Richardson, the Secretary of Energy from 1998-2001 during the Clinton Administration, is now teaching at Harvard University's John F. Kennedy School of Government. Regulated monopoly utilities, says Richardson, have left the U.S. with a "third world power grid" and he believes that deregulated electricity markets can work. He criticizes the Bush Administration's plans to increase power supply sources without focusing equal attention on conservation efforts and trying to mitigate demand. FRONTLINE interviewed Richardson on April 10, 2001.

We wanted to foster competition. So, for three years--unsuccessfully with Congress--we tried to persuade them to do a competition bill that brought more investment. ... But the Congress, talking free market, said no. ...

For two years I went around the country. I held 11 electricity summits--including in California--a year before this crisis, and I said, "You guys, because of the way you constructed your electricity competition bill, you're going to have a problem, and you need to address it." I said it in New York. I said it in New Orleans. Nobody listened, because the Republican Congress didn't want to give President Clinton a victory on an electricity deregulation bill.

But this really wasn't a high priority for the president. He never spoke out about this issue since 1993, when he made a remark about it.

No, the president did speak out on this. But [it's true that] it was not a high priority issue in the Congress and in the administration. It was something that I was pushing very hard, that the Energy Department for three years had been pushing. ...

When did you first realize that there was, if you will, an energy crisis or an electricity crisis in the country?

I realized it when a lot of the grids that I visited were not, in my judgment, functioning properly. When we did the Y2K exercise, I saw that a lot of our grids were antiquated, that they had not gotten proper maintenance, proper investment. ... I saw the fact that we've got coal- fired plants, and we don't have new power plants that are clean, that are gas-fired, that are natural gas. And I said to myself, "We're going to have a crisis here unless we have more competition." ...

[You said that the U.S. has a] "Third World power grid." What do you mean?

The United States has a first-rate economy. We're the superpower of the world--the best military, a booming technological economy--but we've got a grid that is antiquated, that is Third World, that needs beefing up. We've got very weak power transmission lines and generation capacity. That's because there hasn't been investment in our electricity grid because there's been no competition, because there's been a lot of monopoly control of utilities in this country.

What appears ironic to us is those monopoly utilities--Southern Company is usually given as the example--are at odds with Enron Corporation, which wants to have more competition nationally. Enron, which is thought of as a Bush administration ally, appears to be allied with Democrats on this issue, versus the Southern Company, which is aligned with Republicans. It doesn't seem to make sense.

There were several monopolies--including Southern Company--that fought very hard to kill any electricity competition legislation, because they had a monopoly in the South, in the Southeast, and they didn't want that to change. Enron and the Clinton administration and many Democrats, too, wanted to see competition. We wanted to see consumers be able to pick their electricity utility. It was a strange coalition. ...

So the power issue is not a Democrat or a Republican issue. It seems to me like it crosses party lines.

There are a lot of special interests involved. ... You had consumer groups, the Clinton administration, Enron [wanting competition]. And then on the other side, you had the Southern Company, the Edison Electric Institute. ... The Republican talk of deregulation and restructuring only goes so far when a lot of special interests--special utilities that are very strong in the utility industry--don't want to see any change.

And can even overrule, in a sense, people who are described as George W. Bush's closest friends and biggest supporters?

Well, there were some utilities that wanted deregulation that were supporters of President Bush and supporters of our bill. So you can't say, "This is the Republican component. This is the Democratic component." What I wanted to see was a bill in Congress that allowed more investments, more renewable energy, a public benefits fund, green power--[something that would] be able to permeate the electricity industry that basically was a monopoly power dominated by a few. ...

So when the crisis hit in California, what was your reaction?

We said, "We told you so. You should have acted sooner. We warned you." Nonetheless, we felt it was our obligation, as a federal government, as the Energy Department, to try to help California. [It] is the sixth largest economy in the world. It was a terrible, botched deregulation effort, but that doesn't mean you let the lights go out in California or you have rolling blackouts. ... This is why I issued some of the emergency orders on electricity and natural gas--to basically keep the lights on when a bunch of power marketeers didn't want to send power into California.

But that's the free and open market--these power marketeers, and their ability to buy and sell based upon the marketplace.

