Hebert: California Has a Lot More Work to Do
Speaking prior to the launch of numerous state legislative proposals
last week designed to solve California's power crisis, FERC Chairman Curt
Hebert expressed disappointment with the speed and direction the state
has taken so far in attempting to manage its predicament.
At the National Press Club in Washington, D.C. on Thursday, the Federal
Energy Regulatory Commission chairman told reporters California had done
little to resolve the basic supply-demand imbalance that threatens to leave
the state's populace in the dark on a daily basis.
He highlighted deficiencies in a significant number of areas not addressed
by the legislative actions Thursday afternoon.
"California needs to go back and revisit precisely where it went
wrong in the first place," he said. Legislators need to "overturn
the rate freeze and allow retail prices to rise. Understandably [it's]
a politically unpopular decision but load serving utilities need immediate
relief and cannot continue to have their wholesale costs, $12 billion and
rising, trapped at the retail level."
The artificial retail prices provide no signals to retail customers
to conserve energy or shop for alternatives, which is desperately needed
in this time of supply-demand imbalance, he added.
The FERC Chairman also said utility bankruptcy must be "avoided
at all costs" because the bankruptcy judge will "focus mercilessly
on slashing costs and enhancing revenues with primary responsibility to
creditors rather than to ratepayers." He predicted the impact on ratepayers
would be much more severe under bankruptcy than under a government-implemented
bailout involving relaxation of the retail rate caps. Under bankruptcy,
retail rates could increase 100-fold, he said.
Hebert continues to have an "open mind" on solutions, but
still objects to regional wholesale price caps and to any state plan to
step in and become transmission operator, generator or power purchaser
for the utilities and the marketplace.
Wholesale price caps would exacerbate the problem, he said, restating
the FERC staff's opinion in a recent report (see NGI, Feb.
5). "I am familiar with the governors' concerns in the Pacific
Northwest. I'm sympathetic to those. But I think there are [other] solutions...
I stand by my comments on price caps."
California legislation that makes the board of the state's grid operator
a political arm of the governor with five handpicked members "could
prove to be detrimental in the long run," said Hebert. "Politicized
control of transmission will unfortunately deter suppliers from entering
the California market and will discourage other states from building a
large western RTO."
There are no signs that FERC intends to intervene at this point. "California
officials cannot rely on a federal bailout or an intervention," according
to Hebert. Only the state is "in a position to effectuate short-term
results" to put an end to this crisis.
However, FERC probably should have intervened earlier, he confessed,
noting its failed attempt to do away with the state's power exchange in
its Dec. 15 order. "FERC might not be able to give quite as much deference
next time because our ultimate goal is to make sure than consumers are
protected in California and in New England, New York and Idaho and Louisiana.
"My hope is that FERC will put this immediate crisis behind it
and focus on long-term structural relief. RTOs were lost in this turmoil."
Despite FERC's order and its own continuing crisis, California has been
unwilling so far to follow the example of other regions and submit plans
to be part of a regional transmission organization (RTO). "I hope
that California decides not to turn its back on competition and insulate
itself from the rest of the interstate grid," said Hebert.
FERC Seats Not Vacant for Long
The fact that the Commission is operating half empty --- two FERC seats
remain unfilled --- hasn't helped matters any. But Hebert indicated in
an earlier briefing last week that he expects the White House to "act
quickly" to appoint new Commissioners.
The White House reportedly has narrowed its search down to four to six
candidates, a D.C. energy source noted, and is expected to announce nominations
for the two Commission slots within three weeks.
Some of the top contenders include McLane Layton, staff counsel for
Sen. Don Nickles (R-OK); Joseph Killiher, former counsel to the House Commerce
Committee and a member of the Bush transition team; Drue Pearce, a member
of the Alaska Senate; Joe Garcia, former chairman of the Florida Public
Service Commission; and former Commissioner Judy Walsh of the Texas Public
Hebert made his remarks on the vacant FERC seats at an impromptu press
conference with reporters following last Wednesday's Commission meeting.
Hebert also said last week that he agreed with Senate Republicans, who
plan to propose a wide-ranging energy bill, and task force members that
the certification process for pipelines needs to be further streamlined.
"I don't think there's any question that we have to do that. We
have to expedite everything that we can on the supply and on the infrastructure
side so that we can deliver that supply," he noted, but that doesn't
mean FERC won't be "sympathetic" to environmental and landowner
Hebert said the Commission is working with the pipeline industry to
compile a list of FERC actions that have been "positive" for
pipeline construction, and those that have slowed it down. FERC wants to
"listen and learn before we lead" in this area.
Hebert who assumed the reins at FERC last month sees himself staying
at the Commission for another three to three and a half years. "I
think this is probably my last government job... My idea [has] always been
to be back out by the time I'm 40 or 41. I'm getting close to that now."
Beyond the Commission, "I don't see myself in politics" either
at the federal level or in his home state of Mississippi.
Rocco Canonica, Susan Parker