Power surge eases in valley

Power surge eases in v
Many plans for building merchant plants in area scrapped

BY DAVE FLESSNER
BUSINESS EDITOR

With abundant water, natural gas and transmission lines, the Tennessee Valley was invaded after the California energy crisis by prospective power producers trying to establish a beachhead to serve the growing Southeast.

But a slowing regional economy and cautious state regulators have helped curb the onslaught.

Among 188 sites in the valley once eyed by power generators for possible new plants, only a handful actually have been built so far. Plans for billions of dollars for merchant power plants — developed in the late 1990s when electricity supplies were tighter and prices seemed to be headed higher — have been deferred or scrapped.

"The market is probably overbuilt at the moment," said Greg Vincent, senior vice president of power planning for the Tennessee Valley Authority. "We're relooking at some of our plans."

TVA has backed away from a request issued last year to buy 600 megawatts of peaking power from merchant plants in the valley. The federal utility also is studying whether to defer plans to buy a comparable amount of baseload power from other sources, Mr. Vincent said. Future power supplies in the near term for TVA could come from a new gas-fired plant TVA may build itself in Tullahoma, Tenn.

While TVA scales back its plans to buy outside power, Tennessee, Georgia and Kentucky officials continue to explore ways to slow down independent power producers from coming into the region with power generation to serve customers outside the valley.

Later this month, Gov. Don Sundquist is expected to outline new guidelines for Tennessee to review merchant plants.

"We don't want to close the door to these investments, but we don't want to open the door wide open either," said Tony Grande, Tennessee's commissioner of Economic and Community Development. "There is a role for merchant power plants. But over the next two years, we want to limit and carefully review these proposals to make sure we protect our environment and don't do anything that jeopardizes the reliability of our electricity service in Tennessee."

Georgia and Kentucky lawmakers are considering legislation to subject independent power plants to more stringent environmental requirements.

"We have adequate power for our domestic use, but we don't want our natural resources exploited by power producers trying to make money simply selling electricity to customers in other states," said Bobby Baker, a member of the Georgia Public Service Commission who heads one of the subcommittees of Gov. Roy Barnes' Energy Task Force.

Most of the proposed electricity generators are merchant plants, which sell wholesale power to other utilities and industries. The Tennessee Valley has been targeted by many independent power producers.

Power in the valley
In the Tennessee Valley, six new merchant power plants have been built in the past three years, and even more have been proposed by independent power producers. The merchant plants sell power to TVA or other electric utilities.

Operating merchant plants

• 460 megawatt gas-fired plant owned by Cinergy in Brownsville, Tenn.
• 450 megawatt gas-fired plant owned by Cinergy in Caledonia, Miss.
• 390 megawatt gas-fired plant owned by Duke Energy in New Albany, Miss.
• 440 megawatt lignite-powered plant by Tractabel Power in Ackerman, Miss.
• 800 megawatt gas-fired peaking plants in Batesville, Miss.
• 600 megawatt gas-fired plant by Allegheny Power Co. in Gleason, Tenn.

Announced merchant plants

• 160 megawatt gas-fired plant by Williams Co. in Memphis, operational this summer.
• 1,240 megawatt gas combined cycle plant by Duke Energy in Murray County, operational this summer.
• 800 megawatt gas combined cycle plant by Cogentrix in Caledonia, Miss., operational in summer 2003.
• 640 megawatt combustion turbine by Duke Energy in Southaven, Miss., operational this summer.
• 1,000 megawatt coal plant by CME North American Coal in Marion County, operational by 2007.
• 100 megawatt fluidized bed coal-fired plant by Pickwick Power LLC in Hardin County.

...dent power producers because of its location at the crossroads of electric transmission lines and natural gas pipelines. The gas lines provide the fuel for new combustion turbines, and the power lines transmit the electricity the plants generate.

The valley is also home to one of the nation's biggest river systems with plentiful water supplies for making steam at either gas- or coal-fired plants.

"Any place where there is a convergence of water, natural gas and a transmission line is a potential site, and we have a lot of those in Tennessee," said James Weaver, a Nashville attorney who testified last year before a state task force studying energy issues.

But much of the new power generation, if it is eventually built, may be headed out of the valley. Such power exports wouldn't necessarily provide any more or cheaper power for local residents. But shipping the power could tax the transmission lines — and thereby threaten the reliability of electrical service, TVA officials said.

