TVA PILOT Annual Report to the General Assembly
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TACIR Publication Policy Reports approved by vote of the Tennessee Advisory Commission on Intergovernmental Relations are labeled as such on their covers with the following banner at the top: Report of the Tennessee Advisory Commission on Intergovernmental Relations. All other reports by Commission staff are prepared to inform members of the Commission and the public and do not necessarily reflect the views of the Commission. They are labeled Staff Report to Members of the Tennessee Advisory Commission on Intergovernmental Relations on their covers. TACIR Fast Facts are short publications prepared by Commission staff to inform members and the public. Tennessee Advisory Commission on Intergovernmental Relations 226 Capitol Boulevard Building · Suite 508 · Nashville, Tennessee 37243 Phone: 615.741.3012 · Fax: 615.532.2443 E-mail: [email protected] · Website: www.tn.gov/tacir Report of the Tennessee Advisory Commission on Intergovernmental Relations Tennessee Valley Authority’s Payments in Lieu of Taxes Annual Report to the Tennessee General Assembly Matthew Owen, Ph.D. Policy Coordinator Mark McAdoo, M.S., M.S.M. Research Manager Melissa Brown, M.Ed. Deputy Executive Director Teresa Gibson Web Development & Publications Manager January 2020 Recommended citation: Tennessee Advisory Commission on Intergovernmental Relations. 2020. Tennessee Valley Authority’s Payments in Lieu of Taxes: Annual Report to the Tennessee General Assembly. Tennessee Advisory Commission on Intergovernmental Relations. This document was produced as an Internet publication. • –- 226 Anne Dallas Dudley Blvd., Suite 508 Nashville, Tennessee 37243-0760 Phone: (615) 741-3012 Fax: (615) 532-2443 www.tn.gov/tacir TO: Commission Members FROM: Cliff Lippard Executive Director DATE: 17 January 2020 SUBJECT: Tennessee Valley Authority Payments in Lieu of Taxes–Annual Report for Approval The attached Commission report is submitted for your approval. The report responds to Public Chapter 475, Acts of 2009, which directed the Commission to monitor changes in the wholesale distribution of electric power by the Tennessee Valley Authority and its distributors for possible effects on the Authority’s payments in lieu of taxes to the states in the Valley region, and to Public Chapter 1035, Acts of 2010, which made the report an annual requirement. There are no recommended actions to be taken by the General Assembly in this year’s report. Tennessee Valley Authority’s Payments in Lieu of Taxes Annual Report to the Tennessee General Assembly Contents Tennessee Valley Authority’s Payments in Lieu of Taxes .........................................................................1 TVA’s Payments in Lieu of Taxes Increase for Third Straight Year .......................................................................... 3 TVA’s Eff orts to Meet Power Needs and Remain Within Its Debt Limit ...............................................................5 Short-Term System-Management Strategies ..................................................................................................... 5 Long-Term System-Management Strategies ...................................................................................................... 6 Potential for Changes in TVA’s Customer Base ..........................................................................................................14 The Shift Away from Coal: Environmental and Business Reasons .....................................................................16 Fossil Plant Retirements Required by Environmental Agreements ..........................................................16 Fossil Plant Retirements for Business Reasons .................................................................................................17 New Energy Sources to Meet the Region’s Needs ..........................................................................................19 References ................................................................................................................................................ 21 Appendix A: TVA’s Allocation Formula .................................................................................................. 25 Appendix B: Tennessee’s Allocation Formula ....................................................................................... 27 Appendix C: Distribution of Counties’ Share of TVA Payments in Lieu of Taxes to Tennessee by Tennessee Fiscal Year ........................................................................................................................ 29 Appendix D: Distribution of Cities’ Share of TVA Payments in Lieu of Taxes to Tennessee by Tennessee Fiscal Year ........................................................................................................................ 