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<title>October 2005: RECs SECTS</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 2005</u></b></p>
<p align="center"><font size="6"><b>RECs SECTS</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>005/10/31)<br>
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<p ALIGN="LEFT">“Renewable Energy Credits” - a potential boon to merchant
power — involve the creation of a new property right that the Founding
Fathers demonstrably did not think of (but might have if the current
circumstances obtained). It will never get there if the culture wars - not
just between Blue and Red, but between shades of green - brings it down. The
following guide to RECs SECTS illuminates my point and its implications for
merchant power developers.</p>
<p ALIGN="LEFT">One of the areas on which the Energy Policy Act of 2005
essentially was silent was the ways in which commodity market operations
could be encouraged to enhance power production or deal with the
environmental bottlenecks to clean new power development. Into that vacuum
has flowed a variety of different schools of thought.</p>
<p ALIGN="LEFT">As a starting point, what we have today are approximately 20
States in regions of the country generally corresponding to those where RTOs
or similar organizations have taken root prescribing minimum power purchases
of differently specified types of renewables (“RPS”) and setting different
types of rules as to potential sources of sales into the States.</p>
<p ALIGN="LEFT">Providing the necessary infrastructure for creation to issue
verification and tracking and retirement of RECs are Generation Attribution
Tracking Systems (GATS). Currently they operate in ERCOT, NEPOOL and
Wisconsin (soon to be part of the Midwest Renewable Energy Tracking System).
Coming aboard soon will be PTM and the massive WREGIS for the Western
States. Note: these GATS are designed as registry systems, some with
electronic bilateral contract facilitation. There is no national trading
floor. It is toward this grail - Congressionally scorned - that proponents
of RECs as a sustainable development credit source strive in different ways;
with divergent themes.</p>
<p ALIGN="LEFT">Beyond that, we have widely branching schools of thought as
to where the RECs notion might go. For lack of generally accepted
terminology, I term the two leading schools — “clean fuels” and “renewables.”
The “clean fuels” proponents almost gained the Congressional heights. Their
notion was that RPS should extend to any type of energy that contributes to
a better environment and incidentally more domestic sourcing, without
reference to its sourcing, i.e. including notably clean coal and nuclear.
This approach challenges the renewables to justify themselves on an
environmental policy basis. Were it to be associated with RECs (whether or
not tradable) it could essentially confirm the role of traditional baseload
plant builders (who are getting the go-ahead to be the new generation of
plants even in competitive states.</p>
<p ALIGN="LEFT">The Renewables have a non-voluntary school of thought that
government should use compliance market mechanisms to foster green
applications for environmental and fuel diversity reasons. RECs should be a
means of meeting green compliance standards, thereby swelling the
alternative, somewhat distributed resource generation market. While exposed
to merciless derision by its opponents for potentially promoting
non-economic energy results, the approach is potentially consistent with the
core concepts of “internalizing an externality”.</p>
<p ALIGN="LEFT">A corollary financing thought here is that those renewable
markets can swell if there is a “trading floor” nationally for renewables.
Then, wind RECS from Wyoming can be purchased to help Florida utilities meet
their green RPS quotas, thereby benefiting both. Markets for the actual
energy commodities (including power) now drive the daily operation of our
national system; so too the argument runs should uniformly defined green-ness
traded via standardized contracts and implemented on a national trading
floor. (This is a current goal toward which the ABA-EMA ACORE project is
directed.)</p>
<p ALIGN="LEFT">Major disputes roil the compliance renewables camp include
“Bundling” vs. “Unbundling,” i.e., marketability of the green component
separate from the power component. It pits, for example, the CPUC and
traders against an unlikely combination of self sufficient utilities on the
one hand and certain consumer groups on the other. Out-ofstate sourcing and
valuation of credits are other arguments within the bundled sphere.</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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