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Are merchant power plants good for business?

Power state

Editor’s note: This is part three of a series of articles examining power deregulation issues in Mississippi.

Merchant power plants and peaking stations that provide electricity primarily during peak demand times, such as the hottest part of the summer and the coldest part of the winter, to the wholesale — not retail — market, are popping up all over Mississippi, particularly in the northern part of the state.

Good for Mississippi? Maybe. Maybe not.

“Merchant power plants are not regulated,” said Larry Daspit, manager of Entergy supply communications. “Its output is sold in the competitive market. A peaking plant is a merchant plant that is operated only during times of peak demand.”

Merchant power plants have no obligation to serve anyone in Mississippi, said Hobson Waites, executive vice president of EPAs of Mississippi.

“The plants were built to sell power wherever the companies could get the highest price and deliver the power,” he said. “Half the reason so many of them are being built in Mississippi is because they can deliver power cheaper from here than other places.”

Many merchant power plants are located in North Mississippi, primarily because of their location close to gas lines and easy access to TVA and Entergy lines. TVA was set up by Congress in 1933 to provide electric power and other services in the Tennessee Valley region. TVA provides wholesale power to 158 municipal and cooperative power distributors and directly serves 62 large industries and government installations.

“Merchant power plants are built on gas transmission lines,” Waites said. “If you look at gas line maps and power line maps, you can see that they cross all over Mississippi. The companies don’t have to go far to deliver the power to electrical grids. That’s why a lot of them are built and are being built around West Point, because the TVA has a large switching area there. That way, the merchant power plants can generate the power and put it on TVA for one fee and send power all the way to Virginia. If they were built in other places, they would have to build a lot of transmission lines and pay two or three fees to move the power around.”

Even though he would not elaborate, Federal Energy Regulatory Commission (FERC) chairman Curt Hebert Jr., a Pascagoula native, said the new merchant power plants “would provide long-term benefits.”

“Merchant plants, or peaking plants, give us another opportunity to purchase power in high-demand times,” said Checky Herrington, Entergy spokesman. Entergy owns Warren Power Project, a 300-megawatt simple cycle merchant peaking plant in Vicksburg.

This year, two companies have announced plans to build facilities in West Point near TVA’s West Point Station. In January, Dallas-based Panda Energy International announced that it would build a 1,300-megawatt station there. Last month, Arlington, Va.-based AES Enterprise, a subsidiary of a global power company with 160 plants in 23 countries, announced plans to build a $150-million, 500-megawatt facility in 2002.

Other energy companies that announced merchant power plants last year will began construction soon, including Kansas City-based Aquila Energy, a subsidiary of UtiliCorp United Inc. (NYSE: UCU), the second largest wholesaler of electric power and third-largest wholesaler of natural gas in North America. The company will begin construction in the spring on a $115-million power plant and transmission line in Clarksdale — the single largest investment in Coahoma County.

Even though the construction phase of merchant power plants creates an influx of construction jobs, the plants are highly efficient when operational, requiring very few people to operate. For example, when the Clarksdale project is complete by next summer, only half a dozen or so permanent engineer technicians will be employed.

The Mississippi PSC also reported that Duke Power is in pre-certification for a merchant generation plan at Enterprise.

Kurt Brautigam, spokesman for Mississippi Power, said The Southern Co., its parent company, is “positioning itself in the Southeast to be more involved with the wholesale market.”

“We have two new units coming on line this summer to our Jackson County facility — 25% has been carved out for wholesale load and 75% will go to our retail customers,” he said. “The Southern Co. is spinning off its wholesale generation side, which approaches the definition of merchant power producer. We still have to keep the regulated retail components of our business separate.”

Southern District Public Service Commissioner Michael Callahan cautioned against overbuilding merchant power plants.

“You have to realize that the lines were built for the megawatts within each company’s system, and when you load up those lines to move more and more megawatts over them, you strain the system,” he said. “That brings up the question of who’s going to pay to upgrade those systems? The merchant plants? The customers? Where does it come from? Right now, in Mississippi, it takes about a million dollars per mile for new transmission lines.”

Edd Jussley of Energy Consumers for Choice in Mississippi said the problem with merchant power plants in the state is that Mississippians can’t buy it retail.

“The electricity that merchant power plants generate will be bought at low rates by people outside the state,” he said. “If you and I could get access to that electricity, we’d get lower rates.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or (601) 853-3967.

About Lynne W. Jeter

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