News that famed investor Warren Buffett plans to plow more money into the nation's power industry by investing in transmission lines and power plants and will take other steps to bolster power reliability in the U.S. has FERC Chairman Patrick Wood feeling pretty good as he prepares to depart the federal agency, since these are top priorities for the Commission.
What caught Wood's eye last Wednesday was a report in The Wall Street Journal that said that Buffett is prepared to invest more money in the U.S. energy sector than the $10-15 billion he previously mentioned and sees more opportunities in the utilities industry, including nuclear power.
Among other things, Buffett plans to "invest heavily" in transmission lines and power plants, the leading business newspaper reported. "We'll put every dime into the business that is needed -- and it'll need a lot," Buffett was quoted as saying.
Commenting on Buffett's plans, Wood said that "every one of those things are important to our agenda at the FERC. They have been -- in fact, they've dominated the FERC's agenda. Getting transmission built, getting energy markets regionalized," he said at a media briefing sponsored by the Energy Daily. Wood is departing the federal agency at the end of this month.
Getting reliability investments made has been another top priority for the Commission, Wood went on to note. Those types of investments "are sometimes a little different than just building a transmission line. It's the right kind of transmission, it's the right kind of technology on the line."
Wood said that the article on Buffett is "a nice swan song event for me to read. Here you've got probably the [Alan] Greenspan of the private sector talking from some years of wisdom and saying that's where they're going to put their money and continue to invest. Returns -- as we all know from utility regulation -- returns have generally been pretty healthy. Folks like me want to make sure that folks like Buffett and others will continue to invest with the private capital that has built our system."
Buffett's MidAmerican Energy Holdings Co. last month said it reached a definitive agreement with United Kingdom-based ScottishPower to buy electric affiliate PacifiCorp for $5.1 billion in cash, plus the assumption of $4.3 billion of debt (see NGI, May 30).
Wood was asked to comment on what he thinks FERC has done to prepare the market for someone like Buffett to take an interest in the energy sector. "I don't want to overplay our role," the Commission chairman responded. "We're the regulator. We're not the czar."
At the same time, he highlighted FERC's push for regional markets. "Everybody, I think, understands regional markets and acknowledges they are going to happen. As I mentioned before, they already cover 70% of the nation's $10 trillion economy."
Wood said that "investment happens because opportunities exist, not because regulators did something good or bad. And the opportunities exist, unfortunately, because investment has not happened on a normal pace in the past 10 or 15 years."
Addressing the outlook for California's energy market, Wood said that "I've seen, quite frankly, a substantial change in not only tone, but in action in California. But actions in the energy industry take years, not days, to reap benefits for the customer."
The state is "very efficient. Their energy efficiency history has rewarded them well, but the problem is, you're down to the bone. There's not a whole lot more you can cut to be more efficient than the general state of California has been, so anything that can be done there really has to be done on [the] adding new infrastructure side."
However, given how concentrated parts of California are, it's difficult to build new infrastructure. "So that means some new technologies have to come in. The energy commission there has embraced significant deployment of new technology."
Power market redesign is also an important issue facing California, Wood noted. "I hope to do something on that before I leave. That's been a painful part of getting this done because that really is something FERC can play a much more direct role in."
Wood said that California "is a challenge. It will be a challenge, I think, for the state and federal regulators for the rest of this decade. I do sense that the end is in sight, though, and I think there clearly is progress in the right direction."
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