FERC Chief Unfazed By Threat of Third Lawsuit

WASHINGTON —  The beleaguered chairman of the Federal Energy Regulatory Commission said Wednesday that he was not fazed by California Gov. Gray Davis’ threat to sue the agency for failing to cap wholesale electricity rates.

California officials have gone to the federal courts twice before to force FERC to impose price caps, Curt Hebert told reporters. And the U.S. 9th Circuit Court of Appeals in San Francisco has twice rejected the suits.

Davis, observing that FERC has a legal obligation to ensure that wholesale electricity rates are “just and reasonable,” threatened to go to court again after he failed in a meeting Tuesday to persuade President Bush to support caps on wholesale electricity prices.

“They’ve sued us two times and they have been [dismissed] two times,” Hebert said. “I feel very good about it.”

Responding to reporters’ questions, Hebert also appeared to be unaware of media reports that President Bush had asked a rival for his chairmanship, Patrick Wood III, to play a special role in dealing with California’s problems.

Wood, a Bush confidant who until now had been chairman of the Texas Public Utility Commission, was confirmed by the Senate as a FERC commissioner last week and is widely expected to be named to Hebert’s job. The president can designate any FERC commissioner as chairman without further action by the Senate.

White House officials said during Bush’s visit to Los Angeles on Tuesday that Wood would follow up on concerns raised in the president’s meeting with Davis.

Wood said in an interview that he talked briefly with Davis three weeks ago and more recently with California PUC President Loretta Lynch. He said his charge is vague: to review the entire situation.

“I’m looking at short-term things and long-term things,” he said, noting that he had heard from lawmakers “on both sides of the aisle” complaining that FERC had not gone far enough.

Wood, who advocates a more activist role for FERC, said he wants to monitor how the agency’s efforts to limit price spikes in California are working and that he might push for changes. Unlike Hebert, he said the agency’s standard for deciding whether a company has market power--enough influence to sway prices--needs to be reconsidered. He said he is also open to increasing the amount of rebates ordered to utilities for January.

And he said he thought FERC should also take another look at the design of California’s deregulated market. “Your work never stops,” Wood said. “You never get there and say, ‘We’re done.’ ”

California, he added, “is salvageable,” though he said blackouts are inevitable this summer.

FERC itself has acknowledged that California is paying unfair prices for electricity, particularly during power shortages. But instead of imposing price caps, the agency has instituted a complex system to monitor the market and seek refunds from power sellers that overcharge during emergencies.

A majority of FERC’s governing board believes that price caps would deter investors from building new power plants in California, thereby complicating efforts to increase energy supplies. Price caps “would destroy what is left of California,” Hebert said Wednesday.

State officials disagree.

With California paying as much as $1,900 per megawatt hour to avert blackouts earlier this month--five times the current market price--state officials argue that FERC’s approach is no deterrent and that the agency has a legal obligation to impose price caps.

Davis and others contend that temporary controls would bring order to the power markets and prevent further damage to California’s economy. They point out that the energy industry operated efficiently under government-set rates until the recent onset of deregulation.

But the courts have held that FERC has wide latitude in fulfilling its obligations under federal law.

In an April 11 decision denying a petition for relief by the city of San Diego, a 9th Circuit panel ruled that the same law that gives FERC authority to impose price caps also allows it to pursue alternatives.

On Tuesday, the same court dismissed a petition from state Senate leader John Burton, citing its earlier decision in the San Diego case.