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."
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