New Ferc chairman
Pat Wood

The failure of electricity deregulation in California - the largest US state, in terms of population - will be forever linked to Enron, the largest corporate bankruptcy in history.

Enron led the lobbying effort promoting deregulation, wrongly promised lower prices, benefited from high prices, and, according to Californian officials, may have actually conspired to raise prices.

The two debacles, occurring in the same year, have spawned a crisis of public confidence in deregulation. Action among the states, which regulate the retail market, has stalled. Around half of the states are moving towards "fair and open markets" and the other half are heavily regulated.

Congressional attempts to nudge the process of deregulation may collapse this year along with efforts to pass comprehensive energy legislation.

"Deregulation is losing momentum and a strong deliberate move is needed to lead towards power markets that work," says Francis Shields of Accenture, a management and technology services organisation.

The Federal Energy Regulatory Commission (Ferc) is trying to provide that leadership, forging ahead with wholesale deregulation, regardless of public scepticism.

In one of his first appearances before a congressional committee, Patrick Wood, the energetic new Ferc chairman who ushered in deregulation in Texas, promoted the vision of "a robust, affordable, reliable electricity market".

Congress had set goals to achieve that end in 1992, but he noted, they are "largely" unmet. "There are some well-functioning competitive power markets in the nation, but most of the nation's customers are not in them."

In September, Mr Wood promised to lay out a roadmap for the industry's future. Three months later, the Ferc staff issued a paper stating its objective for the next five to 10 years.

Electricity, it declared, will be bought and sold in both wholesale and eligible retail markets "by any creditworthy participants".

"Markets will clear with competitive prices. Competitive prices will function so as to ration existing supplies efficiently in the short run and to elicit adequate technology and infrastructure in the long run, so that there will be no involuntary curtailment of service at market prices..."

Although some states will continue allowing monopoly service providers, even those will feel the pressure of competition.

There would be few barriers to entering and exiting the business and "no significant barriers" to innovation. Anyone will be able to purchase the products and services necessary to buy or sell electric energy for themselves or for others.

Industry executives have been fired up by Mr Wood's leadership. "Not only does he have a big vision, but he understands what it takes to get it done," says one.

In fact, industry planners would be in great difficulty if they did give up on deregulation. The system now is riddled with inefficiencies and in need of capital investment and innovation that the private sector could bring to the task.

"In almost every area of the country we face electric transmission constraints - bottlenecks in our electric grid that keep us from delivering power where we need it," says John Tiencken, who represents the American Public Power Association, the trade group for the 2000 community-owned non-profit utilities.

Mr Wood's first order of business was to prod states and utilities to combine their assets into four independently run Regional Transmission Organisations (RTO), which would oversee operations and expansions and promote continued development of competitive electricity markets.

However, when many states bridled at a Ferc order to join an RTO by December 15, the regulators reversed themselves.

Instead of setting a new deadline, Mr Wood vowed to use the bully pulpit to convince states to join, following a "progressive and measured time-line". He then turned his attention to working with the stakeholders to formulate standard electricity market designs for all the RTOs.

Mr Wood has also taken confidence-building steps, promising to reshape the agency so that it can respond promptly to problems in a way it failed to do during the California emergency. When asked by western senators to launch an investigation into alleged manipulation by Enron of long-term energy markets, he vowed to do so.

He has also asked Congress for help. Although he believes the Ferc has sufficient authority to do most of the work on deregulation, he would like it to be given clear legislative authority over inter-state transmission.

"Unless every transmission owner participates in RTOs of some sort, there will remain barriers of legality, cost and time that will slow the entry of new generators and increase the wholesale and retail costs of electricity," he says.

However, before complete deregulation is enacted, each market must develop workable competition, adequate infrastructure and clear, balanced market rules, he says. "Vigilance is the price of liberty. Ferc must watch over these markets as the cop on the beat walks through neighbourhoods to keep them safe."

The markets must be developed "on a foundation of good, accessible and timely information", he says. He adds: "If there is too little information available to market participants, players' decisions may be poorly founded." The answer is to create market rules and authority that assures the collection and fair dissemination of data on market transactions.

Although Mr Wood's request for new authority is not controversial, disagreements between the parties over other energy issues could sink it.

However, he is determined to push on. It is, he said, the job he was brought to Washington to accomplish.