Tuesday, March 28, 2017

At FERC, Uncertainty Remains Despite Norman Bay’s Nod

Analysis

By Rich Heidorn Jr.

WASHINGTON — After a year of political wrangling, the Federal Energy Regulatory Commission finally got its fifth commissioner last week with the confirmation of Norman C. Bay.

But uncertainty will linger for months at the agency due to Bay’s lack of a policy record and the unprecedented compromise that won his confirmation — an agreement that President Obama wouldn’t promote him to the chairmanship for nine months.

In private conversations before FERC’s open meeting Thursday, commission staff, industry attorneys and other stakeholders had no shortage of questions:

  • How assertive will Acting Chair Cheryl LaFleur be as a lame duck? And will she remain for her five-year term after she has to relinquish the gavel?
  • With Commissioner John Norris openly musing about his post-FERC future, who will replace him and how soon?
  • How will Bay resolve the investigation into Powhatan Energy Fund, whose principals have been running a public relations campaign accusing FERC of heavy-handed enforcement tactics?

The biggest question on the minds of many: Who is Norman Bay and what kind of a chairman will he be?

Who is Norman Bay?

norman bay

A former U.S. attorney who has never been a regulatory commissioner, Bay rarely speaks at commission hearings and is virtually unknown outside FERC’s Office of Enforcement, which he has run as director since 2009.

He has maintained a sphinx-like demeanor throughout the confirmation battle, giving no interviews and speaking publicly only at his Senate confirmation hearing in May. When LaFleur congratulated him on his nomination at the commission’s February meeting, Bay betrayed neither a smile nor any sign of appreciation for the gesture.

LaFleur had called a press conference to lobby for the chairmanship just days before President Obama announced Bay as his pick. So did Bay’s reaction suggest he felt LaFleur was being disingenuous? Bay’s not talking and those close to him won’t say. (When LaFleur offered similar congratulations on his confirmation at last week’s meeting, Bay did allow a thin smile.)

Bay’s seeming aloofness, some staffers suggest, is a product of his cautious approach to surviving the nomination process and his experience as a former federal prosecutor. In private, colleagues say, Bay can be warm, friendly and self-deprecating. He spends some of his spare time attending classical music concerts with his wife, a pianist.

But that’s a side few have seen. Outside of FERC headquarters, there is much speculation.

“The dynamics are going to be very interesting. His personality issues with the other commissioners will determine how the commission is going to be run,” said one veteran member of the energy bar. “He’s seen as kind of [mysterious] right now. Doesn’t seem like a gregarious guy who would be a leader. He seems more like a guy who would implement policy.”

Wellinghoff Era Ends

FERC’s leadership has been in question since May 2013, when then-Chair Jon Wellinghoff announced he would leave the commission after a seven-year tenure including almost five years as chairman — the longest run at the top job in FERC’s nearly 37-year history.

Jon Wellinghoff - croppedWellinghoff, a fellow Nevadan and ally of Senate Majority Leader Harry Reid, was a champion of renewable energy, energy efficiency and demand response. As chair, he created new offices to focus on policy and infrastructure security and hired Bay, a law professor and former U.S. Attorney from New Mexico, to run an expanded and increasingly aggressive Office of Enforcement.

In June, Obama nominated former Colorado regulator Ron Binz to fill the seat and — in an unprecedented move — said he would appoint him immediately as chairman. As chair of the Colorado Public Utilities Commission, Binz helped draft a state law that offered utilities incentives for replacing coal-fired power plants with natural gas.

Binz became an immediate target for those angry over the Obama administration’s so-called “war on coal.” When it became clear that he would not win the support of West Virginia Democrat Joe Manchin, Binz withdrew in September.

LaFleur: ‘Keeping the Trains Moving’

Cheryl LaFleur (Source: FERC)

Cheryl LaFleur (Source: FERC)

LaFleur was named acting chair in late November, when Wellinghoff resigned from the commission to join a law firm. She has won wide and bipartisan praise for her stewardship. While Bay squeaked by last week’s Senate vote 52-45, with only a single Republican vote (Dean Heller of Nevada), LaFleur was approved 90-7, with only two Republicans in opposition.

“The commission’s continued to move while we’ve been in this,” one industry stakeholder said. “She’s done an outstanding job keeping the trains moving. She’s done a lot of things in her tenure.”

LaFleur moved swiftly to end FERC’s long-running turf battle with the Commodity Futures Trading Commission, completing two Memoranda of Understanding to help clarify jurisdictional questions and increase information sharing between the two agencies.

