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May 21, 2014

Follow-up Questions for FERC’s Norman Bay

May 21, 2014
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Yesterday, Norman Bay faced questions from the Senate Energy and Natural Resources Committee in the first confirmation hearing for a Federal Energy Regulatory Commission (FERC) nominee since Ron Binz’s failed confirmation last fall. The hearing lasted about two hours, and question topics ranged from Bay’s lack of energy experience to his brief but controversial record at FERC’s Office of Enforcement. The Institute for Energy Research (IER) has compiled a list of follow-up questions for Norman Bay, as some of Bay’s comments during the hearing raised further questions. Committee members have the opportunity to submit their questions for the record through the end of the day today.

For some background on what FERC does and why it matters, please see this assessment by IER. We also compiled 10 questions before Ron Binz’s high-profile confirmation hearing last September, as well as a series of follow-up articles after the hearing.

Norman Bay

 

1. Does Norman Bay have the experience required to lead FERC?

In nominating Bay, President Obama passed over a handful of well-qualified FERC Commissioners as well as several well-qualified state regulators, a move that raises questions about the President’s selection for the top spot at FERC. Bay previously served in the Department of Justice (1989-2001), as Assistant U.S. Attorney in D.C. and New Mexico (1989-2000), and as U.S. Attorney in New Mexico (2000-2001). Before 2009, Norman Bay had practically no energy experience. Then-Chairman Jon Wellinghoff recruited Bay in 2009 away from his role as law professor at the University of New Mexico to take over FERC’s Office of Enforcement, which is a relatively new office that was created in response to the Energy Policy Act of 2005. Since 2009, Bay has served as the Director of the Office of Enforcement at FERC. Notably, Bay’s hands-on energy experience is limited to the Office of Enforcement, one of 12 offices within FERC.

In yesterday’s confirmation hearing, Ranking Member Senator Lisa Murkowski of Alaska and several others asked Bay about his fitness to lead FERC given his limited energy experience. Senator John Barrasso of Wyoming pressed the issue hardest:

“Given the wide gap in experience between you and Chairman LaFleur, why should we demote Chairwoman LaFleur to make room for you, and what specific qualifications do you have to be chairman?”

Bay answered:

“You would have to ask the White House that particular question, Senator Barrasso, but I’d like to think that the White House would have considered a number of factors. First, that I’ve worked—and done good work—to protect consumers and the integrity of the marketplace, to ensure that there is a level playing field for all market participants… Second, I do have experience with respect to the energy markets, particularly the physical markets and the financial markets. And my experience, by the way, didn’t just start at FERC in the sense that, when I was the U.S. Attorney I worked closely with the National Labs. After I left [the Department of Justice] I was counsel to Sandia Labs for a number of years… There were even two summers when I was in college when I worked at a [Department of Energy] research facility. The third reason is that I have this bipartisan record of commitment to public service and to good government. A fourth reason might be geographical diversity. I do come from New Mexico. It’s a Western state, and it’s a producer state…”

Knowing that Senator Joe Manchin of West Virginia and others expressed some reservations about his fitness to lead FERC, Bay’s answer on the subject was surprisingly thin on energy issues. Distilling the energy-related pieces of his answer, Bay alluded to his brief time at FERC, his experience representing Sandia Labs (no detail provided on that), and an internship that lasted two summers in college. That is an energy resume one might expect for a high-level staff position at FERC, not the rising Chairman of the agency.

Leading up to the confirmation hearing, industry analysts noted that Bay’s lack of experience is rare for FERC Commissioners. Like Ron Binz before him, Bay would become Chairman upon confirmation, essentially skipping the normal step of serving as Commissioner for two or three years. RTO Insider highlights Bay’s unusual path:

“Of the 15 FERC commissioners who have served since 2000, 10 served as commissioners or staffers at state regulatory agencies prior to their appointments. Four of the others worked in energy-related posts in state or federal legislative committees or executive agencies; one was a former utility executive.”

“The last five chairmen served a median of 30 months before becoming chair. Only one, Patrick H. Wood III, served less than a year on the panel before his promotion.”

Bay’s lack of experience in energy policy raises questions about how he might deal with several very important policy issues that affect FERC. Specifically, Bay mentioned that electric grid reliability is “job one” of the Commission, but he had very little to say about key issues affecting reliability, such as: 1) Environmental Protection Agency rules for power plants, 2) gas-electric coordination, and 3) the wind production tax credit (PTC). Bay was not even aware of the amount of the PTC, which is 2.3 cents per kilowatt-hour—a substantial amount that leads to the PTC threatening grid reliability. What else is missing from Bay’s understanding of the energy policy landscape?

