Message-ID: <29672781.1075840876234.JavaMail.evans@thyme> Date: Wed, 18 Apr 2001 13:34:00 -0700 (PDT) From: christi.nicolay@enron.com To: john.lavorato@enron.com, louise.kitchen@enron.com Subject: Article about Enron- wsj 4/17/01 Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Christi L Nicolay X-To: John J Lavorato , Louise Kitchen X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\Mrha\OOC X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst - April 17, 2001 Economy Electricity Facilities Sprout Near Tin= y Tennessee Town By JOHN J. FIALKA Staff Reporter of THE WALL STREET JOURN= AL NUTBUSH, Tenn. -- This town of about 100 people hasn't seen anything qui= te this electrifying since the 1950s when a local teenager, Annie Mae Bullo= ck, left town and became Tina Turner, the queen of rock 'n' roll. Power pla= nts are sprouting in the flat, rich cotton fields nearby. One is under cons= truction; another is about to start. Bulldozers are grooming a site for a t= hird. "We think it's great," says Alvin Williams, owner of the Nutbush Groc= ery and Deli, as he prepares for the surge of construction workers who come= in for lunch. While this may seem promising at a time of growing energy sh= ortages, the new plants are part of a power clash that presents the Bush ad= ministration and federal and state regulators with one of their knottiest p= roblems: Who controls the nation's power grid? On one side is a new breed o= f freewheeling energy dealers called merchant traders, spurred by deregulat= ion to generate and trade electricity. Led here by Enron Corp., they build= small gas-fired generating plants, but most don't construct their own powe= r lines. Instead, they hook up the plants to existing lines and sell electr= icity wholesale over long distances when prices peak during the summer. Thu= s, many of their plants are called "peakers." On the other side are old-lin= e utilities, represented here by the federally owned Tennessee Valley Autho= rity. They operate the power lines and warn that the system could become ov= erloaded, leading to blackouts from the imbalance. Near Nutbush here in Ten= nessee's southwest corner, natural-gas pipelines run from the Gulf Coast an= d intersect with some of the TVA's 17,000 miles of transmission lines, whic= h are spread over seven Southern states. That is what is making Nutbush boo= m: It is an attractive place to connect to the grid. By 2003, at least 13 = new merchant plants altogether will be hooked up across the TVA's system. T= here will be dozens more on neighboring systems that will also use TVA line= s, says W. Terry Boston, a TVA executive vice president. This year, TVA exp= ects 300,000 requests for wholesale power deals on its system, up from 250,= 000 last year and just 25,000 in 1996. Mr. Boston foresees a congestion pro= blem that will make it more difficult for the utility to maintain its recor= d of 99% reliability. "This summer is going to be interesting," he says. Co= mbat started here in the spring of 1999, when an Enron plant at nearby Brow= nsville began bombarding TVA with about 800 requests for summer transmissio= n service, up from 33 the TVA had received from merchant plants the year be= fore. Some were huge, elaborate trades involving brokered electricity from = other sources that Enron wanted to ship across the TVA system. Kevin Presto= , an Enron vice president, recalled: The TVA "pretty much fought us the who= le way, even though they needed the megawatts." That June, TVA pulled the p= lug, telling Enron that from then on, its wheeling and dealing would be con= fined to the amount of electricity produced in Enron plants. Enron claimed = foul and appealed to the North American Electric Reliability Council, or NE= RC,, a voluntary organization of utilities and electricity consumers. Along= with the Federal Energy Regulatory Commission and state regulators, NERC f= unctions as the traffic cop for North America's power grid. Enron also sued= the TVA and the dispute "raised a number of issues that we are trying to p= ut our fingers on," says Don Benjamin, NERC's director of operations. One u= pshot is that it is busy rewriting the rules for how the national grid is c= ontrolled. The Bush administration's energy task force and Congress are als= o looking at the control issue and ways to expand the grid's capacity. So f= ar, they have found no easy or inexpensive answers. The grid, with its den= se webs surrounding major cities and few links in between, resembles a U.S.= highway map from the 1930s before the Interstate system was built. And it = is governed by rules that were negotiated by utilities at about that time, = as they began to interconnect their systems with their neighbors'. Big util= ities became "control areas" that perform the moment-to-moment adjustments = that keep lines from overloading and equipment from melting down. With elec= tricity, supply must always match demand. But lately, operators of merchant= plants, such as Enron, have also qualified to become control areas. Regula= tors have ordered utilities to give merchant power plants open access to th= e grid, though the utilities sometimes curtail access for "reliability" rea= sons. "This was a very good system," sighs Thomas Overbye, an engineering p= rofessor at the University of Illinois. But while merchant plants have more= access to the grid, he notes, they have little incentive to build more pow= er lines. "When you restructure that way," asserts Mr. Overbye. "You're goi= ng to overload the system, and that's exactly what's happening." NERC's Mr.= Benjamin worries that control will get harder this summer. "We've got to b= e able to look at this and see what effects these deals are having on the w= hole system," he says. Some ad hoc curtailment of wholesale deals and servi= ce to customers may be necessary to protect the grid, but the result will b= e expensive, he notes. "It means that merchants won't make money on that de= al, and that the customer they sold power to will have to buy it from someb= ody else." In the summer of 1999 there were such 70 curtailments; last summ= er there were 180. Lynn Church, president of the Electric Power Supply Asso= ciation, which represents 40 merchant power companies and electricity trade= rs, suspects that decisions taken by big utilities for "reliability" reason= s are sometimes used to block legitimate competition from her members. To p= revent this, her group wants more federal control over the grid. "We're see= ing lots of discrimination." The TVA's Mr. Boston counters that his system = can't take more "surprises," such as the one on Aug. 19, 1999, when a serie= s of wholesale trades brought the TVA's part of the grid to the brink of co= llapse from the overload. This year, Enron settled its fight with the TVA w= ith a secret out-of-court settlement. Enron says it is also in the process = of selling the plant near here and two others it had hooked to the TVA syst= em to other merchant power producers. But it is still waging war over who c= ontrols the grid. In a separate case now before the U.S. Supreme Court, Enr= on argues that FERC has the power to open more of the grid's capacity to me= rchant power plants. Utility commissioners from several states argue it doe= sn't. While this is going on, FERC is pondering how to cut back the grid's = proliferating number of control areas. Right now there are about 150. Accor= ding to one FERC expert, who asked not to be identified, to avoid "complica= tions" there should be around 14. Meanwhile, officials in Tina Turner's hom= e turf still want the power plant construction to keep on rocking. "There's= going to be others," predicts John Sharpe, the executive of Haywood County= , who has been out recruiting more power plants to keep the local economic = boost going. "I'm working my pants off to try and make that happen." Write = to John J. Fialka at john.fialka@wsj.com =09