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 Utilities Commission.

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 concerns.

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

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