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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>
</u></b><u><b>March 2009</b></u></p>
<p align="center"><font size="6"><b>Convergence</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: 2009/03/31</em>)<br>
</font></p>
<div>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">The
challenge to successful implementation of the diverse
provisions--related to renewable and clean energy applications--of the
American Recovery and Reinvestment Act of 2009 (“Stimulus Package”), is
to create one or more new types of “pubic-private partnerships” which
may well differ from the traditional “P3” arrangements presently in
place. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">There is
an apparent divergence between the Stimulus Package formulation for
assistance delivery and the forms of public-private partnerships used by
governments today. That is more appearance than it is substantive for
the reasons discussed below.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">The
Stimulus Package’s terms reflect the multiple objectives which it hopes
to jumpstart through massive short-term expenditure. These include
promoting development of sustainable clean energy sources, smart grids
and improved grid systems, reduced national consumption of
foreign-sourced hydrocarbons, creation of “green jobs” in resulting
business expansion, assistance to budgetarily-strapped state and local
governments to undertake energy efficiency in public assets and in their
communities, and larger Federal energy efficiency initiatives. The
Stimulus Package doesn’t contemplate by its terms the relinquishment of
any current asset ownership or service activities to the private
sector. It doesn’t contain provisions which would facilitate the
leverage of public funds. In fact, states are to be <u>the</u>
“delivery system,” for the Federal cash. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">The U.S.
concept of public-private partnerships has moved away from the notion of
the outright public asset “privatization”; it has generally included a
contractual agreement between public hosts and private providers for the
delivery of services or development of assets, which are subject to some
measured allocation of risks and rewards, and of a financing--while not
termed “concessions” in most cases--the economic equivalent of one
mechanism for efficient task performance. The more common methodology
for scrutinized public-private partnerships for their financing has been
use of debt obligations (whether public or private activity bonds)
secured by public contractual obligations and underlying assets. On the
Federal side these P3s have notably included guaranteed efficiency
savings contracts for many types of buildings and facilities, and
special enhanced-use value lease arrangements for specific Federal
properties whose value was not being exploited or redefined fully.
There has also been U.S. adaptation of the U.K. “project finance
initiatives” approach, in which the private developer accepts
construction and operation risk based on contractually pre-committed
public outtake or use obligations. Applications could range from
on-site generation to military housing. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">How do
the Stimulus and the P3 concepts fit together in the clean energy space
today? What does that mean, for example, for the potpourri of private
development stages and technology types which are loosely grouped under
the new conceptional rubric of “convergence,” of solar energy and energy
efficiency?</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Consider
the spectrum of the following cases:</span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">A new, possibly
disruptive, energy efficiency technology seeking its first customers.</span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">A proven energy
efficiency technological breakthrough whose corporate sponsor is seeking
to roll out its national commercialization and develop a domestic
manufacturing facility.</span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">A proven solar
technology, which can cost-effectively be installed by its corporate
sponsor in various configurations in different types of public
facilities and installations. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">I would
suggest these conclusions: </span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">That new types of
public-private partnerships using the Stimulus Package can and must be
developed, specifically adapted to the functional and operating needs of
each case.</span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">That many of the
hard-learned lessons about public-private partnerships in the
traditional P3 arrangement should be incorporated in the formulations of
these energy P3s.</span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">That,
notwithstanding evolution of P3 structures, a single code of good
practices can be developed, which can be adapted to the cases presented
here, and the many new types of cases which may evolve.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Let’s
consider each of these cases: </span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="color: black; font-weight: 700">The new
technology commercialization stage</span><span lang="X-NONE" style="color:black"><br>
The Stimulus Package has various R&D and stimulus programs, recently
highlighted by President Obama as also having definite job creation
potential. The Stimulus Package also promotes state energy and energy
office technology assistance programs. Some of these can flow through
existing university or state sponsored incubator programs. In
principle, various types of public-private programs could be developed,
which meet the state’s near term and longer term economic development
goals, the Federal desire to hasten the application of effective new
energy technologies and, of course, the private party’s objectives. It
is not as though this idea is unprecedented. Public-private
partnerships have already sprung up through state economic development
agency models, governmental models making available a variety of fiscal
and incentive tools, and sometimes through industry sponsored models.
