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BPA, TVA, Salt River: Playing Fair in Power Markets?

Fortnightly Magazine - July 1 1998

contracts with their distributors which would preclude anybody else from selling inside the fence, at least until those contracts are up. And most of those run, I think, through 2007. If the fence comes down, it has to come down both ways."

Bill Museler, TVA executive vice president of transmission and power supply, and a member of the advisory committee, objects to that perspective, partially based on history.

"One of the reasons we were created was as a counterbalance to these huge private entities that were monopolizing the business," he says. "There is a role for federal public power agencies for many of the same reasons that they were created¼ there do need to be changes for federal power agencies like TVA to be able to compete in the new energy market. We can't do that the way we are because there really are some things that mitigate against a fair playing field."

When asked about removing fence and anti-cherry-picking provisions even if retail competition is delayed, Museler says TVA doesn't "disagree because it's going to hurt TVA."

"What that does is increase the stranded investment in the valley, which would mean that ratepayers would pay a higher stranded investment."

The authority has been grappling with fence issues for some time. In 1996, the TVA got its hand slapped by a U.S. District Court of Alabama for contracting with Louisville Gas & Electric Co. to sell power through that company's subsidiary, Louisville G&E Power Marketing Inc. (See Alabama Pwr. Co. v. TVA, 948 F. Supp. 1010 [N.D. Ala. 1996].) In its final judgment, the court declared the contract "is illegal and void under the provisions of the TVA Act, 16 U.S.C. 831 et seq."

The court's ruling left one question open: Was the sale objectionable because the subsidiary LG&E Power Marketing did not exist in 1957, when the law preserved certain grandfathering rights for TVA for power "exchanges," or because the transaction was more like a power export than a traditional exchange?

Commenting on the outcome, Museler says "the court made a decision. We interpreted the law to say that if they were a subsidiary of the same company we were allowed to sell to, we should be allowed to sell to the subsidiary as well. The court said 'no,' even though it's part of the same holding company, that doesn't mean by extension you can sell to that subsidiary."

Nevertheless, the court's ruling left room for other interpretations. On the one hand, the judge hung his hat on corporate structure: "The very fact that TVA continues to sell to LG&E [the parent] under one contract and to LPM [the subsidiary] under another contract suggests that the two contracts are not with the same 'organization.' Whatever the holding company and its subsidiaries are now, they are not the same 'organization' which existed in 1957."

But the judge also questioned the motive for the sale: "The defendants' [TVA] answer seems to be that TVA is not 'selling' power to LPM but is 'exchanging' power with LPM. This seems to be another 'stretch' of