May 7--In one of its first acts, the new TVA board will head to Kentucky next week to consider how to mend fences along the utility's northern border.

With a handful of Kentucky distributors preparing to leave the Tennessee Valley Authority fold, the newly appointed directors have scheduled their first full board meeting on May 18 in Hopkinsville, Ky., to hear from customers planning or considering whether to buy power from other sources.

"One of the things that I think is really in the forefront for this organization is the challenge that we are facing with our distributors and other customers in Kentucky," TVA Director Skila Harris, a Bowling Green, Ky., native, told the new board during its recent organizational session.

Many distributors of TVA power hope to convince the new board to modify their contracts to give them the ability to buy some or all of their electricity from utilities and power generators other than TVA for the first time. The change could poke a hole in the fence that has kept the seven-state TVA region an island amid a sea of growing wholesale power competition elsewhere in the country.

"Every other utility in North America is required to provide open transmission of electricity to municipalities and co-ops so there can be a competitive market," said Billy Ray, president of the Glasgow, Ky., Electric Plant Board, one of five distributors planning to leave the TVA fold in the next five years.

Under regulatory and congressional pressure, the new TVA board is being urged to grant more power purchasing options for its customers.

"We were asked by (U.S. Sen.) Mitch McConnell (R-Ky.) to address this issue as quickly as we could," said TVA's newly elected chairman, Bill Sansom. "I think we need to listen to Congress and what they want."

The former three-member TVA board resisted opening the Tennessee Valley to outside competitors while federal laws still restrict where TVA can sell its surplus power. TVA President Tom Kilgore said making the transition from a restricted monopoly to an open, competitive market "is a very complex and difficult process" that needs to be carefully studied.

"We don't want people coming in and cherry-picking our best customers and leaving us with the fixed costs of serving everyone else," Mr. Kilgore said.

BUILDING THE FENCE In 1959, investor-owned utilities that neighbor TVA convinced Congress to limit where the federal utility could sell power, effectively creating a fence around the TVA service territory. In response, TVA supporters gained approval of an "anti-cherry picking" rule that exempts TVA from the open transmission requirements to transfer power into the valley for customers that might be served by outside utilities.

When those rules were adopted nearly a half century ago, TVA rates were among the lowest in the country. In response, many Kentucky cities in the early 1960s split from their Kentucky wholesale power suppliers to get cheaper electricity from the Tennessee Valley Authority.

But now some of those same cities are reversing course.

In the past two years, eight of TVA's 159 distributors have given TVA notice of their intent to buy power elsewhere once their contracts with TVA expire. Three of those distributors -- the municipal power systems in Bowling Green and Hopkinsville, Ky., and the Meriwether Lewis Electric Cooperative in Centerville, Ky., -- later rescinded their notices and agreed to stay with TVA when they were unable to secure transmission agreements to bring cheaper power to their service territories. CHANGING THE FENCE The inability of TVA distributors in Kentucky to connect to cheaper energy sources and match their lower-priced neighbors pushed Kentucky's senators last year to introduce legislation to tear down TVA's fence, at least in Kentucky.

U.S. Sen. Jim Bunning, R-Ky., proposed a bill that would require TVA to open up its transmission network to Kentucky distributors but not other TVA customers. TVA shouldn't be hurt by the change, Sen. Bunning said, because all of Kentucky represents only about 6 percent of TVA's total power load, or about the growth in electricity consumption in two years.

Any distributor of TVA power still would have to give the federal utility five years notice before it quit buying TVA power.

In 2004, Warren Rural Electric Cooperative, the largest TVA distributor in Kentucky, signed a contract to join another power co- op by 2008. The distributor will be only the second to ever pull the plug on TVA. The Bristol, Va., Utilities Board left TVA in January 1998. But the Bowling Green coop is having to fight TVA to gain transmission connections for its new power source. That battle already has reached the Federal Energy Regulatory Commission, which has ordered TVA to provide transmission connections to Warren Rural Electric. TVA may appeal that decision to federal court.

To avoid either a court battle or legislative fight over TVA's boundaries, the trade group that represents most of TVA's distributors, the Chattanooga-based Tennessee Valley Public Power Association, has proposed its own settlement between TVA and its distributors.

Jack Simmons, executive director for TVPPA, said the group is proposing that TVA agree to provide transmission service to the five distributors that already have served notice of their intention to leave TVA and to other distributors who want to leave in the future, provided they do so with at least a five-year notice and in an orderly fashion.

"If the defections are not any more than TVA's normal load growth, then TVA shouldn't be hurt, and those distributors that are able to find cheaper sources could take advantage of the market," he said.

EPB President Harold DePriest, a former chairman of the Tennessee Valley Public Power Association, also wants the flexibility to buy some power from sources other than TVA.

"For TVA to be truly sensitive to the market, the customers of TVA have to have the ability to buy at least some of our power from other utilities," Mr. DePriest said.

To gain access to alternative sources, however, will require access to TVA's transmission grid.

"I think it is hard to imagine that over time we can continue to be isolated with literally a federal fence around us," Mr. DePriest said. "Over the next few years, the fence is probably going to have to come down."

E-mail Dave Flessner at dflessner@timesfreepress.com