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Grading Pat Wood

Reviewing the FERC chairman's first year, and what he might do next.

Fortnightly Magazine - September 15 2002

some of the problems he saw in the implementation of Order 2000.

"Had I my druthers," said Wood, "it would have been probably easier to lay out the job description first-i.e., the standard market design, standard market rules-and then go out and find the job applicant to achieve the job description.

"But, you know," he added, "that isn't kind of how it works around here. Somebody else was here before I was, and you've got to take what they did. But, we tried to develop with some, I think, difficulty, these regional transmission organizations in a vacuum," Wood said.

Perhaps when FERC passes the order after the comment period, we will have some visibility, says one. Most say they are taking a wait-and-see attitude. Of course, SMD will not come soon enough for many of the merchant energy traders teetering on the edge of bankruptcy. Certainly, SMD could revalidate their business as a necessary part of the functioning of energy markets. But in some cases, the SMD seems too far away on the horizon to shore up confidence by Wall Street, experts say.

In fact, many energy merchants reportedly are selling choice assets at fire-sale prices, and Standard & Poor's recently released a gloomy report on the merchant energy sector.

"The collapse in equity prices and the explosion in credit spreads are testing investors' appetite for the energy merchant sector. These trends, combined with falling credit ratings, depressed power prices, FERC and SEC inquiries, and troubles with creditors, may portend failing business plans, if not bankruptcy. Few doubt that one or more energy merchant companies may soon file for bankruptcy," the S&P report said.

Some critics have said that Pat Wood, like his political ally President Bush, may not be doing enough to sell competitive energy markets, as Bush has been criticized for not doing enough to sell to Wall Street and Main Street the prospects of an economic recovery.

But others believe it would be a tough sell for Wood or anybody in his position, given the current environment of energy company corporate scandals, revelations of Western market price manipulation, and sham trading. The General Accounting Office and others mainly criticize FERC for not being well-equipped to detect market abuse. However, the blame for that might not belong on Wood's shoulder, but on previous FERC chairs.

Meanwhile, Wood defenders say he has done quite a bit under the circumstances. Indeed, some state commission representatives wish he were doing a lot less about competitive energy markets. In his talk with Prudential Securities' institutional investors, Wood outlined the two most important parts of his plans at FERC.

"The first [part of the plan]-is to make sure that we have the high quality, environmentally responsible energy infrastructure in place, which is gas pipelines, power lines and power plants, hydroelectric plants, all of which we have some say over, although power lines and power plants do have a lot of shared responsibility with the state. Such things as