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<title>December 2001: Federalism and the Dead Poets Society</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>
December 2001</u><br>
</b></p>
<p><font size="6">Federalism and the Dead Poets Society</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>1/01/19)<br>
</font><span style="font-size: 10.0pt; font-family: Palatino; color: black">
</span></p>
<p ALIGN="JUSTIFY">Alan Ginsberg was a beatnik poet as a young man, who
subsequently became a power industry regulatory analyst. As first California
regulation and then Enron disappeared into the sea, Atlantis-like, he penned
the immortal words: "I saw the best minds of my generation corrupted by a
vision of endlessly profitable commerce in a world of market entropy."</p>
<p ALIGN="JUSTIFY">Haunted by these words, and the inability of Congress to
begin to act to bring order to the unshackled national electric grid, FERC
Chairman Wood confronted the current state of regulatory confusion with "RTO
Week": a five-day workshop to formulate policy for the imposition on the
entire nation of a limited number of "properly" constructed Regional
Transmission Organizations. As the Commission doggedly seeks simultaneously
to impose both fairness of generation access and growth of needed
transmission through the RTO construct, it has encountered the great
American shibboleth incarnate: Federalism.</p>
<p ALIGN="JUSTIFY">A former energy regulator-turned-poet, W.H. Auden, in
despair had written earlier in this very regard: "The center cannot hold and
mere anarchy is loosed upon the land when credence in compromise overcomes a
wise understanding of the limitations of self interest."</p>
<p ALIGN="JUSTIFY">At a meeting of State Commissioners during "RTO Week" and
thereafter in the NARUC annual conference, a number of fearless federalizers
emphasized the important need for each state’s role in the RTO formation and
market oversight processes, cost benefit analyses on proposed RTOs’ ability
to protect presently advantaged retail markets, and participation of states
in planning for matters such as full diversity (of fuel source) – all in the
name, presumably, of the as yet generally unbenefitted consumer living off
the appropriately acronymed "Provider of Last Resort Energy" (PROLE, in
literary regulator parlance). Evidently, the movement of graduate students
to unionize has now prompted their elders, who have ascended to positions of
administrative power, to seek to do likewise.</p>
<p ALIGN="JUSTIFY">The Commission, itself now comprised most of former state
regulators, has responded by slowing down the RTO implementation timetable
past the original December 15 deadline and undertaking the time-honored
Washington expedient of co-opting the opposition through apparent
empowerment. It is in the process of creating a series of Federal-State RTO
panels for the power industry’s moral equivalent of diversity (of governance
sources): "[a] constructive dialogue between the Commission and state
commissions with respect to RTO development." In an important collateral
procedural move, FERC clarified existing regulations to exempt from barriers
to ex parte communications, previously existing prohibitions on
communications with state agencies that are parties to contested proceedings
(including, notably, the current RTO proceedings). Well, with Enron gone,
someone must fill the superadvisory gap. . . Guidance on the proposed new
Federal-State panel structure will be issued soon.</p>
<p ALIGN="JUSTIFY">The same RTO order contemplates an outreach as well to
private investors to better understand the financing of independent
transmission companies and of transmission construction. Once a sturdy
champion of the superiority of the profit motive as a producer of results,
the Commission now (to the dismay of the still very nascent ITC and grid
management industries) has stated its position as being more ecumenical to
both for-profit transcos and not-for-profit ISOs. Lurking in the background
in this regard is perhaps a desire to calm state fears concerning the role
of the very anti-federalist notion of Federal eminent domain for
transmission lines, which is present in some versions of the proposed
Federal energy legislation. Needless to say, state regulators see themselves
as the body to determine that a particular project is the most efficient
alternative – not some Federally super-imposed RTO. State regulators
cleverly have framed the Federal eminent domain issue in the manner of a
Vermont regulator testifying at the RTO Week that was: "You cannot combine a
merchant transmission solution with eminent domain rights." That appears to
mean: "if you want for-profit ITCs, you must leave transmission siting
control in-state." The commercial stakes of the preservation of Federalism
in transmission matters are raised even further by this formulation.</p>
<p ALIGN="JUSTIFY">The erosion of the original national FERC RTO dream of
"Four Plus One (Ercot)" has begun. In response to Pacific Northwest
pressure, FERC has given up on California being part of a single Western RTO:
FERC has now determined to go with three RTOs. And the beat to disintegrate
goes on: the New York ISO, currently under shotgun marriage orders to NEPOOL
from FERC, has initiated a type of energy futures market in which hedging is
possible that, the New York ISO has suggested, cuts out the need for a
region-wide RTO. The slopes of federalism are greased with smaller, more
manageable and more sophisticated trading markets.</p>
<p ALIGN="JUSTIFY">In an echo of a Supreme Court opinion (different kind of
poetry), FERC has promised to establish time limits for regional RTO
establishment on a "progressive, but appropriately measured time line." It
has laid out an ambitious parallel timetable for sweeping interconnection
standardization by January 2002 and a possible related pricing NOPR by April
2002. Plainly, FERC does not intend that all of the Federal-State panel
parleying will slow it down. The question remains: will this fustian Federal
sound and fury be cleverly facilitated by FERC’s inclusive approach to
Federalism? In the words of a third well-known Elizabethan dead poet, who
served briefly as an ALJ: will FERC be "hoisted on its own petard as the
agents of parochial interests work their wile in the name of diverse
governance." Stay tuned – the game’s not over till the last dead poet sings.</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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