February 1999

ETCH-A-SKETCH ENERGY LEGISLATION

by Roger Feldman  --   Bingham, Dana and Gould, P.C.
(originally published by PMA OnLine Magazine: 02/99)

Etch-a-Sketch of Legislative Fantasy
Remember Etch-a-Sketchs. You drew on a blank pad covered with a cellophane like substance. Tired of the picture, you lifted up the cellophane and – if you hadn’t used your pen like a chisel – you magically had a clean pad to draw on all over again. Dilbert actually convinced his boss it was a computer.

Now Congressman Barton, taking the reins of the Congressional committee responsible for kicking off this year’s round of electric deregulation effort, has advised us that he is following the etch a sketch paradigm: no carryovers from the past, all newly drawn rules directed by the mind of reason and the spirit of bipartisanship. Be still my heart.

Funny thing about etch a sketch though: those earlier "erased" pictures never really fully faded away completely – less so the more often the same patterns were repeated. And that’s the feeling you get as you listen to Barton tick off his preliminary stands on the issues which his proposed legislation will address.

The Barton Sketch

• Date certain for deregulation. Some skepticism, but may accede since it is strongly held view of last year’s dereg warriors.

• PUHCA/PURPA Repeal. Absolutely better on a stand alone basis, but will try to embrace in comprehensive legislation first.

• Power Marketing Agencies. Privatization: The "right" thing, but not necessarily the politically feasible one.

• Grandfathering of existing state restructuring laws. States’ rights’ bias inclines him in that direction, but thinks states have already made egregious errors that he would like to correct. Pragmatic bent suggests that he will forego the opportunity.

• FERC Role. Would like to minimize. Concerned that it will become a force for re-regulation (a per se violation of natural law, (per, I guess), either Genesis or Revelations).

• ISO vs. Transcos. Inclined to support institution that can play honest broker role and serve as an independent referee, because it is not directly involved. (Still pondering this conclusion because of inherent natural superiority of profit motivation in any institution. (See, I guess, Deuteronomy.)

• Stranded Cost Recovery – Full utility (and IPP) recovery of stranded costs. (Definition, on tablets, to follow.)

• Renewables. No mandate for market – distorting renewable/ green portfolio requirements. (Such support should come through tax incentive package.) Political fine tuning to follow.

By this own statement, not originally a proponent of comprehensive legislation, Congressman Barton, who has an impressive track record as a legislative engineer on other fronts, has now taken on the energy bill at his leadership’s direction.

Fading Lines on the Tablet
Hope he notes a few of the old "erased" lines on the etch a sketch pad, that diligent observers of the needs of competitive power have tried to draw over the years; like the following:

• Forced fixed date homogenization on a Federally legislated set of principles ignores the evolutionary and differentiated state of U.S. power markets. Absence of existing state law grandfathering should compound the delay in proposal acceptance.

• In an imperfect market, PUHCA/PURPA repeal needs to be accompanied by competition protective steps.

• PMAs are more likely to evolve than go away.

• A weak FERC assures a market with insufficient guidance and with regulatory abuses: ultimately it may be more orderly, but at a price of consumer vulnerability.

• It also compounds the potential affiliate abuse of transcos that profit motivation can get out of hand.

Watermarks

Equally important, one hopes – and, based on Congressman Barton’s evident savvy, expects – is that he recognizes that in a fundamental sense, he is writing not on an etch a sketch, nor on a piece of old fashioned tabula rasa, but on a piece of historical parchment, with engrained watermarks, reflecting the great shifts in American energy history in the last decade:

• From steam to gas turbine generation;

• From sequential information processing to network market systems which incorporate regulators;

• From regional to national markets;

• From competing energy source to converged sale of all energy

The implication is clear: with such a large and central part of the national economy at stake, the overriding perspective must be assurance that historic trends are flexibly and realistically served even if particular corporate interests are not fully served – and even if traditional party shibboleths are not afforded traditional genuflection.

Conclusion

Viewed from that perspective, etch a sketch legislation is not an expression of objectivity but of national hubris that whatever Americans do damn well will work (a philosophy which has not always worked that well in energy policy before, if the truth be told). One can only hope that as our national capito l regains its sanity, it brings to the energy debate more of the sense that the nation’s bedrock is at stake than at times has characterized its approach to the debate of national governance.

Etch-a-sketch is for kids; slogans and ideologies are for comic books – we are in the age where realistic futures simulation is possible. All we should leave to the market is sophisticated smoothing of the near term uncertainties that remain after clear cut and enforceable rules are established. Dilbert, give the man an Apple.

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.