FERC Aims to Sharpen Its Bite
The Federal Energy Regulatory Commission, long derided as a paper tiger by West Coast critics, wants to put some teeth into its enforcement efforts.
At a recent meeting, two FERC members -- clearly outraged by tape recordings of Enron Corp. employees bragging about gouging California consumers -- made an unexpected public plea for new powers to clamp down on abusive trading and other bad conduct by energy companies.
“It’s clear that we have to have stronger civil penalties and criminal penalties,” said Commissioner Joseph T. Kelliher, a Republican, “and only Congress can do that.”
Or, as Commissioner Suedeen G. Kelly, a Democrat, put it: “There is a will, but there is no way.”
Such talk is encouraging to officials in California and elsewhere who have been frustrated by what they see as FERC’s tepid response to evidence of widespread “gaming” in Western power markets during the energy crisis of 2000-01. California, in particular, is pushing for much larger refunds from abusive power suppliers than FERC has been willing to consider.
But questions remain about what the nation’s energy cop would do if it suddenly were given more potent weapons -- and whether it makes the most of the law enforcement tools it already has. Many argue that the 1935 Federal Power Act gives the panel all the authority it needs to protect the public by conferring on FERC the authority to keep electricity rates “just and reasonable.”
Yet many politicians, including some who have not hesitated to lambaste the energy commission, are joining in the appeal to give the regulators more muscle. Otherwise, they warn, the long-term consequences could prove dire.
“I am deeply concerned that unless California acts to take control of its energy future and the Federal Energy Regulatory Commission receives additional authority to more effectively combat energy market manipulation,” Sen. Dianne Feinstein (D-Calif.) said last week, “the energy crisis could be repeated and Californians could again face rolling blackouts and skyrocketing utility bills.”
The problem, some say, is that the Federal Power Act is an outdated law more suited to a time when old-line utilities controlled the marketplace than to an era when wholesale competition can unleash chaos.
One section of the law, for example, restricts how the commission calculates refunds -- a provision California officials say could slash as much as $3 billion from the nearly $9 billion they say the state is owed for overcharges.
FERC members also contend that the laws now on the books don’t give the panel the enforcement tools expressly granted to other regulatory agencies.
The Securities and Exchange Commission and the Commodity Futures Trading Commission are authorized to slap violators with fines amounting to triple the damages for certain offenses. Those regulators also can impose lifetime bars on defendants -- in effect banishing them from the industries and activities in which they misbehaved.
Advocates for strengthening FERC say the threat of much larger penalties -- going far beyond the return of disputed profits -- would be a more intimidating weapon to hold over wayward energy suppliers.
“If it’s important enough for pork bellies, and whatever commodities are traded, I think it’s important enough for FERC” to have greater authority to penalize wrongdoers, Commissioner Kelliher said, alluding to powers held by the commodity futures commission.
Feinstein is backing a proposal that would give FERC the ability to impose civil penalties of as much as $1 million a day and hike the punishment for defying the panel’s rulings to $25,000 a day from the current daily cap of $500. However, these and other FERC-related proposals are included in an energy bill that is bogged down in Congress, its prospects uncertain.
With immediate changes in doubt, FERC’s critics say the commissioners should do a better job of using the powers they already have. As they see it, the mandate to ensure “just and reasonable” electricity rates gives commissioners sweeping powers to keep rates in line, order refunds and even overturn contracts signed during a market meltdown.
“Unquestionably, they do have the enforcement powers” they need, said Robert McCullough, an energy consultant in Portland, Ore., who closely monitored the Western energy crisis.
The Federal Power Act also gives FERC the basis for what some call its nuclear weapon: the ability to strip power companies of the right to sell electricity anywhere in the United States at competitive, market-based rates. The commission has been extremely reluctant to wield this stick, however. It imposed the sanction on a group of Enron affiliates in June 2003 but only after the disgraced parent company was already in Chapter 11 bankruptcy proceedings.
As long as questions linger about wrongdoing in the marketplace, FERC will face intense pressure to flex its power.
In June, Feinstein wrote FERC Chairman Patrick H. Wood III to express her dismay about the behavior of Enron, urging the panel to punish devious energy traders and to push forward with the $8.9-billion recompense that California officials have sought for years.
“I understand your sense of frustration,” Wood responded, while noting that there were limits to his agency’s enforcement tools.
Then, reflecting the new message from FERC, he put in his own plea: “I ask your assistance in amending the law to provide this agency with greater refund authority and civil and criminal penalty authority, all of which are needed to more effectively address the type of activity that we witnessed in 2000-2001 in the Western energy markets.”
