With confirmation hearing set, Obama’s pick to lead agency faces uncomfortable questions

Source: Hannah Northey, E&E reporter • Posted: Wednesday, May 7, 2014

President Obama’s pick to lead the Federal Energy Regulatory Commission, Norman Bay, appears to have garnered some heavy-hitting support on a Senate panel critical to his confirmation this month.

But challenges — and tough questions — loom, as a company targeted for investigation by FERC raises objections over Bay’s leadership as the head of the agency’s enforcement office.On one hand, Sen. Mary Landrieu (D-La.), the new chairwoman of the Energy and Natural Resources Committee, appears to have warmed to the former New Mexico prosecutor. The Senate panel is slated to consider Obama’s nomination of Bay to lead FERC on May 20, alongside the president’s nomination of Cheryl LaFleur, the agency’s acting chairwoman, to another five-year term.

“I had a meeting with him; it went very well,” Landrieu said of Bay during an interview this week. “He seemed to be experienced, but I’m going to ask the other members of the committee to give me their views and opinions. He’s known for enforcement, but he’s very, very knowledgeable about energy markets and structure.”

So far, Bay hasn’t attracted the furor once seen with Obama’s failed nomination last year of former Colorado utility regulator Ron Binz to lead FERC. He drew the ire of prominent free-market and conservative groups — some enjoying ties to the tea party and Koch brothers funding. The Binz nomination marked a departure for the usually quiet FERC, an agency tasked with overseeing the grid, gas pipelines and wholesale electricity markets.

Whereas Binz was marked as pro-renewables and anti-fossil fuel, Bay’s energy policy positions remain unknown. Instead, the 53-year-old former law professor and U.S. attorney in New Mexico is known for cracking down on Wall Street banking giants in the gas and power markets as the director of FERC’s Office of Enforcement, the post he has held since 2009.

Still, some conservative Democrats and moderate Republicans on the Senate ENR panel question whether Bay is qualified to lead the agency.

Sen. Joe Manchin (D-W.Va.) said during an interview that he would remain “open-minded” but expressed concerns about what he sees as Bay’s lack of relevant experience. “He’d be the first, that I understand, that has never had regulatory experience,” Manchin said.

Sen. Lisa Murkowski of Alaska, the panel’s ranking Republican, said she’s looking forward to learning about Bay’s energy policy positions — not just his enforcement background. “I’m looking forward to sitting down with him and just understanding a little bit more from where he’s coming from,” she said. “He’s got the enforcement background, which is one aspect of it, but I want to ask him about his positions on the aspects of energy policy. So I think that would be a good discussion.”

And debate is swirling off Capitol Hill.

Kevin Gates, who runs Powhatan Energy Fund LLC, a small Pennsylvania hedge fund, has launched a publiccampaign – one that has caught the eye of The Wall Street Journal‘s editorial board, which has great influence in conservative circles — to educate senators about FERC’s investigations under Bay’s watch.

FERC is, most notably, investigating Powhatan Energy Fund.

Gates said the campaign isn’t targeting Bay’s nomination, but he does have problems with the former prosecutor’s style.

“I’ve never met him; I don’t know him; I have very strong views about the behavior of the agency, how it’s treated us and handled our investigation,” Gates said during an interview. “If the vote was specifically about his management and his oversight of the FERC [Office of Enforcement], I would vote against him.”

Gates argued that although the market needs strong oversight, there’s a difference between being on “high alert” and going overboard. Gates also argued that companies and Wall Street traders shouldn’t be forced into costly settlements and said he had been advised to do so — but decided with his identical twin, Rich, who also manages the fund, to make the issue public and potentially fight any enforcement action by the agency. Ultimately, Bay is responsible, Gates said.

“He’s the director of enforcement. I’ve never met him,” he said. “I’ve heard he comes across as being very nice, but ultimately I think he’s responsible.”

Tyson Slocum, director of the energy program at the government watchdog Public Citizen, said the criticism is misplaced. Whereas some market participants accuse Bay of being overzealous, Slocum said he’s glad there’s a tough cop on the beat. “It would be one thing if it was Exelon or JPMorgan or a big, established player, maybe people would wonder why they were fighting so hard, but this is kind of an unknown entity,” Slocum said.

Dog in the manger?

One big takeaway from the public hoopla that surrounded the Binz confirmation hearing last year is that Bay should keep a low profile until he’s confirmed, noted former FERC Chairman James Hoecker.

“He’d be real smart not to make any grand commitments or profound policy statements during his confirmation,” Hoecker said. “It may be frustrating for people, but everybody’s trying to figure out, and this is true for all nominees, whether they’ll be the dog in the manger.”

As for experience on energy policy, Hoecker said the main driver is the Obama administration and the Energy Department — not FERC. But he acknowledged that senators should satisfy their curiosity about Bay’s positions.

“I think they need to satisfy themselves that he’s going to be fair, make decisions driven by the record, that he doesn’t have some hidden agenda,” he said.

One source said many members of the Senate committee are waiting to take a position on Bay’s confirmation until his views on energy are made clear. “Compared to previous nominations, it’s an open book at this point,” the source said.

Bay in a filing submitted to a designated ethics official has already vowed to avoid any conflict of interest and divest shares he currently owns in companies like Google.

Unclear is how Bay’s fate will be affected by LaFleur’s renomination — and just how successful his opponents will be in drumming up opposition in the Senate.

Republican energy lobbyist and strategist Mike McKenna said that by renominating LaFleur, who was seen as a potential leader for FERC, the Obama administration gave away a critical bargaining chip.

McKenna said Bay faces two different challenges, the first being that Republicans may be swayed to oppose any Obama nominee after Senate Democrats invoked the “nuclear option” last November so that only a simple majority is needed to overcome a filibuster for most judicial nominees. Bay also faces a challenge from groups like Powhatan Energy Fund that may feel they haven’t gotten a fair shake at the agency.

“Mr. Bay is going to get caught up in some of that,” he said. “None of them are insurmountable challenges, but it’s not going to be easy.”

Gates said Powhatan Energy Fund has made an attempt to contact every senator on the ENR Committee since it first launched a campaign in March to defend itself from FERC’s investigation for manipulation (E&ENews PM, March 3).

“We’ll talk and meet with anyone and everyone who will speak with us,” he said. “There are a lot of members who are interested and aware, not just of our case but of the FERC Office of Enforcement, in general.”

Powhatan Energy Fund launched a website featuring Susan Court, Bay’s predecessor and the former head of FERC’s Office of Enforcement, and other experts rejecting the agency’s allegations — which have otherwise not been made public — that a trader the fund contracted in 2010 had gamed the energy markets.

The fund said it decided to share the information publicly because its 10 investors were afraid the commission’s accusations would unfairly harm their reputations and relationships — personal and private — and carry a stigma while not fully vetting the allegations.

According to the fund, FERC in preliminary findings recently charged the fund with manipulating the energy markets. The site features a documentary of sorts that tells the story of Alan Chen, an independent money manager whom Powhatan hired to advise and manage the fund, including trade in the electricity markets in the PJM Interconnection. PJM, which is overseen by FERC, operates the grid in the Midwest and Mid-Atlantic.

“We wanted the senators to be able to make an informed decisions. The website and materials paint a very different picture of the Office of Enforcement than had otherwise been in the press,” Gates said.