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<title>June 2005: Stampede</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>
June 2005</u></b></p>
<p align="center"><font size="6"><b>Stampede</b></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: 2</em>005/07/04)<br>
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<p>A stampede is a man-made herd instinct Its ultimate results are
frequently not good. The proposed energy bill under consideration is surely
not the final form that the Energy Act of 2005 will assume. But in key
respects it is indicative of the eroding, not only in the Congress, of
confidence in green and distributed energy as major drivers in the effort to
obtain national energy security. The direction is the badlands.<br>
<br>
First, in its relative treatment of nuclear power vs. renewable green
alternatives, the herd is headed is toward the former. At the very least,
the great taboo which has existed since Three Mile Island, seems to be
disappearing. Environmentalists, now focused on “global warming” and perhaps
distressed with the success of renewable fixes to date (frequently touted
and subsidized before their time) seem to be joining in. Some have come
around to the views of the International Atomic Energy Agency (“IAEA”) that:<br>
<br>
“No form of energy-coal solar, nuclear, wind or any other [energy form], is
good or bad in itself and each is valuable in as far as it can deliver
[energy] to this end…By definition, if an energy source is not renewable,
any use of it is in exorable, but this does not mean it should never be
used. “It does emphasize: “the importance of not using renewable resources
at a rate faster than natural replenishment rates” and would consign
renewables to (support of) “economic activities in renewable areas.” (by
which primitive “emerging markets” seem to be intended)<br>
<br>
H.R. 6 would slash renewable fuels incentives from 72%. to 6%. of the
President’s original budget request and would pour from $1.3 billion over
the next 10 years into advanced reactor development. Cogeneration, the old
bellweather of independent power appears in a very different form: H.R. 6
would authorize $1.1 billion for planning
and construction of a “cogeneration” nuclear reactor that would produce
hydrogen to power fuel cells for motor
vehicles.<br>
<br>
As for old-style energy efficiency oriented cogeneration, buried, almost
literally in Section 1253 of Title XII, is
Section 1253 “Cogeneration and Small Power Production Purchase and Sale
Requirements” is a small headstone.<br>
<br>
The thinking behind it reflects the end of an era; the virtual disconnection
of life support systems for third party competition. Far from just being the
surgical removal of an unnecessary appendix to an already realized national
system of deregulation and/or fair competition, as it is meant to appear,
the provision jeopardizes the ability of projects focused on achieving
energy conservation in a cost effective financeable manner from succeeding -
including newly promoted applications, such as those purported to be
supported in the provisions of other sections of the electricity title,
related to matters such as “demand response”. It’s worth walking through the
Section, but as a trail map of the mindset of those stimulating the
stampede.<br>
<br>
Subsection (a) of proposed section 1253 terminates mandatory obligations to
purchase energy from an existing
Qualified Facility (“QF”), when that QF has “non-discriminatory access” to
one of three different possible markets (all presumably paradigms of
perfection achieved in the electric power world or susceptible to the
argument that they will soon be achieved): </p>
<ul>
<li>An independently administered auction for both day ahead/real time
sales for energy and long term capacity
and energy markets; or <br>
</li>
<li>transmission and interconnection administered by an RTO pursuant to a
non-discriminatory open access tariff
and a “meaningful opportunity” to sell competitive capacity markets and
energy markets to buyers other than the utility to which the QF is
interconnected (i.e. considering “evidence of transactions” within the
“relevant market”; or<br>
</li>
<li>wholesale capacity and energy markets of “comparative competitive
quality”<br>
</li>
</ul>
<p>In addition, utilities may file for relief even from these obligations
with Commission approval on a service territory-wide basis, based on
demonstrated compliance with any of the competitive market evaluation tests
set forth above. This finding can only be reversed through a notice and
comment based procedure.<br>
<br>
Furthermore, the obligation of utilities to sell to QFs would not be
required if either there were “competing” retail
electric suppliers willing and able to sell in a territory, and the host
utility was not required to do so.<br>
<br>
As for new cogeneration or small power facilities, they would have no right
to avail themselves of PURPA benefits
December unless they qualify under a new rulemaking which is provided for
under the statute.<br>
<br>
That proposed statutory rulemaking would significantly circumscribe QF use.
In addition to requiring that thermal energy output be used in a productive
and beneficial manner i.e. no PURPA machines, all facility outputs must be
used “fundamentally for industrial, commercial or institutional purposes -
not for sales to a utility, and to ensure “continuing progress in the
development of efficient electric energy generate technology. These new QFs
may be owned 100% by regulated utilities.</p>
<p>This trivialization of the importance of private power has significance
beyond serving as a corresponding
bookend to the repeal of PURPA. In recent years, concepts of relieving
congestion through introduction of third
party owned DG; the use of DG as a backstop for weaknesses in system
transmission reliability; the incorporation
of DG as a major Demand Response resource provider; and the use of DG as a
potential source of supplemental
generation reliability to deal with critical power and national security
needs have all been introduced.<br>
<br>
Various renewables have been posited as serving similar purposes, as well as
benefiting from shifts in QF
procurement and interconnection regulations.<br>
<br>
It is, however, difficult to imagine commercial facilities being developed
by third parties to serve such niche
purposes without the full panoply of requirements for utilities to provide
non-discriminatory support for QFs.<br>
<br>
The proposed statute's blend of disingenuous ambiguity and draconian
technological confinement make cogeneration, refinancing, as well as new
facility developments daunting propositions. Or, as the New York Daily
News might headline the story “QF Backup Fuggedabout It; Green Power-Yucca”.<br>
<br>
Any legislative stampede in support of any technology is questionable. Any
major evisceration of the possibility
of developing another technology is equally so.<br>
<br>
Hopefully, the Senate will take a swig of non-denatured ethanol, mount up,
and rein in the stampede to problematic
new supply fixes along with the squandering of the potential of as yet
un-deployed distributed generation possibilities.</p>
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<p class="MsoBodyText" align="left" style="margin-bottom:0in;margin-bottom:.0001pt;
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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