She also won approval for an order requiring the development of rules to protect the grid against sabotage, with an unusually short 90-day deadline. (See related story, FERC: We’ll Have Last Say on Sabotage Rules.)

LaFleur made her case for the chairmanship and a second term in a press briefing at the end of January. But opposition from Reid doomed her chances for the top spot. Reid acknowledged his antipathy in an interview with The Wall Street Journal in June, complaining that LaFleur was undermining the legacy of Wellinghoff. “She has done some stuff to do away with some of Wellinghoff’s stuff,” Reid said.

In May, LaFleur and Republicans Philip Moeller and Tony Clark rolled back a provision of Order 1000 — one of Wellinghoff’s signature achievements — regarding incumbent transmission owners’ rights of first refusal. Democrat John Norris dissented.

LaFleur’s future was unclear until May 1, when Obama renominated her under pressure from supporters in the Senate. Republicans raised the issue of gender in questioning Obama’s decision to leapfrog the less experienced Bay over LaFleur. Some did so clumsily, suggesting their words were more political than genuine. When Senate Minority Leader Mitch McConnell (R-Ky.) took to the Senate floor Tuesday to denounce Obama as “shameful” for demoting LaFleur, for example, he called her “Shirley.”

Shadow Chairman?

In announcing her vote against Bay on the Senate floor last week, Alaska Sen. Lisa Murkowski, ranking Republican on the Senate Energy and Natural Resources Committee, questioned whether Bay would undermine LaFleur as a “shadow chairman.”

There are limits to LaFleur’s authority in an interim role, observers say. “There’s a concern that it could stall more aggressive, thoughtful policy development,” one industry lobbyist said. “There’s a disappointment that it will take a while to have … someone who’s able to feel comfortable with the full authority of the chairmanship.”

The commission has had an acting general counsel, David Morenoff, since October 2012 and that appears unlikely to change until Bay takes over.

Publicly, at least, LaFleur exhibits no concerns about her mandate. “My understanding is I will be leading the commission for the next nine months with full authority,” she said at a press conference after Thursday’s commission meeting. “I don’t anticipate any broad changes in priority with this extension of my leadership.”

She said she will continue her focus on responding to the changes in the generation-resource mix, environmental regulations and grid security.

“I think I will stand back and say ‘Ok, what can I get done in nine months? Are there things I want to specifically organize?’” LaFleur said. “But I recognize that most of the work at the commission does not take place in blocks. You start things and it continues. And since I’ve just been confirmed for another term I hope to be here to see a lot of these things through.”

But will she really want to stick around to complete her new five-year term after having tasted the power of the chairmanship?

“That’s certainly my plan,” she said last week. “I’ve been asked many times, am I going to stay after nine months? The answer is yes.”

A lawyer and former utility executive, she could easily multiply her salary by joining the energy bar or returning to the industry.

But at least some of those who watch her daily say they believe her. “She really loves her job,” said one.

How Will Norman Bay and Cheryl LaFleur Get Along?

LaFleur’s appetite for remaining may be driven by how much influence she is able to retain once she hands off the gavel.

The Republicans’ hostility toward Bay, and LaFleur’s bipartisan support, means that “Norman can’t go around her as a commissioner,” one observer said. “Her stock has gone up.”

One early signal as to their cooperation will be who LaFleur appoints to replace Bay as head of the enforcement division when Bay is sworn in as commissioner. Will LaFleur appoint Bay’s choice? Bay’s deputy, FERC veteran Larry Gasteiger, is an early favorite to serve in at least an interim role.

Differences over Enforcement

Under Bay, FERC has won more than $670 million in fines and disgorged profits from Morgan Stanley, Constellation Energy, Deutsche Bank and J.P. Morgan since 2011. Barclays is contesting an additional $488 million in levies. LaFleur supported all of the settlements Bay brought to the commission.

LaFleur and Bay at table drg conf. hrg.But Bay and LaFleur have not always seen eye-to-eye. In response to questions from the Senate, LaFleur detailed seven cases in which she issued separate concurrences or dissented from the majority on matters such as the way the commission applied its penalty guidelines, or when it would share deposition transcripts with investigation targets.

Subjects in four of the cases LaFleur cited were represented by former FERC general counsel William Scherman, who co-authored an Energy Law Journal article in May accusing Bay’s unit of ignoring subjects’ due process rights. Scherman and some other members of the energy bar had been criticizing Bay’s enforcement tactics privately and in industry forums for months.

