|
Server : Apache/2.4.62 System : FreeBSD fbsdweb2.web.rcn.net 14.1-RELEASE FreeBSD 14.1-RELEASE releng/14.1-n267679-10e31f0946d8 GENERIC amd64 User : www ( 80) PHP Version : 8.3.8 Disable Function : NONE Directory : /domains/enrgy/feldman/ |
Upload File : |
<html>
<head>
<title>The Urge to Converge</title>
</head>
<body style="font-family: Arial" vlink="#808080">
<div align="center"><center>
<table border="0" cellpadding="8" cellspacing="0" width="98%" bgcolor="#000000">
<tr>
<td width="100%" valign="middle"><a name="top"></a><img src="../images/pmamagsm.gif" alt="PMA Online Magazine" border="0" align="right" WIDTH="229" HEIGHT="100"></td>
</tr>
</table>
</center></div><div align="center"><center>
<table border="0" cellpadding="8" width="98%">
<tr>
<td width="25%" valign="top" align="center">
<!--webbot bot="Include" U-Include="wv_sidebar.htm" TAG="BODY" startspan -->
<table border="0" cellpadding="8" width="98%" id="table1">
<tr>
<td width="25%" valign="top" align="center"><map name="FPMap0_I1">
<area href="http://www.powermarketers.com/adrates.html" shape="rect" coords="14, 297, 97, 322">
<area href="http://www.powermarketers.com/pmajobs.htm" shape="rect" coords="11, 230, 95, 257">
<area href="http://www.powermarketers.com/main.htm" target="_parent" shape="rect" coords="12, 163, 96, 189">
<area href="http://www.powermarketers.com/power2.htm" target="_blank" shape="rect" coords="12, 95, 96, 121">
<area href="../pmamag.htm" shape="rect" coords="11, 29, 96, 54"></map>
<img rectangle="(12,163) (96,189) http://www.powermarketers.com/main.htm##_parent" rectangle="(12,95) (96,121) http://www.powermarketers.com/power2.htm##_blank" rectangle="(11,29) (96,54) ../pmamag.htm" src="../images/magmenu.gif" alt="PMA OnLine Magazine Menu" border="0" align="center" usemap="#FPMap0_I1" width="110" height="350"><p>
<a href="../searchpma.htm">
<img src="../images/archives.gif" alt="Archives Search" border="0" align="center" WIDTH="70" HEIGHT="40"></a></p>
<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>
<p class="BodyText05DS" align="left" style="text-align:left"> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p><a href="#top">
<img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></td>
</tr>
</table>
<!--webbot bot="Include" i-checksum="19883" endspan --></td>
<td width="75%" valign="top"><img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" WIDTH="375" HEIGHT="75"><p><b><u>FEBRUARY 1997</u><br>
</b></p>
<p><font size="6"><strong>THE URGE TO CONVERGE</strong></font></p>
<p><strong>by Roger Feldman -- Bingham, Dana and Gould, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
04/98</em>)</font></p>
<p> </p>
<p><font face="Arial">If the future structure of the power industry clearly had been
dictated by the private power industry, its future role, as a provider of new merchant
plants to a functionally disaggregated electric industry subject to wholesale and retail
open access would be clear. Subject to the concerns of IOUs with stranded costs and munis
and rural coops as to their future relevance, that is the direction in which federal
initiatives are pushing.</font></p>
<p><font face="Arial">When the premier merger trend in the industry was toward intra-IOU
mergers, even that trend could be rationalized with, and subjected to the policy
prescriptions of, private power. Tactics to obscure stranded costs and to artificially
enlarge service territories, it was thought, must surely ultimately fall to a regime
emphasizing true competition and open access.</font></p>
<p><font face="Arial">However, the reality of the marketplace is now
"convergence", not mere agglomeration of electric power assets. For private
power to both define its niche in the new energy world and stake out its position on the
form of coming electric power deregulation, it must come to terms with the fact that the
new markets in which it plays are not likely to be simply multiple gencos selling to
unregulated transco and discos. They are more likely to reflect one of several types of
"convergence":</font></p>
<p><font face="Arial">• Creation of regional "fortress hubs" made up of gas
and electric firms, seeking to defend their historic service territories; add retail
energy services; and possibly lay a foundation for broader diversification;</font></p>
<p><font face="Arial">• National energy firm construction, focused on future one stop
trading and "name brand" sales through pipeline merger with regionally based
electric companies, or through registered holding company alliance with local gas
companies;</font></p>
