Bush’s Nominees to Regulatory Panel Stress Need for Oversight

President Bush’s nominees for the Federal Energy Regulatory Commission said Wednesday they are convinced that California’s energy problems go beyond an imbalance between supply and demand and that aggressive federal oversight is needed to protect consumers.

Patrick Wood III and Nora Brownell offered their first public comments on California’s energy crisis during confirmation hearings before the Senate Energy and Natural Resources Committee.

The nominees, picked to fill two vacant seats on FERC’s five-member governing board, did not indicate how they would vote on specific regulatory issues, such as the electricity price caps sought by Gov. Gray Davis and other state officials.

Wood and Brownell described themselves to the Senate panel as committed free-market advocates. Yet both said they believe regulators should not take a hands-off approach, particularly if consumers are being harmed or if profiteering is suspected.

Brownell, 53, a member of the Pennsylvania Public Utility Commission, told the committee “it’s clear there is something very broken” in California.

“In addition to what is obviously a very serious supply problem, there are other factors at work,” she said. “We need to be aggressive in responding to things that may not be appropriate. We need to end the uncertainty . . . and the tragedy that is occurring.”

Wood, responding to a question on why California is paying more than 2 1/2 times more for natural gas than other major states, stated flatly: “The math doesn’t add up.

“We need to be asking a lot of different players, ‘Where is the money going?’ ” said Wood, the 38-year-old chairman of the Texas Public Utility Commission. “ ‘Who’s got it? Which pocket is it going into?’ These are the salient questions.”

The tenor of their remarks made a favorable impression on Sen. Dianne Feinstein (D-Calif.), who has been highly critical of the agency’s reluctance to intervene more forcefully in California’s dysfunctional electricity market.

“They’re knowledgeable, they’re pragmatic--they don’t appear to me to be ideologues,” Feinstein told reporters after the hearing.

A committee vote on the nominations is expected next week, and a spokesman for Feinstein said she will vote to confirm the two Republican nominees.

FERC is a small, independent federal agency that has come to play a critical role in California, since it has the power to set rates for wholesale electricity.

Exercising that authority would put markets under the rules that existed before deregulation. But, despite pleas from state officials, FERC has chosen not to impose rate caps. Instead, it has instituted a complex mechanism intended to deter abusive pricing during power shortages.

A longtime political ally of Bush, Wood is widely rumored to be in line for the FERC chairmanship. The White House refuses to comment on the speculation, but once Wood is confirmed as a FERC member, the president could name him chairman without further Senate consent.

Wood, a Texas native, graduated as an engineer from Texas A&M; University and worked in the energy industry with Arco Indonesia. He later earned a law degree from Harvard and worked in Washington, including a stint as a legal advisor at FERC.

Then-Gov. Bush appointed Wood to the utility commission in 1995 and he quickly rose to chairman.

FERC should be “a vigilant market cop walking the beat,” Wood said Wednesday.

Brownell has been involved both with electricity and telecommunications deregulation. She helped to fashion the mid-Atlantic region’s deregulated electricity market, which is often cited as a success story in counterpoint to California’s disastrous experience.

Brownell is also an advocate of alternative energy sources, such as wind power.

The electric power systems Wood and Brownell now regulate make limited use of price caps to act as “circuit breakers” if the market goes out of control.

The limits are set at $1,000 per megawatt-hour, a level considered out of reach in most of the country. Yet California paid $1,900 for a megawatt-hour during last week’s power emergencies.

Wood and Brownell are unlikely to support a return to regulated rates, but they said their confidence in markets is tempered by pragmatism.

Fully functioning markets take time--and tweaking--to develop, Brownell explained.

“Markets do not happen overnight,” Brownell said. “They require monitoring to ensure that they have a chance to develop and grow.”

Wood expressed a willingness to tear up deregulation plans that aren’t working and start over. In the Texas plan, he said, “my chief role has been to keep everyone’s eye on the ball: a competitive market that delivers benefits to all customers.

“If that is not the result, then we go back to the table.”

The FERC is split 2-1 on whether to impose rate caps on electricity in the West. Chairman Curt Hebert, a Republican, and Commissioner Linda Breathitt, a Democrat, oppose setting fixed rate limits.

Commissioner William Massey, a Democrat, favors price caps as a temporary measure to calm the electricity markets.

The Bush administration is strongly opposed to price caps of any sort, and Vice President Dick Cheney has criticized FERC’s attempts to limit price spikes during shortages as too intrusive.

By law, FERC has an obligation to ensure “just and reasonable” rates. But federal courts have held that the commission has broad latitude in doing that.

Wood said he would be a strong advocate of creating regional transmission networks for electricity, a job that FERC has already begun. He said he favors building more transmission lines, pipelines and generating plants.

Brownell indicated she would work on a nationwide version of a program mid-Atlantic states are experimenting with to provide more electricity during peak hours.

Under the arrangement, industrial users of electricity can operate during off-peak hours and sell power back to the electricity grid during peak demand periods.