The criticism became louder in March, when the principals of Powhatan Energy Fund, which had been under investigation by Bay’s unit for three years without being charged, released documents they say prove they have been unfairly hounded. The fund enlisted testimonials from an all-star team, including Susan J. Court, Bay’s predecessor as enforcement chief, Harvard professor William Hogan and John N. Estes III, a prominent defense attorney.

The Powhatan Energy investigation was a case study for critics, including some past and present FERC officials, who say the agency is punishing legitimate, if opportunistic, trading. “I think [enforcement lawyers] could do a better job parsing what’s manipulation and what’s bad market rules,” said one current enforcement staffer who otherwise backs Bay.

Commissioner Moeller also has concerns. While Moeller praised Bay for improving the transparency of the agency’s enforcement through the implementation of settlement guidelines and more explicit enforcement orders that give guidance to traders, Bay hasn’t gone as far as the commissioner would like.

“I want to be sure the legitimate actors do not feel a chill in terms of how they communicate with our Office of Enforcement when they have legitimate questions about whether certain activities are allowed or not,” Moeller said. “We don’t want them to be afraid to ask questions.”

What’s Norman Bay’s Agenda?

At his Senate confirmation hearing in May, Bay articulately defended himself against questions about his energy policy experience and management of the Office of Enforcement. But like all well-coached nominees, he did his best notto make any definitive policy statements.

Wellinghoff became chairman after three years on the commission and announced the creation of a new unit, the Office of Energy Policy and Innovation, at his first meeting with the gavel. In his Colorado post, Binz had called for a new “regulatory compact” and opined on the future of coal and natural gas.

Bay has written extensively on criminal law and national security issues. But his opinions on the major policy issues facing the commission — the role of demand response and renewables, implementing Order 1000 — are unknown, even to the current commissioners.

“Zero,” said one industry lobbyist when asked what he knows of Bay’s policy leanings. “I guess it’s a concern — or an opportunity to educate and work with him. He definitely doesn’t come in with a vision that people will be prepared for. Wellinghoff came in very clear with what he was about.”

“The industry’s worried” because of Bay’s prosecutorial background and because he is a “blank slate” on energy policy, said another veteran FERC watcher.

“He’s got a prosecutor’s mentality and he’s in [his current job] to prosecute,” one FERC analyst said. “But he’s a fast learner. I think he’s flexible enough to have a broader view [once he becomes commissioner]. He’s honest. I don’t think he’s ideological. I think he’s fair.”

Events will Dictate

Some observers say the commission’s path forward in the short term will be dictated by having to respond to the Environmental Protection Agency’s 111(d) carbon emission rule, concerns over physical security of the grid and the recent appellate court decision voiding FERC’s jurisdiction over demand response compensation.

“Those are three huge issues coming at them. They will be extremely time consuming,” one FERC watcher said. “Pulling DR out of the [wholesale] markets will be complicated to say the least.”

Attorney Scott Hempling said FERC’s “highly professional staff” will ensure Bay is prepared. “No commissioner will be lacking for excellent, varied advice on how to proceed,” he said.

Harry Reid’s Role

Commissioner John Norris (Source: FERC)

Commissioner John Norris (Source: FERC)

The commission’s five seats are split between Republicans and Democrats, with the president’s party holding the majority. Unlike some similarly aligned regulatory agencies, the commissioners have rarely split along partisan lines in the last decade. Unanimous votes are the norm.

The recent uncertainty hasn’t affected the day-to-day operations of the commission, such as approving routine tariff filings.

But Commissioner Norris has lamented what he called “dysfunction” at the agency, citing the risk of 2-2 ties and the inability to forge a strategic direction or make major personnel decisions. Norris, who said his own bid for the chairmanship was blocked by Reid, blamed what he called the majority leader’s “politicization” of the commission chairmanship.

Others also have concern that Reid may attempt to influence energy policy, as he did in pushing former Nuclear Regulatory Commission Chair Gregory Jaczko to terminate the Yucca Mountain nuclear waste site in Reid’s state of Nevada. In a June editorial critical of Bay’s handling the prosecution of a Maine paper mill for allegedly gaming demand response rules, The Wall Street Journal went so far as to refer to Bay as “Harry Reid’s personal prosecutor.”

