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<title>January 2000: Centennial: History's Little Electric Lessons</title>
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<p align="left"><font face="Arial"><strong><small>About The Author:<br>
<br>
</small></strong><span lang="X-NONE" style="color: black"><font size="2">
ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon
Markets Group has practiced law related to the finance of environmental and
energy projects and companies for 40 years. In particular, he has analyzed
and executed a wide variety and substantial value of project financings. He
chairs the American Bar Association’s Committee on Carbon Trading and
Finance, serves on the Board of the American Council for Renewable Energy,
and has been a senior official in the Federal Energy Administration. He is
a graduate of Brown University, Yale Law School and Harvard Business School.</font></span></font></p>
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<td width="75%" valign="top"><img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" WIDTH="375" HEIGHT="75"><p><b><u>January
2000</u><br>
</b></p>
<font FACE="Palatino" SIZE="5"><p></font><b><font face="Arial" size="6">Centennial:
History's Little Electric Lessons</font></b></p>
<p><strong>by Roger Feldman -- Bingham, Dana L.L.P.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
2000/02</em>)</font></p>
<p><font FACE="Palatino" SIZE="2"> </p>
</font>
<p ALIGN="JUSTIFY"><font face="Arial">Since the distinguished Editor of <u>Merchant
Power Monthly</u> is too modest (or commercially inept) to admit it, this
issue of the newsletter represents the centennial of its initial
publication, it has fallen to me to do so. There are millenium grade
lessons to be learned from its history, which is so intertwined with the
history of the electric power industry.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The publication began as the
"Merchant Shipping News" along the New York docks a century ago,
reporting on the arrival of new shipments of specialized marine steam
engine parts manufactured in England, whose export had just deregulated by
the Crown and made available as part of the Imperial "privatisation"
program. Widely derided as technically unworkable by the highly subsidized
U.S. clipper ship merchant marine, their importation was resisted at
first.<br>
<br>
Nevertheless, the engine parts were
secretly incorporated by Thomas Edison’s Cockney-born secretary, Samuel
Insull into the Pearl Street Electric Generating Station (direct current)
in New York, and thus was born the American electric power industry. The
Monthly began to print little newsblurbs of the progress of the odd new
service up Manhattan island – starting with J.P. Morgan’s home (the
organizer of General Electric) and Broadway (which hence became the
"Great White Way"). AC came soon enough thereafter. The founding
predecessor of our current Editor (and a man equally astute as he),
declined to sell his gas mantle manufacturing stock and invest in the
electric flyer on which he had begun reporting.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Over time, the Merchant Shipping
News publication switched its emphasis to electric affairs and changed its
name to "<u>Power Monthly</u>". It reported on the rapid wiring
of the cities and establishment of giant electric utilities stretching
across the nation from New York. The grandfather of the current Editor,
old Vox Pop, as he was known, was a leader in bringing power to the
people, smashing the electric utility holding companies along with
Congressman Sam Rayburn, and launching the great regional power marketing
agencies, along with Senator George Norris.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">However, his Populist instincts were
diverted when he realized that the future of electricity was nuclear: free
production (as President Eisenhower suggested in his "Atomic for
Peace" message), and profit on distribution charges or possibly
toaster sales. He did buy some penny Canadian uranium stocks (and as a
hedge, high sulphur coal-holding companies).</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Offered the opportunity in the early
‘80s to invest in something called a "co-generation" plant Pop
declined, saying the technology could never be made compatible with the
grid or be able to compete with central generation. His son did open the
newsletter to little blurbs describing the doomed-to-failure wildcatting
efforts in out-of-the-way locations of these projects, some of which used
exotic so-called "renewable" fuels and ran on a shoestring using
"project financing". He also opened a resort at a lovely little
spot called Three Mile Island.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In connection with this centennial
piece, I tried to meet with the current Editor, to gather his views about
the next century of electric power management. Unfortunately, he proved
very difficult to pin down, as he has become a full time arbitrateur - a
day (and night) trader of merging utility stocks. He firmly believes there
will be three utilities left in the country in five years which generate
or own the grids in each part of our land (except the Southeast where the
