2003 Dirty Dozen
by Roger Feldman -- Bingham, Dana L.L.P.
As the New Year rolls in, it is time for this column’s Dirty Dozen Annual Predictions for the Power Industry for 2003. As I am sure many of you have forgotten, it was this humble column that, at this time last year, predicted the bankruptcy of Enron, the meltdown of the power trading market, the power glut, the FERC confession that it failed to adequately police the California market, the disappearance of Latin American power projects and the cessation of hostilities in the Middle East. So, show some respect…
(1) In a compromise move, giving up on the notion of four large RTO regions, FERC will establish ITPs within each Congressional District and delegate all authority for their management to the state Public Utility Commissions. It will, however, stand firm on its cross-border "No Pancaking" rule, as called for by NAFTA. (But see #12 below.)
(2) Giving up on the possibility that the rating agencies will ever forgive its members, the private power industry trade association will announce the formation, in conjunction with Major League Soccer, of an independent rating agency for electric industry securities. Its official slogan will be, "They won’t have us to kick around any more."
(3)n The Forward Price Curve Exchange will be established by the Virginia Lottery, applying its new scratch and sniff technology. Elmore Leonard was elected honorary Chair, in view of his incisive analytic work on the field, "Get Shorty." In its first action, the Exchange will denounce "global warming" of power trading resulting from regulation.
(4) Warren Buffet will purchase the California DWR upon irrevocable State guarantee of payment of all outstanding contracts, as written, at 100 cents on the dollar. Governor Davis will explain that it is a State hedging strategy. Candidate-in-the-wings Schwarzenegger will announce: "That pumps me up."
(5) An LNG tanker the size of Pittsburgh will be unveiled and begin shipping needed liquefied natural gas to the U.S., as domestic production begins to diminish. The U.S. budget deficit for port security will treble. It will all be good for the Forward Price Curve (see #3 above).
(6) The construction of the first DC Current "Bullet Transmission Line," across the continent, will be commemorated by the driving of a golden price spike at Promontory, Utah. Announcing the imminent demise of the current transmission system, FERC will announce that all RTOs will be merged into a single organization that will administer the upcoming national grid. A certain large, unnamed integrated Southern utility will launch an attack on the FERC Market Monitoring Unit at Fort Sumter, triggering a FERC rulemaking.
(7) The FASB will yield to pressure from the last surviving U.S. project finance lender, J.P. CitiAmerica One Bank, and allow off balance sheet financing to continue on a footnote basis. However, the footnotes will be required to be six inches high and in neon. In response, DuPont will unveil its new, synthetic lease-covering material, "Stealthex."
(8) In a move to hype circulation, the leading utility newsmagazine will begin publishing a Ms. Reddy Kilowatt-of-the-month hologram feature. The vast number of hits on its online internet counterpart will stimulate increased electricity usage, thereby aiding the Forward Price Curve (see #3 above).
(9) The location of the new ERCOT Market Mitigation Unit in downtown Houston will soak up the real estate glut that had threatened that city’s market of late. New Mayor Ken Lay will express his appreciation for this expression of Federal confidence in the city’s future.
(10) FERC and the Justice Department will rapidly approve the AEP-Exelon-First Energy merger. "It’s just a big RTO," a FERC spokesman states. "Maybe we can privatize and deregulate faster than we thought." Now that’s a standard market design!
(11) Responding to the apparent resurgence of the power industry, and the track record of deregulation in the communications industries, Congress will repeal PUHCA. To offset any consumer protest, Congress will clarify that the CFTC has no jurisdiction over any type of electricity or gas derivative products, and that the FCC will exercise all market power analyses in the future.
(12) Having wrestled with FERC’s inability to resolve power industry issues, unable to determine what DOE does, and confronted with the need for leadership in the War for Energy Independence, jurisdiction over energy temporarily will be transferred to the Department of Homeland Security for "the duration of any Governmental inter-ventions domestically or internationally with national security implications." Action will be forestalled, however, by a FERC NOPR (Order No. 2003) to protract agency jurisdiction until the lapse of the aforesaid period.
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.