...Why don't we start with the common complaint ... that the FERC hasn't
been the cop on the beat, hasn't been investigating, hasn't been intervening,
and hasn't been doing the things that are needed to save California and
possibly the country from disaster?
Hebert, a former Mississippi utility regulator who is often regarded as a
protégé of Senate Majority Leader Trent Lott (R-Miss.), was named
chairman of the Federal Energy Regulatory Commission (FERC) by President George
W. Bush in January 2001. A Republican, Hebert was first nominated to FERC in
1997 by former President Bill Clinton. During Hebert's tenure, FERC has been
criticized for being too laissez faire, and Hebert's critics accuse him of
being a free market ideologue. FRONTLINE interviewed Hebert on April 12, 2001.
I don't know what you're hearing. That's not altogether what I hear. ...
While I was in Denver, Steve Larson with the California Energy Commission had a
question after my speech. He said, "Look, we just want to know why FERC is not
doing enough." ...
I said, "Steve, I want you to share with me what would be enough. ... We've
expedited filings, we've removed impediments and obstacles. We issued a
pipeline for Kern River in a matter of three weeks, which is unheard of at the
federal level. ... The Federal Energy Regulatory Commission has been working
awful hard doing everything we can. So tell me what it is that you need, Mr.
Larson, that quite frankly I've not been able to give California from the
He said, "Well, price caps." I said, "Hmm. Is there anything other than price
caps that you want?" He said, "No."
You mean a limit on the wholesale price?
On the wholesale market, which would be a way of the commission sitting here in
Washington, D.C., telling a group of people in the West, "Quite frankly, we
think there is a price at which we're going to make the decision to turn your
lights off." ...
There are several problems with that one. One, when I went to Boise, we had 11
states represented there, 11 commissions. And out of those 11 commissions, do
you know how many said they wanted hard caps? Three. Certainly not a
majority. The other states say quite frankly that they don't want it.
So we have to ask ourselves, in the heartland of America, who makes the
decision better to turn their lights on or off, based on cost? People who live
in those homes? Or people who live in Washington, D.C.? I'm a firm believer
that people in their homes make those decisions better, and I think they should
have that opportunity. ...
You've said there may be a lot of pain that people have to go through as we
go through the transition period from a regulated environment to a deregulated
I don't think I ever said a lot of pain. I think I said there may be
some pain, distinguishing between "a lot" and "some."
And it has been painful in California for consumers, and in other parts of
the country. People are complaining about their prices. And the question is,
do we have, in a sense, disorganized deregulation going on? Are we playing
games or experimenting with what really is the oxygen of our civilization and
I don't know who might be playing games. I will tell you that FERC's job, our
job at this commission, is to make certain that there is not market
manipulation, that there is not undue influence on the market, illegal conduct.
We're continually searching for that. We're continually doing our job. But as
we know, energy markets, any volatile markets, experience swings. It's part of
the cycle. ...
Based on your access to information and documents, do you believe there has
been manipulation in the natural gas market in California, in the delivery of
that gas to California?
When the commission believes there is market manipulation, we investigate it.
We are certainly in that process in certain realms right now. ... When we can
prove out market manipulation, we issue orders.
Well, you issued an order for, I believe, $146 million in refunds that you
want generators to give back to the state of California in overcharges. They
say that's a drop in the bucket, that there's been $6.2 billion in overcharges.
The important thing when we draw conclusions--and I certainly want the American
people to draw some conclusions based on this interview--is to understand the
realm of what you're talking about. And in fact the number that you're talking
about is now ... claimed to be $6.9 billion.
And growing everyday.
Absolutely. But let me tell you what's not been shared with you. Do you
realize only $1.3 billion of that is subject to our jurisdiction based on law?
I understand that. ...
Well, then, let's not talk about $6.9 billion. Let's talk about $1.3
OK, let's talk about a couple of billion dollars, which is still more than
Well, it's not a couple; it's $1.3 billion.
It's more than chump change.
It's a lot of money.
And it's money that came out of consumers' pockets, or ratepayers' pockets,
or taxpayers' pockets in the end. It's money that has created the biggest
utility bankruptcy in the United States. ...
Although it may surprise you--and I think it would surprise the American public
to find out--this commission acted on December 15. We gave out strict orders
as to the direction that California should follow; specifically, the direction
that the Power Exchange, where the bids flow through in California. We told
them that at the $150 breakpoint, anything in excess of that they would report
to us on a weekly basis, which gave us an opportunity to act quickly. That's
why we were able to order those refunds for January and the refunds for
February, subject to them coming in with cost justification.
