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Wood Cites LNG Policies, Restoring FERC Morale as Biggest Achievements

"Keep the lights on and keep the people warm. Keep listening to the customer...I think when we have failed to do that on both the power and gas side, industry has suffered and the country has suffered," departing Chairman Pat Wood said last week when asked for his advice to commissioners and staff of the Federal Energy Regulatory Commission and the energy industry.

As to whether he saw politics in his own future, Wood said that wasn't anything he would consider for awhile. "If I come back up here [to Washington, DC], it will be if the voters send me. So I'm not going to say 'no,' and I'm not going to say 'yes.' I'm kind of a mission guy. If there's a big ole' problem, I'll be up there to help solve it. But to just kind of show up on a ballot because I've got an ego to stroke, that's...not my style. So if there [are] big problems somewhere in the future, I'll be around."

Wood said in an interview last Wednesday with NGI that he regarded his single biggest achievement on the natural gas front to be revising the agency policies to "make this an LNG friendly country."

"I have to admit that I didn't come to town to roll back open access on anything," he said. But in the landmark "Hackberry" ruling in late 2002, the Federal Energy Regulatory Commission did just that. It granted a significant concession to the industry by agreeing to lift the open-access regulations for new liquefied natural gas (LNG) terminals.

"It was certainly a concession to the reality that prices are going up and that we're running out of cheap gas. I think it [Hackberry] was probably the prudent thing to do to give the different business plans an option in the LNG vaporization business to do something other than open-access policies that we'd adopted before."

It was a "critical move along the way" during his administration, Wood said. "Probably looking back 10 years [from now], we'll think that was a pretty good thing to do."

Following a four-year stint as chairman and a commissioner at FERC, which was marked by a tumultuous period in the energy markets, Wood left Washington Friday for his native state of Texas. His successor, Commissioner Joseph T. Kelliher, officially took over as head of FERC on Friday at midnight.

The 42-year-old Wood said he had few regrets on natural gas issues. "We left the gas quality, interchangeability issue out there in the end. I'd have to confess that wasn't one I'd envisioned that we would get done before I was through here... I don't have too much that I'm worried about" with respect to natural gas certificate and rate cases. Wood noted that the Commission shares his desire to expand gas infrastructure, and would pick up where he left off.

"I leave...with not much fear that anything that I've cared about is going to be either undone or ignored" in the natural gas and power markets.

Wood hopes that he will be remembered for "restoring the morale of the agency, giving a sense of mission and vigor to staff and to ourselves. We were pretty beat down after the California [energy crisis]." He noted that his term in office was anything but boring. It was packed with often chaotic events, including the Sept. 11 terrorists attacks in New York and Washington, the California energy crisis, the 2003 blackout in the Northeast, the collapse of Enron, rising natural gas prices and regional attacks on LNG projects.

During his term, the Commission learned to "not just react, but to address issues so that some of these issues don't happen again," Wood said. The agency assumed a "more nimble, flexible [and] modernized approach to oversight."

Wood doesn't consider himself a hard act to follow, and believes that Kelliher will take over the job with ease. "Quite frankly, I didn't think he [Kelliher] needed a lot of advice from me." He said that "the best tribute that [the Commission] could do is have it running so well that they forget how to spell my name in six months."

As for the California energy market, Wood said "we're not out of the woods yet," but he conceded that the state was "certainly" in better shape energy-wise than it was in 2001. He believes, however, that this will be a "tight summer," particularly in southern California. As one of his last acts, Wood said he sent two additional FERC staffers to the California ISO to provide the agency with minute-to-minute communication on the supply-demand situation there.

888 Needs Updating

One thing that will now fall on the shoulders of his replacement is updating the Commission's landmark 1996 Order 888, which opened the monopoly-dominated power industry to competition for the first time. There had been some speculation that Wood would initiate an inquiry into whether Order 888 needs to be revised or updated to shield against transmission-access discrimination prior to his leaving the federal agency this month (see NGI, June 6).

But such action did not take place at FERC's June 30 open meeting, Wood's final open meeting at the agency. In the interview with NGI, Wood explained that 888 "was written a decade ago and, I think, much as we did on the gas side with Order 637, which cleaned up, refreshed and updated Order 636, some updating is needed for 888 because it still is being used in about 30% of the country to facilitate wholesale markets and needs to be as robust as all of the market rules that we have in place in the RTOs and ISOs."

If FERC does decide to move forward with a review of Order 888, the Commission will "probably" use the vehicle of a notice of inquiry (NOI) as a first step, Wood said. "I think NOIs have proven to be pretty successful here. They put some ideas out on the table. Allow people to collaborate and work on solutions and then at that stage, once you've got some consensus built, then move to a NOPR [notice of proposed rulemaking] stage."

In a recent research report, Stanford Washington Research Group analyst Christine Tezak said that it is "quite clear that the FERC plans to take a look at Order 888 and the Commission's long-standing concerns about open access and discrimination." Tezak noted that Kelliher recently told an audience at the Mid Atlantic Conference of Regulatory Utility Commissioners that the collaborative work that led to the development of Order 888 may provide a good framework for Order 888 reform as well.

In one of Wood's last significant policy moves as chairman of the Commission, FERC last month clarified its policy on passive ownership of independent transmission companies (ITCs) by signaling a more flexible approach to passive equity ownership of ITCs by market participants.

Another of Wood's key initiatives as chairman of FERC has been to ensure the reliability of the nation's electrical grid, which became a top priority for the Commission and the rest of the federal government in the wake of the historic August 2003 blackout that cut out the lights for millions of customers in the U.S. and Canada.

Reliability is an "issue that the blackout put at the top of every CEO's and pretty much a lot of people in government's agenda to make sure that we are both protected from any sort of terrorist action, as well as protected from reliability problems that happen due to poor maintenance or bad operational control or insufficient modern tools...at the heart of the 2003 blackout," Wood said.

"But I don't think we'll really be in a level that I would call comfortable until we do have mandatory rules that are clear and crisp and enforceable and that people take seriously because there are significant consequences when they don't take them seriously," he added.

Comprehensive energy bills passed by the U.S. Senate and House of Representatives both include sections that would make currently voluntary electric reliability standards mandatory and enforceable. But those two pieces of legislation must still be reconciled by a House-Senate conference committee.

"Until that bill gets passed, I do worry a bit," Wood said. "I think even when it does get passed, there'll be some transition time till we get that regime fully in place. And even when that's fully in place, I think you've got here a system that is designed and operated by humans and with that comes the possibility for error. But can that error be mitigated and can the impacts of an event like that be significantly reduced? Yes, I certainly think so..."

The Commission has taken a number of steps to bolster the reliability of the power grid since the 2003 blackout, including setting up a new division of reliability overseen by Joseph McClelland and directing over 100 control area operators and transmission providers to report back to the Commission on training practices through a survey.

At the Commission's June 30 open meeting, Wood and other U.S. and Canadian government officials unveiled the terms of reference for a bilateral electric reliability oversight group. Among other things, the terms will help to lay the groundwork for a new electric reliability organization (ERO) that would be created under the pending comprehensive energy legislation on Capitol Hill.

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