Federal Energy Panel Finding Itself Pushed and Pulled Toward Change

The Federal Energy Regulatory Commission is clearly heeding external politics as it prepares for a larger role in California’s power crisis, but the biggest catalyst for change may be within its walls.

On the outside, a new Democrat-controlled Senate and powerful Republicans in the House have been clamoring for more assertive intervention.

But inside, two pragmatists recently appointed by President Bush to FERC’s five-member governing board have already compromised the laissez-faire course that Chairman Curtis L. Hebert Jr. had set for the small, insular agency.

FERC’s new power crisis policy, to be unveiled at a special board meeting Monday, is expected to move closer to the fixed price caps sought by California leaders. FERC’s version would allow electricity prices in the West to move up and down significantly but with upper limits.

However, the plan was still a subject of intense internal debate Thursday at FERC. Even after its expected approval by the FERC board, it must survive additional rounds of political and technical vetting by other key players in the power crisis.

As California has already learned, tinkering with power markets is no easy task, and today’s solutions can swiftly turn into tomorrow’s unintended consequences.

For Hebert, 38, a proud Mississippian and avid free-market advocate, growing impatience with FERC on Capitol Hill is not the only problem. He risks losing a working majority on his own commission if the two new members ally themselves with dissenter William L. Massey in favor of stronger intervention. That would isolate and embarrass Hebert, who is already in a difficult spot because of persistent rumors that Bush will replace him as chairman with newly appointed Commissioner Patrick H. Wood III.

“What we see here is someone who is a strong noninterventionist Republican who has found himself in a position where he has to abandon that to some extent,” said James J. Hoecker, immediate past FERC chairman in the Clinton administration. “Chairman Hebert . . . doesn’t have to be a weatherman to know which way the wind is blowing.”

FERC, which functions like a national public utility commission, is charged by law with assuring “just and reasonable” rates for wholesale electricity. Last year, the commission made a formal finding that prices in California were neither. But the modest “price mitigation” measures it adopted were widely criticized as mere nibbling around the edges.

Not so, says Hebert. “I don’t think there is any doubt that the commission’s plan is working and is bringing down prices,” he told reporters this week. He condemned what he called “the ideology of price caps.”

The two new FERC members, Wood and Nora M. Brownell, have not offered ringing endorsements of FERC’s actions to date. During Senate confirmation hearings last month, they indicated they favored closer, tighter scrutiny of industry. Wood, past chairman of the Texas Public Utility Commission and a confidant of the president, signaled in interviews that a return to regulation would be preferable to dysfunctional markets that deprive consumers of the benefits of competition.

“No tool is off the table, even if it’s a bad tool,” Wood told the PBS program “Frontline.”

The two newcomers sounded more like Massey, the commission’s lone in-house critic, than like Hebert, the market purist. In April, when the commission first adopted price limits, Massey pointed out flaws that FERC now seems poised to address.

For one, he said, the limits only applied during power emergencies. “The evidence is persuasive that the problem [of unfair prices] exists 24 hours a day, seven days a week,” Massey said. “I have no confidence that prices will be just and reasonable during all hours.”

Massey’s view was voiced by many others as Wood prepared to assume his new job on the panel. Wood told The Times in an interview that he heard complaints from Republicans as well as Democrats.

Prominent among the Republicans demanding more aggressive action by FERC is Rep. Doug Ose of Sacramento, author of a bill calling for round-the-clock price limits throughout the West.

Massey was no longer a voice in the wilderness.

In fact, how he votes and what he says Monday will be closely watched on Capitol Hill and in California, particularly by Democrats looking for an early signal of the plan’s credibility. “His viewpoint is considered very highly,” said Howard Gantman, a spokesman for Sen. Dianne Feinstein (D-Calif.).

As Massey’s stock rose, Hebert’s portfolio was in growing jeopardy.

The Democratic changeover in the Senate improved the prospects of price cap legislation introduced by Feinstein and Sen. Gordon Smith (R-Ore.). Fixed price caps are anathema to Bush as well as Hebert but may prove politically unstoppable if California electricity costs spiral out of control this summer.

“The debate has changed from doing nothing to mitigation to doing something punitive,” said one FERC official who requested anonymity.

Running out of maneuvering room--and perhaps time as chairman--Hebert decided to make a bold move. On Monday, he announced that he would convene a special commission meeting for next Monday to strengthen FERC’s “price mitigation” plan for California and the West.

“Price mitigation appears to be a way to avoid using the words ‘price cap’ or ‘cost-based rate,’ which some members of the Bush administration find objectionable,” Feinstein said. “Frankly, I don’t care what they call it as long as they get the job done.”

FERC sources said the options being discussed include round-the-clock price limits throughout the West, requiring all generators in the region to sell available power during emergencies, establishing a framework for large power users to sell back electricity at peak times and tightening rules on energy traders.

On Tuesday, leading House Republicans sent a letter to Hebert endorsing Ose’s price-limit approach, giving Hebert some cover on the political right.

Even if a political compromise can be worked out within FERC, more difficulties are bound to arise. Thorny technical problems must be addressed. For example: Generators have complained that FERC’s current price limits force them to sell some power below cost; currently, no framework exists for setting price limits throughout the Western region, and FERC has no authority over large public generators such as the Bonneville Power Administration.

Former FERC Chairman Hoecker said Hebert’s gradual metamorphosis resembles that of California Gov. Gray Davis, who at first swore he would not accept rate increases for consumers.

“It’s kind of creeping reform,” Hoecker said. “FERC didn’t do the most aggressive thing first--just like the governor of California. Everybody is sidling into it, incrementally, a little bit at a time.”