|
Server : Apache/2.4.62 System : FreeBSD fbsdweb2.web.rcn.net 14.1-RELEASE FreeBSD 14.1-RELEASE releng/14.1-n267679-10e31f0946d8 GENERIC amd64 User : www ( 80) PHP Version : 8.3.8 Disable Function : NONE Directory : /domains/enrgy/feldman/ |
Upload File : |
<html>
<head>
<title>February 2000: Order 2000 - Transco to Go -- Or No?</title>
</head>
<body style="font-family: Arial" vlink="#808080">
<div align="center"><center>
<table border="0" cellpadding="8" cellspacing="0" width="98%" bgcolor="#000000">
<tr>
<td width="100%" valign="middle"><a name="top"></a><img src="../images/pmamagsm.gif" alt="PMA Online Magazine" border="0" align="right" WIDTH="229" HEIGHT="100"></td>
</tr>
</table>
</center></div><div align="center"><center>
<table border="0" cellpadding="8" width="98%">
<tr>
<td width="25%" valign="top" align="center">
<!--webbot bot="Include" U-Include="wv_sidebar.htm" TAG="BODY" startspan -->
<table border="0" cellpadding="8" width="98%" id="table1">
<tr>
<td width="25%" valign="top" align="center"><map name="FPMap0_I1">
<area href="http://www.powermarketers.com/adrates.html" shape="rect" coords="14, 297, 97, 322">
<area href="http://www.powermarketers.com/pmajobs.htm" shape="rect" coords="11, 230, 95, 257">
<area href="http://www.powermarketers.com/main.htm" target="_parent" shape="rect" coords="12, 163, 96, 189">
<area href="http://www.powermarketers.com/power2.htm" target="_blank" shape="rect" coords="12, 95, 96, 121">
<area href="../pmamag.htm" shape="rect" coords="11, 29, 96, 54"></map>
<img rectangle="(12,163) (96,189) http://www.powermarketers.com/main.htm##_parent" rectangle="(12,95) (96,121) http://www.powermarketers.com/power2.htm##_blank" rectangle="(11,29) (96,54) ../pmamag.htm" src="../images/magmenu.gif" alt="PMA OnLine Magazine Menu" border="0" align="center" usemap="#FPMap0_I1" width="110" height="350"><p>
<a href="../searchpma.htm">
<img src="../images/archives.gif" alt="Archives Search" border="0" align="center" WIDTH="70" HEIGHT="40"></a></p>
<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>
<p class="BodyText05DS" align="left" style="text-align:left"> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p><a href="#top">
<img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></td>
</tr>
</table>
<!--webbot bot="Include" i-checksum="19883" endspan --><p> </td>
<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>February
2000</u><br>
</b></p>
<font FACE="Palatino" SIZE="5"><p></font><b><font face="Arial" size="6">Order
2000: Transco to Go -- Or No?</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">FERC’s finalization of the RTO
NOPR, as Order No. 2000 substantially along the lines of its initial
proposal – open architecture, "voluntary" but "tough
love" mandatory requirements and intriguing but hypothetical
ratemaking incentives for new acolytes – does not necessarily resolve
the business or the legal issues facing power industry players. In fact,
it raises some new tactical questions as well. For privately owned transco
fans, it may be remembered, indeed, as the Y2K glitch that was.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Here’s how this conundrum
happened. The questions FERC faced were:</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(1) How to incentivize the expedited
new construction of transmission, and overcome the physical and planning
constraints necessary to facilitate the knitting together of the national
deregulated open access market.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(2) How to prevent the existing
wires franchisees from unfairly precluding competition in their service
territories, with the result that competition in generation does not reach
the levels anticipated from deregulated competition.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">FERC had to come up with a way to
answer these questions in a power market characterized by three
potentially obstructive factors: consolidating in number of players:
inability of ISO reforms of Order No. 888 to penetrate certain holding
company dominated geographical inaccuracy of traditional powerpools’
boundaries to reflect future merchant and trading power flows.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">FERC believes that private transcos
are an important part of the way in which Order 2000 will cope with these
problems. Some skepticism is in order.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(1) Staff has stated that Order 2000
will result in private transcos which address the need for new
transmission construction. The Order requires utilities to present plans
to divest ownership and control of assets by October 15, 2000. Utilities
can do this by joining an RTO or ISO thereby submitting their assets to
not-for-profit governance for no return, or sell the, sale of assets to a
for-profit transco which would allow their profit realization. FERC staff
assumes that the only options for utilities in response to the NOPR are
(1) divest ownership to an independent for-profit transco (e.g. DC-based
