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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>June
2000</u><br>
</b></p>
<font FACE="Palatino" SIZE="5"><p></font><b><font face="Arial" size="6">Front
Page Dream</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:
2000/07</em>)</font></p>
<p><font FACE="Palatino" SIZE="2"> </p>
</font>
<p ALIGN="JUSTIFY">"If you don’t have a dream, how’re you gonna
make that dream come true" crooned an old Rodgers and Hammerstein
musical number. "Talkie, talkie, talk- - -," was the chorus. It
was about Washington’s approach to electric deregulation. If there is a
dream, however, Washington does not appear to be where the dream is being
dreamt.</p>
<font FACE="Palatino" SIZE="1"></font>
<p ALIGN="JUSTIFY">In May 11, two front page stories appeared in the Wall
Street Journal and the Washington Post – one ominous sign for any industry
– that tell it all:</p>
<font FACE="Palatino" SIZE="1"></font>
<p ALIGN="JUSTIFY">Journal: "Gloom and Doom/New Rules, Demands Put
Dangerous Strain on Electric Supply/Partial Deregulation Breeds Confusion in
Industry; Summer Shortage Feared."</p>
<p ALIGN="JUSTIFY">Post: "Utilities Secretly Lobbied Congress/Electric
Firms Gave Millions to Left and Right to Halt Deregulation."</p>
<p ALIGN="JUSTIFY">We sleuths are left to muddle over two theories regarding
these articles:</p>
<p ALIGN="JUSTIFY">(1) Perhaps they are causally linked, i.e. the cause of
the first is, in significant measure, the reason the events described in the
second article are happening; or</p>
<p ALIGN="JUSTIFY">(2) Perhaps they are tactically linked, i.e. the persons
responsible for the events described in the second article are responsible
for the placement of the first article.</p>
<p ALIGN="JUSTIFY">In any case, the highpoints of the articles are worth
mulling, at the stratospheric heights level of the economy and the power
brokers (old style), so we can appropriately assess the reported efforts of
the more Lilliputian players on the inside-the-beltway stage: the Congress,
the FERC, the Energy Department.</p>
<p ALIGN="JUSTIFY">Now is the summer of our discontent: the forecast is
brownouts. The accused (per the Journal): deregulation. Instead of
competition and efficiency, it has provided confusion. It has yielded us
"a national electric system that is vulnerable to disruptions caused by
equipment breakdowns and human error as newly established regional grid
operators assume responsibility for more much larger areas than those
formerly overseen by individual local utilities . . .. The incomplete nature
of deregulation has produced planning paralysis that could have long term
consequences."</p>
<p ALIGN="JUSTIFY">One result: major transmission-constrained islands like
San Diego, in which generators seek higher prices since they can’t sell
outside of them, and from outside to which power cannot be imported except
at high prices. Also fortress islands, like Florida, where monopolists have
fought off deregulation and outside merchant plant suppliers despite looming
shortages.</p>
<p ALIGN="JUSTIFY">Segue to the Post article, which discloses that some of
the nation’s largest electric utilities have secretly funneled millions of
dollars through two front groups – one headed by leading conservatives and
the other affiliated with unions – to stop Congress from deregulating
their industry. They believed "using seemingly independent surrogates
made their case more believable and shielded them from political risk."
The goals of the program were to bottleneck legislation, demonize federal
utility regulators and use debates about nuclear power as a provocative
wedge issue.</p>
<p ALIGN="JUSTIFY">Against this background, it’s hard to take seriously
the struttings and posing on the public stage of "officials."
