The blame game has already started. The blackouts, brownouts and shortages that have hit both coasts of the US do not beg an immediate solution ? but they do require a scapegoat. The East Coast has benefited from a relatively mild summer, and the nearest that California can present as a demand-side factor is population growth and a surge in the power requirements of the gigantic data-housing centres that pepper Silicon Valley. The two areas are characterised by their difficulties in gaining speedy permitting, but there is now growing sentiment that deregulation is to blame.

Reregulation would not be a new response (as NETA, market abuse clauses and other headaches for the main UK IPPs have shown), and the operations of deregulated power markets have dissuaded some states, such as Minnesota, from going any further. But it is worth considering whether investor-owned generators have enough incentive to go through the greenfield process. Moreover, the current price spikes may even be a hindrance to developers hitting the markets best suited to finance such projects.

The list of greenfield projects that have closed financing this year ? with or without the benefit of a power purchase agreement (PPA) ? is an impressive one. From AES Red Oak to PG&E's La Paloma deal, as well as Tenaska's and Texas Independent Energy's recent financings, additions to capacity have been varied and innovatively funded. But the volume of portfolio financings that have hit the market, or are due to hit the market this year, has dwarfed them.

1999 was the year of Edison Mission/ ComEd and Duke Energy North America, and 2000 has confirmed this trend, with huge volumes of paper backing acquisitions such as Reliant/Sithe, Orion Power and NRG South Central. AES and Southern will be the next corporates looking for long-term acquisition financing. The rationale behind these moves is simple enough: in the rush to become a dominant player in a restructuring industry, better to bolster your asset base with speedy and bankable purchases than wait a couple of years to launch yourself into an uncertain market.

Another reason for this wariness is the inability of forecasters to predict future energy usage accurately enough. An extra 200GW over the next 10 years is one, conservative, estimate. However, technological shocks, ranging from the aforementioned data centres to fuel cell generation and increased energy efficiency in reaction to persistently high prices, can skew these predictions wildly. And observers can be fairly certain that given investor-owned sponsors predilection for buybacks and immediate shareholder appeasement the 10-year view is difficult to stick to.

It also explains the creeping trend towards corporate and on-balance sheet solutions to financing greenfield projects ? that by keeping banks' senior claim on project revenues to a minimum any new plants can be immediately earnings accretive. Such an approach has arrived at a fortunate time ? lease financiers have only in the last few months been confident enough to test out revamped structures in the wake of a series of new rules announced by the US tax and accounting authorities earlier in the year.

Moreover, many of the structures so far used have been for carve-outs of existing gencos, of which the recent rash of sale leaseback obligation pass through trusts are the most obvious. Honourable exceptions include the CIT and TD Securities arranged Calpine Pasadena expansion and the Credit Lyonnais- arranged package for Dynegy. And synthetics may be reaching the end of their credibility as long term financing solutions, given their highly artificial boost to corporate earnings figures.

Corporates, and inevitably foremost Calpine, would protest that most of their energy goes towards the arduous work of permitting, and gaining local support, often before more than a whisper to an advising bank. Calpine's two enormous revolvers, last year's $1 billion and this year's of $2.5 billion, were originally pitched as the perfect tool for greenfield work, bringing the arranging process to a speedy close as soon as the necessary permissions had been granted. The latest facility, however, largely covers plants in development covered by Skygen (the subsidiary) and Panda (selected partner).

It is not hard to see why Calpine would be so wary of the exhaustive permitting process. Aside from the usual difficulties in complying with, or circumventing, zoning regulations, it has had some difficulties in persuading the areas that would be most needy, and probably most lucrative, of its good intentions. One case in point is the recent fracas surrounding the Californian Metcalf facility, where Cisco Systems, the computer powerhouse imagined to be one of the main beneficiaries of a new plant, has objected to the proposed facility on the grounds of space.

Given the brownouts suffered by the state, as well as Cisco's role as one of the leading potential customers, the position is surprising. Aside from noting that the land for the proposed plant, is not zoned for the proposed suit, the plant's opponents, knowing that the present time is an inopportune one to oppose newbuild, have attempted to cast doubt upon planned demand projections. It is an argument heard before in the context of an overheated power project finance market ? there are already too many planned facilities around.

What need to be separated here, however, are the continued constraints on bank liquidity and the difficulty in siting plant where it is needed most. The case of the latter has been amply demonstrated by the current application to recommission the run-down Astoria power station in New York. The task is feasible, although the planning nightmares ? not to mention the probability that the station's owners would have to introduce coal-smoke cleaning equipment ? would make the choice a difficult one.

Planning, and the ability to gain early profits in the first rush of deregulation, explains the preference of developers at present for the midwest and south-eastern markets. These tend to be in the early stages of opening up to competition and, crucially, do not yet have a stranded cost regime in place, meaning that existing generators will have a harder time explaining to regulators that their decrepit facilities are essential to maintain reserve margins. In these instances of transition, the mini-perm, anticipatory financing becomes most popular.

The question of overbuild, on the other hand, is sustaining a small army of energy consultants. It is common for banks with lengthy exposure or little leeway for lending to worry about the imminence of a crash, as demand fails to live up to projections. There are patches of the country where this situation is true, in particular Texas (the Electricity Reliability Council Of Texas, or ERCOT, pool) and the Mid-Atlantic region (the Pennsylvania-New Jersey-Maryland, or PJM pool). The reasons are partly historical ? that in the first wave of IPPs these two regions presented the best chances of success in gaining a permit. Alarmingly, it is PJM that has seen the bulk of the acquisition activity over the last few months.

