New FERC chief sparks hope for troubled agency

By David Whitney
Source: Sacramento Bee Washington Bureau
(Published Sept. 30, 2001)
http://www.capitolalert.com/news/capalert08_20010930.html

WASHINGTON -- Presiding over his first meeting as chairman of the Federal Energy Regulatory
Commission last week, Patrick Wood III took a moment to applaud the fact that solar panels had
been installed on top of the agency's headquarters.

The solar array had gone unrecognized in the nine months since President Bush took office, and a
newspaper columnist attributed the silence to the Republican White House's apparent disdain for
alternative energy sources.

After reciting a few statistics on how much electricity the agency was saving in its solar-equipped
building, Wood stared into the crowd of gray-suited energy lobbyists and proclaimed, "This is not
your father's Republican Party."

The quip was not just a retort to a newspaper columnist. It also was seen as Wood's proclamation
that he is not an ideologically driven Republican like his predecessor, Curt Hebert, who was widely
criticized in the West for failing to move quickly to lower wholesale power prices.

Since Bush beckoned Wood to Washington from his job as chairman of the Texas Public Utility
Commission, the 39-year-old lawyer has been on a mission to establish that point.

Although his nomination was hailed by utility executives and even California politicians,
uncertainties persisted. But after his first meeting, there was broad industry excitement over
Wood's resolve to reshape the agency so that it can respond promptly to problems in the nation's
move from regulated to open energy markets.

"Wow!" exclaimed Joe Nipper of the American Public Power Association. "Finally, we have a
commission that understands what needs to be done. It is stunning."

"I think he is absolutely on the right track," said a top regulatory official for a large investor-owned
utility. "Not only does he have a big vision, but he understands what it takes to get it done."

Another utility source was somewhat more skeptical, only because of a string of "bad decisions"
out of the agency since the California energy crisis erupted.

"We think this is a very big improvement, but we want to see some of the details before we start
cheering," the source said.

Wood's first meeting was packed with policy items intended to steer a new course toward fair and
open energy markets around the country while reversing the agency's reputation for being closed,
slow and unpredictable. But more than anything else, Wood sounded a clarion call for openness.

"We are going to let the parties and the staff know why we're going where we are, and not just
where we're going," Wood said.

In the ensuing hours, the commission approved a new ethics plan to make clear the prohibitions on
exchanges of inside information between subsidiaries of the same energy companies. It also
adopted a new strategic plan that for the first time makes mitigation of unfair pricing of electricity
and natural gas a priority.

The commission also set up regional conferences to investigate the health of the energy supply
system, the first of which will be in Seattle in November in connection with a meeting of the
Western Governors Association.

The commission plans to investigate how much electricity and natural gas is available, how much is
needed to meet demand, and what constraints there are in bringing balance between the supply
and the demand.

"The goal would be to agree on what the facts are," Wood said.

The need for such fact-finding sprung directly out of the California situation, he said.

Wood and Nora Mead Brownell, a Bush nominee who joined the commission with him in June, met
with California energy officials shortly after they took office. On the flight back to Washington,
Wood said, "It became kind of clear to us that this might be California's issue today, but if we don't
watch it, it could become a national issue, coast to coast."

The commission also talked about the need for regional organizations to manage transmission lines
so that low-priced power isn't blocked from delivery to customers, and soon it will consider tough
inducements to bring utilities into such organizations.

California won't be prodded to join such a "regional transmission organization" -- or RTO --
immediately. Instead, the commission is conducting an "operational audit" of the manager of the
state power grid, the California Independent System Operator.

While the commission expects that someday California will surrender control of its transmission
grid to a Western RTO for the common good of the region, Brownell said in an interview that now
is not the time to force it on Western states.

"There's no point in cramming it down when one of the large participants is simply not ready to
play and the other participants don't want to play," she said. "That market is not ready."

Among those most delighted by the winds of change blowing through the agency is William Massey,
a Democrat appointed by then-President Clinton who for months had been the lone advocate for
controls to end price gouging in California's imploding markets.

"I'm exhilarated," Massey said. "What's happened is we have a chairman who is very pro-markets
but with one extraordinarily important condition: The markets have to produce prices that benefit
consumers."

Massey said the lesson that the commission has finally learned from the California crisis is that
inaction by federal regulators doesn't work.

"It won't produce prices that are just and reasonable, and it won't produce prices that are
politically acceptable," he said. "It has caused us all to say that we've got to make sure the market
structure and the market rules ensure there is a consumer benefit.

"This is a new attitude, and it really is a huge, breathtaking change."

The Bee's David Whitney can be reached at (202) 383-0004 or dwhitney@mcclatchydc.com.