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 January 1999 by Roger Feldman -- Bingham, Dana and Gould, P.C. Every December (beginning this year), the Editors of this publication, well aware that its punditry moves markets, asks me to review the public predictions for the following year (even balance of century) of leading consulting firms, industry publications and trade associations, and on that basis make my own fearless flawed forecasts. My task is made easier by the fact that other predictions are prepared in November and so frequently are discernibly out-of-date by the end of December. While one leading consulting firm was willing to review its own predictions for 1998, I will never do that; that firm’s apologies for prior inaccuracies were as out of date by publication as its forward-looking insights. Here then are my top ten predictions for the power industry in the Twentieth Century: 1. There will be no more than ten transmission entities in the United States. They will be for-profit. They will cover entire swathes of regions. Half of them will be foreign-owned. Open access will be mandatory. FERC will be compelled to establish focused and precise regulation to govern interconnection costs; costs of transmission upgrade pricing; and inter-market congestion pricing. This will happen whether or not there is comprehensive Federal legislation. That legislation will be a long time coming. 2. There will be no more than ten major power suppliers, generally competing with each other in several of the major regional markets. Each will formally or informally be linked with a major fuel supply provider. Each will have power/fuel marketing capability. So far, you say, conventional wisdom. But read on . . . 3. The stranded cost dilemma will be recognized as not reconcilable through the use of securitization. Resolution will become focused on the dismantling of the nuclear power industry only. A package of incentive legislation will be developed to enable private firms to acquire plants and sell energy, without bearing decommissioning costs - which will become a wholly Federalized responsibility. Non-usage related charges to bear a specified percentage of nuclear debt will be assessed on all consumers. 4. Public power will become an aggregation activity, and municipalization (without stranded cost penalty) will become more common. Most public power activities will become public-private joint ventures. Such ventures will become the main market balance wheel, as aggregators gain the right to be the surrogates for retail customers - even if there is never generalized retail access. 5. Power commodity trading, including initiation and new exchanges and rules regarding counterparty credit will become SEC jurisdictional (since the SEC will have absorbed the CFTC and FERC Special Spike Task Force will have been judged an unsatisfactory response to the challenge). 95% of power marketers will be supplier or distributor owned. 6. PUHCA will be repealed, separately and without reference to comprehensive deregulation, because sufficient end user consumer protection will be deemed to have been put in place. All entities engaged in power generation or transmission will be subject to conventional SEC jurisdiction and an upgraded version of DOJ regulation. The British will keep coming . . . the French and Germans, too. 7. Profitability in the electric power industry will dip. First the smaller generators, utilities and public power firms will be squeezed out. Then independent power marketers and would-be smaller developers. The pace of mergers will become frenetic . . . and then, surprise twist of fate . . . 8. There will be a concern that the level of potential technological innovation has not picked up as in telecom, that overall U.S. dependence on less reliable foreign hydrocarbons is growing; that Euro pressure on global warming is stepping up and (drum rolls) 9. California will initiate an intense effort to support dispersed generation and to intensify regulation beyond the Federal level; followed by a Harvard study; followed by the resignation of Jesse Ventura as FERC Chairman. 10. Several leading prognosticators of the energy/communication business will then suggest the probability of industry restructuring. They will be wrong. The millenium will still end. Best wishes to all in 1999. Or as a leading company’s President and COO recently comforted us, "This is a market for street fighters". See you there. 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. |
