Does Pat Wood Have What California Needs?


With California's energy crisis causing a political and economic maelstrom, more pressure than ever is on a little-known government agency known as FERC, the Federal Energy Regulatory Commission. The mission of the agency, a division of the Energy Dept., is to make sure electricity prices remain just and reasonable. Since efforts by Congress to help the Golden State have failed so far and since the White House has largely taken a hands-off approach to the matter, it's now up to FERC to try to come up with a plan to stop the bleeding in California, the world's sixth-largest economy.

Enter Pat Wood. One of President Bush's new FERC commissioners, Wood is expected to guide the agency in a new direction. Bush chose Wood because of his stellar record in Texas, where he served as chairman of the Public Utility Commission for six years. As PUC chairman, Wood oversaw more changes in Texas' electricity and telecom markets than any other regulator in recent history. In Texas, he was known for his ability to craft compromises, his knowledge of complex regulations, and his willingness to take on Big Business. Wood accomplished so much in Texas that Bush Administration insiders say he soon will be named FERC chairman.

On June 6, Wood spoke with BusinessWeek Washington Correspondent Laura Cohn about his time in Texas, what he hopes to accomplish in his new job, and why he has such an affinity for wind power. Here are edited excerpts from that conversation:

Q: People in California are very hopeful that your nomination is going to change what policies the federal government will pursue. Is it fair for them to hope that you might favor instituting price controls on electricity, given that you do have a price-control mechanism in Texas?

A: I would hope people would be optimistic about me because of my record, not just because of that one aspect in my record. My record has been one of building markets, not only in the electric industry but in the telephone industry as well. I understand markets, and I understand that people need some hand-holding and some transition time, but they also need a good kick in the pants. I'm kind of good at all three.

Q: So, would you be open to the idea of price caps in California?

A: The best answer to that would be, I wouldn't take any tool off the table. I think some tools are better than others...but they need to be understood as to what their implications are. That's probably been missing from the debate -- what kind of impacts, positive and negative, a price cap would have. What kind of impacts a return to cost-of-service regulation would have.

Q: Is California your main priority at FERC?

A: We've got to get it on its own path so we can get [back to also dealing with] the rest of the country. Quite frankly, that's my goal in this job, to focus on the entire country. California is an immediate problem, but the Midwest, the Southeast, the Northeast, and the rest of the West, we have to do the same issues there, ahead of time.

Q: How did you convince the giant utilities [in Texas] that a competitive market would be better for them than the regulated environment was?

A: When I came in in '95, they were pretty frightened by the time line. [But] when the utilities understood my mind-set -- that what I meant by moving "fast" was probably a five-year transition from regulation to competition -- they became a lot more able to deal with it.

Q: In part because of what you did in Texas, the state now is expected to triple its wind-power capacity this year. What was behind your support of wind power?

A: In '96, we started a process that was brought to us, called "deliberative polling," in which you invite a statistically valid sample from the utility-service area. We had a cross-section of people from the industry to go through renewable power, energy conservation, [and] building of new power plants. Based on that, people were polled as they left. The support for renewables was dramatic. By and large, there was a substantial [number] of people who were willing to pay 5 or 10 bucks more a month to have renewables be part of their portfolio.

Q: So, it was basically in response to consumer demand?

A: Yes. We listened to the people. How about that? It was certainly not anything on my personal agenda. [But] I've signed up for the renewable plan here in Austin. Because wind is not fired by natural gas, my power is actually cheaper than my next-door neighbor's.


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