NASHVILLE - The Tennessee Valley Authority board on Wednesday approved a $1.5 billion deal to presell electricity to its biggest customer for the next 15 years at a discounted rate, allowing the debt-ridden utility to raise cash.
The agreement also means savings of $225 million, or $15 million a year, for Memphis Light, Gas and Water, which serves more than 400,000 customers.
"It's a great deal. We get $1.5 billion in cash that we can use to reduce our long-term debt and avoid borrowings when adding generation," TVA Director Bill Baxter said in a telephone interview from Memphis, where the board was meeting.
"The second reason it's a good deal for TVA is that this commits our largest customer to us for 15 years for 50 percent of their power needs."
MLG officials could not be reached immediately for comment.
MLG first approached TVA with the idea three years ago. The concept was similar to how Memphis prepurchases a portion of its natural gas.
But the U.S. Treasury Department, worried about tax losses from greater reliance upon tax-exempt bonds, proposed a rule last year that appeared to shut down the deal.
Under congressional pressure, the Treasury Department agreed to revise the rule in August. The Memphis City Council and MLG board approved the arrangement last month.
Memphis' proposal prompted TVA to offer a similar prepay program to its 157 other distributors. At the time, 34 signed up for about $47 million in future power.
Baxter wouldn't say how many distributors now want similar deals but said some smaller distributors are considering banding together to prepurchase power from TVA.
"There's quite a bit of interest, but I think everyone wants to let the dust settle on the first one," Baxter said.
TVA probably won't get the money until early next year. Baxter wouldn't say whether it would be used to complete the rest of a $1.8 billion repair of TVA's oldest nuclear reactor, in Alabama.
"There will be an independent analysis of the best way to use the cash," he said.
Some TVA critics say such long-term agreements are just another form of debt and should count against TVA's debt ceiling.
Congress has capped TVA's borrowing authority at $30 billion, and the utility lists a statutory debt of $25.2 billion.
Baxter said it isn't debt. "It's a simple prepayment contract. They're done every day in the natural gas business. ... It's a normal business transaction."
TVA's board also approved a record $329.4 million in tax-equivalent payments this year to state, city and county governments throughout the Tennessee Valley region - an increase of $1 million over last year.
The payments, made to the seven states TVA serves and to Illinois where TVA has coal reserves, are issued instead of property taxes and are based on TVA power sales revenue in 2002 and TVA-owned property in each state.
TVA payments to Tennessee were $200 million, which will be reallocated to county and city governments. Those redistributed payments totaled $1.82 million to Knox County and $1.169 million to Knoxville.
In addition, Knox County received a direct payment of $391,796 for property TVA owns.
TVA, a self-financed government corporation, provides electricity to about 8.3 million people in Tennessee, Kentucky, Mississippi, Alabama, Georgia, North Carolina and Virginia. Its offices are based in Knoxville.
News Sentinel business writer Rebecca Ferrar contributed to this report.