<p><font face="Arial">• Regional or national mergers or alliances between local
utilities and companies with infotainment technologies or capabilities, intended to focus
on the home access characteristics of existing utilities; </font></p>
<p><font face="Arial">• Regional mergers among electric and water and gas utilities
designed to focus on economies of system management; and</font></p>
<p><font face="Arial">• Power privateer marketers nailing down their own gas
supplies.</font></p>
<p><font face="Arial">Since in the catechism of private power - and to a significant
degree in fact - innovative competition is in the public interest, the logical response to
"convergence" ought to be in pro-competitive regulation by the gatekeepers:
FERC; SEC (under PUHCA), perhaps the Department of Justice under the Anti-trust laws, and
perhaps the states under their "little PUHCAs" or even traditional utility
regulation. However, this runs into a basic problem: the language and models for industry
regulation have not caught up with the explosive change in industry structure which
convergence now presents. This may be seen in three facets of the new FERC merger
guidelines:</font></p>
<p><font face="Arial">• Definition of business/relevant market;</font></p>
<p><font face="Arial">• Proposed mitigation of anti-competitive impacts of mergers;
and</font></p>
<p><font face="Arial">• Jurisdictional issues.</font></p>
<p><font face="Arial">As a consequence, power privateers may be driven back to examining
"convergence" in the legislative context - and may find itself with surprising
allies and enemies.</font></p>
<p><font face="Arial">• FERC’s adaptation of the merger guidelines was meant to
move it from an unsuitable passive review role, focused on savings and absence of
demonstrated competitive harm to the standards more traditional in non-regulated
industries: impact on market, consumer effects, significance of changing market structure.
It should be recognized, however, that the "market" which in the first instance
this analysis will be focused on is electricity; firms and non-firm energy and long-term
capacity. The perspective of the convergers; Btu competition via tolling arrangements,
"spark" swaps or other trading structures is not explicitly recognized.</font></p>
<p><font face="Arial">• Market dominance mitigation is framed in a manner very
similar to that under Order No. 888. Noted ratepayer safeguards are creation of an ISO,
asset divestiture, regional transmission pricing and related customer protection
mechanisms such as an open season to exit existing contracts. In short, the solution is
framed to deal with the potential problem defined in a narrow manner, not with the risks
of energy market dominance as a consequence of convergence.</font></p>
<p><font face="Arial">• FERC has crafted its own jurisdiction relative to companies
joining holding companies - asserting its right to impose its affiliate transaction
standards. These will be deferred to state jurisdiction to protect state interests, where
state have extant laws to do so. Put differently, the possibility of federal/state
disagreements on mergers, particularly when convergence is involved, is a real
possibility, and one which may favor the convergers relative to the rest of the
market’s players.</font></p>
<p><font face="Arial">• For power privateers, waiting for merchant niches to spring
phoenix-like from the husks of old merged firms, therefore, their prospects are more
problematic than they may previously have seemed. One solution might be to seek to broaden
the 1997 Energy Act to deal with "energy access" and address convergence. But
that may well be more than private power can chew or Congress could digest. The other
alternative, of which I suspect we will see more, is to follow the energy leaders, and be
prepared to join other "genercos" in the newly complicated battle to serve
different categories of end use customers.</font></p>
<p><font face="Arial">One way or another, the urge to converge is not one to be ignored by
private power. Traditional administrative and current state of the art legislative
thinking may not adequately distinguish between the creatively efficient and the
ingeniously predatory.</font></p>
<!--webbot bot="Include" U-Include="wv_bottom.htm" TAG="BODY" startspan -->
<hr color="#FFFF00">
<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>
<!--webbot bot="Include" i-checksum="63395" endspan --></td>
</tr>
</table>
</center></div>
<p align="center"><a href="9702flmn.htm#top"><img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></p>
</body>
</html>