Tuesday, March 26, 2019

Analysis: LaFleur Cruises, Bay Bruises in Confirmation Hearing

FERC Enforcement Chief Defends Record, Experience

By Rich Heidorn Jr.

WASHINGTON — Federal Energy Regulatory Commissioner Cheryl LaFleur sailed through her Senate confirmation hearing Tuesday while Norman Bay was forced to defend his limited policy experience and his running of the commission’s enforcement division.

Cheryl LaFleur and Norman Bay being sworn in to the Senate hearing.

Cheryl LaFleur and Norman Bay being sworn in to the Senate hearing.

Bay also found himself having to negotiate a gender politics minefield resulting from President Obama’s decision to appoint him directly into the chairmanship — leapfrogging him over LaFleur, the acting chair and the only woman on the panel.

Based on the senators’ comments at the Energy and Natural Resources Committee hearing, Bay will likely need every Democrat — or will have to pick off a Republican or two — to win confirmation.

LaFleur’s reappointment to a second five-year term, by contrast, seems assured.

No one criticized LaFleur, and some of the Republicans, including ranking member Lisa Murkowski of Alaska, said they would like to see her retain the chairmanship.

Heavy-Handed Enforcement?

It was clear well before the hearing started that Bay would face strong headwinds.

Two days earlier, The Wall Street Journal published an op-ed by former FERC general counsel William Scherman, along with a piggybacking editorial by FERC antagonist Paul Gigot, accusing Bay of driving Wall Street banks out of energy trading with heavy-handed enforcement tactics.

It continued an attack that Scherman, now a well-compensated attorney representing FERC targets, had begun at the National Association of Regulatory Utility Commissioners conference in November. (See FERC Pick a Blank Slate.)

Norman Bay, with Richard Gates looking on, responding to questions on his handling of the Gates case.

Norman Bay, with Richard Gates looking on, responding to questions on his handling of the Gates case.

When Bay stood up to be sworn in, Richard and Kevin Gates — the twin hedge fund managers whose case Scherman cited as exhibit A — were sitting in the row behind him. Richard was on camera, over Bay’s shoulder, during the entire two-hour hearing. (See PJM Trader Calls FERC on Manipulation Probe.)

Murkowski made it clear that Bay had failed his job interview when he met her in her office the previous week.

After praising his “impressive personal story and resume,” Murkowski said she judged his energy policy experience as “recent and limited.”

“I did feel that our discussions had raised questions about your qualifications not just to be a sitting commissioner but to serve as the next chairman of FERC,” she said.

Bay, a first-generation Chinese American who attended Dartmouth and Harvard before becoming a U.S. attorney for New Mexico, has served as director of FERC’s Office of Enforcement since 2009. But unlike most FERC commissioners in the last decade, Bay has never served as a state utility regulator. (See table.) In addition, the last five chairmen served a median of 30 months before becoming chair.

FERC Commissioners Prior Experience

Other Republicans joined in the attack, citing the Wall Street Journal articles and Scherman’s accompanying May 13 article in the Energy Law Journal. The latter — a 49-page, 28,000-word article — alleged a “widespread view that the FERC enforcement has become lopsided and unfair” and called for reforms.

“I find this very troubling,” Sen. John Barrasso (R-Wyo.) told Bay. “I believe this raises serious questions about your fitness to be on the commission. I also believe that these tactics have contributed to driving investors out of the electric market and that means a less reliable grid and higher costs to consumers.”

Sen. Mike Lee (R-Utah) also pressed him on Scherman’s allegations, asking him, “Is this true? Do we need reforms?”

Bay noted that the commission had adopted the “Brady doctrine,” which requires prosecutors to provide targets exculpatory evidence in the government’s possession, at his suggestion. Scherman alleges that FERC officials have failed to abide by the doctrine.

Bay’s response to the criticism was curiously unemphatic. He did not say the allegations were false. He said he didn’t “believe” them to be accurate.

LaFleur provided Bay only limited cover, acknowledging she had dissented on several orders over application of penalty guidelines and investigative procedures. “This is a relatively new area of our work,” she said. “It’s to be expected that we would have debates about how the rules are to be applied … but I haven’t dissented on any of the settlements or the substance of the orders to show cause.”

