|
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>Viva Las Vegas</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>August 1997</u><br>
</b><br>
<font size="6"><strong>VIVA LAS VEGAS</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">The current debates regarding the limits on the scope of electric
utility and convergence mergers; and the extent of regulation of power product commodities
are not just about the nice details of retail access - they are about the essence of the
future business. Private power needs to focus on their profound risk management aspects:
that focus will enable it both to take tactically useful policy positions and to develop
an appropriate business plan. To win or to be cast aside.</font></p>
<p><font face="Arial">The Evolution of Risk When PURPA was a pup, the last risks a power
privateer saw were the avoided cost price zinging into the contract; the long term fuel
contract lock into place (at a price below the power price) and the air quality permit
slapped on the side of the old QF. Now the business is all about risk management -
mitigating the risks of price movements through financial or physical hedges. Without
doing that, a utility or a power privateer has problems knowing how and when to buy or
market his newly commoditized product. Shareholders and bondholders of his company and
projects will ultimately figure that out. As retail access becomes more generally
available, so too will customers. The result for power privateers: exposures to power-fuel
price disparities; competitor risk; even risk as to payment. To date, for example, COB
power prices have been far more volatile than those of any conventional fuel.</font></p>
<p><font face="Arial">Consequently, of course, has come the entrance of the private power
risk management tools: forward fixed price contracts; traded future contracts; off
exchange swap contracts; options; and now insurance programs (which are really synthetic
sales transactions reflecting someone else’s presumably more expert management of
risk than that of the mere producer in the trenches.</font></p>
<p><font face="Arial">What this unavoidable trend implicitly means is that the same power
firm is a "book" company in the energy business; a "virtual" company
with small but definite market bet exposure and potentially larger still unhedged
exposure; and a "tax" company whose results depend on the market and the
treatment of its hedging and insurance arrangements. While every business is a portfolio
of strategic decisions it has undertaken power companies are now or soon will be - to a
greater extent than manufacturing firms - best understood as a portfolio of the market
risks they take; the quality of the people they have taking them; and the
"goods" they have to back them up.Risk Tomorrow All of this may be a yawn to
you, but now the stakes are going up even further for power producers at the Electric
casino because now "the House" (risk management industry) is willing to accept
power producer’s first born (under utilized assets; blocks of future capacity) as the
chips paid to the House for risk coverage bets. It is all a matter of swapping
"utilization of inefficient assets," i.e. call on generator production in
exchange for firm price protection for future generator power delivery. The possibility of
interfuel energy swaps - for production capability or for profit - adds another dimension
to possible deals. To put it differently, the power company is the grain producer; the
insurance company is both the grain elevator and the trading pit manager. It may be good
business for the power producer, but only if managed very carefully. It adds yet a new
aspect to corporate risk valuation.</font></p>
<p><font face="Arial">In this new world, the real "independent power player" is
the risk counterparty. Washington has not, cannot or will not wake up to all of this. What
needs to be examined by regulators when, for example, they are examining corporate
combinations, is whether their rather quaint economist tools for measuring "market
power" and equally conceptualistic tools for its "mitigation" is whether
they are really addressing the ways in which the real power commodity markets can be
played by large traders in transmission constrained regions. In short, in the new electric
casino, can "convergence" simply be judged by horizontal merger standards?</font></p>
<p><font face="Arial">Some Modest Suggestions The other obvious conclusion is the need for
changes in our approach to electric public policy. It is time for Steve Wynn of Golden
Nugget for FERC Chairman, Dwayne Andreas for Secretary of Energy; Las Vegas and Hartford
as the twin capitals of the gambling/insurance energy world. The AICPA must develop, in
conjunction with the Kennedy School, a new FERC Uniform System of Contingent Accounts. The
Salomon Brothers will offer continuing enactments of it at Caesar’s Palace.</font></p>
<p><font face="Arial">Private power is no longer about bucking the old system. It is about
beating the new system. Public policy is about learning to be happy with the new system. </font></p>
<p align="center"><font face="Arial"><em><strong>Viva Las Vegas!</strong></em></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="9708flmn.htm#top"><img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></p>
</body>
</html>