May 1999

CECA '99 - Luck of the CAW

by Roger Feldman  --   Bingham, Dana and Gould, P.C.
(originally published by PMA OnLine Magazine: 05/99)

To the sound of one hand clapping, the Administration has launched its second edition of the Comprehensive Electricity Competition Act ("CECA"). It is most usefully reviewed under three headings:

1. What is now "received learning", if not yet law, (i.e. "Conventionally Accepted Wisdom").

2. Where the disconnects are in the proposed new electric order (What sticks in the CAW).

3. What new business opportunities may be created (Where the wild things are)

First, CAW. Retail competition is good and shall happen (but it should look like the states are voluntarily doing it.) No more PURPA (but savings clauses for past projects and books access, respectively). FERC should have the power to police all aspects of reliability and transmission, (even if it takes oxymorons like "interstate retail transmission" to do it). Public power should survive, (but power marketing agencies and munis should be more or less swept under FERC wing, and public power can’t use tax exempt for future generation facilities used in competition).

Second, Stuck in the CAW. The power commodity is at least regional and in some respects national in nature. State jurisdiction over it doesn’t fit well at all. Unfortunately with the size of the emerging players, neither do traditional Federal laws protect against anticompetitive potential. One solution (the Administration’s): call in new Federal traffic cops (FTC for consumer matters; FERC for mergers; a new Electric Reliability Organization as well as, selectively the Department of Agriculture and Interior and even the Department of Energy! at least for model codes and consumer information. Enhance FERC authority over ISO operation and approval of needed interstate compacts. Savings clause the Anti-trust law. None dare call it re-regulation (or even lawyers relief).

Competition doesn’t necessarily protect and even (gasp) may endanger the environment, energy conservation, rural areas and those less able to pay. (Read: Administration constituencies which once had a great deal to with the hoary National Energy Policy Act of 1977 and still vote). One solution (the Administration’s): mandates for "white hat activities (Federal Renewable Portfolio Standard; special appropriations and grants for rural areas, Indian tribes and southeast Alaska; reinforcement for the Nitrogen Oxides Cap and Trading Program; restructuring of the authority of power marketing agencies.

In a different kind of disconnect, some important topics went unmentioned in CECA. Their treatment may be (or may have been intended to be) implicit in the proposed statutory language. Important examples include: the treatment of private transcos in an ISO-mandated world; the increased oversight (if any?) of power marketer arrangements and operations; and the regulatory treatment of states or munis which "opt out" of the firm retail choice date of January 1, 2003 on the grounds that they would be served better by consumers.

Luck of the CAW

By now, everyone has figured out (or at least expended considerable sums on consultants and lawyers trying to figure out for them) the basic winner-loser outlines of electric power deregulation. But every comprehensive energy bill has sleepers (unintended or not), which open new commercial opportunities either independently or within the larger umbrella of existing energy companies. Within the Administration’s bill, to which section references are made below, here are some guesses as to what they might be. Don’t look for them, however, just yet, in the Help Wanted or Venture Capital Reports – but they may be worth luminating on. They are the Luck of the CAW.

• Aggregation (Section 103) – Greater statutory institutionalization may facilitate growth, in connection with other retail access provisions.

• Consumer Protection (Title II) – Information dissemination/advertising on electricity will be informed by the telecom experience, and may be broader and more sophisticated.

• Renewables (Section 402) – The credit-trading arrangements linked to the mandatory Portfolio Standard would provide the basis for an on-going industry.

• Combined Heat and Power Systems/Distributed Power (Sections 403,405, 1003,1004) – The "non-PURPA" package of rights and tax credits, while not including any mandatory purchase requirements, could facilitate survival of dispersed generation in the new mega-competitive environment.

• Mergers and Acquisitions (Title V) – By extending FERC jurisdiction to cover holding companies and generation only companies, and authorizing (on State petition) market power remedies at the State as well as the wholesale level, the opportunities for sponsors of a broader range of transactions will be enhanced.

CECA will not be the final comprehensive energy bill. Its CAW will be crammed with exceptions and caveats, or even left gaping at the beliest of status quo proponents. Its appetite may be caged by restructions or starved for lack of benefits.

But by planting a flag for comprehensiveness and revealing the voids in the CAW, it should make possible new enterprises besides mega-conglomeration and power marketing in the electric power industry. Always something to CAW about.

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.