2. What are Bay’s views on vital energy sources such as coal and nuclear power?

The last FERC Chair nominee hit a “dead end” when he claimed that natural gas was just that–a “dead end” fuel because it is carbon-based. In his opening statement, Bay said “New Mexico is a real-life example of an all-of-the-above approach to energy.” Notably, Bay mentions New Mexico’s abundance of “sun, wind, oil, and gas.” He left out other vital sources of electric power, including coal, which supplies nearly 70 percent of New Mexico’s electricity, and nuclear power—sources that together produce over half of America’s electricity. Does Bay recognize the role of coal and nuclear power in maintaining grid reliability? Does he recognize the threat to nuclear and coal power caused by predatory pricing enabled by the PTC?

Near the end of his FERC Chairmanship, Jon Wellinghoff spoke about the “all of the above” approach to energy. As IER documented at the time, Wellinghoff revealed that he never believed in “all of the above” and instead was an advocate for energy efficiency. Wellinghoff stated:

“I’ve been doing energy efficiency for a long, long time; an advocate of energy efficiency. Although I have to say, ‘No, we’re advocates of all the above,” all of the above is one of the most overused terms in energy that, hopefully, we can continue to do away with.”

Wellinghoff recruited Bay for a reason. Is Bay also hiding an anti-energy agenda—as Wellinghoff did—not to be revealed until he is FERC Chairman?

3. Does Bay believe FERC has used its enforcement powers wisely?

Politico reports that Bay boasted in a job application last year that “as a result of our enforcement actions, FERC has developed an international reputation as an effective and energetic agency.” Is Bay’s record at FERC’s Office of Enforcement effective and energetic, or is it better characterized as abusive and over-aggressive?

As the Wall Street Journal writes, “[f]or Mr. Bay, obeying FERC’s own tariffs counts as market manipulation.” Another piece in the Journal—written by William Scherman, the former general counsel and chief of staff at FERC—argued that “[t]he lack of due process for his targets, including the failure to turn over exculpatory evidence and ex parte communications between his office and FERC commissioners, is the stuff of a banana republic.”

Several Senators, including Senator Mike Lee of Utah, asked for more detail on the issues raised by the Journal with respect to due process and access to exculpatory evidence. Bay had very little to say. When asked by Senator Lee if the statements in the Journal are true, Bay said “I do not think that those particular criticisms are correct.” To be clear, Bay’s account of his record with the Office of Enforcement is at odds with the former general counsel and chief of staff of FERC. This issue should be resolved before Bay’s nomination moves forward.

Conveniently for Bay, the most public and most egregious case of abuse within his Office of Enforcement, the case against brothers Kevin and Richard Gates and their energy venture (Powhatan Energy Fund), was off-limits for comments from Bay because it is an ongoing investigation. The story is a nightmare for FERC. Ranking Member Murkowski said today that “it is critically important that FERC be viewed as unbiased and even-handed,” but it only takes a few minutes on the Gates brothers’ informational website to see that the Office of Enforcement under Bay has been the opposite.

Specifically, the site includes video interviews and position papers from an all-star line up of FERC experts, including the top electricity policy expert (Harvard’s Bill Hogan), as well as the first Director of FERC’s Office of Enforcement (Bay’s predecessor, Susan Court). It details the Gates brothers’ struggle to make sense of Enforcement’s case and FERC’s interactions with the brothers and their attorneys. Essentially, they are being accused of market manipulation for power market trades that were legal at the time—even predicted by a previous FERC order—yet violated FERC’s ambiguous “market manipulation” rules.

As Kevin Gates told E&E News, “[t]he website and materials paint a very different picture of the Office of Enforcement than had otherwise been in the press.” The site includes a quote from Hogan that reads, “In hindsight, some of the market flaws and the implied bidding practices are embarrassing for the FERC and market designers.”

Even if Bay can hide behind the fact that the Powhatan case is an ongoing investigation, lawmakers should take this opportunity to ask Bay what exactly constitutes market manipulation. How bad is the confusion over these rules? This month, three energy law experts published a 49-page article outlining the need for reform in the FERC enforcement process.

Conclusion

FERC’s vital role in America’s energy infrastructure and grid reliability necessitates a thorough vetting of any FERC nominee. Norman Bay’s lack of energy experience and disturbing track record at FERC’s Office of Enforcement make him a questionable pick for Chairman of such an important agency. In considering these follow-up questions, members of the Senate Energy and Natural Resources Committee have the opportunity to provide the strict oversight of FERC the American people deserve.

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