Washington, D.C., April 13, 2014 – The nomination of Norman Bay, the Obama administration’s latest pick to join the Federal Energy Regulatory Commission and become its chairman, may be in serious jeopardy. Bay, a former federal prosecutor in New Mexico, is currently FERC’s chief enforcement officer, where he’s had a high-profile role in going after alleged manipulation in electricity markets.
That’s one of the reasons his nomination to the head the commission is running into trouble. For the regulated industries, he’s viewed as an antagonistic cop, not a cooperative regulator. This has shown up publicly in a recent article in the Bloomberg news site. Bloomberg reports, “A small Pennsylvania hedge fund has taken up Wall Street’s cause and embarked on a public campaign to stop the former prosecutor from being confirmed as the next chairman of the Federal Energy Regulatory Commission.”
Powhatan Energy Fund, which is under investigation for allegedly attempting to manipulate electricity markets, has launched a public attack on FERC and Bay’s approach to enforcement. Powhatan is allegedly under investigation for some sophisticated trades in the PJM market. The firm says the high-frequency trades are currently legal and typical of the way hedge funds operate.
Energy economics guru Bill Hogan has long been critical of FERC’s enforcement policies under Bay, reportedly hand-picked by former FERC chief Jon Wellinghoff to beef up the commission’s oversight of market manipulation. Hogan of Harvard’s Kennedy School of Government told Electricity Daily late last year that FERC is engaged in “Orwellian double-speak” when it attempts to explain its approach to market manipulation cases. The commission tends to close the cases with “a shroud of opaque settlements” entirely lacking in explanations of its legal and economic theory, he said. “They don’t have explicit discussions of the cases, don’t have open analysis,” he said. “All we have [are] press releases and settlement agreements.”
Hogan is a consultant to Powhatan. He told Bloomberg that FERC has been misled by Bay’s enforcement office. “I think they’re misguided and overstepping in some of these cases,” Hogan said. “I don’t think the commissioners themselves know what’s going on. They see the settlements and only get one side of the story.” That’s an implicit criticism of Bay’s office.
The politics of the Bay nomination also suggest that confirmation may be a long way away, according to knowledgeable sources. Bay’s nomination comes in the wake of the spectacularly unsuccessful nomination of former Colorado consumer advocate and regulator Ron Binz to succeed Wellinghoff, a former Nevada consumer protection advocate. Both the Binz and the Bay nominations were the result of Wellinghoff’s lobbying of Senate Majority Leader Harry Reid (D-Nev.), according to the sources.
Wellinghoff has long and deep ties to Reid. The Democratic leader promoted him for an appointment to a Democratic seat at FERC and then the chairmanship when Barack Obama became president.
The Bay nomination has caused considerable tension among Senate Democrats, according to my sources. New Senate Energy Committee chair Mary Landrieu (D-La.) is said to be upset that acting FERC chief Cheryl LaFleur, a Democrat, didn’t get Reid’s support for an official nomination to chair the commission.
My sources, with close ties to FERC and the industry, say that Wellinghoff believes that LaFleur was behind stories that he leaked the information to the Wall Street Journal about a FERC analysis of the physical vulnerabilities of the bulk power grid. So he is undermining her chances at the top job and suggesting that she not be appointed to another five-year term as a FERC commissioner.
LaFleur’s term at FERC is up in June. According to my sources, Landrieu has sent signals that she will hold up a confirmation hearing for Bay until the Obama administration nominates LaFleur to another full term at FERC.
That puts Landrieu and Reid in a nasty dispute. One of my sources says that Reid “despises” Landrieu and the feeling is mutual. Instead of communicating directly, the source said, Reid and Landrieu often exchange information through a middleman, former Democratic Senator John Breaux of Louisiana.
Given the emerging controversy and the clock running out on the Obama administration, it’s a good bet that the Bay nomination won’t move forward and LaFleur will remain the FERC chairman through the rest of the Obama administration.