Former FERC chairman: California still has a good shot at deregulation

November 19, 2001 – In an interview with EL&P Associate Editor Kathleen Davis, former FERC chairman James J. Hoecker said he still has faith that California will succeed in its efforts to restructure its electric industry, although it may take a bit longer than expected.

The interview is the focus of a Dec. 2001 feature by Associate Editor Kathleen Davis.

Former Federal Energy Regulatory Commission chairman James J. Hoecker, who was in Tulsa Nov. 15 to speak at the University of Tulsa’s National Energy-Environment Law & Policy Institute, commented on his experience and possible future directions for the national organization. Hoecker was chairman of FERC from June 1997 to January 2001.

Despite the fact that California’s experiment with deregulation has resulted in disappointment so far, Hoecker maintains that it is far from over for the state.

“California’s problems were unique in many respects. They resulted from the way the legislature and the state regulatory commission designed the market, a breakdown in communications between state and federal authorities, and conditions that are unique to California–including an incredible surge in demand growth in the 1990s.

“I think there are many good lessons to learn from California, and I think that other states need to take that experience–good and bad–seriously. But, if you look at the map, there are plenty of states who are marching ahead with retail access, and FERC is continuing to promote competition at the wholesale level.

“This industry is going to change profoundly, notwithstanding California. I’m persuaded that–even if it takes a little longer because of what happened there–we are going to see a fundamentally different utility business at the end of this decade. It will be more dynamic. It will be better at managing risk. It will provide a range of services on a competitive basis. Consumers will have choice, and we will see new technologies that will help make this a more efficient industry–a much more efficient industry than we would have if the state were to intrude as profoundly as it has over the last 60 years.”

FERC could possibly have handled California’s entry into electricity restructuring differently, with better results, he said.

“Well, I wish we had been more critical of California’s proposed restructuring plan earlier on. I think people need to understand that what the commission did in the mid-90s in helping California institute AB 1890–its restructuring legislation–was guided by a strong commitment to state-federal cooperation in deference to the desires of state policymakers. Unfortunately, in this instance, California devised a widely imperfect bulk power market and then resisted changing it until it was too late and caused ratepayers in California enormous sums of money.

“It was a learning process for the commission, and, hopefully, a learning process for the state. Whether the commission could have avoided it single-handedly is something we may never know. I reiterate to people how little experience FERC had in the structuring and operation of bulk power markets in a competitive environment before 1996 when we issued Order 888, our open access rule.

“If I would do anything over, it would be to work to give the commission a different perspective and a different skill set so that it could have anticipated the problems in California. As it was, during my chairmanship, we did a tremendous amount to change the way FERC operates and to improve its capacity to monitor competitive markets.”

Hoecker doesn’t miss the public life that went along with FERC, but now is as good a time for the agency as it was when Hoecker was in charge, he said.

FERC accomplished Order 2000 during Hoecker’s tenure, one of many achievements he is proud of.

“We did many, many good things on the electric side, and the challenges were tremendous. FERC used to be known as a natural gas regulator, primarily, and electricity was an afterthought. Of course, our jurisdiction on the electric side is nowhere near as extensive as it is on the natural gas side, but the electric power industry is the last major monopoly in the country to be exposed to the winds of competition.

“We have worked very hard throughout the 1990s to contribute to that evolution and to make that evolution smooth. Our proposal for regional transmission organizations [RTOs] provides not only essential ingredients, but also the necessary institutional backdrop for wholesale competition.”

Read the complete feature in the December 2001 issue of Electric Light & Power Magazine.

To learn more about FERC, visit the agency’s web site at http://www.ferc.fed.us/.

More information on the National Energy-Environment Law & Policy Institute can be found at http://www.nelpi.org.

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