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Federal agency under sudden scrutiny

WASHINGTON (AP) – California’s electricity debacle has embroiled an obscure federal agency in accusations that it is failing to confront powerful energy companies over price gouging.

Free-market advocates argue that more aggressive intervention by the agency could make the West’s electricity problems worse. But critics say the agency is too timid, raising concerns about its role as the watchdog over a $250 billion electricity industry.

Scarcely known by the general public, the Federal Energy Regulatory Commission – its five members selected by the president – can wield immense power as federal overseer of wholesale electricity markets and interstate natural gas transport.



Its daily activities and public pronouncements rarely have attracted much attention outside the industry – until now.

Suddenly FERC, as it is commonly known among energy insiders, has become a bogeyman of deregulation-run-amok in the eyes of its sharpest critics – among them members of Congress, state regulators and Western utilities saddled with billions of dollars in debt from power purchases at astronomical prices.




”It’s high time FERC was called to account for its public-be-damned attitude,” Rep. John Dingell of Michigan, the ranking Democrat on the House Commerce Committee, fumed recently.

Aware of the discontent, especially in the West, the commission was taking the unusual step of holding a hearing Tuesday in Boise, Idaho, to listen to officials from 11 Western states on how it might help them cope with the wildly gyrating wholesale power markets expected this summer.

Curtis Hebert, FERC’s Republican chairman and a staunch free-market advocate, rejects claims the commission isn’t doing its job but acknowledges that complexities brought on by open competition have put strains on the agency.

He cites a string of FERC actions:

-Its move in mid-December to order changes in the way California contracts for power and put wholesale electricity suppliers on notice that unusually high prices would have to be explained.

-Its pursuit last month of two companies accused of withholding power to inflate prices, a case critics have applauded but note it stems from actions nearly a year ago.

-Its investigation of thousands of January-February power transactions in California involving $124 million in alleged overcharges.

FERC-ordered refunds, Hebert told a recent congressional hearing, ”demonstrate the commission’s commitment to appropriate and reasonable prices” in California and elsewhere in the West.

Hebert, however, insists that a government-imposed dampening of prices wanted by many of the agency’s critics will only keep people from investing in more power plants and make consumers less likely to conserve.

”Price caps are unworkable, unreliable and not a solution,” says the former state utility regulator from Mississippi.

On that, as well as the adequacy of FERC’s push for refunds, Hebert’s sharpest critic may be on the commission itself, which currently has two vacancies.

By its inaction, argues William Massey, a Democratic member of the commission, the FERC has condoned ”unlawful” pricing practices despite its mandate to ensure ”just and reasonable” prices for consumers.

The commission has an obligation ”to aggressively intervene” when a market has become broken, says Massey. He has called for price caps and a broadening of FERC’s investigation into refunds, saying thousands of questionable sales have been ignored. Each time he’s been outvoted 2-1.

It is Hebert’s free-market approach, and not Massey’s call for more action, that mirrors the views of the White House, where President Bush also has opposed price controls on the California electricity market. While some Democrats in Congress have introduced legislation ordering FERC to take more aggressive action, the agency’s policies have the support of most Republican lawmakers.

Beyond the issue of price caps, there have been questions about FERC’s ability to adequately monitor and police the increasingly complex and rapidly moving wholesale electricity market. Its staff is now 15 percent smaller than it was four years ago.

Last October, an internal FERC report raised concerns about the agency adapting to the rapidly changing electricity industry it is supposed to regulate. The report said the agency needs more staffers with market skills and noted the potential conflict in the agency’s dual mandates: to further competition and also regulate that competition.

”Right now my view is the FERC is overwhelmed by the task before it,” says William Nugent, Maine’s state public utility commissioner, expressing his frustration at what he views as FERC’s slow response to alleged market abuses. A year-old price spiking case in New England involving tens of millions of dollars has yet to be fully investigated, he said.

”There’s a sense of this being a trial by fire,” says FERC’s Massey. ”There’s no question about that.”

On the Net:

Federal Energy Regulatory Commission: http://www.ferc.fed.us/


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