Then they weren't following the procedures of this commission, consistent with
the December 15 order. It would probably surprise you, and I know it would
surprise the American public, that one utility was costing the consumers of
California up to $20 million a day. So I want you to understand, I think $1
billion is a lot of money. I think $1.3 billion is a lot of money. But I also
think $20 million a day is a lot of money, and it would be my hope that
California would follow the model that we put forward here at the commission.
Is this a political war? Because ... when we interviewed [California Public
Utilities Commission President] Loretta Lynch, she was saying, "We're not going
to move ratepayers' rates. The problem is in Washington, because they won't
put a cap on wholesale rates." And it's as if the consumer got caught in the
middle between the two. There was no conversation. There was no, if you will,
decision-making going on that was for the benefit of the people themselves who
use electricity, who have to have it to live.
You ask me if I think it's political. It's not political in my sense. I think
it's economics. We're following the law. I think it's important that others
follow the law as well. ... Let me tell you why it's not [political]. I
believe in my heart, and I know in my educated mind that price controls didn't
work for President Carter. They didn't work for President Nixon, nor did they
work for President Clinton. They won't work today. ...
You sounded pretty adamant out in Idaho and Denver when you were asked about
this. You weren't going to issue price caps. You were opposed to it, and there
was going to be no relief for California on that level.
... I said that heretofore, price caps have not worked in the sense that, from
an economic perspective, we know they do long-term damage. The only reason we
ever do price caps--if we do them--is to bring short-term relief.
The commission here, under previous administration--independent of me--gave a
report which, in fact, said when the price caps dropped from $750 to $250, the
average price went up. I'm concerned with average prices, as I know consumers
are. I want to be very careful how we move in that direction.
I think if there's market manipulation, we need to find that market
manipulation, and we need to ferret it out, and we need to protect the
consumers. And that is what this commission is going to do.
I will also share with you, in fact, that I think I'm fairly intelligent. But
I think the good people of America and California are much smarter than anybody
in Washington, D.C. ever gives them credit for, and they know when to turn
their lights off. They don't need somebody in Washington by some price cap
telling them at which point a megawatt will not be delivered and they'll flip
the switch off for them on Pennsylvania Avenue.
What do you say to working people whose utility bills are going through the
roof and who have to make a choice between buying medicine or buying food and
paying their gas bill or their electric bill because we're in this
As you know, the Federal Energy Regulatory Commission does not regulate retail
rates. ... We regulate wholesale rates. ...
I'll quote you Mr. [Robert] Glynn, the CEO of PG&E, and [FERC
Commissioner] Pat Wood, who both say gas prices in Texas have doubled in the
last year. They've gone up 20 times by the time they get to the California
border. Something is going on there that is not explainable in normal market
conditions, or even normal supply and demand conditions. True? Not true? Do
you agree with them?
We have a pending matter on that issue right now. I know the American public
doesn't understand. It may see this as an opportunity for me to sidestep the
issue. I am legally prohibited from discussing a pending matter with you. We
will issue that quickly. We're working on it right now. ...
The general public believes there is some kind of conspiracy going on, a
cartel that's in control of our electricity rates, of our gas prices, and
that's what's going on in the United States right now--that people are being
gouged by big business. In Ms. Lynch's case, the federal government is doing
nothing to help. She blames the Democratic and the Republican
Well, I don't think this should be about blame. I think it should be about
answering the call, and the call is simple. More supply. More infrastructure
to deliver that supply. And let me tell you, as much as people want to talk
about cartels, as much as people want to compare this to whatever they want to
compare it to, there are only two answers here: add supply; decrease demand.
Anything that anyone else is talking about is a waste of time. ...
Should a generator really be kept to--in terms of fair and reasonable
prices--$1,000 per megawatt, if it's well above their cost of production?
Should they be allowed to bid, let's say, as they have in California, $9,999
and have that bid accepted because the state is desperate for the power?
Shouldn't there be a cap? Isn't that profiteering?
Part of what we've seen is that the state would immediately go to the cap or
immediately go to the higher price so that they could get the energy, for one
thing. Two, don't forget that the ISO requested that the hard cap be removed,
OK? The other thing that you must understand is that we were looking at
cost-based regulation several years back. We have moved away from cost-based.
We're trying to resolve what happened in California.