But the continued high prices of electricity and fuel have upset many of the assumptions behind these deals. The most important factor is the continued rise in the price of gas. Gas, for so long a relatively cheap, fuel, has lately seen its suppliers struggle to keep up with generators' demand. This has in turn led to the first serious proposals for some time to build new coal plant (2000MW and counting), and even a get-together of the major nuclear owners to discuss whether public opinion would take any applications for new nuclear capacity. The last proposition may yet be fanciful, but coal has always had a price edge on gas, and the current disparity, if sustained, may be enough to overcome the risk of tougher emissions standards in the distant future.

Many utilities, quite a few of these investor-owned, have been locked into power supply sources, whether external or internal, that are no longer low enough to survive in a competitive environment. The situation can be ameliorated either through negotiation or by deferring recovery further down the line through securitization. Securitization is unpopular with many consumers and other pressure groups, but what is surprising is that, even with the small number of states allowing the practice ? California, Connecticut, Illinois, Massachusetts, Montana, New Jersey, Pennsylvania, Rhode Island and Texas ? more have not yet been proposed.

One answer would be the legal challenges, yet another would be the wariness of states that have not seen deregulation deliver price cuts. The most cynical answer would be that few of the utilities have yet suffered from deregulation. Since securitization involves fixed revenue streams, the gaps between a forecast cut in market prices and what is actually paid can be minimal ? and volatile. As one IPP sponsor put it, ?I think the general perception is that the incumbents are benefiting from the current capacity deficit situation. And in general the banks are responding more positively to them than to a lot of developers' credits?.

In Florida, most notoriously, utilities can block the erection of merchant plants within their service area whilst at the same time vigorously seeking IPP business elsewhere in the US. Florida Power & Light appears for the time being to have won its battle to keep the invaders out of its home state. Duke Energy, which was defeated in court over its plans for the New Smyrna Beach facility, appears to have beaten a tactical retreat to other, easier areas of the state. FPL is now engrossed in its merger with Entergy, using its stock to entice the other party's shareholders.

But FPL has yet to announce major new capacity additions, and both it and other local incumbents such as Tampa Power and Electric will have a huge task on their hands in meeting Florida's 7GW-plus electricity requirements. It is doubtful, however, whether anything other than PPA-incentivised middle-tier developers will come flocking. Deregulation here probably would lead to a fast increase in generating plant capacity and healthier reserve margins ? providing local opposition is muted.

The signs, however, are not good. When a city as in thrall to the hydrocarbon as Houston begins to ponder emission reductions, other regions are likely to be further along the environmental concern curve. And the signs are that Florida might be entering the kind of assertive opposition to power projects that has been in evidence in California for over a decade. California's activists show few signs of weakening, and have even been strengthened by PG&E's defeat over a barge-mounted station in San Francisco Bay.

FPL Energy's recent large-scale acquisitions of wind turbines signal a recognition that one way to nip the merchant threat in the bud would be to gain first mover advantage in environmental kudos. It is particularly active in California and Texas. Growth inside its service area will mostly come from repowerings and expansions, since greenfield sites and pollution were among the key issues at stake in the battle of New Smyrna. Out of state it is also on the prowl for divested utility assets.

The deregulation conundrum, therefore, depends on the position of the utility and its clout with local legislators. Passing stranded cost securitization, holding onto generating assets and facing competition are all decided in large part by the attitude of these big players. CMS, through its subsidiary Consumer's Energy, has been facing opposition in its home market of Michigan to the practice, as has PSE&G in New Jersey. PG&E and its Californian counterparts have been far more fortunate.

If the current state of half-deregulation is not hurting the incumbents, and may even be keeping them healthy, conversely the merchant generators could be excused for washing their hands of the whole process, reasoning that a better way, at least in the near term would be to pick up ex-utility plant. Higher fuel prices have proved them right, the spectacular growth of Orion Power being a tribute to the opportunistic school of capacity additions. Since the start of 2000 genco financings have been heavily weighted towards the East Coast, mid-Atlantic and South ? over two thirds.

California's governor Gray Davis has been inundated with solutions from various interested parties on how to solve California's little local difficulties. Duke Energy has offered 3GW at low power purchase agreement rates providing he uses emergency powers to make sure that they can get up and running by 2001. It would involve, however permitting the agreement of bilateral contracts with utilities, reintroduced in the UK under NETA but anathema to the spot-driven California market.

Few observers have great sympathy for protesters' concerns, although sponsors seem slightly fazed that the promise of increased jobs and taxes, so often the clincher in the fight for permission in the Mid-west, has little effect at the prosperous coasts. A few are perfectly happy to wait for spiralling price and shortages to succeed where charm has failed, whilst Calpine has decamped to an Native American territory to speed the approval of their planned Teayawa Energy Center on Torrez Martinez land.

Ultimately deregulation will depend on more widespread acceptance of gas-fired capacity in the United States, as well as the transmission capacity to make local price spikes obsolete. Indeed the unwillingness of utilities to increase their lines ability to shift large volumes at short notice is another chapter in the deregulation saga altogether. Nevertheless, the greater lead taken by private developers in creating regional beacheads suggests that acquisitions and earnings have overtaken the hard slog of lobbying approval whilst deregulation receives a kicking before it has had time to play out in even its earliest proponents.