Trans-Elect); (2) divest control to an RTO which is
"independent" under FERC rules (a task to which the FERC found
the Midwest’s Transmission Alliance unequal) or (3) come up with
something new. It therefore assumes that option 1, which offers short
terms earnings growth, will be the one most frequently selected. Its
analysis, however, leaves out a few possibilities so often seen in the
real world:</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">• Delay: While intention to join
an RTO must be filed by October 15, 2000, transmission owners are not
required to give up their assets to an ISO or Transco in which they have
only passive ownership until December 15, 2006. Look for challenges to
FERC authority and Congressional legislative "fixes" to Order
2000 in the interim. (In its go at deregulation legislation in the last
session, Congress was not as enthusiastic about RTO
"independence" as is Order 2000.)</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">• Passive Ownership: Utility
non-voting, financial participation in the operations of transferred
assets held by qualified RTOs is not restricted in amounts or duration by
Order 2000. A passive annuity from a "managed system" RTO may be
more attractive to a utility holding T&D assets than the current
surrender of the system to a private transco of assets (particularly when
the value of these assets in a disaggregated system may be of appreciating
value.) It also may represent a better insurance policy for continued
operating access to customer markets.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">FERC’s private Transco optimism
also ignores the fact that private transcos owned by a group of existing
regional players seems remote. Order No. 2000 limits active ownership of a
Transco by a class of market participants to 15%, i.e., it is designed to
prevent local market dominance by utilities through RTOs. The universe of
potential private buyers for new transcos therefore may be smaller than
anticipated.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In sum, FERC may be overoptimistic
in assuming that there will be private transco proliferation which will
meet transmission construction needs.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">(2) Even assuming RTO transco
ownership arrangements can be established in a manner similar to that
which it anticipated there is left the question of whether the resulting
markets created will be optimal for new generation developers banking on
their efficiency. The conflicting views emanating from the left coast
between the establishment California Power Exchange (the "PX")
which is pro independent non-profit ISO structures (needless to say) and
the competing, private Automated Power Exchange (the "APX")
possibly is instructive. The APX views the PX as nothing less than a
potential monster, i.e. "a state-sponsored monopoly tak(ing) over
trading (of) a commodity "with a public mandate as a
"not-for-profit"". In support of its position it cites the
fact that PX is a private transco in sheep’s closing: It is now seeking
to bid as a joint venturer with private companies to serve in other
jurisdictions, (just as the Cal ISO is now seeking to expand its scope to
embrace more jurisdictions). PX cost structure is bloated, asserts APX
reflective in some measure of its expansionist aspirations.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">A reasonable concern is that PX-like
entities, (whether, in effect, adjuncts of public or private transcos),
may proliferate under the new RTO rules. If that is the case, the
robustness and attractiveness for merchant plants of deregulated markets
may not be as well served as FERC had hoped in its RTO order.
Paradoxically, this position may be exacerbated by FERC’s perception
that there is efficiency value in requiring RTOs to cover large areas
(notwithstanding smothering market competition may be an unanticipated
side effect.) The relationship of transcos and PX arrangements is not a
subject directly addressed by Order 2000. This may have the affect of
slowing private transco development.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Order 2000 will stir up the market
for transmission assets and challenge power pricing arrangements. But it
will not assure solution of the problems it set out to deal with cited
above. Specifically, it does not immutably point the way toward a single
new business strategy. At the Power Diner, it is definitely not a FERC
fast food order equivalent of "transco to go."</font></p>
<!--webbot bot="Include" U-Include="wv_bottom.htm" TAG="BODY" startspan -->
<hr color="#FFFF00">
<p class="MsoBodyText" align="left" style="margin-bottom:0in;margin-bottom:.0001pt;
text-align:left"><font face="Arial" size="2">
<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>
<!--webbot bot="Include" i-checksum="63395" endspan --></td>
</tr>
</table>
</center></div>
<p align="center"><a href="#top"><img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></p>
</body>
</html>