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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 2006</u></b></p>
<p align="center"><font size="6"><b>Casper's OATTs</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>006/10/27)<br>
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<p ALIGN="LEFT">This is the story of a regulatory ghost returned to haunt
the power industry scene. What a long road it’s been, trying to get the
transmission system to support competitive interlopers on utility service
territories. First there was the seminal deregulation Order No. 888,
establishing Open Access Transmission Tariffs (OATTs). We all know the
turbulent history that followed. FERC and its allies pressed unsuccessfully
in Order No. 2000 for greater national regulatory homogeneity. The wasting
hulk of Standard Market Design sits by the side of the road in testimony to
the greater staying power of integrated utilities’ emphasis on “regional
differences.” In promulgating the newest proposed rulemaking to remedy
continual undue preference and discrimination in the provision of
transmission access services, Chairman Kelliher in effect conceded this,
indicating: “The (political) reality is we will have different kinds of
“markets,” not just RTOs, so FERC has a duty to ensure all function fairly.”
A second key reality, which compounds its need to do so was pointed out by
Commissioner Kelly: neither deregulation nor market forces have produced the
level of transmission investment needed to meet industry needs or minimum
load growth requirements.</p>
<p ALIGN="LEFT">So FERC has now issued a 539 page ghost story, NOPR
(RM05-25, RMES-17) focused on OATT reform as a means of confronting again
the state of the transmission system. The watchword of this ghost story is
transparency. The NOPR relates only to wholesale service — no intrusion on
bundled native load. While not editing out either the pro-competitive
requirements of public utility “comparable treatment” of all system users or
the traditional protection of customer native load, the NOPR seeks to make
discrimination harder by making the ghost of discrimination less gossamer.
It does not undercut transparency arrangements ISOs have already put in
place. Its basic tack is to raise the overall requirements for clarity and
transparency, so that whatever regional regulatory system is in place, the
parties can better discern their rights and thereby be able to act on them.
Key provisions designed to achieve this objective include the following:</p>
<ul>
<li>
<p ALIGN="LEFT">More consistent calculations of Available Transfer
Capacity (“ATC”) are required, so that hoarding by local service providers
cannot be masked by inconsistent or obscure calculation methodologies.<br>
</li>
<li>
<p ALIGN="LEFT">Participation by each transmission provider in an open
and coordinated transmission planning process (and provision of a
description of that process in its OATT tariff). The requirements of the
process have a familiar ring: openness, transparency, comparability,
regional coordination.<br>
</li>
<li>
<p ALIGN="LEFT">Pricing is only reformed in special cases such as the
mitigation of presently discriminatory imbalance penalties for wind and
other intermittent generators.<br>
</li>
<li>
<p ALIGN="LEFT">Current price caps on assignments of capacity (presently
the higher of: original, maximum, or customer opportunity rate) would be
removed.<br>
</li>
<li>
<p ALIGN="LEFT">Requirements for rollover rights would be enlarged to five
years additional service and one year’s advance notice. Flexibility for
merchants to nail down needed capacity therefore could be reduced.<br>
</li>
<li>
<p ALIGN="LEFT">Required posting by transmission owners of all business
rules, practices and enlargement of the posting requirements. </li>
</ul>
<p ALIGN="LEFT">The NOPR, in effect, embodies a hoary principle of
regulations, updated to the quasi-free market power grid setting: if you
can’t direct it, mandate its shape, or even police it, make it
embarrassingly transparent. A skeptic might term this the “Casper the
Friendly Ghost” transparent approach. A skeptic might ask: if basic industry
governance structure is not modified or new construction incented, to what
extent can the problems confronted by the FERC be solved, particularly in an
environment where consolidation of utilities is the order of the day? To
what extent will it facilitate the balanced development by diverse merchants
in multiple of the IGCC plants that are in the nation’s future, or the
construction of needed new transmission to make them optimally cost
effective?</p>
<p ALIGN="LEFT">Perhaps in short, the NOPR amounts to an American
formulation of the recent weary remark of a senior advisor to the EU
competition commissioner: “A market which requires such [a scale of
investment] and is so technical is not effective if you have thousands of
small operators...The best structure in terms of competition is an oligopoly
— the question is ‘what kind of oligopoly do we want.’”</p>
<p ALIGN="LEFT">This may be too skeptical a view, certainly of FERC’s
intentions. But whether its Casper-like approach will be much more
comforting from the standpoint of merchant power remains to be seen.</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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