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Utilities sweat the process out while businesses giddily anticipate competition

What does electric power deregulation mean now?

grenada — What will a deregulated energy market do for Mississippi businesses? Ask Stewart Thomas, vice president and general manager of Newsprint South in Grenada.

Up here, far from the rhetoric on the issue revolving around Jackson, he’s giddy with anticipation, and his power provider, the Tennessee Valley Authority (TVA), is possibly a little bit worried.

As the legend goes, and Thomas confirmed, a decade ago when Newsprint South came to Grenada and located its mill on 900 acres in the Air Industrial Park, it strategically positioned itself nearly smack dab on the line between TVA and Entergy Mississippi and let the two essentially duke it out.

With a power bill that runs several million a month, competition for Newsprint South was fierce. Eventually TVA won.

While TVA may have won the battle, they may eventually lose the war. That 10-year contract expires in October and already Newsprint South is hot in negotiations with TVA for another contract. Would Newsprint actually consider switching energy providers? Could they coax TVA into a shorter-term contract so as to take advantage of the proposed deregulation? Citing the on-going negotiations, Thomas wouldn’t discuss specifics or the options, but would only say TVA is being very accommodating.

“TVA is in a negotiating frame of mind,” Thomas said.

Although the state’s efforts to deregulate investor-owned energy won’t affect those in the 29 north Mississippi counties which receive their power from the federally-owned TVA through the electric power association, Thomas said they are nonetheless a little worried.

“TVA is reading the tea leaves. They’re losing their valley support. The TVA coalition is not as strong as it once was,” Thomas said. “I think TVA will have to change their management structure to survive in a deregulated environment.”

But TVA isn’t alone in its concerns. Both Entergy and Mississippi Power, the two predominant investor-owned companies that supply power to about 45% of Mississippi, are also a little worried and have been sending confusing messages, sometimes seeming to say they support deregulation but only if done slowly over the next five to seven years.

The Public Service Commission (PSC) has a plan to begin phasing in open competition by Jan. 2001. They spent four days on the topic late last month hearing from representatives on both sides of the issue and early this month asked Entergy and Mississippi Power to prepare cost studies and market information for hearings this fall.

“They seem to be taking the right approach,” said Bob Brooks, senior vice president of marketing for St. Louis-based LS Power. “It’s a very complex issue that requires a tremendous amount of understanding on what the utility considers a standard investment.”

Standard investments are essentially the capital that power companies have sunk into infrastructure, including power lines, substations and generating plants. Brooks said the companies, rightfully so, are concerned about recouping their investments in a free enterprise system.

But once you strip away all of the issues — such as service to rural customers, how switching would occur and how to protect local governments from losing tax revenue — if done right, “re-regulation,” as Brooks prefers to call it, will be good. He prefers that term because, as he pointed out, government regulators like the PSC will still have regulatory power over many aspects of the industry.

“Re-regulation is going to help everyone. Long term, I think it helps the citizens of Mississippi,” said Brooks, whose company is set to begin construction on a $300-million natural gas-fired combined cycle electric generating plant in the Batesville Industrial Park this summer. Plans are for the 800-megawatt plant to be operational by 2000.

Although a restructured market won’t help LS Power directly as a wholesaler of power, Brooks said it would indirectly “create more opportunities for them.”

Although construction is set to begin in a few months, Brooks said LS Power has still not finalized an agreement for where that power will go. Originally, the company had hoped TVA would make good on an option it held with LS Power to buy its electricity, but TVA let that lapse. A restructured marketplace only benefits them, he said.

But one issue that hasn’t received much attention, one that brought LS Power to Mississippi, is the abundance of natural gas that flows through the state and how deregulation will indirectly help that industry as natural gas becomes what some believe will be the dominant power source in the future.

Within several miles of the LS Power Batesville plant are three major natural gas pipelines, a situation that doesn’t occur anywhere, Brooks said. And access to multiple pipelines is what attracted them to Batesville.

“There is a general convergence that moves right up through that area up there,” he said.

In fact, more than 11,000 miles of natural gas pipelines run through Mississippi and nearly 1 billion cubic feet of natural gas from the Gulf, Louisiana and Texas, moves through the state each day, said Wilson Montjoy, a partner with the Jackson-based law firm of Brunini, Grantham, Grower & Hewes which represents the Mid-Continent Oil & Gas Association.

“There is an enormous volume of gas moving through the state at any one time,” Montjoy said.

As a result of the huge flow of cheap natural gas, the pressure a restructured marketplace will place on power companies to be competitive, and for business and industry to use cheaper power sources, Mississippi stands to be a big winner, Montjoy said.

“We think the majority of new plants will be powered by natural gas and Mid-Continent sees the opportunity to enhance economic development in Mississippi,” he said.

Already the Mississippi Department of Economic and Community Development is aggressively pursuing industries whose power needs are high or which can possibly use the byproducts of power plants, Montjoy said.

In general, Montjoy said Mississippi could be a major beneficiary in a deregulated market. Not only does the state have an abundance of natural gas, but Mississippi also has about 13% of the nation’s coal reserves and there is also great potential for using salt domes in the state for natural gas storage.

In addition to LS Power, he also cited the construction of the $450-million lignite coal mine power plant in Choctaw County and the $400-million natural gas pipeline through south Mississippi as just a fraction of activity that will likely occur as Mississippi and the nation moves to a restructured energy environment.

“We have no expectation that every generation facility built in the Southeast will be built in Mississippi,” Montjoy said. “But everything we can do to maximize our stability will improve our chances relative to other states.”

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