Speaking before the confirmation vote last week, Reid said that he had won assurances from Bay and LaFleur that they will “take a hard look” at the controversial Hudson Valley capacity zone in New York. Reid’s comment was a favor to New York Democrat Charles Schumer, who opposes the zone.

What kind of assurance Reid thought he had won is unclear. The commission rejected a rehearing several weeks ago on the issue. It is now before an appellate court and — unless it is remanded back — out of FERC’s hands. (See related story, New Yorkers Upset over Capacity Zone.)

What else might Reid want from FERC? More transmission to import energy to his state and to deliver renewable energy from it. Nevada ranked second in the nation for geothermal production and third for solar output in 2013. Some 90% of its energy is imported.

FERC’s incentive transmission rates, and Order 1000, which ensured a role for state renewable policies in transmission planning, are intended to accelerate building of new lines.

Future Openings

FERC Commissioners and When Their Term ExpiresOne fact of life at FERC is that the commissioners’ staggered terms means there is always a commissioner heading into his or her final year. That person is now Republican Moeller, whose term expires next June.

Moeller, who has served since 2006, declined to say yesterday whether he will seek a new term.

“I’ll broach that subject at the beginning of next year,” Moeller said yesterday. “For me personally it’s a huge distraction” to think about.

Meanwhile, Norris, who has served on the commission since 2010, told a conference last month that he will not seek renomination when his term ends in 2017.

“I couldn’t get confirmed if I wanted to,” Norris said, according to an account by SNL Energy. Norris told the forum that industry stakeholders have told him he could not get Senate confirmation even if he was reappointed because he is too “pro-consumer.”

Last September, Norris said Reid had opposed his elevation to chairman because the majority leader thought he was “too pro-coal” during his time on the Iowa Utilities Board. Reid was said to prefer a chair like himself and Wellinghoff from the southwest.

Since last year, Norris has increasingly forged his own path. After issuing 11 dissents or concurring statements in 2010, and 11 in 2011, he issued 19 last year and 11 through the first six months of 2014.

There is speculation that Norris and his wife Jackie might prefer to return to their home state of Iowa in time for the 2016 elections. Norris was chief of staff to former Iowa Gov. Tom Vilsack. Jackie ran the 2008 Obama campaign in Iowa and briefly served as Michelle Obama’s chief of staff; she is now executive director of the Points of Light Corporate Institute, an organization that helps companies develop employee-volunteer programs, in Washington.

Norris denied a press report earlier this year that his departure was imminent; he declined to comment on his plans yesterday.

Tony Clark Emerges

Commissioner Tony Clark (Source: FERC)

Commissioner Tony Clark (Source: FERC)

If Moeller is not reappointed, Commissioner Tony Clark would become the senior Republican member on the panel — perhaps putting him in line for the chairmanship if the GOP takes over the White House in 2016.

Currently the junior member of the panel, Clark is the last called on to speak at commission meetings. In his first year, Clark often had little to say at the sessions.

Recently, Clark has seemed more sure of his footing. In a speech at PJM’s annual meeting in May, he said FERC may need to rethink its fuel-agnostic policies to preserve coal and nuclear generation threatened by environmental rules and market forces.

Earlier this month, a law journal published an article he co-wrote that defended FERC’s enforcement and called on companies to be proactive in developing internal compliance organizations. Last week, he issued a statement defending the commission’s approval of physical security reliability standards while calling for additional work to improve the rule.

Communication on the 11th Floor

Commissioner Philip Moeller (Source: FERC)

Commissioner Philip Moeller (Source: FERC)

Communication will be essential to the functioning of the agency during the continued uncertainty, Moeller said.

“We have to keep the communication channels [open] on the 11th floor [where the commissioners’ offices are located], really work hard to keep them open,” Moeller said in an interview last month at a meeting of the Mid-Atlantic Conference of Regulatory Utilities Commissioners (MACRUC). “That’s when we have problems — when there’s a lack of communication about what priorities are.”

Moeller said LaFleur has “really worked at opening the communication channels” since she replaced Wellinghoff. Still he said, the continued uncertainty is “awkward” for FERC’s senior staff. “We have some folks who could retire any day, who have put in 35, 30 years of valuable experience. What does that mean for them in terms of leaving or staying, or mentoring their replacements? It’s a challenge. It’s not insurmountable, but … it’s a pretty unique situation.”

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  1. […] and how it determined what constitutes “manipulative” behavior. LaFleur herself expressed concerns with FERC penalty guidelines and procedural aspects affecting investigation targets. This […]

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