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<title>Open Access/Open Sesame: A Power Marketer's Guide To The Proposed New
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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>MAY 1997</u><br>
</b></p>
<p><font size="6"><strong>OPEN ACCESS/OPEN SESAME: A POWER MARKETER'S GUIDE TO THE
PROPOSED NEW LEGISLATION</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">All open access legislative proposals do not have the same positive
benefits for power marketers. None of them address their specialized issues in sufficient
detail. Here is a rundown of some key factors.</font></p>
<p><font face="Arial">The Schaefer bill, originally introduced last year, represented a
bold thrust toward deregulation, but one designed to offer placatory incentives to
electric utilities and to holding companies. The more recently introduced DeLay bill is
consistent in spirit with Schaefer, but also is designed as a warning shot across the bow
of the recalcitrant utilities. The Bumpers bill, from the other side of the aisle,
supports deregulation, but reflects additional environmental and populist concerns. </font></p>
<p><font face="Arial">There are three key policy denominators of these bills affecting
power marketers. </font></p>
<p><font face="Arial">(1) First, the extent of substitution of federal directives for
state action. The underlying conflict here is between open access, proponents, anxious
both to press their case and avoid the need to deal with a crazy quilt of jurisdictional
responses to open access, and a variety of supporters of the contrary position include
higher cost "just go slower" utilities; legislators from lower cost power
states; certain consumer groups; public power systems; and, of course, state regulators.</font></p>
<p><font face="Arial">The Schaefer bill seeks to straddle this issue, by providing the
states with an opportunity to conduct proceedings to establish non-discriminatory retail
access by a date certain, as reflected in proceedings which include mandatory
consideration of specified principles. If they fail to do so, FERC is directed to step in
and by December 15, 2000 to effectuate customer choice.</font></p>
<p><font face="Arial">DeLay’s proposed legislation would delete the craftsmanship of
the Schaefer bill — leaving regulatory authorities only with deference in certain
decisions relating to electric service, and obliterating any distinction between regulated
and non-regulated utilities.</font></p>
<p><font face="Arial">The Bumpers bill would make specific provisions for
"re-regulation" of the deregulated transmission sector. It makes
recommendations, for example, for transmission regions; standards for and regulation of
Independent System Operators through Regional Transmission Oversight Boards.</font></p>
<p><font face="Arial">(2) A second generic basis for distinguishing among current
legislative proposals is their treatment related to assurance of removal of market
imperfections. Principally, this will relate to two issues: treatment of market power, and
the form and scope of dismantling of the Public Utility Holding Company Act (and PURPA).</font></p>
<p><font face="Arial">The Schaefer bill, whether from naive or disingenuous faith in how
private firms actually behave in free markets, or fundamental aversion to the
recrudescence of intrusive regulation, basically does not focus squarely on the market
power issue. It does make clear that the anti-trust laws are not superseded, but for the
most part its focus is on assurance of the removal of governmental barriers to competitive
market entry.</font></p>
<p><font face="Arial">DeLay would direct FERC specifically to ensure that present and
future utility exercises of market power do not impair the objectives of open access. The
proposed authority is very broad, extending to restrictions, under certain circumstances,
on sales at market prices and divestiture orders. Bumpers would go even further, focusing
an entire statutory Title on "Competitive Generation Markets," providing FERC
with authority to deal with situations "inconsistent with effective competition among
retail and wholesale electrical providers.</font></p>
<p><font face="Arial">It is somewhat ironic that at the same time as markets are slated to
be made more competitive, there is a perceived need by some to give FERC the general type
of oversight powers which the SEC has exercised with respect to holding companies —
which all of the proposed bills contemplate repealing. The logic in the latter case, is
that the need for PUHCA is obviated if the competitive circumstances necessitating its
imposition are removed. The politics are that the same utilities which are being asked to
cede open access — and basically are opposed to it — are also, however, anxious
to see Holding Company Act repeal.</font></p>
<p><font face="Arial">PURPA repeal is an element of all three bills, to be triggered upon
full realization of open access. The proposals are focused on preservation of old
contracts. Only Bumpers explicitly purports to protect against mandatory downward
negotiation of existing rates. A possible additional condition to these PURPA repeal
provisions, which many power marketers would favor, would be the preclusion of utility
participation in distant territories which have been deregulated, unless their own
territory has been deregulated as well. </font></p>
<p><font face="Arial">(3) While the battle swirls around the larger generic legal issues
just discussed, power marketers would do well to assure that the new legislation also
serves the purposes of enabling them to continue to develop and expand their own
transactional niches: convergent energy supply services; interface of energy
management/service and power marketing.</font></p>
<p><font face="Arial">Power marketing and natural gas marketing (not to mention the
marketing of additional fuels) are becoming a single (sometimes national, sometimes
regional) enterprise. Schaefer recognizes this in its PUHCA authorization — which
requires as a condition of the lapse of PUHCA jurisdiction over a holding company, that
its gas utility customers also have the benefit of retail open access in the gas field as
well. In all other respects, its focus is on electric retail access. DeLay does not deal
with the issue. Bumpers’ more extensive concern with the potential unfair impact of
market competition extends to "natural gas utility company" acquisition, to
which it would apply a broad "public interest" standard. It also has an explicit
anti-cross subsidization provision.</font></p>
<p><font face="Arial">The issue of interface of power marketing with energy service
activities is critical to many companies. Some power marketers have offered ESCO services
and vice versa. Some of each have emphasized the superiority of their respective
approaches.</font></p>
<p><font face="Arial">The Schaefer bill captures in its definition of "retail
electric energy service" the full panoply of activities which may occur as a result
of retail access. The DeLay bill is as expansive in its definition, including virtually
all services other than transmission and distribution. Bumpers would seem to be more
narrow in the markets it opens: it applies to "ancillary services sold for ultimate
consumption." Markets for power marketing are created through, or in conjunction
with, effective energy efficiency activities. The issue of whether E.M.S. services are
properly treated as an unbundled component of supply or merely an ancillary activity would
benefit from closer delineation. </font></p>
<p><font face="Arial">In a related context, the interface between power markets and
customer groups — of "aggregation" — which has begun to emerge
nationwide. Aggregators may facilitate their operations by engaging in energy management
as well. Interestingly, while the Schaefer bill is a consumer driven statute, focused on
removing barriers to consumer sales, it does not specifically make provision for the
rights to consumers to form cooperative purchasing arrangements. Bumpers specifically
acknowledges the existence and permissibility of aggregation, but only if the members are
in a state "where there is retail electric competition." </font></p>
<p><font face="Arial">The treatment of renewables as a specially favored source of
electric energy could have a positive benefit to the limited population of power
marketers/aggregators who wish to focus on renewable energy supply. It could, however,
result in an additional burden for those marketers also directly or indirectly in effect
are compelled to traffic in renewable energy.</font></p>
<p><font face="Arial">Under the Schaefer bill, each "electric generator" must
meet a quota for renewable energy — not including hydro. The DeLay bill is silent on
the use of renewables — probably reflecting its aversion to the imposition of new
regulatory disciplines. Bumpers proposes an elaborate renewable energy credit package,
which also provides for the accommodation of additional requirements of state renewable
energy programs as well.</font></p>
<p><font face="Arial">Until the full outlines of the legislative compromises are visible,
it will not be entirely clear how rapidly retail access and the opportunity for power
marketers will emerge. But power marketing based transactions, and transactions launched
to take advantage of power marketing, need to be planned now with the possibility of the
difference among legislative scenarios in mind. Open access is a foundation of market
opportunities, but not, by itself, for product differentiation. Open access is not open
sesame.</font></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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