"Cost-based" means the real cost of production, plus a...
A margin of return.
An agreed-upon margin--12 percent or 15 percent or something you agree
Well, not necessarily agreed upon. It may be ordered. It could be settled,
but it certainly could be ordered by a state commission in the retail sense.
This is going on all around the country, and people don't know where the end
is. That's where the anxiety is coming. ...
Rules of competition govern that economies work, that choice works. It's why
we're American. We inherently like choice. It's why we left the mother
country. We didn't like the rules they were setting. We want to make our own
rules. We want our own choices, and we believe that works. But when you set up
artificial markets, it doesn't work. ... We've got to get market certainty.
We've got to give some insulation to the American public. And that's what
we're doing. ...
Has your personal utility bill in this district come down where you live in
the last two or three years?
No, but my use has. You could call my house right now; you could get my wife
on the phone, and you could ask her where the thermostat is. And I would be
willing to bet you she has got it five or six degrees below where you have
Is there a time that you could envisage where we might decide [deregulation]
is not working and it's better to go back to what we were doing in the
I think competition works. I think it will work. I think there have been some
real bad decisions made in places which have run up costs. You're going to
continue to see some bad decisions made. It's the American process. ...
Do I think we're ever going to get all 50 states in the United States of
America to always make decisions which are in the best interests of consumers?
No, I don't think that. But I do think we've got a system that will work. I do
think we will move forward with competition. And it's my hope that, by the
time you air this, that in fact you're going to see some successes. You're
going to see some positive things. ...
Most people have never heard of the FERC. It appears like it's one of the
most powerful regulatory agencies in the United States in terms of the size of
the economy you can influence. Could you explain how important it is to people,
what it does and the reaches of your power?
Well, most estimate that we regulate between 4-6 percent of the GDP.
That's 4-6 percent of the whole economy?
And that's a lot of money. That's why things that happen here are serious, and
need to be treated that way. ...
Do you have a gut instinct in this process of transition--I know you can't
talk about a specific case--that, in fact, there may be some egregious market
manipulation, either in gas or in electricity that would explain these high
I don't think there's any question that in the future you're going to continue
to have some market manipulation that is unduly discriminatory that we're going
to look at.
It could be legal, but they're taking advantage of the rules that are in
It also could be illegal, and we're going to continue to look for those. ...
Is California justified in feeling that they've been abandoned by the FERC
with the summer coming?
Not at all. Especially when we've acted on everything they've asked us to do.
... The other day, Steve Larson [of the California Energy Commission], in fact,
admitted the only thing we haven't done is give them a price cap which, one,
their ISO asked to be removed, and two, they've just done away with retail
price caps themselves. ...
Editor's Note: FRONTLINE conducted a second interview with Hebert on May 17,
We've been looking at some of the issues that have been raised in terms of
the announcement of new energy strategy. What we've found is that there has
been some intensive lobbying going on both here in Washington and around the
country on the issue of open access. What is open access?
When people are talking about open access, what they are really talking
about is the opportunity to have open and free trading within the United
States, specifically with the states, giving them retail access. There are some
that, quite frankly, would like for the federal government to force the hand of
states and for them to open up and have retail competition. ...
It's our understanding that open access ... is a major issue being pushed by
Enron Corporation. Is that correct?
Absolutely. There's no question about that. ...
[We] actually talked to some people who had been interviewed as potential
nominees for the FERC. Enron apparently went to them and asked them, "What's
your position on open access?" And what we were told is that they made that
sort of a litmus test for their support. Are you familiar at all with their
activities around this?
I have heard those rumors. ...
When we spoke with [former Energy] Secretary Richardson, for instance, he
said Enron came to him and wanted him to institute open access by some
executive order, and he had to tell them no. And Enron told us that they have
contacted you and the FERC on this directly. Have you spoken with them about
I have spoken with people who work for and leaders of Enron, yes.
Has [Enron Chairman] Ken Lay called you?
I have talked with Ken Lay on the phone and in private.
(Editor's note: For Mr. Lay's version of these conversations, see his interview.)
And what did he ask you to do?
Obviously, those communications are confidential. I'd rather not get into the
nature of them. Certainly it is clear that he would like retail access and he
would like retail competition forced upon the states. Clearly my position has
been that I think there's a real question as to whether or not we have the
legal authority to do that. Therefore I'm not comfortable doing it.
You know when you're talking to Ken Lay, you're talking to somebody who's
the main campaign contributor to the president of the United States. You're
aware of that.
