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<title>January 2001: A Digital Electric Christmas Carol</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><br>
January 2001</u><br>
</b></p>
<p><b><font face="Arial" size="6">A Digital Electric <br>
Christmas Carol</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:
200</em>1/02)<br>
</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Year-end, true end of millenium, is
a time to be reflective as to where the electric power revolution is
leading the world as well as to provide the snap! crackle! pop! forecasts
of what next year developments in the electric industry sector will be.
Here is a Christmas fable about power and people.</font></p>
<p ALIGN="JUSTIFY"><u><font face="Arial">Sleigh Ride</font></p>
</u><font FACE="Palatino" SIZE="2"></font>
<p ALIGN="JUSTIFY"><font face="Arial">But first, like Dickens painting
19th Century London before telling his Carol, I must give you a 21st
century cyber electric/socioeconomic moog synthesized riff before
proceeding. Hang on tight for this brief sleigh ride accompaniment.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The production of power is what
drives our economy (including what was called the New Economy, until the
NASDAQ dipped). Conversely, our nation’s economic health is part of what
has driven both our merchant power surge and California’s notorious
supply-demand imbalances. The shape of regulation of electric power has
been critical to the economic geography of America for the last century.
But for the Public Utility Holding Company Act and the regional power
administrations the profile of our country in terms of rural vs urban
development or Northeastern vs. Southeastern development, might be very
different. Politically, the U.S.’ non-nationalized ownership of power
generation assets has been one of the factors distinguishing it both from
massive dictatorships exercising power through control of its production
and the unsatisfactory economic development programs of many non-Western
nations. In short, electric power is more than another commodity. The
importance, scope and implications of this fact has been exacerbated by
the information technology revolution, which, at least at this date, is
fueled ultimately by power juice. As they say, information is power.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Moreover, it affects people.
Observers of the American social scene first began to remark on the
information revolution’s sociological implications in terms of the so
called "digital divide": the gulf between those whose education
and training made them unable to rise in our increasingly computerized
society and those who could. In effect the digital divide places a
multiplier effect on the inequities which afflict our system of public
education. Most recently, one sociologist began to trace the digital
divide into locational economics as well. In the suburbs - away from the
cities - along various highway and ring beltway corridors, he observed,
lies the kingdom of the "techno-nerds" Nothing new there. But,
more recently, he noted, back downtown, is where the information
processing media type activities are beginning to cluster. And new
digitally based activity to flourish in a variety of silicon
"alleys," as well as valleys. Not the same people, to be sure,
as those on the wrong side of the digital divide, but, at least people
more or less the same place, whose prosperity might facilitate
improvements for others adjacent to them.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Perhaps mildly interesting at this
sentimental time of year you may say, but what does all this digital
divide stuff have to do with the economic geography of the U.S. and its
power industry. Quite a lot it seems. There continues to be a major
debate, with DOE on one side and CERA on the other, as to whether the New
Economy’s increasing power demands are replacing the diminishing use of
power by the Old Economy, i.e., whether there is a national aggregate
power imbalance. But there can be little debate as to the build up of
urban center construction activity (1.2 billion square feet in 2000 up
from 875 million in 1996), that there is significant increased technical
content in virtually every facility and project and that power
requirements have escalated. Commercial buildings, for example, have gone
from 4 watts/ft to 8-10 watts/ft.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Even more pronounced sources of
power requirements are the internet data centers, telecom hotels,
colocation facilities and related facilities associated with broad-band
communications, popping up to provide the enlarging internet content
supplier industry. These facilities have tended to cluster near
fiber/electricity/customer confluences and always require much higher
reliability ("five or six "9s"); and 24/7 mission critical
operation. Many tend to fill huge old abandoned facilities, which are then
retrofitted with strengthened floors, special security, major HVAC and
other (power-consumptive) services. The former Port Authority
Headquarters, in downtown New York, currently leads the parade with 2.5
million square feet and an electric load of roughly 200 MW. Facilities are
emerging all over.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The explosion in development of
these types of facilities means intense demand for more power facility
capacity in the areas where there has been the least addition of
generation, transmission and distribution over the last 20 years. EPRI
estimates that the U.S. economy lost $50 billion in productivity as a
result of power quality breakdowns. Concern with power reliability has
also elicited extensive self help efforts in California, heartland of the
digital revolution.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Here then is where technological,
sociological and regulatory trends converge. Power supply and demand
economics may begin to dictate either business movement away from
technically stressed urban settings, the burgeoning of smaller merchants
plants developed to service local loads, cf. CLECs in the telecom
industry; or a build up of a variety of distributed generation
technologies within urban boundaries (if this is technically realistic).
Power regulators grappling with consumer price cap and re-regulations
clauses and environmentalists schizophrenically seeking to constrain both
new plant development and urban sprawl, may inadvertently jostle the map
which otherwise would have emerged. Demand for communications, bandwith
and collateral growth will press on regardless of their whims. Those on
the down-side of the digital divide may demand power for the people, but
people power will go where electric power is.</font></p>
<u>
<p ALIGN="JUSTIFY"><font face="Arial">Carol</font></p>
<p ALIGN="JUSTIFY"></u><font face="Arial">Which brings us back to year and
millenium end speculation as to where these trends will lead us, in a
nation solemnly dedicated to the proposition that each person should get
his/hers and let the consequences shake out where they may. There is, of
course, no inevitability to future history. There are, however, great
strategies called forth by hardheaded adaptation to trends. Here is a
scenario which could alleviate the schism which information and technology
events otherwise could present us with:</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">On the private sector side, an
enterprising telecom firm enters the facilities energy supply business,
specifically facilitating the operation of its technologies in locations
which fiber optic cable patterns otherwise would favor: the urban
crossroads.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Seeing the potential of this, an
enterprising urban leader seeks specifically to make his town the on-going
telecom central to the surrounding regions. He offers to help sweep aside
distributed generation constraints within his bailiwick – as a priority
ahead of all other economic development activities. He pushes for purchase
of on-site generation when it is not being used to support facilities.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">But the enterprising leader he has a
price for this, to which the enterprising telecom firm readily agrees: the
launch of charter cyber schools to train urbanites to service and prosper
from the New Economy. The support he demands is not just money, but
equipment and internships. Opportunities must be created too to learn to
participate in the New Economy/Downtown business world.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">A deal is struck. There is a closing
and the lawyers are happy. Cyberelectric unity comes to a corner of
America. Donder and Blitzen start a website, commerclause.gov. And to all
a good night.</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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