Opinion ID: 1321950
Heading Depth: 1
Heading Rank: 9

Heading: Nantahala's Value to the TVA Interconnected System.

Text: The Commission found that another failure of the 1971 Apportionment Agreement regarding Nantahala's participation is that the Popovich apportionment formula does not consider the proper value to TVA of the fact that Nantahala, Tapoco and the TVA systems are interconnected. Interconnection is of considerable value to TVA completely aside from the fact that Nantahala's rate base includes in it certain assets devoted to the interconnection, which assets are entitled to earn a rate of return. Because Nantahala is not an isolated system, it should be receiving the usual benefits that accrue from coordinated operation. Yet, Nantahala does not receive the usual benefits of an interconnected and coordinated system. Relying on Alcoa documents reflecting the path of its negotiations with TVA over the New Fontana Agreement, the Commission found that the integrated systems factor was recognized by Alcoa to be of great value to TVA, a recognition that Alcoa was able to capitalize on later in arriving at the final terms of the agreement. As indicated, some of the values of integration are the need for smaller reserves and the fact that TVA actually controls production of generation and storage waters. However, one of the larger benefits is the value in integration of Nantahala's projects that are upstream of TVA's Fontana Project. The Commission noted that in an integrated system such value is maximized; Nantahala's projects contributed upstream benefits not only to Tapoco's downstream projects, but also to TVA's downstream Fontana Project. In fact, the entire TVA Tennessee River system receives the benefit of the storage of all of these projects located on the Little Tennessee River. This is especially so given TVA's control of all of the Nantahala and Tapoco reservoirs under the terms of the Fontana Agreement. Based upon the results of a TVA study of combined downstream storage benefits, the Commission determined that Nantahala's annual upstream benefit to TVA is 70,956,000 kwh. However, when the NFA bargain was struck, the TVA and the Alcoa systems agreed to cancel out their respective upstream benefits. The Commission observed that since Nantahala provided benefits upstream to both Tapoco and TVA, and TVA provided benefits upstream to Tapoco, it was Tapoco that gained by the mutual cancellation, to the detriment to Nantahala of the value of 70,956,000 kwh annually. The Commission further concluded that Nantahala should have received back an equivalent amount of energy under the 1971 Apportionment Agreement from Tapoco. Because Nantahala received no such benefit under the Popovich apportionment formula, the Commission concluded that to Tapoco's benefit, Nantahala was deprived of one value of the interconnection with the TVA system. This concealed benefit flowing from Nantahala to Tapoco, is of course, passed on by Tapoco to Alcoa. In summarizing its discussion of the detriments to Nantahala from the 1971 Apportionment Agreement, the Commission totalled the annual kilowatt hours which Nantahala contributed in average production to the system and for which no credit was received in return and determined that Nantahala was deprived of a total value of 200,224,000 kwh annually. In addition to which, Nantahala received no credit for its peaking capacity over the 54,300 kw which was assigned to it, as a result of which Nantahala must pay additional demand charges to TVA when monthly demand exceeds assigned capacity. After quoting a portion of this Court's opinion in Edmisten regarding the terms of the 1971 Apportionment Agreement, the Commission concluded: Now that considerably more of the various detriments to Nantahala have been exposed and fleshed out, it is apparent that the 1971 Apportionment Agreement works an extensive injustice on Nantahala and its public rate payers, the gravity of which far exceeds even that envisioned by the Supreme Court.