Secretary Richardson of DOE has been barnstorming the country warning of
shortages and proposing that FERC take the lead, stripping some powers over
the transmission of power from state legislators. (Message: it will be the
Republican’s Congress’ fault not the Democratic Administration’s when
the foreseeable happens.</p>
<p ALIGN="JUSTIFY">Comes then at the technical level, the new Rambo: the
FERC. Evidently stung by a contrast to his more muscularly "dirigist"
colleague Massey, Chairman Hoecker has now observed that FERC may have to
"find the guts" to come down harder on transmission-owning
utilities to form optimal regional transmission organizations. At least he’s
got the problem right: "When I look at existing ISO’s and the early
formulation of new RTO’s pursuant to [Order 2000], I see fortresses,
gerrymanderers, and Swiss cheese . . . illogical agglomerations of
territories and arrangements that may actually act to disrupt markets."</p>
<p ALIGN="JUSTIFY">But the newly T-patched Chairman forgets one thing: the
reason for the tepid nature of Order No. 2000 is that it was never clear
legally that FERC could act as a kind of uber-regulator. Which leads to the
fact (again presumably unrelated to the Post article) that the Edison
Electric Institute has filed a legal challenge in the D.C. Circuit to FERC
Order No. 2000, charging that the Federal Power Act forbids FERC to grant
RTO’s the exclusive right to set rates, terms and conditions of
transmission service, on the grounds that it breaks the connection between
setting costs and determining cost recovery. Or, to put the matter in
business peak: to provide sufficient recovery to incentivize needed
transmission investments.</p>
<p ALIGN="JUSTIFY">Fortunately, our Congress is on the job, making sure a
disconnect (no pun intended, of course) will not happen. Senator Murkowski
– bolting ahead of the House Committee (the former staffer for which is
now heading the utility effort documented in the Post) – has a
"spreadsheet" highlighting differences and similarities of the
eight bills circulating in his committee – other than his own – and has
proceeded to the hearings stage. Remarkably, he predicts there may only be
agreement on reliability. Doggedly, he continues to seek a comprehensive
bill, on which there is no consensus. At the least, he has earned an
honorary Brooklyn Dodger Fan Club membership. ("Wait ‘till next year.
. .").</p>
<p ALIGN="JUSTIFY">What seems lacking from the tactical maneuvering of the
players is any overall model of how the deregulated system should operate,
as a benchmark against which to measure the impacts of proposals. In that
regard, it was with interest (perhaps suspended disbelief) that I read the
"Energy Web" model for the year 2010 which the Bonneville Power
Administration published. The lights dim and ... "it is now the year
2010. The integrated power system of large power-plants and a regional gird
[for the Pacific Northwest] has been supplemented by a wide array of
providers of decent realized energy products and services. Central plants
and dispatchable small scale generation, dispatchable demand side management
(DSM), energy storage, energy management control systems, and
telecommunications networks are linked in an Energy Web that is adaptable,
self regulating and remarkably stable. The Energy Web Model goes on to
envisage powerco and transco utilities – central players in its version of
the deregulation passion play – doing things like applying new energy
technologies such as fuel cells, diagnostics, controls and related ideas’
hard wiring the system with information and control technologies; promoting
energy efficiency; and embracing an increasingly environmentally friendly
power supply.</p>
<p ALIGN="JUSTIFY">Here, at least, is a notion of how deregulation would
serve a broader public interest – and, not incidentally, deal with the
issues surfaced by the <u>Journal</u>. What is refreshing about it is its
contemplation of the multiple roles both evolving energy and
cyber-technology could play in resolving the power crises bearing down upon
the industry.</p>
<p ALIGN="JUSTIFY">It appears that neither this vision – nor any more
modest variant thereof – is what the players, privateers or power barsons
are striving for. That’s not the business they are in. But absent the
articulation of such a vision, there is a limited amount to commend the
particular solutions which the players put forward to enough of the public.
Gridlock is the result. The next time the Journal and the Post run electric
power stories on the same day, they could well be these:</p>
<p ALIGN="JUSTIFY">(1) Journal – Power shortages trigger industry move to
self-help power islands/Utilities leave retail service for trading
businesses./How much will my bill be next month?</p>
<p ALIGN="JUSTIFY">(2) Post – Congressional hearings spotlight on-going
power crisis/Proposals for national transmission supply company countered by
calls for dismantling of federal deregulation laws.</p>
<p ALIGN="JUSTIFY">If you don’t have a dream - - - you can dream about
these kinds of future headlines.</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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