy Services, American Electric Power, and Carolina Power & Light, and Duke Power Co.

Crowell asked the Department of Justice to determine whether "attacks" on TVA by those five companies violate antitrust and other federal laws. In a letter to Attorney General Janet Reno, TVA's General Counsel Edward Christenbury wrote, "It seems to us that there may be a question of whether the activities of these utilities are designed to prevent TVA from carrying out its mission under the TVA Act."

The letter notes that the act creating TVA states that anyone intending to wrongfully defeat TVA's purposes "is subject to a $5,000 fine, and imprisonment of up to five years." t

Lori A. Burkhart is an associate legal editor with PUBLIC UTILITIES FORTNIGHTLY.

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