31 Appendix E: Impact Payments Distributed to Counties in Areas Aff ected by TVA Construction by Tennessee Fiscal Year ....................................................................................................................... 39 Appendix F: Impact Payments Distributed to Cities in Areas Aff ected by TVA Construction by Tennessee Fiscal Year ........................................................................................................................ 41 Appendix G: TVA 2019 IRP Recommendations by Resource Type ...........................................................49 WWW.TN.GOV/TACIR i Tennessee Valley Authority’s Payments in Lieu of Taxes Annual Report to the Tennessee General Assembly Tennessee Valley Authority’s Payments in Lieu of Taxes The Tennessee Advisory Commission on Intergovernmental Relations was directed by the Electric Generation and Transmission Cooperative Act of 2009 (Section 4 of Public Chapter 475, Acts of 2009) to monitor changes in the wholesale distribution of electric power by the Tennessee Valley Authority (TVA) and its distributors for possible eff ects on the Authority’s payments in lieu of taxes (PILOTs) to the states in the Valley region. The Commission’s report was to “include recommendations, if any, on adjustments to the state tax system that would keep the state and local governments whole from such future changes.” The Act authorized the creation of nonprofi t membership cooperatives to generate and transmit electricity in Tennessee. At the time, one such co-op already owned a power-generating facility in Mississippi, and the legislature was concerned that, having authorized TVA’s payments in lieu of them, they had opened the door to a potential decline in TVA’s payments taxes to Tennessee are to the states if the co-ops began selling electricity directly to distributors. estimated to increase After considering a number of options, including those developed by the by $6 million for federal Commission,1 the Tennessee General Assembly passed Public Chapter fi scal year 2019-20, 1035, Acts of 2010, requiring payments equivalent to TVA’s Tennessee the third straight PILOT from any other entity providing wholesale electric current for year payments have resale within the state, such as the electric generation and transmission increased. cooperatives authorized in 2009. Public Chapter 1035 was designed to ensure that revenue from power sales in the TVA region would not depend on who produced that power or who sold it, and the Act put to rest immediate concerns about the potential loss of TVA revenue created by the 2009 law. The Act also renewed the requirement that the Commission monitor changes in wholesale power supply arrangements in TVA’s service area that could aff ect TVA’s payments to the state and its local governments and report to the General Assembly annually. This is the Commission’s report for the 2020 legislative session. Among the factors that could signifi cantly aff ect TVA revenue, the possibility that distributors might opt out of their TVA contracts and obtain power from other sources occasionally reappears. If a Tennessee distributor were to leave the TVA system, the overall eff ect on state and local revenue from TVA’s PILOT and the equivalent payments required under the 2010 law would depend in part on the cost of wholesale power the distributor purchases from other providers. Regardless, local governments in the distributor’s service area would see their share of this revenue decrease. 1 Tennessee Advisory Commission on Intergovernmental Relations 2010. WWW.TN.GOV/TACIR 1 Tennessee Valley Authority’s Payments in Lieu of Taxes Annual Report to the Tennessee General Assembly Concerns about the problems created by TVA’s debt ceiling, which has not been raised since 1979,2 and the threat of privatization also reappear from time to time. Both were among the reasons given by power distributors in the region for seeking authorization to form the generation and transmission cooperatives authorized by the 2009 Act. TVA’s debt ceiling remains $30 billion, which because of infl ation now has the buying power that $10 billion would have had in 1979,3 but the threat of privatization has diminished at least for the time being.4 Figure 1 shows the level of TVA’s debt since 2011. Figure 1. Tennessee Valley Authority Statutory Debt at Federal Fiscal Year End (in billions ) $30 24.7 24.8 24.1 23.6 23.9 24.2 24.2 25 22.7 21.4 21.0 20 15 10 5 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Projected Source: Tennessee Valley Authority 2016a; Tennessee Valley Authority 2019a; and email from Bryan Johnson, senior program manager-taxes, Tennessee Valley Authority, October 29, 2019. To manage within its $30 billion debt limit,