New Energy Services Available From Godfrey & KahnWinter 1998
As most of you know, the Environmental and Energy Law Practice Group has long been a leader in Wisconsin and the Midwest in helping clients effectively and efficiently address a full range of issues under environmental laws and regulations. However, some of you may not be aware that the practice group also has become a leader in devising innovative strategies for industrial and commercial customers in the energy, electrical and natural gas markets, especially as deregulation has and continues to move forward in these areas.
The energy field has undergone significant restructuring changes in recent years. Because energy costs represent one of the largest capital expenditures industrial and commercial entities face, these changes have allowed and will allow significant savings to those who take proper advantage of the opportunities that are and will be available. On the other hand, entities that fail to address energy issues and opportunities are likely to be at a significant competitive disadvantage. Hopefully, this newsletter will help make you aware of some energy opportunities that could be advantageous to you.
Natural Gas Contracts. The natural gas industry was the first energy utility to undergo restructuring, and gas markets have already been opened to allow free market competition regarding energy supply. In the wake of this restructuring, the Godfrey & Kahn Environmental and Energy Law Practice Group has been actively involved in negotiating advantageous natural gas supply contracts for its clients. This wider selection of gas service options has also led to disputes in certain cases, such as where gas providers have not delivered their promised services. The Energy Group also has expertise in representing the interests of industrial and commercial users in such disputes.
Tariff Opportunities in the Transition Markets. Electricity, which is a significantly larger energy market than natural gas and generally represents a much greater share of an entity's capital costs, is also moving toward restructuring. Wisconsin, like most other states, is moving inexorably toward a deregulated market of electricity supply. The two articles in this newsletter on the Governor's reliability legislation and the Clinton plan for restructuring are examples of recent restructuring developments.
Even as we continue to operate in a regulated market, G&K has been able to offer significant services and strategies to its clients with respect to electricity issues. For example, G&K's Energy Group has helped negotiate individualized tariffs for industrial clients. As the electricity market continues to move toward a deregulated environment in Wisconsin and other states, utilities have exhibited more flexibility in negotiating tariff-based agreements. Moreover, as free market pressures continue to mount, larger energy users, as well as buying groups of other users, likely will be able to negotiate with utilities for more individualized arrangements that will allow them to take advantage of free market concepts such as real-time pricing, conjunctive billing and opportunities to participate in the wholesale market. Real time pricing, by allowing companies to make buying decisions based on market prices at a given time, may permit entities that can control the amount and timing of their energy usage (either by limiting non-essential energy use or shifting production to other facilities during peak demand periods) to negotiate better energy rates in return for their acceptance of some price risk. In testimony in the recent Wisconsin Electric Power Company rate case, the Public Service Commission of Wisconsin has indicated that it supports expanded opportunities for customers in this area.
Conjunctive billing may allow companies that have more than one facility or that enter into a buying group with other energy users of complementary loads to obtain favorable rates. Larger customers or buying groups may also be able to become involved in the wholesale market by entering into "buy through" tariffs, where they make arrangements to purchase electricity capacity where the utility acts as a broker to buy energy directly from wholesale generators at potentially reduced costs, with the electrical utility providing distribution services. In some cases, larger electricity customers or groups of customers may also find it advantageous to build and own, perhaps on a joint basis, their own generation capacity. All of these innovative strategies are even more important in the context of the substantial rate increase recently granted to WEPCO by the PSC.
Rate Case Opportunities for Energy Users. G&K has also developed expertise in representing clients intervening in rate cases. Industrial and commercial entities likely will wish to become more actively involved in rate cases as restructuring nears. Facing a substantial likelihood that they will have to compete in a free market in the near future, utilities are likely to seek substantial rate increases to finance a retooling of their generating capabilities as well as payment of their outstanding liabilities before they are forced to survive without the benefit of government-enforced rates to pay for these expenditures. Entities and groups that are able to identify such attempts for recovery by utilities in the rate cases filed during this market transition period are likely to gain substantial leverage in negotiating innovative and cost saving tariffs.
Business Association Energy Representation. The Energy Group has also been actively involved in government relations. For instance, the Group has the distinction of representing Wisconsin Manufacturers & Commerce ("WMC"), the state's largest and most respected business association, on various legislative and regulatory proposals for restructuring the electrical industry. In representing WMC and others in the legislative process, G&K has developed unique expertise regarding restructuring issues and is poised to assist others who wish to become involved in the legislative and regulatory process to make sure that deregulation occurs at a pace and in a manner that allows them to maintain and enhance their competitive positions. Companies which face competition in California, Illinois, Michigan and other states with recent restructuring legislation may be especially interested in making sure that deregulation in Wisconsin moves forward so that they have similar energy buying opportunities as their competition.
Innovative Generation Projects. Finally, G&K has significant experience in representing interests involved on the generation side of energy and other utility resources. For instance, the Energy Group members have represented clients regarding the siting of large-scale energy generation facilities and natural gas pipelines. In addition, the Group has worked with industrial users and municipalities in devising strategies for municipalization of energy distribution systems. Such municipalization often allows both the municipality and industrial and other users greater control over and lower costs for their energy supplies.