Across the Tennessee Valley Authority's six-state territory, questions about the economics of electricity weigh heavily on multiple communities. This is particularly true in Memphis, where residents gathered for a virtual town hall on the topic on June 4, despite the strain of an ongoing pandemic and related social upheaval.

Memphis is among the cities with America's greatest "energy burden" — a large number of its residents must dedicate a disproportionate amount of their monthly income to their utility bills, according to Herman Morris, an attorney who specializes in energy and utility law, and a former CEO of Memphis Light, Gas and Water (MLGW). Because of a combination of high energy prices, and high rates of poverty, utility bills claim up to 25% of some Memphis residents' income.

So when word circulated that Memphis may have the potential to cut electrical rates 25-35% by ending its wholesale electrical contract with the TVA, it was not hard to get the locals' attention.

And the case spelled out by two analysts from Siemens, whom Memphis hired to evaluate the potential costs and savings of leaving the TVA, is compelling. According to the hypothetical Integrated Resource Plan by Siemens, Memphis stands to save as much as $3 billion in the long term, or between $120-$200 million a year, if it leaves the TVA to find other sources of electricity through a combination of joining the Midcontinent Independent System Operator (MISO) and generating its own power from renewable and other resources.

The hypothetical portfolios available to Memphis could also reduce the city's carbon footprint, and spur economic activity in a city that stands to suffer more than most from the impending recession.

But there are drawbacks: Memphis would need to develop its own transmission capacity, and the reliability of their power system could suffer, although reliability would still fall within the minimum requirements set by MISO.

"The question really becomes, although TVA is slightly higher on reliability, how much do you need to spend for additional reliability?" Gary Vicinus, who oversaw the IRP for Siemens, told residents at the June 4 meeting.

TVA utilities watching MLGW closely

While Memphis weighs these questions, other communities within the TVA service area are watching closely.

TVA announced June 22 that most power companies under its umbrella would now be allowed to locally generate up to 5% of their average energy needs.

But the vast majority of local power companies served by TVA are locked into recent contracts in which they agreed to stay within the federally-owned company for the next 20 years in exchange for a discounted wholesale power rate.

They're also, quite literally, landlocked, explains Stephen Smith, executive director of the Southern Alliance for Clean Energy.

Provisions in the federal act that created and govern TVA lock in the corporation's boundaries by restricting its ability to extend transmission to new customers. But TVA interprets these rules as a "bi-directional" fence, meaning the company will not provide transmission service to any local power company that does not have a wholesale contract with TVA itself, Smith said.

There is some chance that the Federal Energy Regulatory Commission would disagree, but Smith and others say chance of that happening is slim. So for the most part, TVA-region utilities sprung for the 20-year deal on the assumption that they had no other means of procuring power.

Cleveland Utilities (CU), for example, has "studied the market-driven rates that are available outside the TVA footprint, but with our geographic location more toward the center of the TVA territory, any savings recognized in the power cost component would be washed away with the tremendous cost of acquiring right of way and building transmission line assets to purchase from multiple sources outside the TVA foot print," CU president and CEO Tim Henderson told Utility Dive. This cost-benefit analysis led CU to conclude that the 20-year deal offered by TVA was the best course of action for its customers.

Of the 154 utilities with existing wholesale agreements with TVA, 140 have recently signed the 20-year agreements. But a little over a dozen, mostly located on the edges of the TVA's boundaries, have held out, and several are mulling a departure.

Memphis is not the furthest along in this process, according to Smith. On the other end of TVA, a large cooperative called Volunteer Electric has joined forces with another cooperative in North Georgia to issue a joint RFP that aims to take advantage of bulk electrical rates.

Volunteer Electric Cooperative (VEC) began exploring its options three years ago, according to CEO Rody Blevins, in no small part because they felt the TVA's transmission rules and long-term contracts put the region at an economic disadvantage compared to the rest of the country.

"We think Congress should open up transmission in TVA. We just don't think it's fair," he said. "Since [2005], [electricity] costs have gone down nationally, but costs have gone up in the TVA region." Reduced utility bills, he added, would be a major economic boon to the region.

But while there is cheaper power to be had elsewhere, nobody has figured out how to resolve the transmission problem in a cost-effective manner, Blevins said. However, they are watching Memphis with interest, where some, including Morris, believe the potential savings tied to leaving the TVA outweigh the costs of building new transmission systems.

It's not just that Memphis might find a solution that could apply elsewhere in the TVA — if Memphis leaves, VEC and other local power companies will have all the more reason to pull the trigger.

A potential 'death spiral' for TVA

Memphis represents 8-10% of the TVA's total load. If Memphis exits TVA, Blevins said VEC anticipates electrical rates will increase another 5-7% for remaining TVA members — potentially giving VEC and other parties more motivation to leave.

That's how Memphis could trigger what Smith describes as a "death spiral" within the TVA, which Smith said is overbuilt and has significant liabilities tied to aging coal and nuclear power plants and previous environmental disasters. Those debts must be paid, so if members begin to leave, the TVA, which declined to comment for this story, will have no choice but to raise rates for remaining customers.

On top of this, if Memphis or any of the other 15 or so power companies looking at leaving the TVA figure out how to solve the transmission question, it opens up more possibilities for their neighbors as previously landlocked service areas find they, too, are suddenly located in borderlands.

MLGW and Siemens declined to comment for this story, but the odds that Memphis triggers this cascade are only growing. MLGW first considered departure in the early 2000s, while Morris was still in charge. Although a report commissioned in 2002 suggested Memphis stood to save $100 million a year by leaving, MLGW opted to stay in its contract for a time after TVA cut them a deal.

Now, Morris said, he believes it is time for Memphis to leave the TVA once and for all. He and other experts believe the projections by Siemens are overly conservative. Even with the cost of transmission, other reports by the Brattle Group and the Synapse Group for Friends of the Earth, where Morris is a consultant, have put the potential savings from leaving the TVA in the range of $300-$350 million a year. The savings seem likely to grow as time goes on, Morris said.

"The difference between then and now ... is about $300 million," he said. "We were at $100 million in 2002, in terms of the savings we could have enjoyed, and we're now at $300-$350 million in 2020. That's the difference 18 years have made. It's almost irresistible to take advantage of that kind of opportunity to help our community."