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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 align="left"><b><u><br>
September 2008</u></b></p>
<p align="center"><font size="6"><b>Indecent Disclosure</b></font></p>
<p><strong>by Roger Feldman --
</strong><b>Andrews Kurth, LLP</b><strong><br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2008/11/08</em>)<br>
</font><span style="font-size: 10.0pt; font-family: Palatino; color: black">
</span></p>
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<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Eliot
Spitzer, of this year’s Mayflower scandal fame, made part of his mark as
New York State’s Attorney General by pursuing alleged violators of the
securities laws, laws which are, of course, rooted in the disclosure of
objective honest information and of ethical behavior with respect to
such information. On his quest to steamroll to the governorship,
sometimes he turned out to be mistaken, sometimes significantly, and
often he was criticized for his tactics, which included using his
official right to bring criminal as well as civil charges under a New
York statute, the Martin Act. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Comes
now his Attorney General successor, Andrew Cuomo, with the same
gubernatorial ambitions but a new found target--the utility
industry--which he alleges has committed a new crime, also characterized
as securities disclosure; it involves power generation in compliance
with existing environmental standards, and using (gasp!) coal. The
allegations are portrayed as failure to disclosure “financial risks”
implicit as a result of regulatory developments and further, failure to
disclose how coal plants, by contributing to the future consequences of
global warming--drought, rising sea levels--can impair future utility
operations as well. Last month one of five defendants in the matter,
Xcel Energy, caved to this pressure and agreed to disclose more. </span>
</p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">You
don’t have to be a believer that global warming has no man-made origins
(indeed you can be a proponent of effective government policy in this
area) to be concerned that carbon policy making by subpoena and press
release is a bad idea. Worse, it obscures the underlying serious issues
that confront America in dealing with the national challenge to utilize
coal while controlling greenhouse gases. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Let’s
leave aside completely the procedural and substantive nuances of
prosecuting a public securities issuer for the failure to disclose the
consequences of laws which have not been enacted, or as to the wisdom of
requiring depiction of how scientifically defined global trends may
someday affect the reporting company. Instead let’s focus on the
substance of the real unanswered questions that affect us all: the
coal/carbon challenge.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Every
responsible energy forecaster has raised the red flag that coal-fired
generation is, at a minimum, a key component of the U.S. mix for at
least the next few decades. It is the clear reasoned intention of
carbon “cap and trade” legislation to focus on both coal-fired
generation emission reduction, and avoidance of new construction, as
primary sources of total emissions reductions. Thus, at a time of
projected power shortages and rising consumer prices (including
presumably utility pass-through of what may better be understood as a
“coal use” tax), we are creating a real world energy scenario that
cannot be blown away by windmills or shrunk beyond likely concern, even
by major demand response initiatives or targeted grid infrastructure
investments. These are circumstances which will be exacerbated, in
fact, if the government’s attack on foreign oil use--use of electric
cars--and on U.S. economic doldrums really do, in fact, become the
subject of meaningful policy action. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">It may
be equitable to urge that it is the duty of utilities to disclose
potential dilemmas, where individual firm consequences are reasonable
foreseeable. Equally fundamentally though, it’s the duty of
government--and the political parties seeking to control it this
election season--to disclose where policy may take us and to stimulate
responses, private and public, to do something about it. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Yet,
relative silence continues to engulf the land during this campaign
season, crowded out by paeans to American ingenuity and ability to rise
to the new energy challenges. The U.S. focus needs to turn to
innovative environmentally acceptable coal-based solutions. Significant
issues remain regarding technical and economic feasibility of doing so.
The current virtual absence of programs to support such innovations is
the “disclosure” that political platforms would have to make, if even
modest securities disclosure standards were applied to the candidates.
For example, Carbon Capture & Storage (“CCS”), the great “clean black
hope,” is still mostly on the drawing boards in the United States.
Except for a relatively narrow effort in the failed Warner Lieberman
legislation to reward its use, the only Federal program currently extant
is to be found in the smoking ruins of Future Gen.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Is there
something substantive that can be done to support such development
efforts, besides praying for scientific rain? On the regulatory side,
the germs of some significant ideas are coming out of the European
Parliament, which may be susceptible of adaptation to America. One
would be to specifically earmark “allowances” for emissions to assist
projects which sequester carbon, until such time as the CCS industry
becomes economic and established. These allowances could help finance
needed CCS infrastructure, such as CO<sub>2</sub> pipelines and
storage. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">A second
proposal would be to initiate issuance of some form of “CCS
Certificates” for projects found to have validly sequestered carbon,
which certificates would be convertible into carbon credits which could
be applied to compliance requirements. It is contemplated that the use
of such CCS Certificates could subsequently evolve into an analog to
other offsets under Kyoto, which might be earned in developing countries
as such countries introduce CCS standards.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">These
ideas could be given a variety of American twists, to deal with the
likelihood that projected potential revenues from increased carbon
prices are not likely to sustain the large investment needed for a U.S.
CCS program. CO<sub>2</sub> pipelines and storage might be deemed a
type of infrastructure in which Federal investments in a public-private
partnership with participating utility beneficiaries was created--in
effect, the carbon “Big Inch.” Canada, for example, which has many
enhanced oil recovery possibilities tied to CCS, has been more inclined
to view the needed pipeline as “infrastructure” supporting economic
growth. Or, suppose alternatively, utilities and other coal conversion
project sponsors could qualify for usable domestic “offsets” as a part
of the new “cap and trade” legislation (an idea somewhat analogous in
purpose to loan guaranties in the nuclear plant guaranty context.)</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">In sum,
disclosure of carbon risk by itself, even when properly approached, is
not enough to deal with the serious energy engineering/economic issues
presented. Indecent disclosure--pinning a big red “C” on some of the
players in need of solutions--is merely diverting camouflage for absence
of the hard serious thinking America needs today. While carbon “cap and
trade” legislation is being formulated in America, it is necessary to
think about how to make it work, consistent with all of our public
interests.</span></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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