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Blockbuster FERC Meeting Marks Changing of the Guard: Wood to Kelliher

July 4, 2005
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Outgoing Chairman Pat Wood passed the gavel, sizzling hot from heavy use, to his successor-in-waiting, Commissioner Joseph T. Kelliher, at the close of the Federal Energy Regulatory Commission's open meeting Thursday.

The announcement from the White House that President Bush had designated Kelliher to be the new chairman came on the last day of Wood's official term after completion of an action-packed Commission open meeting, which saw two liquefied natural gas (LNG) import terminals and the Exelon-PSEG merger approved, along with a major order on the California Independent System Operator (ISO).

Leaving not much undone, Wood also hosted an international group at the start of the meeting for the announcement of the framework for a bilateral United States-Canadian group that will consult on the establishment of an international framework for electric power reliability. Another important item emerging from the landmark meeting was an order providing guidance for a western grid.

Wood, who attempted to hide his Harvard education behind a Texas drawl, was well-liked at the Commission. Nearly all FERC staffers in the building Thursday, including the security guards, were wearing pins with miniature cowboy boots that lit up. His fellow commissioners all presented him with commemorative gifts.

An extremely active chairman, Wood has been on the Commission since June 2001, taking over as chairman two months later. He is staying until July 8 to help with the transition. Wood has not said what his future plans are beyond returning to Texas.

"My official last day will be [July] 8th. I'm through with official business today, but this is to allow Joe and me to have a week to...talk about all the details that he probably knows, but I need to tell him anyway," Wood told reporters following the regular Commission meeting.

The 42-year-old Texan indicated that he and his family are moving to Houston, TX, the weekend of July 9, and said that he will make a decision about his future career path after the birth of his fourth child in September.

Wood has been described as being well out in front on the major issues and the most "proactive" chairman FERC has seen in a long time. Among his notable achievements since becoming the nation's chief energy monitor in mid-2001, Wood can point to major progress toward the establishment of an interconnected power grid with the smooth operation of a number of regional transmission organizations (RTO). These would not have been achieved without his leadership. He also survived the California power crisis of 2000-2001 and its aftermath, and fall-out from the downfall of Enron Corp. and the blackout of 2003.

The crises were not of his making. Nevertheless, he was continually called before Congress to answer for the problems created in part by California's deregulation of its power market under a totally inadequate system. One of his last acts was to approve an order sending the California Independent System Operator (CAISO) further on its way toward effective operation with the power to enforce its tariff.

Wood drew the wrath of Southern lawmakers because of his aggressive push to form RTOs. Because of this, he would have faced difficulty being confirmed by the Senate for a second term even if he had been renominated.

Chairman Wood also directed the Commission in helping to right the natural gas market, post Enron, reestablishing effective price discovery and at the same time prosecuting numerous transgressors, directing penalties, and fending off insistent demands from California politicians for greater payback than the law allowed.

And he prevailed in the siting of LNG import terminals as domestic and Canadian supplies declined and prices rose. Another last act was the approval of two LNG terminals, including the first new one on the U.S. East Coast in more than 20 years.

It appears Kelliher, who has been on the Commission since November 2003, will continue Wood's drive to augment U.S. gas supplies with LNG. Since he has been on the Commission he has been a strong advocate of FERC jurisdiction over LNG import plant siting. In a recent speech to an industry gathering, the soon-to-be chairman said he also thinks there is a need for natural gas pricing and storage reforms.

"One of the first orders of business is to help the president get an energy bill that will prevent market manipulation and exercise of market power, increase investment in our electricity infrastructure, and assure adequate electricity and natural gas supply," Kelliher said in prepared statement Thursday. He said he looked forward to working with the energy leaders in Congress, Sen. Pete Domenici (R-NM) and Rep. Joe Barton (R-TX), "to that end."

Moreover, Kelliher said FERC needs to update its approaches on balancing competitive and regulatory solutions. He stressed reforms in three areas: power generation, electric transmission open access, and RTO costs.

Kelliher noted that the Commission is going to crack down on what have been found to be up to 200 companies with market-based generation rate authorization that have failed to submit updated market analyses on a timely basis every three years. In the future, these companies automatically will lose the market-based rate authorization when this happens.

He also believes that FERC's old test ("hub-and-spoke") for market-based rate authorization was too lenient to the extent that everyone who applied -- except for a few Canadian companies -- passed. The new, "higher hurdle" test, however, may be too tough, and that is an issue that the Commission needs to resolve in the near future, he said. "We have a higher test, but it is not clear how much higher it is" (see Power Market Today, June 21).

In partial dissents on cases involving Southern Co. and Entergy recently, Kelliher said rather than expand investigations of market power for the two companies, he believed the Commission needed to tackle the issue generically (see Power Market Today, May 6). He noted FERC has initiated a rulemaking to review the entire market power test, including the transmission market power, barriers to entry and affiliate abuse prongs. "In my view, significant changes to our market power test should be made in the rulemaking where the Commission can have the benefit of notice and comment procedures, rather than in the instant proceeding."

The new chairman received endorsements and high praise from the chairmen of the Senate and House energy committees, Domenici and Barton, both of whom noted Kelliher's past experience on Capitol Hill should make for a smooth relationship with the Congress.

Kelliher's term as a commissioner runs until June 30, 2007. With the departure of Wood, the five-slot Commission is down to three, just enough for a quorum. Kelliher, a Republican, serves with Commissioners Nora Mead Brownell, also a Republican, and Suedeen Kelly, a Democrat.

There had been reports early on that President Bush would name a new commissioner, Rebecca Klein, former chairman of the Texas Public Utility Commission, to FERC and make her chairman. Lately, however, several rumors have been circulating: either that she didn't want the position or that an FBI check on her turned up some problems. The Senate would have to confirm a new commissioner. Another possible reason is that prospects are dim for getting even minor nominations through a Senate gearing up for battles over Supreme Court nominations. The president can take his pick of existing commissioners to be chairman without any Senate involvement.

Kelliher previously was a senior policy advisor to the energy secretary, joining his staff on the inauguration of President George W. Bush. Before joining the Department of Energy, Kelliher served on the Bush/Cheney Presidential Transition Team. He served as Majority Counsel to the House Committee on Commerce from 1995 to 2000, where he was responsible for electricity, hydropower, conservation, nuclear waste, and other energy legislation.

In the mid-1980s, Kelliher served on Barton's staff. He also has been of counsel with the law firm of LeBoeuf, Lamb, Greene & MacRae, worked for the American Nuclear Energy Council and at the law firm of Preston, Thorgrimson, Ellis & Holman.

During 1991 to 1995, Kelliher represented Public Service Electric and Gas Co. before the Congress on a wide range of energy legislation. He received his bachelor's degree from Georgetown University and his J.D. from American University.

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