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<title>Rock and Roll: Revelation and Reliability</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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<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>MARCH 1997</u><br>
</b></p>
<p><font size="6"><strong>ROCK AND ROLL: REVELATION AND RELIABILITY</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"><strong>Question:</strong> What is the combined significance of Rock
and Roll, Revelation and Reliability for those who would like to add a renaissance of
private power supply to the emerging new profile of the electric power industry?</font></p>
<p><font face="Arial"><strong>Answer:</strong> Add a fourth "R" - reregulation -
and make sure it has elements of the old PURPA playbook.</font></p>
<p><font face="Arial">Here’s what the "Rs" are about and why the
"answer" is progressive and not retrograde:</font></p>
<p><font face="Arial"><b>Rock and Roll</b></font></p>
<p><font face="Arial">David Bowie is showing the way for PG&E. Recently the British
rock star issued a $55 million bond issue backed by his future record and publishing
royalties. Now, starting naturally in California, utilities will be issuing securities
touted as "rate deduction" bonds which securitize (in advance of actual receipt
of payment) the mandated stranded cost charges which the State Commission has agreed may
be issued to ease the rocky path which open access will create for utilities by rendering
some of their facilities non-competitive. (The "angina posed by competitive
rates", as the Wall Street Journal recently dubbed the savings which competition was
supposed to produce, but which endanger the future of many utilities.) The word on the
street now for the industry is this: expect a "soft landing" if stranded cost
securitization is available. Expect state commissions to intuit the opposite: no stranded
cost charge payments, no utility Titanic sinkings on their watch. Ah rock and roll!</font></p>
<p><font face="Arial"><b>Revelation </b></font></p>
<p><font face="Arial">Item: LADWP has announced it has signed a contract with Revelation
Energy Resources to sell wholesale power to members of its parent, Revelation Corp. of
America, an alliance of large religious denominations. Revelation Energy is a licensed
FERC power marketer. LADWP’s ambition is to make direct retail sales to the
church’s members.</font></p>
<p><font face="Arial"><i>Business Week</i> takes notice of the larger trend in its piece
entitled "High Voltage Chaos." In surveying the impact of aggregation/power
marketing on end users, it reaches three conclusions: First, those most likely to be
benefited are those that are able to shift their power consumption to off peak hours -
such as running equipment only at night; Second, "If regulators decide to protect
utilities, e.g., through stranded cost covery, savings for small business could be
scant"; Finally, residential consumers will most likely only be benefited in the long
term, if there is some standardization of prices, obligations and conditions of service.
(Ed. note: This used to be called regulation.)</font></p>
<p><font face="Arial">Clearly marketing will be coming to the fore in the industry, and
possession or creation of end user relationships will be critical. Traditional utilities
may even be able to benefit from the situation, as in telecom, to the extent that cautious
consumers prefer to continue to do business in the same old way.</font></p>
<p><font face="Arial"><b>Reliability</b></font></p>
<p><font face="Arial">And so they will, predict some industry experts, looking to what
consumers stand to gain from open access. "The states will re-regulate because
citizens who have the least to gain and most to lose - vote" asserts an article in <i>Electrical
World</i>. It focuses on reliability as a driver for state commissions dealing with
ordinary citizens. It points to California’s creation of an oversight board on
standards as the first glimpse of the turn toward re-regulation which the involvement of
consumer/voters will trigger, as their VCRs begin blinking at 12:00 because of power
failures. </font></p>
<p><font face="Arial">Put rock and roll, revelation and reliability together, and you get
a world where consumer lock-in is key to success, and the providers of generation are
going to have to succeed by dealing with one of four players: the three obvious ones
identified by<i> Business Week</i>, utilities, aggregators and brokers, and a fourth, the
gatekeepers of larger open access systems.</font></p>
<p><font face="Arial">For some power privateers (particularly those who are not also power
marketers), the promise of open access has been "transparency": objective
ability to make the cheapest power and then sell it to the consumer with minimum
transmission interference. Perhaps, this is naive: as we see above, old and new players
alike aspire to the middleman role. While ultimately prices determine markets,
possibilities for exercise of market power never die, in a creative free market economy.</font></p>
<p><font face="Arial">There is a subtle (if somewhat retro) conclusion to this analysis:
that in the overall deregulation legislative fight that will occupy the coming years (at
the state as well as the federal level), privateers would be well served to continue to
emphasize their rights not just to interconnection and access, but of fair treatment in
the marketplace as well. Because those who stand to be in the middle are finding more and
more good non-economic reasons - securitization, affinity groups, reliability - why their
essential position in power markets should be given deference.</font></p>
<p><font face="Arial">It is in that sense - only - that "reregulation" should be
on the lips of the private power industry. Otherwise, it may be astounded how rock and
roll utilities will propound the doctrine of reliability upon the land, aggregators may be
well satisfied to be their groupies, and private power will become the Pat Boone of the
electric circus.</font></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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