U.S. Head Of Energy Regulation Resigns

Likely successor pledges to ease California's plight David Lazarus, Chronicle Staff Writer

Thursday, January 11, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/01/11/MN172480.DTL

The influential chairman of the Federal Energy Regulatory Commission, which so far has rejected calls to cap soaring power prices in California, abruptly announced his resignation yesterday.

The man most likely to take over as FERC chairman, Commissioner Curt Hebert, subsequently told The Chronicle that a long-sought ceiling on wholesale electricity rates would receive greater consideration on his watch.

"Gov. Davis and the people of California are going to be dramatically impressed and pleased with how the Bush administration helps the state get back on its feet," Hebert, a Republican, said.

Chairman James Hoecker's departure from FERC, which has jurisdiction over transmission of power between states, was announced as high-level talks continued in Washington, D.C., on tackling California's power crisis.

Hoecker did not give a reason for stepping down. His five-year term expired last June, but President Clinton extended his appointment through the end of the next Senate session, into the fall of this year.

At the same time, a behind-the-scenes deal was cut with Republican leaders in Congress for Hoecker to depart just prior to the new administration if George W. Bush won the election.

His resignation will take effect a week from today, just two days before the Bush team moves into the White House.

Hoecker has enjoyed an unusually cozy relationship with the Clinton administration. His stepdaughter is married to Carter Eskew, a senior aide to Vice President Al Gore.

But sources said Hoecker came under increasing pressure from Clinton, California officials and energy-industry players to be more aggressive in remedying the state's energy woes.

Davis even went so far as to ask the president to replace Hoecker as FERC chairman, The Chronicle has learned.

"Now is clearly the time for me to say, 'It's time for new leadership,' " Hoecker told colleagues at yesterday's regularly scheduled FERC meeting in Washington.

SUCCESSOR HAS ALLIES IN SENATE

His successor as chairman almost certainly will be Hebert, who was appointed to the commission in July 1999 and is an ally of the powerful Senate Republican leader, Trent Lott. Both men have backgrounds in Mississippi politics.

Hebert already has met with Bush's transition team. Sources said his appointment as chairman likely will be announced either this week or early next week.

Hebert said in a telephone interview yesterday that he is open to the idea of capping runaway wholesale power rates in California on a short-term basis, until longer-term solutions can be found by utilities and legislators.

"I do not want to see utilities go bankrupt," he said. "Will there be price caps in the future? They could be included among short-term solutions."

MARKET SOLUTIONS PREFERRED

Hebert added, though, that he prefers "market solutions" to California's energy problems, and that any rate caps would be intended only to buy time for new plants to be built and for legislators to come up with alternative remedies.

"I don't have any problem helping California get to a new supply of electricity," he said. "Is FERC finished in California? Absolutely not."

The commission came under fire from state officials last month after proposing what were seen as only limited measures to address California's dysfunctional energy market. The commissioners said they favored long-term contracts between utilities and power generators as the best solution.

FERC is responsible for ensuring that "just and reasonable" rates are paid by consumers -- and already has ruled that Californians are not paying just and reasonable prices for electricity.

But the commission has proceeded cautiously in recent months, maintaining a belief that the energy market will "self-correct" an imbalance between supply and demand.

With Hoecker, a Democrat, leaving, Bush will have two seats to fill on the five-member commission. Commissioner Vicky Bailey, also a Democrat, stepped down last year.

Insiders say Bush will tap Pat Wood, head of the Texas Public Utility Commission, for one of the vacancies.

LATITUDE IN BILL PAYMENT SOUGHT

Meanwhile, the talks in Washington on solving California's energy mess focused yesterday on a proposal for generators to give Pacific Gas and Electric and Southern California Edison latitude in paying their power bills, and for future payments to reflect more stable, long-term contracts.

"This is the first time that I've been able to see light at the end of the tunnel," the governor said after returning to Sacramento following seven hours of negotiations in Washington Tuesday night.

Sources said the utilities will be given a grace period of about six weeks before they must pay their outstanding bills. The main sticking points yesterday centered on the scope and duration of future electricity contracts.

"The question is what everyone will give up to get what they want," said Shawn Cooper, a PG&E spokesman.

He and other sources observed that the power generators seem to have adopted a more conciliatory approach to dealing with California's cash- strapped utilities and irate politicians.

The governor and others have accused the generators of gouging consumers and boosting wholesale prices to exploit the state's chronic electricity shortage.

"They're looking for ways their past sins can be forgiven," Cooper said. "And they'd like to do this without too much payback."

The talks are expected to continue through the weekend.

PG&E ratcheted up the urgency for finding a compromise when it reported yesterday that $2.2 billion in bills will come due over the next eight weeks, and that it has nowhere near the cash on hand to cover its expenses.

DIVIDEND PAYMENTS TO BE CANCELED

The company said it will delay release of its fourth-quarter earnings as it waits for word of a breakthrough in Washington, and that it will cancel payment of a fourth-quarter dividend.

PG&E has amassed about $7 billion in debt because of a rate freeze that has prevented the utility from passing along to customers sky-high wholesale electricity rates.

In a letter to the governor this week, PG&E's chief executive officer, Gordon Smith, said that without state assistance, the utility will not be able to purchase sufficient supplies of natural gas to keep customers' furnaces burning.

He asked Davis to use his emergency powers to help the utility purchase gas or to provide credit for PG&E to secure bank loans.

"Without the gas supplies currently under contract, gas available to serve high-priority customers will be depleted within several weeks, and possibly sooner if temperatures fall below normal," Smith said.

"At that point," he warned, "home gas furnaces, stoves and water heaters would go off."

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Update

Related developments yesterday:

-- PG&E's plea: The utility appealed to Gov. Gray Davis for help in buying natural gas, warning that otherwise customers might be told to shut down furnaces by next month.

-- Out of money: PG&E Corp., the utility's parent company, said it has more than $2 billion in bills due soon -- four times the cash it has on hand.

-- Power alert: State officials declared a Stage 2 power emergency.

E-mail David Lazarus at dlazarus@sfchronicle.com.

-- Martin Thompson (mthom1927@aol.com), January 11, 2001