Well, I'm not into the campaign finance side of
the president, what he does. Certainly the president is a friend of mine.
Mr. Lay made no secret with us about his close relationship with the
president and the White House and so on. We've been told that he in fact says
things like, "I'll help you with what you need politically, let's say, staying
on as chairman of the FERC, if you'll go along with me on this policy issue."
Did that ever happen?
I would never make that trade.
Did he ever propose such a trade?
I would just say that I would never make such a trade.
I'm not trying to be cute.
Another individual we spoke with--who was a potential
nominee for the FERC--told us that this was a litmus test. Mr. Lay said
something like, "If you endorse this policy, I'll talk to my friends in the
White House and we'll see about your nomination." A quid pro quo. Has anything
like that ever been offered to you?
Ken Lay and I have certainly had discussions as to what should be done with
retail competition. He has his position and I have mine. He represents Enron
and their shareholders and I represent the American people. Therefore, I have
taken my position and I am going to stick with it. As to any quid pro quo that
he might offer or might have offered, I would tell you that I would not go
forward with anything like that and I would maintain my position. Me being
chair or remaining chair is not worth me doubting the integrity of myself or
Our sources tell us that in fact he offered to talk to the president on your
behalf if you would go along with what he wanted.
I don't think there's any doubt he would be a much stronger supporter of mine
if I ... were willing to do what he would want me to do.
If I were to tell you that he has told the governor of California, for
instance, in a private meeting which the governor then reported, that you're
history, you're going to be replaced. Does that surprise you?
Nothing that comes out of California at this point would surprise me. It's not
secret that Governor Gray Davis asked for the previous chairman under President
Clinton of this agency to be fired. I know for a fact that he has asked for me
to be fired as well. I'm not sure what the litmus test is for Gray Davis. And
if there is some relationship between Gray Davis and Ken Lay, I find that very
Our information is that Ken Lay told the governor, "Keep your powder
dry. Hebert is going to be out of there soon. Pat Wood will be in his place." It sounds like he's confident that you're
Well, I think the president will make that call, and not Ken Lay.
I called the vice president. I've talked to the vice president. He says Pat
Wood will be the new chairman. It sounds like Ken Lay is getting his
He might. This will be the first knowledge I've had if Pat Wood is in fact to
You see where I'm coming from?
No, I understand. ...
Has any other CEO of any company ever called you privately to lobby their
Other than Ken Lay?
I would say it's unusual. Ken Lay is very active in this industry. [He] has a
lot of respect from a lot of people in this industry, and he's a very powerful
man. But to me, he's just a man, period.
Enron has matters before the commission?
Is it illegal or improper in some way for an official of one of those
companies, particularly a chairman of the board and a man like Ken Lay, to call
you when you have matters before the commission and to try to discuss
... If he is to discuss issues with me as to that pending matter, yes.
Was there a pending matter when he called you?
No. If the discussion had gone to a pending matter, I would have informed him
at that time it was a pending matter. I would have to make a letter for the
record and put it in the file, and would do so.
Did you do so in this case?
No, because retail access was not something that was before the commission at
Did you tell him or warn him that this was really not a good thing to do, to
be talking to you directly?
Obviously in conversations I've had with him, I have let Ken know my position,
and that my position is quite frankly that we have questionable authority here.
No one else has called you directly, as I understand it?
No, I communicate with CEOs and CFOs and COOs all the time, but generally
they're just social, if we talk courtesy visits around here. They're letting us
know what's happening with their company, what direction they're moving
in--just informative sessions, not lobbying sessions.
So it's unusual for the head of a company--one of the president's best
friends, one of his major backers, a man who is known for his political clout
around town--to call you directly?
I would say it's unusual for regulators to be lobbied, period. But I will tell
you in my conversations with Ken Lay, I specifically never felt lobbied,
because I was never going to move.
You may not have felt that way, but did you feel pressured?
I've been doing this a long time for a young man, so I guess I don't feel the
pressure as much anymore. I just I make the decisions as I see them fit based
on the facts, and based on the merits and based on the law. ...
Did he call you up and talk about open access and his ability to help you
politically in some fashion with the White House in the same
Have we had conversations about my chairmanship and me being chair and things
that this commission should be doing? Yes. ...
He reflects a certain attitude because he is, in a sense, the only CEO or
the only head of a major, major company with matters before you to have done
this. Is that correct?
