TVA claim against city in detail
A claim of breach of contract against the City of Holly Springs in Federal District court filed in Oxford April 23 seeks injunctive, declaratory and other relief.
Some of the particular allegations in the 25 page document are listed in brief in this report.
The contract with local power companies includes that the local power companies abide by TVA's financial oversight requirements.
TVA claims that the Holly Springs Electric Department is in a critical state of financial insolvency and is unable to pay operating expenses, including timely and full payment to TVA for wholesale power. HSUD is in violation of its obligation to maintain the electric system on a financially sound and self-supporting basis and is in continuous breach of other obligations including the proper use of the system revenues and various financial supporting requirements, according to the lawsuit.
TVA said its actions to try to bring the city back into compliance with the power contract was to no avail.
TVA asked the court to declare the City of Holly Springs in breach of its power contract and to order the City to perform its obligations under the contract.
HSUD's electric department sells electricity to about 12,000 residential and business customers in parts of Marshall, Benton, and Lafayette counties in Mississippi and in Hardeman and Fayette counties in Tennessee.
The contract, automatically renewed yearly since 2019, established financial and accounting policies such as prohibitions against co-mingling of funds, uniform accounting requirements and provides billing terms for payment to TVA for energy usage.
Other requirements are monthly and yearly financial reporting requirements to TVA, annual audits, and to operate the electrical system's financial accounts and affairs in strict accordance with the contract.
The contract allows a municipality to receive payments in lieu of taxes (PILOT payments) from the HSUD into the city's general fund as a fairshare cost.
The contract provides the municipality shall pay TVA for power and energy supplied and requires all wholesale power invoice payments be made from revenues from the sale of electricity. The contract requires the municipality to maintain rates and charges in agreement with TVA and to adjust rates and charges when they are insufficient to operate the system.
Count 1 of the claim in brief, alleges:
• the municipality is failing to charge rates sufficient to operate its system on a self-supporting and financially sound basis.
• in a compliance assessment, TVA warned the city Sept. 5, 2023, HSUD would not have revenue to cover cost.
• less than a year later, HSUD was late on paying its June 2024 wholesale power invoice.
• in October 2024, a TVA financial review, found the system remained in a critical state of financial insolvency, and said, if HSUD did not implement a rate adjustment, it would not be able to pay operating expenses (salaries, cost of materials and supplies).
• the October 2, 2024, review revealed HSUD had $2.4 million in outstanding vendor debt and only $446,000 in cash, was not performing timely bank account reconciliations and was delinquent on its $2.1 million August 2024 TVA power invoice.
• HSUD paid its May 2024 invoice on time and in full, but since has not paid it on time and in full. HSUD had an outstanding past-due TVA invoice balance for February 2025.
• HSUD's attempted late payments to TVA was cited as evidence of financial mismanagement of the HSUD and of the electric system's critical financial state. An August 2, 2024, payment for the June 2024 TVA wholesale power invoice was returned due to insufficient funds.
• the city is failing to pay it's own power bills. As of March, 20, 2025, the city owed HSUD over $250,000 for the city's energy and power use.
• customer complaints to TVA about HSUD made up 69 percent of all TVA complaints in 2023 and 56 percent of all customer complaints in 2024. TVA regulates 153 local power companys.
• the city is under investigation by the Mississippi Public Service Commission charging failure to provide reasonably adequate electric utility services.
• the city did not respond to TVA letters of August 21, 2024, and October 8, 2024, or November 14, 2024, notifying the city of continuous breach of contract and a proposed rate adjustment of 6.6 percent to help bring the city back into compliance with its power contract.
• the city's failure to meet and agree upon a rate adjustment is a breach of implied covenants of good faith and fair dealing.
• TVA will suffer irreparable injury by being prevented from enforcing the provisions of its contract.
Section 6 of the power contract addressees the following appropriate uses of revenues by the municipality including:
• the city use its revenues to pay operating expenses, including salaries, wages, and cost of materials and supplies and power at wholesale and insurance.
• the city pay interest on the system indebtedness and pay full principal amounts, including sinking fund payments when due.
• the city use remaining revenues, reasonable reserves for renewals, replacement and contingencies, and cash to cover operating expenses.
• the city use any revenues remaining for tax equivalency (PILOT) payments into the general fund.
• the city make PILOT payments to the general fund only if HSUD has adequate cash and reasonable reserves to cover operating expenses including payment to TVA for wholesale power use. TVA considers eight percent cash on hand, equivalent to 30 days of HSUD's power costs, operating and maintenance expenses to be the minimal as adequate cash working capital.
• HSUD is believed to not have adequate cash and reserves. HSUD's $1.9 million invoice from TVA for February 2025 was past due. As of March 2025, HSUD owed about $1.6 million in vendor payments, and had only $1.3 million available cash, leaving no cash reserves.
• the municipality is believed to have made separate PILOT payments of $150,000 in November and December of 2024, and on January, February and March of 2025 – a material breach of the power contract.
TVA asked the court to enjoin defendants and order the city return unauthorized PILOT payments to HSUD within 30 days of the court order.
In count four, TVA alleged the city is in continuous breach of power contract requiring financial reporting.
The contract requirements include:
• TVA have access to all books and records to the system's operations.
• the city provide TVA with monthly operating, statistical and financial reports no later than 30 days after each month's end.
• that by August 15 of each year the city provide TVA with an annual financial report of the preceding year. That TVA be allowed to collect and process the data necessary that should have been furnished in the required report.
• the city have financial statements audited by October 31 each year.
TVA's claim alleges the city withheld access to TVA around August 21, 2024, but later gave access to the utility's data after the June 30, 2023, report was delinquent. The annual report for June 30, 2024, is outstanding.
• TVA has not received financial reports for June through December of 2024, nor for January through March of 2025.
• no annual financial report was received by TVA for the period ending June 30, 2024.
• the city has not provided TVA with external audit reports of the electric department for year 2012, 2022, 2023, or 2024.
TVA asked the court to award permanent injunctive relief requiring the City of Holly Springs to provide TVA with accurate monthly financial reports and to provide TVA with annual financial reports by June 30, 2025, and to obtain and provide external audit reports by October 31 of each year after the April 23 filing date of the complaint.
TVA asked the court to award TVA preliminary and permanent injunctive relief enjoining and restraining the defendants, their officers, agents, servants, employees and attorneys from acting in a manner inconsistent with the power contract – from failing or taking any act that would cause the defendant to be in violation of the power contracts, or for failing to take any actions that would prevent, hinder, or interfere with compliance with the orders of the court in this case.