Kelliher relishes role as chairman of the newly robust Federal Energy Regulatory Commission

Joseph Kelliher became chairman of the Federal Energy Regulatory Commission (FERC) in July 2005. A month later, Congress gave him a welcome gift in the form of the Energy Policy Act of 2005, which represented, he says, the most significant expansion of FERC’s regulatory powers since the 1930s, when Congress established the structure that would oversee the development of the electricity grid in the United States.

A commissioner since 2003, Kelliher says he has tried to make the most of his new powers without trampling on the regulatory role state officials still play.

FERC is trying to address complaints that efforts to “deregulate” wholesale power markets have yet to reduce electricity costs.

Q: What do you think the challenges are to competitive markets? How do you think they could be improved?

A: There are certain elements that need to exist in a market for it to be competitive. You can’t have competition without competitors. You need to have adequate electricity supply. You need to have a strong, robust transmission grid: one that not only ensures reliability, which is important enough on a day like today, but also that supports competitive markets. It allows buyers to choose more than one seller, and allows sellers multiple markets.

You also need some level of regulatory certainty and contract certainties so that people will make large investments. The electricity business is one of the capital-intensive businesses in the country. …

The [wholesale competition] debate has been complicated by the fact that natural-gas prices are much higher than they were two years ago. Electricity is not a primary fuel. It’s generated by consumption of some fuel or through renewable energy. And natural gas costs multiples of what it did a few years ago, and that does result in higher electricity prices.

The proper judge of whether wholesale markets are working well isn’t movement in retail prices. As major fuels that are used to generate electricity rise and fall, retail prices will rise and fall, regardless of what the regulatory structure is.

Congress gave us new tools just two years ago. We now have rules that bar market manipulation. … Seven years ago if we found someone was violating a FERC rule we couldn’t impose a civil penalty. Now we can impose a penalty of $1 million a day.

Q: Some people in Congress want to see FERC backstop authority rescinded. What would be the effect of that?

A: I think it was a very clear judgment of Congress that they wanted to see a stronger transmission grid, and there are a couple of provisions that all move in that direction.

One was the transmission siting provision for the first time granting the federal government some role in siting transmission facilities. That is a very significant change, because the federal government had no role since 1935. But the approach that Congress took was very respectful. …

We not only involve [state regulators] but we rely on their judgment. For example, we made some changes to the transmission siting provisions. …

That was one reason we decided in the end to give state agencies one clear year where they can make decisions under a proposal to site an electric transmission line without worrying about a contemporaneous FERC proceeding.

Q: What do you think are some of the obstacles that have to be overcome for the grid to continue to meet the nation’s energy needs?

A: There are multiple obstacles to investment and expansion of the power grid. One of them had been the absence of mandatory reliability standards. We set reliability standards this year, and we actually accelerated the schedule from what was provided in the Energy Policy Act of 2005 — summer 2007 versus summer of 2008.

But since the Energy Policy Act of 2005, we’ve seen a tremendous interest in investment from the power grid. We’ve seen projects proposed that haven’t been proposed in 20 or 25 years. … The industry saw the clear signal from Congress that we want investment in the grid.

Q. Are there areas you’d like Congress to address as it debates another energy bill?

A. No, I really think Congress gave us the tools that we needed two years ago. The most important authorities we got were on enforcement. Congress established an express prohibition of market manipulation of both power and natural-gas markets. We get the civil penalty authority for the first time. We can define what market manipulation means. We can move more quickly and we can adapt on new manipulative schemes that arise. We can act more quickly to bar them than we could have if Congress was legislatively proscribing each individual scheme.

If you really look at the Energy Policy Act, it was the largest grant of regulatory power to FERC since the 1930s. I think we’ve exercised those authorities well.