A lone voice for price caps: U.S. regulator fears 'a disaster'

By David Whitney Bee Washington Bureau (Published March 24, 2001) WASHINGTON -- William Massey used to be a team player. Then the lights started flickering in California.

Now, Massey is the dissenting voice of the Federal Energy Regulatory Commission -- a preacher, an absolute convert to the idea that free markets be damned because California is getting a raw deal.

Wholesale electricity prices are rocketing into the stratosphere. Gov. Gray Davis, joined by the governors of Oregon and Washington, is screaming for price controls. And yet Massey said his colleagues wouldn't do their job to ensure "just and reasonable" prices and rein in price gougers.

"I fear a disaster is in the making," Massey told a House subcommittee this week. He said that without price controls this summer, he fears the worst.

Massey isn't just pounding the table at congressional hearings. In recent orders by the commission, he has been the lone naysayer, uttering in strong terms the doom and gloom that will be thrust upon the state by an agency he says is refusing to follow the Federal Power Act's mandate that it enforce just and reasonable wholesale rates.

Two weeks ago, Massey condemned as insufficient the commission's order finding that a dozen or so power producers may have overcharged California by as much as $69 million for January power sales.

Massey called the commission action "facially arbitrary, capricious and an abuse of discretion." Massey said his colleagues only focused on power sales above $273 a megawatt-hour sold during Stage 3 alerts of imminent rolling blackouts.

"There is no logic to this methodology other than limiting the universe of potential refunds," Massey wrote.

Asked about this at the House hearing, Massey was even more pointed. When it comes to ferreting out price gougers, Massey said the message is that "FERC is going to be looking for the wallet under the lamp post with the lights shining, and nowhere else."

These are welcome words to beleaguered state officials and utility executives who are growing increasingly frustrated that neither the commission nor the Bush administration seems to be heeding the concerns of California and the West over the worsening power situation.

"Commissioner Massey has a very good understanding," said an appreciative Sen. Dianne Feinstein, author of price-control legislation that Massey has endorsed.

Joe Nipper, senior vice president of the American Public Power Association, said the fact that Massey is alone in advocating firmer protection for California and its consumers makes his role even more important.

"Thank God he is there to articulate that point of view because if he weren't, you wouldn't hear it at all," Nipper said.

Massey concedes that his role as commission dissenter is new. In his eight years on the commission, the former legal services lawyer and aide to retired Arkansas Democratic Sen. Dale Bumpers has been known more as a team player. Nominated by President Clinton for the post in 1993, Massey was fully behind the notion that free and open markets were the way to go in the energy business.

When California's electric deregulation package started rolling through the agency in 1996, Massey was right there, urging it on, proclaiming the glories of open competition.

"It's true that as the commission has marched toward competition in the open markets, I've been there in a leadership role," Massey said during an interview.

Several Midwest shortages during a 1998 heat wave were the first indications that something was amiss. Massey said he was skeptical about the prevailing view on the commission that the Midwest problem was the result of "the confluence of a series of circumstances that were unlikely to recur, the so-called perfect storm."

"I thought that was a naive statement," he said.

But Massey said this didn't shake his confidence in deregulation and market-based competition so much as it caused him to doubt the commission's ability to handle shifting circumstances.

"The commission's attitude was that we couldn't go wrong, that competition would always be better than the old-fashioned regulatory market and essentially that any old market structure would work," he said. "That is simply not true."

Then came California.

"I just feel like our actions have been too little, too late all along," he said. "As billions of dollars are changing hands, we were studying it. Then we are investigating it," he said.

"But for me, competitive markets have to produce just and reasonable prices. A dysfunctional market that produces outrageous prices is unlawful. And I think my agency has not taken strong enough steps to save California and the West from a wildly dysfunctional electricity market."

Massey was on the commission when it basically rubber-stamped the California deregulation plan, the first in the nation. He said it arrived as a package, much of it written into state law, and that the agency did not ask hard questions such as how California could get the best price for consumers by relying on day-ahead power purchases on the volatile spot market.

"Essentially we deferred to the market design that was handed to us," Massey said. "We did say that it was a work in progress, and that we would be paying attention to it.

But to assume the spot markets would usually produce the lowest prices now, in retrospect, seems naive. We are now very critical of that market design but we did approve it."

Now the commission, with only three of its five seats filled, is led by the panel's only Republican, Curt Hebert, who is adamantly opposed to price controls.

The panel's other Democrat, Linda Breathitt, is similarly disposed.

"I am the lone voice crying in the wilderness," Massey said.

But with the power crisis pushing up wholesale rates throughout the West, Massey said this is not the time to be clinging to ideology.

"I do not think it is worth bringing down the economy of an entire region of the country just for the theoretical purity," he said.

http://www.capitolalert.com/news/capalert02_20010324.html

-- Martin Thompson (mthom1927@aol.com), March 24, 2001