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         April 17, 2001      Economy Electricity Facilities Sprout Near Tiny Tennessee Town By JOHN J. FIALKA  Staff Reporter of THE WALL STREET JOURNAL NUTBUSH, Tenn. -- This town of about 100 people hasn't seen anything quite this electrifying since the 1950s when a local teenager, Annie Mae Bullock, left town and became Tina Turner, the queen of rock 'n' roll. Power plants are sprouting in the flat, rich cotton fields nearby. One is under construction; another is about to start. Bulldozers are grooming a site for a third. "We think it's great," says Alvin Williams, owner of the Nutbush Grocery 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 shortages, the new plants are part of a power clash that presents the Bush administration and federal and state regulators with one of their knottiest problems: Who controls the nation's power grid? On one side is a new breed of freewheeling energy dealers called merchant traders, spurred by deregulation to generate and trade electricity. Led here by Enron  Corp., they build small gas-fired generating plants, but most don't construct their own power lines. Instead, they hook up the plants to existing lines and sell electricity wholesale over long distances when prices peak during the summer. Thus, many of their plants are called "peakers." On the other side are old-line utilities, represented here by the federally owned Tennessee Valley Authority. They operate the power lines and warn that the system could become overloaded, leading to blackouts from the imbalance. Near Nutbush here in Tennessee's southwest corner, natural-gas pipelines run from the Gulf Coast and intersect with some of the TVA's 17,000 miles of transmission lines, which are spread over seven Southern states. That is what is making Nutbush boom: 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. There will be dozens more on neighboring systems that will also use TVA lines, says W. Terry Boston, a TVA executive vice president. This year, TVA expects 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 problem that will make it more difficult for the utility to maintain its record of 99% reliability. "This summer is going to be interesting," he says. Combat started here in the spring of 1999, when an Enron plant at nearby Brownsville began bombarding TVA with about 800 requests for summer transmission service, up from 33 the TVA had received from merchant plants the year before. 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 whole way, even though they needed the megawatts." That June, TVA pulled the plug, telling Enron that from then on, its wheeling and dealing would be confined to the amount of electricity produced in Enron plants. Enron claimed foul and appealed to the North American Electric Reliability Council, or NERC,, a voluntary organization of utilities and electricity consumers. Along with the Federal Energy Regulatory Commission and state regulators, NERC functions 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 put our fingers on," says Don Benjamin, NERC's director of operations. One upshot is that it is busy rewriting the rules for how the national grid is controlled. The Bush administration's energy task force and Congress are also looking at the control issue and ways to expand the grid's capacity. So far, they have found no easy or inexpensive answers.  The grid, with its dense 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 utilities became "control areas" that perform the moment-to-moment adjustments that keep lines from overloading and equipment from melting down. With electricity, supply must always match demand. But lately, operators of merchant plants, such as Enron, have also qualified to become control areas. Regulators have ordered utilities to give merchant power plants open access to the grid, though the utilities sometimes curtail access for "reliability" reasons. "This was a very good system," sighs Thomas Overbye, an engineering professor at the University of Illinois. But while merchant plants have more access to the grid, he notes, they have little incentive to build more power lines. "When you restructure that way," asserts Mr. Overbye. "You're going 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 be able to look at this and see what effects these deals are having on the whole system," he says. Some ad hoc curtailment of wholesale deals and service to customers may be necessary to protect the grid, but the result will be expensive, he notes. "It means that merchants won't make money on that deal, and that the customer they sold power to will have to buy it from somebody else." In the summer of 1999 there were such 70 curtailments; last summer there were 180. Lynn Church, president of the Electric Power Supply Association, which represents 40 merchant power companies and electricity traders, suspects that decisions taken by big utilities for "reliability" reasons are sometimes used to block legitimate competition from her members. To prevent this, her group wants more federal control over the grid. "We're seeing 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 series of wholesale trades brought the TVA's part of the grid to the brink of collapse from the overload. This year, Enron settled its fight with the TVA with 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 system to other merchant power producers. But it is still waging war over who controls the grid. In a separate case now before the U.S. Supreme Court, Enron argues that FERC has the power to open more of the grid's capacity to merchant power plants. Utility commissioners from several states argue it doesn'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. According to one FERC expert, who asked not to be identified, to avoid "complications" there should be around 14. Meanwhile, officials in Tina Turner's home 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