A Digital Electric
by Roger Feldman -- Bingham, Dana L.L.P.
Year-end, true end of millenium, is a time to be reflective as to where the electric power revolution is leading the world as well as to provide the snap! crackle! pop! forecasts of what next year developments in the electric industry sector will be. Here is a Christmas fable about power and people.
But first, like Dickens painting 19th Century London before telling his Carol, I must give you a 21st century cyber electric/socioeconomic moog synthesized riff before proceeding. Hang on tight for this brief sleigh ride accompaniment.
The production of power is what drives our economy (including what was called the New Economy, until the NASDAQ dipped). Conversely, our nation’s economic health is part of what has driven both our merchant power surge and California’s notorious supply-demand imbalances. The shape of regulation of electric power has been critical to the economic geography of America for the last century. But for the Public Utility Holding Company Act and the regional power administrations the profile of our country in terms of rural vs urban development or Northeastern vs. Southeastern development, might be very different. Politically, the U.S.’ non-nationalized ownership of power generation assets has been one of the factors distinguishing it both from massive dictatorships exercising power through control of its production and the unsatisfactory economic development programs of many non-Western nations. In short, electric power is more than another commodity. The importance, scope and implications of this fact has been exacerbated by the information technology revolution, which, at least at this date, is fueled ultimately by power juice. As they say, information is power.
Moreover, it affects people. Observers of the American social scene first began to remark on the information revolution’s sociological implications in terms of the so called "digital divide": the gulf between those whose education and training made them unable to rise in our increasingly computerized society and those who could. In effect the digital divide places a multiplier effect on the inequities which afflict our system of public education. Most recently, one sociologist began to trace the digital divide into locational economics as well. In the suburbs - away from the cities - along various highway and ring beltway corridors, he observed, lies the kingdom of the "techno-nerds" Nothing new there. But, more recently, he noted, back downtown, is where the information processing media type activities are beginning to cluster. And new digitally based activity to flourish in a variety of silicon "alleys," as well as valleys. Not the same people, to be sure, as those on the wrong side of the digital divide, but, at least people more or less the same place, whose prosperity might facilitate improvements for others adjacent to them.
Perhaps mildly interesting at this sentimental time of year you may say, but what does all this digital divide stuff have to do with the economic geography of the U.S. and its power industry. Quite a lot it seems. There continues to be a major debate, with DOE on one side and CERA on the other, as to whether the New Economy’s increasing power demands are replacing the diminishing use of power by the Old Economy, i.e., whether there is a national aggregate power imbalance. But there can be little debate as to the build up of urban center construction activity (1.2 billion square feet in 2000 up from 875 million in 1996), that there is significant increased technical content in virtually every facility and project and that power requirements have escalated. Commercial buildings, for example, have gone from 4 watts/ft to 8-10 watts/ft.
Even more pronounced sources of power requirements are the internet data centers, telecom hotels, colocation facilities and related facilities associated with broad-band communications, popping up to provide the enlarging internet content supplier industry. These facilities have tended to cluster near fiber/electricity/customer confluences and always require much higher reliability ("five or six "9s"); and 24/7 mission critical operation. Many tend to fill huge old abandoned facilities, which are then retrofitted with strengthened floors, special security, major HVAC and other (power-consumptive) services. The former Port Authority Headquarters, in downtown New York, currently leads the parade with 2.5 million square feet and an electric load of roughly 200 MW. Facilities are emerging all over.
The explosion in development of these types of facilities means intense demand for more power facility capacity in the areas where there has been the least addition of generation, transmission and distribution over the last 20 years. EPRI estimates that the U.S. economy lost $50 billion in productivity as a result of power quality breakdowns. Concern with power reliability has also elicited extensive self help efforts in California, heartland of the digital revolution.
Here then is where technological, sociological and regulatory trends converge. Power supply and demand economics may begin to dictate either business movement away from technically stressed urban settings, the burgeoning of smaller merchants plants developed to service local loads, cf. CLECs in the telecom industry; or a build up of a variety of distributed generation technologies within urban boundaries (if this is technically realistic). Power regulators grappling with consumer price cap and re-regulations clauses and environmentalists schizophrenically seeking to constrain both new plant development and urban sprawl, may inadvertently jostle the map which otherwise would have emerged. Demand for communications, bandwith and collateral growth will press on regardless of their whims. Those on the down-side of the digital divide may demand power for the people, but people power will go where electric power is.
Which brings us back to year and millenium end speculation as to where these trends will lead us, in a nation solemnly dedicated to the proposition that each person should get his/hers and let the consequences shake out where they may. There is, of course, no inevitability to future history. There are, however, great strategies called forth by hardheaded adaptation to trends. Here is a scenario which could alleviate the schism which information and technology events otherwise could present us with:
On the private sector side, an enterprising telecom firm enters the facilities energy supply business, specifically facilitating the operation of its technologies in locations which fiber optic cable patterns otherwise would favor: the urban crossroads.
Seeing the potential of this, an enterprising urban leader seeks specifically to make his town the on-going telecom central to the surrounding regions. He offers to help sweep aside distributed generation constraints within his bailiwick – as a priority ahead of all other economic development activities. He pushes for purchase of on-site generation when it is not being used to support facilities.
But the enterprising leader he has a price for this, to which the enterprising telecom firm readily agrees: the launch of charter cyber schools to train urbanites to service and prosper from the New Economy. The support he demands is not just money, but equipment and internships. Opportunities must be created too to learn to participate in the New Economy/Downtown business world.
A deal is struck. There is a closing and the lawyers are happy. Cyberelectric unity comes to a corner of America. Donder and Blitzen start a website, commerclause.gov. And to all a good night.
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.