Energy Panel’s New Chief May Find Key Test in California’s Power Woes

Soon after California declared its second power emergency of the summer, Joseph T. Kelliher, the nation’s top regulator for electricity, expressed dismay at the state’s long-lasting energy woes.

“It’s discouraging,” said Kelliher, who in July became chairman of the Federal Energy Regulatory Commission. “Five years after the crisis, we’re still worried about what the temperature will be in Southern California today.”

As Kelliher settles into the new job, California’s energy problems, old and new, may provide a key test of his leadership.

Relations between the state and the federal agency have improved since the stormy days of the 2000-01 energy crisis. But once again, the risk of shortages in California is bringing scrutiny to energy policy -- and unresolved disputes over refunds dating to the power meltdown are still soaking up time and effort at the federal agency.

“I think we need to close out the California crisis,” Kelliher said. “Other issues have been languishing.”

Kelliher, 44, is a well-known quantity in the world of energy policymaking. Soft-spoken and precise in manner, he was a top aide in the Department of Energy, where he served as the agency’s liaison with Vice President Dick Cheney’s energy task force.

In that role, he maintained close ties to big energy firms, and consumer activists came to see him as an ally of corporations.

Before he was appointed to the federal agency, for example, Enron Corp. had identified Kelliher in an internal memo as a potential commission appointee with whom it had worked productively in the recent past. Enron, of course, is the now-collapsed firm that devised many of the rule-breaking trading schemes that produced chaos in the Western energy marketplace.

When President Bush nominated Kelliher to the commission in 2003, several senators held up his confirmation for almost a year amid concern that he was not sufficiently outraged by evidence of market manipulation during the energy crisis.

Even now, critics ask whether Kelliher’s faith in market competition to provide electricity may make him insensitive to corporate misconduct or environmental issues.

“He’s going to continue relying exclusively on the point of view of energy companies, and being openly dismissive of consumers and state interests,” said Tyson Slocum, energy research director at the activist group Public Citizen.

Others see Kelliher as a thoughtful lawyer and policy wonk whose innate caution and political savvy will ensure that all sides are heard. His predecessor, Patrick H. Wood III, ultimately alienated some on Capitol Hill by pushing hard for a particular approach to national deregulation of wholesale electricity. Kelliher is trying to mend those fences.

“I can’t sum it up and say he’ll decide things in this manner or that,” said Vicky A. Bailey, a Republican who formerly served on the energy commission and as an Energy Department official. “That’s the good thing about Chairman Kelliher.”

Roger Berliner, an attorney at Manatt, Phelps & Phillips in Washington, described Kelliher as “an energy lawyer’s lawyer ... someone who really cares about the law.”

Kelliher has recently made an effort to burnish his pro-consumer credentials. In June, when Bush asked him to become chairman, Kelliher pointed to a 30-year-old court ruling that said the agency’s primary task “is to guard the consumer from exploitation by noncompetitive electric power companies.”

“Our task remains the same,” he said at the time.

Kelliher has pushed to increase the penalties the commission can assess against those who manipulate the market. The tougher sanctions, which include hiking fines from $5,000 to $1 million and in some cases more than doubling prison terms to five years, were included in the energy bill that recently passed Congress.

“I don’t see why manipulation of pork bellies should be subject to a greater penalty than manipulation of electricity or natural gas,” he said, adding, “I think with these tools, people will think longer and harder about trying to engage in these manipulative schemes.”

To be sure, some of Kelliher’s agenda continues to disturb consumer advocates and other critics. His support of liquefied natural gas, or LNG, facilities runs afoul of many environmentalists.

The energy bill contains language sought by the agency that affirms its authority to approve such facilities, which convert the liquid back to gas. The commission’s authority has been challenged by the California Public Utilities Commission in response to a facility planned for Long Beach.

Public Citizen’s Slocum called the provision an example of the federal energy panel pursuing a pro-corporate agenda.

“From Enron to LNG,” he said, the commission “takes positions that it -- and not states -- knows best how to handle local problems,” he said.

Federal officials respond that the new law merely affirms authority the energy commission has claimed all along, and that it does not diminish the ability of states to challenge liquefied-gas facilities on environmental grounds.

“Does it mean [the agency] can run roughshod over a local community?” Kelliher asked. “The answer to that is no.”

The question of the federal commission’s proper role in California took center stage during the energy crisis, when former Gov. Gray Davis criticized the panel as ineffective in curbing trading abuses. The release of tape recordings in 2004 that caught Enron traders gloating about overcharges to a fictional Grandma Millie and other Californians convinced many that federal oversight had been insufficient.

Kelliher adheres to the view of previous chairmen that much of the responsibility for the energy crisis belongs to the state for failing to plan adequately for its energy needs and then not responding effectively when the market went awry.

“Once the crisis was upon them, they proved unequal to the task,” Kelliher said of past state regulators.

At the same time, he acknowledged that the energy commission was not prepared for the market manipulation of 2000 and 2001 and could have moved more swiftly to combat it. “I believe there is plenty of blame to go around,” Kelliher said.

The state and some of its major utilities have long demanded billions of dollars in restitution for alleged overcharges from power suppliers during the crisis. California officials negotiated a $1.52-billion settlement with Enron, but regulators have been unable to resolve other cases because of continuing disputes over the amount of legitimate costs passed on by generators and other technical matters.

Kelliher wants to quickly resolve the restitution issue, but he declined to outline what actions the agency might take to do so.

There also are questions about whether the state risks another power shortage in the near future. Southern California, Kelliher said, “has the worst electricity supply situation in the entire country.” By all accounts, the state must play a major role in addressing that problem through its authority to approve new power plants.

But some also see a significant, long-term role for the agency in establishing rules for the marketplace that could encourage development of new power resources.

“There has to be a true collaboration,” said Berliner, the attorney. “They both have to sit down and work together in a brand-new partnership to create a positive environment for more energy supplies, at prices people are prepared to pay.”

The man who will play a key role in guiding that relationship agrees: “If there’s a failure,” Kelliher said, “it will reflect on both of us.”