existing utilities will own everything or receive protection money), so he
had better take his last fling at the power industry before it disappears
as an investment opportunity. His only personal financial hedge is through
an on-line magazine which covers the news of the electric industry called
(and here my notes blurred), either "PMS" or "PMA".</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Consequently, I did not get a chance
to go over with him the questions I had developed with his nerdy nephew,
is heir to the <u>Monthly</u> publishing empire, who bears the unfortunate
nick name of "Rusebud". Here are the questions. You can read the
answers in my next centennial column (I am not currently planning for a
next millennial column, although rumor has it the editor is counting on
cryogenics in his case.)</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(1) There seem to be new
technologies emerging which could, if applied, revolutionize electricity
production, supply and usage all over again. These include efficiency/size
advances in dispersed generation and applications of superconductivity to
motors as well as transmission. Is the U.S. regulatory system likely to
bring these to the fore, or will market concentration in large competing
central station facilities, linked to a regulated low profit-yielding
grid, stifle its potential (at least in America)?</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(2) B2B internet marketing is now
being adopted by more and more industrial companies to lower costs through
supplier competition. B2C internet marketing is undercutting "bricks
and mortar" marketing institutions. Is the U.S. physical power supply
and transmission system, (and its regulation), flexible enough to
capitalize on these on-rushing cyber-developments.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(3) Expanding customer market
interface is now the goal of the infotainment/telecom. Customer interface
through wires and rights of way, and established brand names are what
utilities have. Margins on gridcos are limited; margins on infotainment
are not. Is it likely we will see a further energy-telecom convergence at
the user interface? Is the regulatory system established to accommodate
such developments? If so, who will acquire whom?</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(4) The U.S. power transmission
system and telecom transmission systems are separate and separately
regulated. So were trains, subways, buses and highways once upon a time.
Can regulators sustain this type of separation of networks given the
future intense use of electricity as the lifeblood of telecommunications
and information memory?</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(5) Energy trading is where the
profit is for merchant plant fleet owners. It is unregulated. It is
fragmented. The big securities exchanges are fighting back against
dispersed, off systems ECNs through upgraded open systems. Will the
exchanges efforts extend to commodities? Will energy commodity trading
come to be separately regulated (or regulated in connection with
securities offerings?) How will this interface with Congressional
regulation?</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(6) Power is now a commodity, and
almost a necessity. It is treated as a public good in some parts of the
country and private good elsewhere. The result is not just inequity but
economic distortion of production and pricing. Even the oil depletion
allowance got cut back eventually. What are the prospects for a uniform
regulatory environment so the electric commodity can be uniformly produced
and distributed on an equitable basis? Will U.S. global competitive needs
be taken into account in this regard?</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(7) Competition is global. Power
needs are global. Information and power transfer (directly and through
trade) can be global. Oil and gas is a global industry. Will national
power regulation be viable (from a U.S. global standpoint) in a world of
global markets? What will be the implications for related environmental
issues such as those posed by Kyoto and dramatized at WTO/Seattle?</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Stay tuned to <u>Merchant Power
Monthly</u>, now accessible at www.rusebud.com as we face the new century
and millenium. (One other special hint in closing: our editor is stocking
up on .com securities; use your own judgment.) Power and light to you all
in 2000+.</font></p>
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<span lang="X-NONE" style="color: black">ROGER FELDMAN, Co-Chair of Andrews
Kurth LLP Climate Change and Carbon Markets Group has practiced law related
to the finance of environmental and energy projects and companies for 40
years. In particular, he has analyzed and executed a wide variety and
substantial value of project financings. He chairs the American Bar
Association’s Committee on Carbon Trading and Finance, serves on the Board
of the American Council for Renewable Energy, and has been a senior official
in the Federal Energy Administration. He is a graduate of Brown University,
Yale Law School and Harvard Business School.</span></font></p>
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