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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
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         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



