-----Original Message-----
From: 	Hueter, Barbara A.  
Sent:	Wednesday, September 26, 2001 10:22 AM
To:	Robertson, Linda; Shelk, John; Steffes, James D.; Jacoby, Ben; Booth, Chris; Migden, Janine; Nord, Sue
Subject:	FW: Tennessee Energy Policy Work Group meeting - September 19th

Here is the summary of TVA's comments to the merchant power subcomm.

 -----Original Message-----
From: 	"Robert Gowan" <rgowan@stokesbartholomew.com>@ENRON [mailto:IMCEANOTES-+22Robert+20Gowan+22+20+3Crgowan+40stokesbartholomew+2Ecom+3E+40ENRON@ENRON.com] 
Sent:	Wednesday, September 19, 2001 3:22 PM
To:	bhueter@enron.com
Cc:	Gif THORNTON; WILLIAM BRUCE
Subject:	Tennessee Energy Policy Work Group meeting - September 19th

Barbara:

This morning's meeting of the Reliability, Availability, Quality, Price and Environmental Effects Committee of the Governor's Energy Policy Work Group was primarily an opportunity for TVA to present their position in the current energy climate.

TVA had at least six representatives at the meeting.  Four of the TVA representatives gave presentations on the issues being considered by this committee.

These are the main points TVA emphasized:

? Transmission capacity is a limited resource, and TVA is near the limits of its capacity to handle further capacity
? TVA is very concerned about the implications of the open access rules being discussed as part of the national energy policy
? TVA's customers should be concerned about how changes in the energy industry will affect them

TVA's presentation was loosely structured around the following questions posed by the committee prior to today's meeting.

? How reliable is TVA's power?
? How much available power does TVA have?
? What is the quality of TVA's power resources?
? What are the forecasts for energy costs?
? What environmental concerns are involved with the location of energy facilities?

As you can see, the questions are very broad, and were essentially a vehicle to allow TVA to crow about its abilities as an electric generator/supplier and to give subtle warnings about the dire consequences that would accompany the proliferation of private energy plants.

January 2001 RFP

TVA was asked whether the interest in Tennessee for merchant power plants was directly related to the RFP issued by TVA in January 2001.  This RFP is for 600 MW to be sold to TVA beginning in 2004.  TVA responded that it was possible that only one plant would be used to provide the 600 MW, and that the dozens of plants being planned in Tennessee would not be selling electricity to TVA.  This led to comments from the committee that most of these plants would not materialize once TVA awarded the RFP.

Incidentally, TVA stated that 80 proposals had been received in response to the RFP, and the companies still on the short list of contenders for the RFP have been notified, although TVA did not disclose the names of the short-listed companies.  TVA added that the company chosen from the RFP would not be required to have the plant fully permitted at the time of the award.

Water supply

TVA was asked if they had studied the impact that these facilities would have on Tennessee's water supply.  TVA said they had not studied this situation (editorial comment: TVA has been the chief public critic of the disastrous amount of water these plants would use.)  TVA did say they had 100 years of records, which they could use to project water flows.

Air quality considerations

TVA spent a great deal of time discussing NOx emissions and admitted that they were responsible for 25% of NOx emissions in Tennessee.  TVA claimed to be going forward with plans to reduce NOx emissions as required by an EPA order issued in 1999.  They said their emissions would be down to 200,000 tons of NOx in 2005, compared to the 530,000 tons emitted in 1996.  They did not mention that they are trying to get negotiate with the EPA for a more favorable level of NOx reductions.

TVA warned that the state should "look closely" and "carefully consider" the permitting of any new NOx sources because of the NOx reduction requirements being imposed by the EPA.

Transmission issues

TVA has 33,000 MW of transmission capacity.  TVA said use of their transmission capacity has "skyrocketed" in the last 3 years.  There were 25,000 transmission transactions on TVA's system in 1997.  There were 250,000 transmissions in 2000.

TVA said they are working hard to protect their current policy requiring power plant owners to absorb the cost of upgrades and connections required when non-TVA power generators use TVA's transmission system.  They acknowledged that the Bush administration energy policy is moving toward a requirement that the cost be "societized" i.e., absorbed by ratepayers.

TVA identified the following as "threats":

? Adding generators to the their grid without adequate infrastructure
? Treating their system as an open market before tools to manage the system are available


TVA said its transmission grid is reaching its limits, and it would take a tremendous amount of time and money to build new infrastructure to handle the number of private plants now considering locating in Tennessee.  When asked about plans for this infrastructure, TVA indicated they had done preliminary planning for potential infrastructure upgrades.

TVA said there are over 120 pending requests for interconnection with TVA's transmission system.

"Protection of Tennessee electric consumers"

TVA said its guidelines for electricity distribution are based on standard practices to "protect TVA's native base customers".  They said proposed FERC rules would provide protection for "other users of the transmission grid" and lessen the protection for TVA customers.

Conclusion; Future meetings

At the end of the meeting, Environment and Conservation Commissioner Milton Hamilton, who co-chairs this committee, said his department needs expertise on the "cutting edge environmental and production technology" that is available for energy plants.  TVA said their Public Policy Institute that would be glad to assist the state with technology issues.  It was not clear whether Commissioner Hamilton accepted this offer or would seek out other disinterested parties for help.

Economic and Community Development Deputy Commissioner, Tony Grande, the committee's other co-chair, said the committee may schedule another meeting after the September 26th public comment meeting to hear from the merchant power companies in a setting similar to the setting of today's meeting.


Gif Thornton and I would like to talk to you at your convenience on Thursday or Friday to discuss whether it would be in Enron's best interest to submit or make public comments at the September 26th meeting.


Robert Gowan
Stokes Bartholomew Evans & Petree, P.A.
SunTrust Financial Center
424 Church Street, Suite 2800
Nashville TN 37219-2386
Direct dial telephone 615-259-1025
Direct fax: 615-687-1524

www.stokesbartholomew.com


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