It’s up to the proponents of these approaches to link together the
energy early stage technology Stimulus programs and pre-existing
programs in a way which takes advantages of both. P3s become mechanisms
for fitting existing forms to the newer Stimulus Package functions.</span></p>
<p class="BulletIndent10"><span lang="X-NONE" style="color:black"><b>A
roll out of a commercially demonstrated technology and erection of
related manufacturing facilities<br>
</b>The Stimulus Package contains notable tax incentives for new energy
manufacturing facilities. It also potentially provides states with the
wherewithal to reward energy efficiency initiatives which add net
benefits both to consumers and investors in rapid savings payback.
Separate energy efficiency incentives are made available to states and
local communities for their own initiatives. There exists energy
efficiency infrastructure management in most jurisdictions, although it
is not as clearly defined as for renewable energy. The makings are
present in some states to become the situs for commercial and industrial
firms to establish energy manufacturing plants, particularly in states
which also represent good markets.</span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="color: black; font-weight: 700">An integrator
of a proven renewable technology</span><span lang="X-NONE" style="color:black"><br>
Unlike earlier loan guarantee legislation, the Stimulus Package provides
incentives for technologies which have already achieved commercial
status. It effectively provides a basis for governmental uses of money
for convergence. Finally, of course, the tax aspects of the Stimulus
Package in effect create a de facto public-private partnership, since
private project equity can derive from Federal grants (or tax
incentives) and, privately, solar power sales revenue streams via PPAs
(and possibly soon energy efficiency credits) serve to amortize the
debt. Solar manufacturing plants are also the subject of tax credits.
Some states, where the climatic factors are right, are thus in a
position to massively incentivize those possibilities. In effect, it is
possible to develop triangular public-private partnerships built around
taxes, PPA incentives, and private risk taking.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">
Consideration of these cases points toward a few key conclusions for
energy P3s--adapting and modifying lessons learned in the water
treatment, transportation, and public facilities areas, where many P3s
are about public risk shifting and private negotiation to obtain
satisfactory toll or tax arrangements. </span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">Energy and energy
efficiency are potentially revenue productive. Federal assistance is
available directly, as well as in specified debt situations where
provisions of debt guarantees is authorized. Existing forms can be
adapted--with private sector encouragement--to different functions, or
to support activities which themselves complement existing P3 services (<i>e.g</i>.
energy source for water and wastewater treatment). </span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">The benefits of
these new model possibilities can best be realized if there is a
concerted effort to re-examine the way in which the service contract
model can be supplemented by various other forms both of public
participation and NGO involvement. “Partnership” need not be
inconsistent with different ownership, risk sharing, and benefits
structures than we have seen in the past. Emphasis on “green” provision
of more cost effective public services or more cost-effective public
buildings can objectively be presented as win-win situations. </span>
</p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">Also, as energy
companies enter the Stimulus-oriented environment, their approach to the
relationships with state and local governments must adapt as well.
Encouraging creative morphing forms of public-private partnerships is a
key way to do that at the state and local, as well as the Federal,
levels. </span></p>
<p class="BulletIndent10">
<span lang="X-NONE" style="font-family: Symbol; color: black">�<span style="font:7.0pt "Times New Roman"">
</span></span><span lang="X-NONE" style="color:black">In addition to
emphasizing proposals’ compliance with applicable Federal authorities
and technical requirements, the hard won P3 lessons previously learned
and publicized by The National Council for Public-Private Partnerships
continue to be applicable in the new setting.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">By
considering the requirements for different types of solar/energy
efficiency convergence involving government and the private sector, we
can discern the outlines of new public-private partnerships which are
nevertheless rooted in well-established principles. The Stimulus
Package, and further energy and environmental legislative incentives to
come, are not radical divergences from the traditional form of P3s. In
fact, they will provide the impetus for a convergence point in the
working of public policy.</span></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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