Jeremiah D. Lambert

    Jerry Lambert, a nationally known energy lawyer and senior partner in the Washington D.C. Office of Shook, Hardy & Bacon, L.L.P., once represented stripper well gas producers in a ten-year lawsuit against interstate pipelines operating in West Virginia.

    "In the early 1970's when the litigation began," said Lambert "the West Virginia producers had to sell their gas to pipelines under life-of-lease contracts at regulated, below-market prices. They were prisoners of price regulation and utilities' monopsony buying power. Many high-cost producers went broke as a result. Only the efficient and well-managed survived."

    Lambert whose clients now include Power pools, Power marketers and Power developers as well as oil and gas companies, sees a similar pattern in the restructured electric utility industry. "Excess capacity, open access transmission and the emergence of a commodity market in electric power," he noted, "will drive down prices and margins. Utilities with old, inefficient generating units will have to mothball or retrofit those units and may have to absorb a portion of the resulting stranded costs, which could in certain cases, impair their equity."

    Drawing on his experience as counsel for PJM Interconnection L.L.C - the independent system operator for the nation's oldest and largest power pool - Lambert sees ISOs as a principal means of addressing both vertical and horizontal market power while also promoting a robust competitive market in electric power. "PJM has been a pioneer," noted Lambert, "in applying such concepts as locational, marginal pricing and fixed transmission rights."

    As for independent power producers -Lambert noted the maturing and consolidation of a once red-hot industry. "Large-scale, domestic greenfield independent power facilities, built through nonrecourse financing and based on long-term contract revenues, are now an endangered species," he said. "With PURPA under attack and the power market saturated, the focus, domestically, has shifted to inside-the-fence cogeneration for large-scale industrial hosts and, incipiently, merchant plants."

    "At this point, Lambert noted, the major thrust of the independent power industry has shifted overseas, particularly to India, China and parts of Latin America; a phenomenon driven by privatization and the sharp competitive struggle of major project sponsors to gain key deals in key markets."

    "From a legal perspective", he added, "overseas power projects and privatizations are complex, intricately structured deals that stretch the known limits of project finance and confront significant political risks, as Enron's Dabhol disaster demonstrates only too clearly."

    "Notwithstanding both the obvious and implicit risks," Lambert continued, "project sponsors are driven by the need for deal flow and higher returns than are available in mature markets such as the United States. Overall, the independent power business globally is growing to meet perceived power deficits in emerging economies."

    As evidence that Washington is increasingly a focal point for international project finance, Lambert noted the presence in the nation's capitol of numerous project finance sources, International Finance Corporation, the World Bank and the Overseas Private Investment Corporation. "Today," Lambert noted, "the intervention of multilateral financing agencies, if only as support for private capital, is essential for many projects."

    In addition to managing his large-scale corporate and energy law practice, Lambert is an accomplished author and lecturer, including long service as World Cogeneration's resident commentator on legal and regulatory matters. What I learned applies to the electric power industry as well. It is a capital-intensive, commodity-driven business where only the quick and efficient will survive."