I think those power marketeers didn't cheat, but they took advantage of the price situation. The fact that there were wholesale price caps and a very botched market destroying legislation in the deregulation effort caused these huge price increases.

So you don't believe that ... this was a manufactured crisis?

No. I believe that the deregulation plan was botched. Did the power marketeers take advantage of the situation? Yes. To make more money? Yes. But the rules of the game were created badly by those that passed that flawed deregulation plan in 1996--[former California Governor Pete] Wilson and a legislature that, basically, made market power contingent on a lot of caps and special dispensations for San Diego. It was a typical deal that blew up in their faces. ...

But then, as I understand it, the Federal Energy Regulatory Commission has real power in this area in terms of regulating the market, investigating the market.

One of my big disappointments as energy secretary was, number one, that I didn't control FERC, that it was an independent agency that I had little power to tell them what to do. And, secondly, I had thought since it was a Democratic dominated FERC--three [Democrats] to two [Republicans, with] a Democratic chairman--that they would do their job, that they would enforce the laws of making sure that market competition was respected, that they would make sure that consumers were not harmed.

They didn't do that. They adopted, "Let the free market dictate every policy. Let's not intervene." I think it's desperately needed that we have temporary price caps in California, in the West, for about a year, until the markets are calm, until we get more capacity. I pushed for that my last six months as energy secretary--and I didn't come close. ...

Wait a second, now. Three Democrats, a Democratic president. ... You're the secretary of energy and you can't talk to the Democrats on the commission and say, "Look, this is what we need to do," and they fall in line?

Statutorily, I am prevented from talking to them about rates. ... This is what my lawyer is telling me. That doesn't mean that I can't publicly advocate and they read what I say in the press, but I pushed very hard for those temporary rate caps. I felt that they were critically important, and late last year, had we had those rate caps; had we had the state of California raise rates modestly, I believe that we could have had an overall deal then, avoiding the problems of today.

You know, it's going to be a little hard for people out there to really believe that the Clinton administration couldn't have done something with this commission that no one had ever heard of.

... This is not a political hack agency. This is a very serious agency that, in my judgment, has not done its job. They've got very qualified people. They've got oversight powers. They just didn't exercise it, because there were members of the commission that felt, sincerely, that market forces should dictate prices. ...

What I was frustrated [by] is that we always had 2-2 votes, [and] we couldn't get the third vote for some temporary rate caps. We couldn't do that, and you can not directly instruct the commissioner. It's the law. ... So it's not a case where the White House and the secretary of energy can dictate this.

I still think that FERC should have been more aggressive. They should have gone out and looked at the disruptions in the market. They should have found ways to promote wholesale competition more effectively that they did. They were timid. They were weak. They should have been doing this job. ...

This little old commission that's out of the way, that no one had ever heard of, all of a sudden stood in the way of the government of the United States coming to the rescue of California?

They're not the only villains. They're not. I don't want to paint them as the villains. They should have done more. Everybody should have done more. But the problem in California was their own creation. It wasn't a national fault. It wasn't because the Congress or the Clinton administration did something. Their own legislature, their own governor in 1996 crafted a very flawed deregulation plan that they're now paying for. ... They are to blame, but there are outside forces that could help them get out of that mess--and this is where the problem was. ...

We interviewed one of [FERC's] veteran staff members yesterday who said, basically, that they don't have the tools. They don't have the budget. They don't have the people. They have no way of being the real cop on the beat.

If that's the case, they should get a beefed-up staff. The problem though, is their five commissioners that have votes. Those five commissioners, in my judgment should have been more aggressive. ... Somehow it was very hard for them to get a majority. It was very frustrating because I'm an activist energy secretary and I wanted to fix the problems in California, and I wanted to help. ...

I used every power I could use: emergency power to bring in electricity; emergency power to bring in natural gas; dictating to power marketeers that they directly intervene in the market for emergency services. I couldn't tell FERC to do a rate cap. ...

It's our understanding that [former Secretary of State] Warren Christopher and [former Secretary of the Treasury] Larry Summers ... talked with the [California Governor Gray Davis] in pretty blunt terms about, "You've got to take charge of this situation. You've got to do something." And they got nowhere.

