North Mississippi sees surge in power plant construction

BENTON COUNTY, MISSISSIPPI - Construction of a 900-megawatt power plant in Benton County is just the latest in a long list of power production projects in North Mississippi spurred, in part, by the deregulation of wholesale markets.

The plant, being built by Boston-based InterGen, Inc., will sell power on the open market as a merchant plant using the Tennessee Valley Authority's transmission system. Like several other projects in the area like AES Enterprise's 500-megawatt power plant in West Point, InterGen's project is one of 19 merchant plants in production or planned for North Mississippi.

The movement to build so many of these merchant plants, at an estimated cost of $5.5 billion, in North Mississippi began in April 1996 with Order 888 of the Federal Energy Regulatory Commission, says Ken Ulrich, asset manager at InterGen.

That ruling, which deregulated the wholesale markets in an attempt to spur development of generation capacity, called on public utilities like TVA to open their transmission lines to carry power produced by independent producers like InterGen and AES.

The order signaled a historic change in the way electricity was sold in the wholesale markets.

North Mississippi is a nexus of power lines that form the means of transmitting wholesale power and the gas pipelines that fire the turbines that produce it.

The area offers merchant plants access to the territories of Entergy and TVA, which have multitude of the large 500 kilovolt transmission lines that carry power into the regional grid. The area is also home to pipelines operated by TexGas, Texas Eastern Gas Co. and Koch Gateway.

Natural gas prices were deregulated by an act of Congress in 1992.

Another explanation for the migration of so many power plants to the northern reaches of the state is demand.

The area is part of the territory of the Southeast Electric Reliability Council, a division of the North American Electric Reliability Council.

SERC, a not-for-profit industry group that works with all segments of the electric industry to set standards, policies, principles and guidelines on the transmission of electricity, estimates that over the next decade the Southeast will require an additional 40,000 megawatts of generating capacity to meet demand growth.

"There are a lot of projections that say demand will continue to escalate nationally," says Robert P. Thornton, president of the International District Energy Association, an industry group whose members build merchant plants.

Projects built or under construction in Mississippi will have a potential output of 12,570 megawatts.

"These merchant plants will definitely add to the stability of the grid in the Southeast where their power will be sold," says Neilson Cochran, chairman of the Mississippi Public Service Commission.

Perhaps based on SERC's projections, Ulrich says InterGen, despite not having any production contracts in place, is confident there will be adequate demand for its power to make the $450-million project viable.

Although there has been talk in Mississippi since 1996 about deregulating retail electrical markets, the influx of merchant plants has been spurred mostly by the call of the wholesale market, industry experts say.

Even if the promise of retail regulation was a draw for independent producers, MPSC's Cochran says that his agency has recommended to Mississippi lawmakers that no action be taken to deregulate retail markets after watching consumer rates rise in several other states like California that lead the race to restructure consumer markets.

"The legislature is not looking into restructuring the electrical system at this time," Cochran says. "We already have below average electricity rates, and the evidence does not point to restructuring leading to lower rates."

Ulrich denies that the promise of access to the retail market was ever a draw for InterGen.

He says his firm would probably not be interested in the consumer market anyway.

Cochran concurs.

"They weren't building here with the hope of retail deregulation, it is not a driving force," he says.

But IDEA's Thornton points to retail deregulation in California as an example of a situation that actually boosted the wholesale markets as well.

Utilities, who had divested themselves of the means of production under the pretense that power could be purchased cheaper than it could be produced, were forced to buy spot power on the open market at hourly market prices, which rose as demand rose.

Merchant plants selling into TVA's system and already swelling wholesale power to utilities and local power companies could potentially benefit greatly from such a situation.

If Mississippi lawmakers have their way, that may never happen.