Powerful Judge Illuminates Energy Practices

The silver-haired judge handling federal negotiations on refunds for alleged overcharges by power generators in California is often described as a Southern gentleman.

But Curtis L. Wagner Jr. can lose the folksy charm in a New York minute.

Wagner, chief judge of the Federal Energy Regulatory Commission, showed his knack for cutting through nonsense when he tangled with a smooth energy company executive in his hearing room in May. The executive confidently insisted he didn’t need his boss’ approval to enter into a $39-million natural gas transportation deal.

Wagner didn’t buy it.

“I’m appalled that you’re trying to pull this over my eyes,” intoned the judge, stunning a courtroom of high-priced lawyers into catatonic silence. “Just answer my question . . .

“Did you get approval . . . whether you got it after the meeting, whether you got it the day before, whether you got it in the head while you were both relieving yourselves?”

Added Wagner, owner of a 32-foot sailboat named “Hizzoner”: “The head, for non-boating people, is the restroom.”

Visibly squirming, the witness acknowledged that his boss had, in fact, OKd the deal.

That kind of mettle prompted FERC’s governing board to assign the overcharge settlement case to the 72-year-old judge, who likes to stay in shape by attending early-morning aerobics classes in the agency’s exercise room. “I think Judge Wagner is the toughest tool in our toolbox,” said FERC Commissioner Patrick H. Wood III.

Expectations are low that anybody can bridge the chasm between California and electricity generators and marketers, with the state alleging it was gouged by $9 billion and the companies muttering about governmental extortion.

“There are some very large numbers being talked about, which makes it unlikely that the companies would want to agree to a settlement,” said Kit Konolidge, an electricity industry analyst with Morgan Stanley in New York.

But in an interview, Wagner said he feels “pretty good” about the chances. “I never give up until the very end. With these things, it looks impossible, and then all of a sudden it comes together.”

FERC, the equivalent of a national utility commission, is also dangling some carrots in front of the parties. Along with refunds, Wagner is trying to get a deal on long-term contracts for power and guarantees that the generators, which are owed hundreds of millions of dollars, will be paid.

The commission set a short time frame for the negotiations, which are to conclude Monday. If a settlement is not reachable, FERC would impose its own solution. A mandated settlement is likely to be challenged in federal court, where it could bog down for years.

FERC employs more than a dozen administrative law judges like Wagner to hear disputes involving the companies it regulates. While presiding over the closed-door settlement talks, Wagner has traded his robes for a business suit.

He has come down from the bench and sits at a table, eye-level with more than 140 lawyers in his hearing room. “There’s a lot of billable hours there,” he said.

The lawyers have been sorted into three big working groups, representing state agencies, power sellers and energy marketers. The negotiations are expected to intensify this week, and participants said Wagner admonished all sides on Friday to be ready to deal or face summary judgment from the FERC commission.

The judge has been variously quoted as saying that $1 billion, $2 billion or $2.5 billion might be an appropriate total refund. “None of those [figures] are really attributable to me. I did make a statement--and I probably shouldn’t have--that it was probably less than $9 billion.” Of the $9 billion in overcharges claimed by the state, only $5.4 billion is attributable to sellers within FERC’s jurisdiction.

James J. Hoecker, immediate past FERC chairman in the Clinton administration, said that, in 23 years as chief judge, Wagner has built a reputation for making things happen in difficult situations.

“What is behind that is a lot of years on the bench and a certain amount of self-confidence,” Hoecker said. “He has the ability . . . to move the parties closer together. Sometimes that requires some fairly dramatic statements, which are calculated to get people to feel the heat and get more creative about the flexibility they might have.”

A senior FERC official said Wagner is like a pitcher who gets called from the bullpen when the game is on the line. “When things are tough, we turn stuff over to Curtis,” said the official, who asked not to be identified.

Wagner has had many big cases over the years, on matters too arcane to garner national attention.

He is handling a second major case before FERC. It involves allegations that Houston-based El Paso Corp. manipulated California’s natural gas market last year, thereby adding an estimated $3.7 billion to the state’s energy costs. It was in that case that he grilled the executive.

Success in the California settlement negotiations would cap Wagner’s 47th year as a government lawyer. The Tennessee native started at the Justice Department on Aug. 2, 1954. He got into regulatory law by representing the military in railroad disputes arising from the Korean War. After serving as a civilian lawyer for the Army for more than a decade, he joined FERC’s predecessor agency in 1974.

But Wagner, a widower, doesn’t dwell on his place in the annals of FERC. He tells agency employees he is working too many hours and missing his aerobics classes.