According to this article, Morgan Stanley now controls about one-third of the Southern Intertie's total northbound capacity, or about 1,145 megawatts, until February 2002.  Then its share drops to just over 700 megawatts until March 2003.---sch 


Wall Street joins the energy players 
By Les Blumenthal 
Bee Washington Bureau 
(Published June 9, 2001) 
WASHINGTON -- Wall Street's interest in the West Coast electricity crisis extends far beyond trading energy futures in some Manhattan skyscraper or arranging financing for much-needed generating plants. 
Morgan Stanley, which earned more than $5.5 billion last year, has quietly purchased a major share of one of the Bonneville Power Administration's huge transmission lines that link California with the Pacific Northwest. 
The $18 million deal caught Bonneville off guard and has sparked concern among regional utility executives and lawmakers on Capitol Hill. Morgan Stanley officials said they would use their capacity on the so-called inter-tie to ship power purchased in the Southwest for sale to utilities in Washington state and Oregon. 
Although most of the attention in the Western power crisis has focused on major energy companies from Texas and other Southern states, Morgan Stanley ranks among the 15 largest power marketers in the nation, according to reports filed with the Federal Energy Regulatory Commission. 
Morgan Stanley registered as a power marketer with federal regulators in 1995, the first Wall Street firm to take such a step. 
Merrill Lynch also is registered with the commission. 
"Wall Street firms have long played a role in the trading of commodities, including energy," said Judy Hitchen, a Morgan Stanley spokeswoman in New York. 
But many in the utility industry said they hadn't realized Morgan Stanley was buying and selling electricity for actual sale and not just engaging in electronic trading. 
"I wasn't aware of it," Mark Crisson, superintendent of Tacoma Power, said of Morgan Stanley's purchase of capacity on the inter-tie. "It shows how things are changing." 
And in Congress, Rep. Peter DeFazio, D-Ore., said Morgan Stanley's direct involvement in West Coast electricity markets wasn't all that surprising. 
"It's wonderfully lucrative for a few folks," DeFazio said. "This is the big new game. It's the new world of deregulated energy." 
Bonneville has four major transmission lines linking California and the Northwest capable of carrying enough electricity to power almost seven cities the size of Seattle. The lines were built by the federal government, are operated by the transmission arm of BPA and soon may be turned over to an independent operator to quiet utility fears that Bonneville could hog the region's power grid. 
Morgan Stanley now controls about one-third of the lines' total northbound capacity, or about 1,145 megawatts, until February 2002. 
Then its share drops to just over 700 megawatts until March 2003. BPA and several other utilities own the rest of the capacity. 
"They sent us a fax telling us they wanted to buy capacity on such and such a date and ending on such and such a date," said Shepard Buchanan, a spokesman for BPA's transmission side. "No one had ever made a long-term purchase of that (transmission) path before. It had never come up before." 
Under federal regulation, BPA had no choice but to accept the Morgan Stanley bid. 
The transmission lines act like huge spigots that can be turned off and on depending on demand. Though federal regulations prohibit manipulating the lines for profit, theoretically the company that controls the spigot has a huge say in the market. 
Buchanan said Bonneville would be keeping a close watch on Morgan Stanley. 
"We are concerned," he said. "We don't want anyone gaming the market by controlling the (transmission) system. We will keep a close eye on Morgan Stanley and others." 
Although not a secret, the deal was finalized in early January and since then has been accompanied by little public notice. 
"We purchase transmission capacity from time to time to help us meet our delivery obligations," Hitchen said in response to written questions. 
Morgan Stanley's Internet site and annual report make only passing mention of its power marketing. 
"Commodity trading revenues rose 34 percent to a record level in fiscal 2000, primarily driven by higher revenues from certain energy-related products, including electricity, natural gas and crude oil," the company's annual report said. "Increases in energy prices were primarily attributable to strong demand for energy products, relatively low inventory and reduced production values." 
Morgan Stanley officials are quick to deny they have any intent to manipulate the market, saying that though it may be required to sell any capacity on the inter-tie it doesn't use to other power marketers, federal regulations prohibit it from making a profit on such sales. 
"We have also offered capacity for resale to third parties," Hitchen said. 
Others remain skeptical. 
Bonneville's power-marketing arm also has expressed unease with the Morgan Stanley contract. 
Bonneville sells about 45 percent of the wholesale electricity in the Northwest, most of it low-cost hydropower generated at the 29 federal dams on the Columbia and Snake rivers. It also controls about 75 percent of the region's electric transmission grid. 
Crisson said he also was concerned about a possible conflict of interest because Morgan Stanley and other Wall Street firms help arrange financing for new generating plants. 
"It doesn't surprise me a lot that they are marketing power," he said. "They are capitalists. But they need to be careful because they underwrite debt equity for utilities."