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<title>October 2003: "Desert Sand(storm)-Arabian Night"</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>
October 2003</u></b></p>
<font SIZE="6"><b>
<p align="center">"Desert Sand(storm)-<br>
Arabian Night"</p>
</b></font>
<p><strong>by Roger Feldman -- Bingham, Dana L.L.P.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2</em>003/11/01)<br>
</font><span style="font-size: 10.0pt; font-family: Palatino; color: black">
</span></p>
<font FACE="Times New Roman" SIZE="1"><i></i></font>
<font SIZE="3">
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<i></i>
<p>The recent decision to rebuild Iraq’s power infrastructure on the
American model – following a recently experienced, overwhelming local
sandstorm – has led to a haj of power policy gurus to the Middle East (or at
least to Halliburton HQ in Houston). The Blackout experience in the U.S. has
been carefully dissected (although certain chapters of the Congressional
Report have been expurgated). Fortunately, since the problems facing
Iraq’s grid have been determined by American intelligence to be the same as
our own, all of that experience has been declared "will make do" ("WMD" in
spook speak).</p>
<p>As a result of that analysis, the following deficiencies in both grids
have been found:</p>
<ul>
<li>a capital investment deficiency in both transmission and distribution
($30-100 billion);<br>
</li>
<li>an inadequate infrastructure system incapable of carrying the amount
of power that it is called on to bear under current usage patterns,
supported by outdated technology not responsive to the requirements
imposed by recent deregulation;<br>
</li>
<li>a fragmented system of T&D asset management spread out among local
sheikhs and larger regional warlords;<br>
</li>
<li>absence of mandatory system-wide reliability standards, centrally
enforced;<br>
</li>
<li>need for some prioritization of projects to be undertaken, heightened
by inexplicable efforts to retain benefits and shift costs.</li>
</ul>
<p>Throughout the country, warring Regu and Deregu sects have emerged,
urging theological solutions to the periodic absence of power and light.
(Crack U.S. analysts have unmasked these sects as being actually a cover for
the economic self-interests of different exploiters of the grid.)</p>
<ul>
<li>Regus hold that recent "open access" reform, permitting all to sell
power on the grid, is a flawed approach to the use of the grid that has
resulted in: <br>
<ul>
<li>power flows in ways and directions that cannot be accommodated by
the existing physical transmission system;<br>
</li>
<li>"freeloading" on the use of the existing wires by wholesale
producers who are not required by law to contribute to its use; and<br>
</li>
<li>overall, an overemphasis on a short-term profit, rather than a
reliability orientation.</li>
</ul>
</li>
</ul>
<i></i>
<p>Deregus assert that the service territory/cost of service approach that
antedated "open access" is a flawed approach to the modern world that:</p>
<ul>
<li>fragments into artificial states the oversight of operations by
deferring excessively to locally regulated control areas;<br>
</li>
<li>stifles healthy American-style competition, which already has been
unleashed in the generation, and is subverted by private chieftains; and<br>
</li>
<li>will not furnish the drachmas necessary to lure parties into
transmission system construction.</li>
</ul>
<p>The U.S. has been relying on the local Great National Congress to heal
the schism of the two sects. The prognosis is "fair and balanced"
developments, which are unlikely to have sufficient visible impact in the
form of new infrastructure for years:</p>
<ul>
<li>The operation of the grid will be improved through obvious command and
control techniques, such as improved overall mandatory reliability
management, national operating standards and central government
appropriation of land for transmission lines.<br>
</li>
<li>A hybrid type of regional grid management, reflecting at best a
watered down version of a proposed "Standard Market Design" proposal (the
so-called Camel Plan) is likely to be put in place. As a consequence,
there will be varied and not necessarily consistent types of regional
regulation over the use and prices of wires that snake across the country.
<br>
</li>
<li>Some incentives (rates and Federal siting assistance) will boost
construction, subject however to ongoing procedural and regional checks.<br>
</li>
<li>Niches for independent merchants to provide transmission and local
electric caravancos will be enlarged, but not institutionalized as
institutions integral to a national system, with resultant revenue
uncertainties for the struggling businessmen. </li>
</ul>
<p>An enterprising Mad Mullah has pointed out the potential of disseminating
small electric engines ("determined generation" or DG) where power lines are
insufficient or reliability is poor, or where building them will decrease
the need for power lines. He suggested to a hostile U.S. viceroy that in the
midst of the current probable "gridlock," a near-term way to improve system
operations must be found. His arguments were cogent:</p>
<ul>
<li>As the dollar value of reliability of power is just beginning to be
appreciated and the need for security is just coming to center
stage, reliance on Regu or Deregu philosophies is inadequate and there is
a distinct need to find an immediate insurance policy backstop for a
system in convulsions.</li>
</ul>
<p>Distributed generation is uniquely positioned to bolster the robustness
of transmission operations through systematic and strategic deployment in
potentially impacted areas, as well as to enhance the operations of aging,
storm-tossed distribution systems. </p>
<ul>
<li>Backup generators are needed where facilities affecting public health
(like municipal oases) and safety are required. The presence of such
generation may help to shave generation peaks and thereby reduce potential
generation service problems.</li>
</ul>
<ul>
<li>A security strategy of locating DG proximal to transmission load
constrained areas, and key public services can serve to significantly
reduce strain on overall grid operations and the stress on those concerned
with such operations.</li>
</ul>
<p>Moreover, when DG is approached as a system-enhancing strategy,
compatible with overall system operations, the resistance of utilities to DG
as a strain on their distribution system operations can be addressed
rationally and accommodated as a development opportunity available to
willing distribution systems or developers. Future distribution systems can
be designed to accommodate distributed generation by virtue of the addition
of key "smart technologies," which handle two-way electrical flows as well
as communications that permit all interconnected DG to be dispatched,
monitored, and controlled from a central source.</p>
<p>Transmission system enhancement, by itself, will still leave the over-all
operation of the nation’s power system subject to an increasing number of
constraints, potential breakdowns and costs at the distribution system
level.</p>
<p>Complementary DG planning at the distribution system level can both
reduce these possibilities and actually reduce the capital requirements for
additional transmission.</p>
<p>The Mullah’s proposals have been brushed aside, at the present time, by
the determination of the Viceroy that if more oil can be drilled, the
problem can be solved. It must be so, he stated, it says so in the
U.S. National Energy Policy.</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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