Let There be Light Part 4: Territories,  A Genesis Story (Part B-The "Regulatory Fence")

August 24, 2016

This is the fourth in an ongoing series on electric companies, compiled in 2015 and published now for the first time in The Planet.

 

As discussed in the previous article in this series, the Fort Payne Improvement Authority (FPIA) and co-ops Sand Mountain Electric and Marshall-DeKalb Electric (SMEC and MDEC),  are the three electric companies in DeKalb. Further afield, besides the 23 co-ops in Alabama, there are 36 municipal electric systems.  Not all of these local utilities buy their power from TVA. Some generate their own power and some buy it from for-profit investor-owned utilities (IOUs), including Southern Company subsidiary Alabama Power. 

 

Alabama Power, meanwhile, directly serves 1.4 million customers in the southern two-thirds of the state, but Michael Sznajderman, media relations director at the utility, corrected any misapprehensions that that territory is strictly urban.  “We have a lot of very rural areas,” he said.  “We also have cities and towns.”   

 

Sznajderman said that the company’s territory in many cases surrounds but does not subsume communities served by munis and co-ops, because those territories were set aside long ago as rural electrification turf. Such areas include the high-density east side of Montgomery, he said, once farmland but now shopping malls and office parks. 

 

“It is no longer rural but that’s a territory that was established by public policy to be rural electric territory and it continues to be it,” said Sznajderman.  “We probably would love to serve it but it’s outside our jurisdiction.”

 

Whose jurisdiction is it? For that, Duncan Mansfield of TVA corporate communications in Knoxville was consulted, and he confirmed that there is indeed a body of rules and regulations about what constitutes TVA vs. IOU territory.  “They actually call it a ‘regulatory fence’ around the TVA service territory, that prevents us from moving outside it and others from coming in,” he said.

 

Mansfield explained that when TVA was created, roughly 80,000 square miles had been set aside by Congress as TVA’s territory, and TVA among its other missions – anti-flooding, erosion control, environmental stewardship – had been mandated to supply affordable energy to member electric companies within those confines. TVA acquired existing electricity generating infrastructure within its territory as well as building new.

 

“At the time that they established the fence … it was essentially keeping in place everything that was there at the time of TVA’s creation, the 80,000-square-mile service territory,” said Mansfield.

 

But the “regulatory fence” is not impassable: “Any of the 155 customers of TVA, which are either municipals or co-ops, can leave the TVA system with the proper advance warning to TVA,” said Mansfield. “Usually it’s a few years in advance when their current contract expires. Then they can seek power from somebody else.”

 

That has happened, he said; a Memphis electricity utility actually left TVA and went to another provider for a while, later returning to the fold.

 

So a co-op can leave the TVA family, but as to whether it could be bought out by an IOU – as in the east Montgomery example mentioned above – Mansfield said that might be a little iffier, but: “I would think that if Alabama Power wanted to make an offer to the co-op, the members of the co-op certainly could consider it and vote on it.” 

 

And as far as merging individual territories within the broader TVA umbrella to save members money – as advocated by Tennessee Congressman Jim Cooper in his 2008 Harvard Journal on Legislation article, “Electric Cooperatives:  From New Deal to Bad Deal” –  Mansfield said that was fine with TVA. 

 

“If they’re well-managed companies, I don’t see there would be any problem,” he said, recalling two instances in recent years when just such mergers had occurred between Tennessee TVA member entities.

 

Those cases were, incidentally, Middle Tennessee Electric’s takeover of the city of Lebanon’s electric service and Chickasaw (Tenn) Electric’s acquisition of the Somerville, Tenn., municipal utility.

 

Closer to home, will DeKalb’s three local providers ever voluntarily compromise their turfs? Would they consider joining forces to streamline service and lower rates?

SMEC CEO Mike Simpson says probably not. “I would love to merge with Fort Payne, but I’m pretty sure that their city council wouldn’t give up control,” he said. 

 

Simpson explained that SMEC’s reason for wanting to join with FPIA was precisely the same reason FPIA would probably want nothing to do with the deal:  “We have 10 customers a mile and they have about 30,” he said.  “Their density is much better than ours.” 

 

The denser the population, the cheaper it is to deliver energy, said Simpson. So by consenting to a merger, FPIA would give up control and increase its costs.  

 

As for the two co-ops teaming up with each other or any other co-op, both SMEC’s Simpson and MDEC General Manager James Stewart – who would not be interviewed for this series but who consented to answer written questions – say their co-ops have neither approached nor been approached by another entity about such a union. Stewart added in reference to the municipal authority:  “We have no common boundary with FPIA.”

 

But Simpson says that though electric cooperatives may not be eager to merge with each other, they are, well, cooperative  In crises such as the 2011 tornadoes, co-ops send crews to help rebuild each other’s systems, and for more routine functions they form “cooperatives of cooperatives” to cut costs. SMEC’s billing is done through one of these co-op-co-ops, non-emergency after-hours service calls are answered by another, and the magazine Alabama Living is published through a statewide association of co-ops, with a space set aside each issue for news from each. “By doing that, we split the costs of that operation,” said Simpson.  

 

And as for any local electric company being bought out by an IOU, SMEC’s Simpson argues it would be a monumental loss of local control. He and his employees and board members all live in the community and will hear in the grocery store if they’re not doing a good job, he said.

 

 “If you call us now, you talk to me,” he said. “I dare say if you call Georgia Power and asked to talk to the CEO, you probably wouldn’t get to talk to him.”

To be continued...

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