TURF BATTLES

TVA and its 159 distributors continue to control the retail market for electricity in TVA's seven-state service territory. But federal regulations adopted over the past decade have opened up the wholesale power market for independent power producers. The merchant plants proposed in the Tennessee Valley would sell electricity to both TVA and neighboring utilities across the Southeast and Midwest.

Proponents of deregulation contend the new merchant plants help provide needed supplies and competition to once monopolistic power utilities. They point out that prices for natural gas, airline tickets and long-distance telephone service all dropped significantly after deregulation.

"Unfortunately, TVA seems to have a history of trying to protect its turf," said Lynne H. Church, president of the Electric Power Supply Association, a trade group for the nation's independent power producers. "They certainly have been very reluctant to sign contracts with new suppliers, either to buy or transmit power."

Ms. Church said many merchant power plant proposals were stymied by the slowdown in power demand and the fallout from the collapse of Enron Corp. Enron helped foster many of the power trading markets used by merchant plants.

"Some of the independent power producers are deferring or even deciding not to build projects they previously announced," she said. "But there's no doubt that in the long run that this country is going to need more capacity, and these new merchant plants tend to be cleaner and more reliable than the older plants they could replace."

Most merchant plants are fueled by natural gas, which burns cleaner and generates less pollution than coal- or oil-fired plants. The new plants also offer local communities millions of dollars of new investment and hundreds of new jobs.

CONGESTED POWER LINES

One of the biggest barriers to adding more merchant plants is the nation's electric transmission system. Utilities have invested far more in new generation than in transmission capability over the past two decades.

TVA and other utilities complain that the power grid was built to carry electricity from nearby generation plants to end users and was not designed for long-distance power shipments between utilities.

"The transmission system is now being asked to transfer large amounts of power it was never designed to do," TVA spokesman John Moulton said.

Last year, TVA processed more than 275,000 transmission requests and shipped more than 16.5 million megawatts of power generated by other utilities across TVA's transmission network.

But independent power producers still complain that TVA and the states it serves are trying to limit a competitive wholesale market. Unless TVA buys power from independent sources — or allows its distributors to start buying power from merchant plants — a robust competitive market may not flourish in the region, Ms. Church said.

Deregulation proponents on the Federal Energy Regulatory Commission want to create Regional Transmission Organizations to control power transmissions across the country.

Unlike investor-owned utilities, however, TVA is not specifically subject to FERC's open access requirements. The states served by TVA also have not joined other states moving to deregulate the retail electricity market by allowing consumers to choose their power supplier.

"We want to be cautious in our approach to make sure we don't destroy our environment or disrupt the reliability or low cost of power provided to us by TVA," Justin Wilson, deputy to Gov. Sundquist, said earlier this year.

Environmental groups share Mr. Wilson's concerns about allowing more power plants in the valley that might contribute to air pollution or deplete valuable water supplies.

"Some of these merchant plants that use natural gas might be better for the environment than TVA's old coal plants. But there are a lot of environmental issues surrounding a power plant, and we certainly don't want to pollute the valley to provide electricity for other parts of the country," said Stephen Smith, executive director of the Southern Alliance for Clean Energy.

Gov. Sundquist is expected to issue an executive order this month limiting the number of new merchant plants allowed in Tennessee.

The state order won't necessarily block development of plants already-under design or construction, including a $100 million gas-fired plant Duke Energy is building in Murray County, Ga., or a similar-sized coal plant proposed by CME Northern American Coal in Marion County, Tenn. But Mr. Grande, who co-chaired Tennessee's energy study group, said the state wants to limit the number of new plants not already in the pipeline to "only a handful" until the cumulative effects of such plants are assessed.

TVA officials insist that they now abide by all FERC rules on wholesale power shipments, and pending legislation in Congress to deregulate electricity nationwide will require that TVA remain competitive with other power suppliers.

"We are looking at all of our options for the future to ensure we have reliable, low-cost power," Mr. Vincent said. "We have no bias for or against buying power from merchant plants. But at this point, the market is such that it doesn't make sense to enter into long-term contracts to buy power from these type plants."

E-mail Dave Flessner at dflessner@timesfreepress.com