It's correct that he is the only CEO, I guess, that has asked me to take
certain positions. But I've had those conversations with Ken Lay for a long
time, and have disagreed with him for a long time. ...
Other people we've spoken to say that if you don't please Ken Lay and Enron,
you don't wind up on the FERC as a nominee.
Obviously, I'm here until 2004 regardless of what happens now. If at some
point the president decides he would like to have someone else as chair, that
is certainly his opportunity and ability to do so as president of the United
States, and I would honor that.
... If there's one reason why this issue has become so important, it's [that
the people at home watching this are] all paying utility bills. And they know
there are huge corporations involved with tens of billions and hundreds of
billions at stake. This is a big money thing.
This agency touches somewhere between 4 percent and 6 percent of the GDP. It's
a lot of money.
Which is hundreds of billions of dollars.
So it may not surprise them that there's direct lobbying of the chairman of
the commission but, theoretically at least, that shouldn't happen,
In a perfect world, it wouldn't happen.
The Consumer Federation of America doesn't call you up and say, "You'd
better take this position, otherwise..."
I get letters from the Consumer Federation of America, Concerned Citizens for
Whatever, and yes, I do get phone calls and communications from people like
But they're not going to call and say, "We have a friend in the White House
and he could help you stay where you are."
I'm not going to say what they will or won't do. I'll say what they haven't
done, and they have not done that.
Because of the sensitivity of this, it is not incorrect to characterize
these communications as ones that involve one, policy, and two, his political
ability to help you in some fashion?
There's no doubt Ken Lay and I have had communications as to policy, and the
direction he would like to see this commission move in. There is also no doubt
that he and I have had conversations as to whether or not he was supporting me
for the chairmanship.
It doesn't sound like he is.
I don't know. ...
The economic health of the state, from everyone we talked to, is in the
balance. The gross national product of the United States has already been
affected, and apparently will be affected negatively by this in ripple effects.
The question to people sitting at home is, how can this be happening? It seems
like a war between you guys here in Washington and the regulators of government
in California. But the people are in the middle.
No, the people aren't in the middle. The people, I believe, are right beside
me, and believe what I believe. They believe it's enough of this political
shell game. It's enough of the moving transmission companies and generating
companies around and moving assets. Get me more power, get me cheaper power,
get me reliable power. ... I'm not stupid. I'm an American citizen and I know
what's going on here. It's absolutely ludicrous that people are doing it.
It's even more ludicrous that some people in the media are promoting this. ...
It all sounds great, Chairman Hebert. But you yourself have said that you
have been called on the phone by the head of a major corporation with matters
of concern in general to this subject area where they have lots of money. And
this person has made it clear to you ... that he has a public relationship with
the president of the United States. That's the kind of leverage, if you will,
that the consumers don't feel they have. Now, he may not have been able to
move you. But it implies a certain level of power that is not
If your fear is that there are some powerful people out there that have the
ability to move some politicians, that's always been there. That's nothing
new. I certainly hope that's not happening. I certainly hope it doesn't
happen. But I will tell you the people of America have much better leverage
with me than Ken Lay does. And I believe they have much better leverage with
this entire agency and my colleagues presently here. ...
Do you know approximately when you had this conversation with [Ken
I don't know. I had conversations with Ken Lay so many times. Sometime in late
January, early February.
Right after you got named.
And so the conversation really was about your tenure. You had been
I understand. ... Well I don't, OK, I mean it was a private conversation. I
don't want to--
Chairman Hebert, it's a private conversation. But it's a private
conversation with public implications.
I'm not trying to argue with you that your understanding of it may limit
what you are willing to say about it. ... I'm not misunderstanding that it was
a mixture of policy and politics basically in the conversation?
Right. And that was some time late January or early February. ...
You were chairman by that time.
You understand why I'm interested in it, from a public point of view.
There's a potential conflict here, in the sense that, while Mr. Lay is not a
public official, he has the ear of the president of the United States. He
makes no bones about that.
He claims to us that, while he agrees that he gets to talk to the president,
he says he doesn't always get his way with the president. But he's a
formidable character in this game.
OK. I don't disagree with that.
So I could see why people at home might be concerned about activity like
No, I do see the importance. I understand the importance of it, and I don't
disagree with the importance of it.
You felt uncomfortable?
I did feel a little uncomfortable, yes.
No one else had called you and talked like that.
No, absolutely not.
Not the head of one of the major companies that's involved?
This was pretty unique?
It was unique. ...
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