In 2019, the Tennessee Valley Authority debuted 20-year, rolling contracts to its local power companies. These contracts allowed TVA to lock in revenue from most of its companies without competition. That could change soon, with a years-long legal effort now bubbling to the surface.

A U.S. District Court judge will hear arguments from the Southern Environmental Law Center on Thursday on whether a lawsuit over the legality of the contracts should go to trial. SELC is representing the three environmental nonprofits suing TVA, and they have built their case primarily around two federal laws.

The National Environmental Policy Act (NEPA) dictates that federal agencies, like TVA, complete environmental reviews for major policy decisions, which the utility did not do for the contracts. TVA has said that NEPA does not apply to the contracts.

The second law is the Tennessee Valley Authority Act of 1933, which limits contracts to 20 years. Under TVA’s current rolling structure, each contract is extended by one year every year. If a local power company wants to exit the contract, it must give 20 years advance written notice of termination.

SELC argues that the result is a forever contract that causes economic and environmental harm.

“The anticompetitive program has four primary effects: (1) increasing reliance on TVA’s existing fossil fuel plants; (2) funding TVA’s investments in new gas plants; (3) limiting distributed energy resources in the Valley; and (4) limiting distributors’ ability to make decisions regarding their power supply,” SELC wrote in a brief earlier this month.

In their filing, TVA attorneys said that the threatened injuries are speculative and the contracts are directed at local power companies, not the plaintiffs, which include Protect Our Aquifer, Energy Alabama and Appalachian Voices, or their members.

Why Memphis is center stage in the lawsuit

When TVA introduced the contracts in 2019, almost all of its roughly 150 local power companies, including the Nashville Electric Service, signed them. Many of the companies did not have a real alternative: TVA restricts the use of its transmission lines, and most companies are landlocked into TVA’s transmission system.

Memphis is on the western border of TVA’s system, and the city’s local power company was one of only a few that did not sign the contract.

Memphis, Light, Gas and Water represents a $1 billion annual revenue stream for TVA, or about a tenth of its electricity load, and it has still not decided whether to sign the 20-year contract. In September, the former CEO recommended that MLGW sign the contract, which would then need to be approved by the Memphis City Council. The MLGW board delayed a vote on the deal earlier this month.

This very dynamic is part of the reason SELC is arguing that the contracts cause harm. The contracts remove the opportunity for local power companies “to do what MLGW was doing in 2019 and is doing right now: consider power options in a public process,” SELC wrote.

After TVA adopted the resolution for the contracts in 2019, TVA imposed a 5% cap on flexibility – meaning local power companies can only provide up to 5% of their own generation. That limits the growth of cheap distributed energy resources, including rooftop solar, according to SELC.

U.S. District Court judge Thomas Parker will preside over the case on Thursday.