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<title>August 2001: Thrysistor Park</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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<img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" width="375" height="75"><p><b><u><br>
August 2001</u><br>
</b></p>
<p><font size="6">Thrysistor Park</font></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>1/10/06)<br>
</font></p>
<p ALIGN="JUSTIFY">The Mayor’s office on North Capitol Street sent word to
the owners of Transmission Park the other day that control of their
antique agglomeration of rides, with quirky loop flows and multiple
charges for moving from booth to booth, had to pass to a few big new
owners (ultimate identity still unknown) who would modernize it. In our
town, that kind of news does not go down without a fight.</p>
<u><b>
<p ALIGN="JUSTIFY">A Walk in the Park</p>
</b></u>
<p ALIGN="JUSTIFY">The full business and regulatory ramifications of FERC’s
July 12 proposed quartering of the continent into four RTOs (Docket No.
RTO1-2-000) required no microscope for power players to discern. The Enron
Chief of State (uh, sorry, Staff) immediately proclaimed the significant
expansion of the industrial markets to 80-90% within a relatively short
period of time, laying the predicate for the opening of retail markets.
Interregional seamlessness reigns in a land where rates are pancaked no
more.</p>
<p ALIGN="JUSTIFY">The NARUC regulators, seeing the ultimate skewering of
their fiefdoms afoot, invoked the shibboleths of data collection to
determine proper RTO size and the need for federalist deference, both to the
states and to the tribal "stakeholders" in the power system (which
stakeholders FERC now seems to hold in lighter regard).</p>
<p ALIGN="JUSTIFY">The terrible "TOs" (as FERC confusingly dubbed the
current Transmission Owners) knew what was up as well. Their carefully
constructed havens for regional operation – not to mention their significant
expenditure for compliance with earlier FERC coordinative ISO arrangements –
were subject to be scrapped. Even more fundamentally, the new order
essentially mandated the unbundling of transmission assets from the
traditionally integrated utility model (and perhaps signaled the requirement
of ultimate divestiture). The full subtlety of separation of nominal asset
ownership from operational control as propounded by Order No. 2000 came into
focus for them. (TO be or not TO be, that seems to be the question.)</p>
<p ALIGN="JUSTIFY">And for the public power community, nothing less than
deer in the headlights time, as the drumbeat becomes louder for national
integration of all transmission assets. (After all, isn’t TVA a "sister
agency" to FERC?)</p>
<p ALIGN="JUSTIFY">For the FERC, seemingly, it was a matter not of
federal-state balancing or niceties of respect for administrative law
precedential reliance but of triumphal economic inevitability:</p>
<dir>
<p ALIGN="JUSTIFY">"(L)arge RTOs will foster market development, will
provide increased reliability, and will result in lower wholesale
electricity prices. However, these savings will be delayed, perhaps
significantly, if RTOs are permitted to develop incompatible structures
and systems…"</p>
</dir>
<p ALIGN="JUSTIFY">God took seven days to make the world (inclusive of
scheduled downtime); FERC will allow 45 days to realign oversight of the
flow of its electrons under the guidance of its Administrative Law Judge.</p>
<u><b>
<p ALIGN="JUSTIFY">Fixing Up the Park</p>
</b></u>
<p ALIGN="JUSTIFY">Somehow in the respective epiphanies of the parties as
they walked around the Order, sight seems to have been lost of the two
mundane problems at the root of the current electricity crises: the
unsuitability of the current grid to service the new patterns of
transmission envisioned by deregulation, and the unsuitability of the
current regulatory system to pay for its technical upgrade. (In other words:
the Park has to be fixed up and it’s going to cost money.)</p>
<p>As the August issue of <u>Technology Review</u> points out, deregulation
has orphaned the transmission business (from its "TOs"), uncoupling the
lines that deliver electricity from revenue-producing power plants. To date,
owning transmission is a business few want any part of. This is particularly
unfortunate, because an important part of the technical fix for the national
transmission system – besides just building new lines (no small regulatory
feat) – is in the new potential of power electronics. Specifically, through
the use of improved thrysistors (which, like transistors, turn the flow of
electrons through an integrated circuit on and off, but are more efficient
for handling big power loads because, unlike transistors, once turned on
they stay on), power can be effectively "pumped" from a congested line to a
less-congested line, thereby significantly not only improving the efficiency
of power flow but making it safe to draw significant volumes of extra
megawatts from distant </p>
<p ALIGN="JUSTIFY">sources. ("Long distance wheeling," as Park attendants
call it.) <u>But</u>, as the <u>Technology Review</u> article points out,
"Rapid deregulation has swept away the old rules without offering coherent
alternatives for who should run the network and <u>how</u> <u>they</u> <u>
will</u> <u>get</u> <u>paid</u> <u>for</u> <u>it</u> – making it an
especially tough time to market advances offered by power electronics."
(emphasis added)</p>
<p ALIGN="JUSTIFY">This is the question which FERC is implicitly promising
to answer with its new RTO fusion program, but for which it has provided
scant guidance to date, beyond promises of sufficient incentive rate relief
for TOs that enter RTOs. It has allowed itself to be beguiled by promises of
for-profit transco RTOs – and even the possibility of public securities
markets for them some day, as in the case of the Alliance’s proposals. It
also has not squarely faced the possibility of increasing monopolization of
third party control of the nation’s grid and the issues related to third
party construction of improvements to it. It has thus created little
certainty that the necessary new power electronics can be paid for. A
monopolist that meets the RTO’s independence standard is still a monopolist;
an incentive rate is still not a cost-of-service rate that covers the
capital improvements really needed. The anomalous possibility, therefore, is
created that the rate-paying public will have to pay significant
unbypassable charges to for-profit transcos, in addition to fully loaded
genco charges, in order to make possible ultimate realization of the
projected future wonders of competition and lowered rates through the long
distance delivery of competitive market power, which deregulation is
supposed to confer.</p>
<p ALIGN="JUSTIFY">As a believer in competition as ultimately more efficient
than monopoly, one wants to believe this. As a realistic assessor of the
history of regulation and the propensity of oligopolists (both generation
and transmission) to game systems, one is put in mind of a variation on
Keynes acute observation that: "In the long run we are all dead (or in
California)." </p>
<p ALIGN="JUSTIFY">In sum, FERC needs to be devoting as much attention to
the future of thrysistor acquisition as to the stitching of trader seams for
the benefit of wholesale trading. It needs to focus on the fact that utility
governance is about corporate finance as well as purported market
independence. If TOs are not to be, how will RTOs bring us the power
electronics solution to electricity transport? What the folk at City Hall
need to understand is this: KOing control of Thrysistor Park does not equal
a TKO of the Park’s renovation problems.</p>
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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>
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