Negative Pricing and Market Manipulation

Sen. Lamar Alexander (R-Tenn.) tried to corner Bay with a long series of cross examination-style questions in which he attempted to link FERC’s enforcement practices with wind farms, the production tax credit, negative energy prices and nuclear power’s financial woes.

Senator Manchin

Senator Manchin

Democrat Joe Manchin and Republican Rob Portman, of the coal-dependent states of West Virginia and Ohio, spent their time on the clock asking what FERC could do to stop the EPA’s pending greenhouse gas rules.

Manchin, who helped sink the bid of Obama’s previous nominee, Ron Binz, did not indicate whether or not he would support Bay. He has previously expressed doubts about Bay’s experience. (See Senators Weigh in on Bay Nomination, PTC, Nuclear Waste.)

Portman offered perhaps the best news Bay heard all day, saying, “I assume you are going to be confirmed.”

Republican Ally

Bay had one notable Republican ally, a frail former committee Chair Pete Domenici, a fellow New Mexican, who introduced him in a rambling defense.

Senator Domenici

Senator Domenici

“He’s done everything right to entitle him to try this, try this job on …” Domenici said. “I’m not a great fan of the president of the United States. People know that. But this is a great appointment.”

Current New Mexico Sen. Martin Heinrich, a Democrat, also sponsored Bay. He praised Bay as “fair, balanced [and] consensus-oriented” and said he had used the enforcement tools that Congress granted FERC in 2005 to provide “$300 million in relief to consumers.” Heinrich dismissed Scherman’s attack as “sour grapes,” noting the attorney had represented “the losing side in a number of cases.”

Sen. Maria Cantwell (D-Wash.) also gave a spirited defense. She noted that Congress gave FERC expanded penalty powers in response to the Western energy crisis, during which traders at Enron and other companies boosted profits by manipulating the electricity market.

“The energy markets cannot be a tool for those who want to invest just for their own manipulation of the market. We have to have policemen on the beat,” she said. “… I want to remind everyone that the policeman has been on the beat and has done a lot of great work.”

Gender politics

But for most of the session Bay and his supporters found themselves playing defense, not only over his experience and FERC record but for his gender and Obama’s decision to appoint him as chairman. In addition to having one of five votes on the bipartisan commission, the chairman serves as FERC’s chief executive, responsible for managing staff and setting policy initiatives.

Senator Murkowski

Senator Murkowski

Murkowski said she was troubled by “the fact that our lone female commissioner, who has certainly demonstrated her leadership, would be moved down from the position that she currently holds as chairman.”

Barrasso also said Bay’s qualifications paled in comparison to LaFleur’s, who came to FERC after more than two decades of experience in the electric and natural gas industries, including roles as chief operating officer, general counsel and acting CEO of National Grid USA and its predecessor.

“Given the wide gap in experience between you and chairwoman LaFleur, why should we demote chairwoman LaFleur to make room for you?” Barrasso asked. “And what specific qualifications do you have to be chairman of FERC?”

Bay responded by talking about his “great respect” for LaFleur and professing his confidence that they would work well together.

As to the president’s decision to pass over a seemingly more qualified woman?

“You would have to ask the White House that particular question,” Bay responded. “But I would like to think that the White House might have considered a number of factors. First that I’ve done work – and good work – to protect consumers and the integrity of the marketplace and to ensure that there’s a level playing field for all market participants.”

Bay also cited his “bipartisan record of commitment to public service and good government,” a reference to his work with the State and Justice departments during Republican administrations. Bay also said his experience in the energy industry began before he joined FERC, citing his work as counsel to Sandia National Laboratory and two summers in college during which he worked at a Department of Energy research facility.

Finally, Bay got to what may be the realpolitik answer for why the White House could have bungled the politics of the FERC chairmanship for a second time: “Geographical diversity,” Bay said.

Bay was backed for the post by former FERC chair Jon Wellinghoff, an ally of Senate President Harry Reid of Nevada.

“I do come from New Mexico,” Bay said. “It’s a Western state and it’s a producer state. And Westerners and Pacific Northwesterners have always cast a long shadow, not only on this committee but also on FERC as well.”

Maybe LaFleur, an unapologetic Boston sports fan, shouldn’t have worn her Red Sox jersey to the commission meeting last October.

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