Yes. Well, it was frustrating. I think Governor Davis has done everything he can. This was not his fault. But, raising rates, taking stronger action--we were hoping he would do it in December, do it a lot sooner. He didn't do it. ...

Well, what we've got now is a near-disaster. We've got the largest utility bankruptcy in history. We've got blackouts predicted for California for this summer and also blackouts predicted for parts of the Northeast. ... Is that really the legacy of this deregulation effort?

This was a flawed deregulation in California.

But nationally?

Nationally, deregulation in many other states has worked, and worked well. Deregulation in California has not worked. But in Pennsylvania, in New Mexico and many other states, deregulation has worked. ... In the Northeast, deregulation has worked--in Massachusetts, in Vermont. ... In the Midwest, it's been reasonably successful. ...

We should not pin the blame on deregulation on a national basis on what happened in California. In California, it was called deregulation, but it was really not deregulation. It was a few fixes for certain areas and certain utilities that, in the end, collapsed, because you didn't let the market rule.

Do you think that deregulation is working?

I think nationally, deregulation across the board, generally, is working.

In the electricity market?

In the electricity market. But the right deregulation--that does not bar long-term contracts, that enforces having green power, that has energy renewable as an option. Deregulation is not bad if it allows the consumer to get competition and to pick their electricity unit and to break up monopoly power. ...

We haven't been able to document yet any real rate reductions anywhere for any sustained period of time--and we've been looking. But in addition, engineers and others that we've spoken with say that electricity is just a different kind of commodity. You can not deregulate this commodity. It's like air or oxygen for an industrial society. When you play in the marketplace with this, you're playing with disaster.

The counter that I say to that is, if you don't deregulate and restructure, you're going to let monopoly utilities control the market. That's what happens. That's what's happening now. And what you want is, for real rate reduction and better competition to happen, to break open the control of several utilities and allow consumers and states to pick competition.

So the utilities were not performing correctly? Is that your perspective? I mean, they were reliable...

Yes.

Their rates were relatively low.

I don't believe so.

Compared to today.

I think if we leave the system the way it is and not deregulate it, and not open it up for competition, you're going to have monopoly power. And you're going to have what is the biggest potential failure for American energy, and that's the ability for new investments in new power sources, in new transmission, in new generation, in new capacity sources.

That's the biggest problem we face with increased demand, increased population, and increased economic development. Unless you bring more competition to the system and more investment and more green power, and say to the coal people and the big oil people, "You're not going to be the only ones. There's going to be solar and wind and green power and fuel cells," then we're going to be hurting as a country with our energy capacity.

It sounds great, but the Bush administration is now in power. They're saying, apparently, "Bring back more nuclear power." They're going back on various regulations that were put in place when you were still in office on conservation and on the environment. So that's not exactly what we see happening.

I'm very concerned about the direction the Bush administration is going. They're concentrating on oil [and] nuclear ... production only. You've got to have conservation also, energy efficiency, fuel efficient vehicles. You've got to make air conditioners, which are the biggest cause of electricity, become more efficient.

The worry I have is that industry friends of the Bush administration are going to roll back all our conservation and energy efficiency measures that we started, and that in the end, are going to be almost twice as important in making us less dependent on OPEC and other foreign sources that are providing most of our energy.

The Bush administration says that your administration did not have an energy policy. You had an environmental policy, and that's why we're in the hole we're in; that's why we don't have capacity; that's why we don't have enough production.

The Bush administration's energy policy is [to] criticize the last one. ... They're not intervening in California to help California and the West. They say, "Let the market dictate what happens there." ... The Bush administration is using the panic, "It's a crisis," theory to energy also, as they did with the economy and their tax cut rationale. On energy, the Bush people are saying, "We've got an energy crisis, so let's drill in the Arctic,"--a fragile ecosystem. Or, "Let's drill anywhere and the heck with all environmental regulations." That is wrong. They're not emphasizing conservation, energy efficiency--the demand side. It's all production. It's all drill, drill, drill.

There has to be a balance. In the Clinton administration, we promoted that balance. But the Republican Congress would only approve a little bit on the production side, and nothing on the conservation and energy efficiency side. So we have the stalemate. This is what worries me about, in the end, producing a viable energy policy. ...