Critics question Memphis power supply bidding process
A pair of businessmen pushing Memphis, Light, Gas and Water to quit the Tennessee Valley Authority aired a long list of grievances on Wednesday about the utility’s conduct in bidding on its power supply and pushed Memphis Mayor Jim Strickland to oversee the process.
The letter sent to Strickland, the Memphis City Council and members of MLGW’s board of directors is another salvo from a group that has long been suspicious of how MLGW would conduct the bidding on its power supply. It is unclear what action Strickland will take in response to the letter, if any.
The letter came out the same day that companies bidding for Memphis power supply were supposed to submit fixes to any questions MLGW had on their bids. He also spoke on the seventh day of widespread power outages and he said any potential savings from the TVA exit could be used to pay for infrastructure improvements and prevent future outages.
Jim Gilliland and Karl Schledwitz, two influential Memphis businessmen who manage $450 million for Memphis, a nonprofit named for alleged savings Memphis could receive each year if it left TVA, wrote the letter and listed their complaints about the conduct of the bidding process.
They claimed in their letter that MLGW was not following Strickland’s instructions on how the tender process – known as an RFP or request for proposals – should proceed. The couple asked Strickland to remove the frames that did not follow his instructions.
“We write to you in disbelief regarding our belated realization that the executive leadership of MLGW has disregarded your collective, written and public instructions in 2021 regarding two of the three components of the Request for Proposals (RFP) of the MLGW RFP “Wholesale energy supply”, Schledwitz and Gilliland wrote. “This is particularly relevant with this week’s ice storm that devastated Memphis, as potential energy savings could be part of the solution to these chronic problems at MLGW.”
MLGW CEO JT Young said in an interview that the utility is following the process correctly.
“We had a resolution in front of our board and council that was approved last year that put forward the marching orders on how we were going to move forward,” he said. declared. “And that’s what I understand, that’s what we’re doing. So every tender that’s been issued in line with that direction.”
Auctions could limit potential savings
At the heart of the businessmen’s problems is the argument that MLGW’s bidding requirements for natural gas power generation and transmission towers and lines are too specific. Accordingly, Gilliland and Schledwitz claim that the specificity of the tender requirements is intended to limit the number of tenders received by MLGW.
“And the staff at Light, Gas and Water has always told people, ‘Hey, we’re going to have to own our own power generation, which would lead to billions in debt,'” Schledwitz said in an interview Wednesday.
The $450 million letter for Memphis claims that only one of the three separate bidding processes — that for renewables — meets Strickland’s instructions.
“I’m not trying to issue a legal opinion. But here’s what I say that the staff of Memphis Light, Gas and Water objected early and often consistently to the RFP process. And now it there is compelling evidence that they conducted him in direct violation of the agreement,” Schledwitz said Wednesday.
Young said the renewable tender open to alternative forms of energy was in response to the mayor’s instructions.
“That allowed, of course, not just renewables, but all other kinds of solutions. There were no restrictions on what people could bid on,” Young said. “And it’s been made public. So I don’t know what this accusation is based on.”
Schledwitz and Gilliland’s letter includes documents from the city of Memphis’ own consultant – Enervision – that detailed MLGW did not follow Strickland’s instructions on how to make the bidding more open and flexible – allowing companies who would build and own infrastructure for MLGW to lease, not infrastructure that MLGW would issue bond debt to pay for and then own.
These instructions from the mayor came after Strickland stepped in and brokered a compromise between MLGW executives and the Memphis City Council last year on how power tenders would be handled.
The compromise was only necessary after the power tender contract, with GDS Associates, was rejected by the Memphis City Council in October 2020, after intense lobbying by Schledwitz and the U.S. Rep. Steve Cohen, D-Memphis. $450 million for Memphis expressed a preference for another company.
Letter shows Strickland used consultant to lead process
The most notable revelation in Schledwitz and Gilliland’s communication with local authorities is in the attachments they sent in their email letter.
Included is a report from Enervision, a consultant that Strickland and COO Doug McGowen hired to brief them on the power supply process.
Ursula Madden, the city’s communications manager, confirmed the authenticity of Enervision’s report. She said it had been shared with MLGW and it appeared the utility had incorporated comments from Enervision.
The Strickland administration intervened in the electricity procurement process in early 2021 after the first contract with GDS Associates was rejected in 2020.
To get the GDS contract approved by the Memphis City Council early last year, the Strickland administration got MLGW to agree to allow other forms of energy – beyond natural gas and solar – and different ownership structures for the infrastructure concerned.
Enervision’s August 2021 report said MLGW was limiting the pool of bidders among companies that wanted to bid on building transmission lines from Memphis to connect to Mississippi and Arkansas — a prerequisite for leaving TVA.
“To broaden the pool of bidders, MLGW should not eliminate the possibility of third-party ownership or shared ownership of transmission facilities,” Enervision wrote.
The report also shared thoughts from GridLiance, a company that owns transmission lines across the country and is a subsidiary of listed energy company NextEra,
“GridLiance also states that MLGW is putting itself and the residents of Memphis and Shelby County at unnecessary risk by limiting its options to full ownership of transmission facilities. Identified risks include sole responsibility for transmission upgrades to integrate the supply, which [includes] initial and future capital and operating expenses,” the report states.
Enervision wrote that NextEra was also interested in selling energy blocks to Memphis, which the bidding process does not allow for, according to the report.
The Commercial Appeal reported early last year that Strickland had hired Enervision.
“I needed it,” Strickland said at the time. “It’s a very important issue for the city, and it’s also at the same time a very technical issue in which I have no training. I’m not an engineer. I’ve never worked in the electricity sector. ‘energy.
“There is a lot of advocacy from all sides on this issue… After the council rejected the [request for proposals], I think it was in October, some time after the board members asked me if we were going to get more involved and try to find a way to put the MLGW board, the MLGW administration and the Council on the same page, some kind of compromise that would get the process started. And I needed to know more about the details of our supply…”
Push for a board member to be removed
Schledwitz and Gilliland are also pushing for any board member with a conflict of interest to be removed from office.
Their comments refer to a report by the Institute for Public Service Reporting at the University of Memphis which showed that MLGW board member Carlee McCullough and TVA executive Mark Yates are essentially business partners in a restaurant in Memphis.
McCullough did not comment on the report. But Gilliland challenged his vote to suspend the Memphis power bidding process from early 2021. when MLGW management decided to end its assessment of TVA’s departure. CEO JT Young had cited outages in Texas and elsewhere as reasons to stay with TVA.
McCullough then voted to support Young’s plan to stop the process, but had previously voted for the GDS contract to go to the bidding and would vote for him again a few months later after Strickland’s compromise.
Samuel Hardiman covers Memphis city government and politics for The Commercial Appeal. He can be reached by email at [email protected] or followed on Twitter at @samhardiman.