FERC chair’s departure spells policy uncertainty and infrastructure delays

Washington DC, United States (RStreet) – In his first week in office, President Donald Trump elevated Commissioner Cheryl LaFleur to serve as acting chairman of the Federal Energy Regulatory Commission. This action removed that designation from then-Chairman Norman Bay, who promptly issued his resignation.

Bay’s decision to leave is customary—most chairmen do not stay following demotion—but the surprising immediacy of the Feb. 3 effective date leaves FERC with only two sitting commissioners. That’s one short of the quorum required to issue orders. Commonly, if a quorum is at stake, a FERC commissioner will retain their position until a replacement is imminent. Bay’s unusually rapid departure leaves the agency’s policy apparatus and infrastructure-approval processes paralyzed.

The apparent motivation for the change was a perceived lack of alignment with the president’s agenda. It also suggests Bay never overcame the distrust of Republican leadership. During Bay’s confirmation, GOP leaders expressed concern that he would serve as a rubber-stamp for the Obama administration’s “extreme anti-coal agenda” On the contrary, Bay’s policy record proved fuel-agnostic, in addition to being otherwise quite consistent with market principles and supportive of fossil-fuel infrastructure expansion.

In an extensive resignation letter, Bay highlighted that FERC issued certificates for more than 1,000 miles of natural gas pipeline for 2016, the largest amount since 2007, and authorized two liquefied natural gas export facilities. It’s worth noting these actions came despite intense, disruptive grassroots opposition, as well as criticism from the U.S. Environmental Protection Agency asking that FERC expand its environmental reviews. Bay also improved market transparency and expanded education tools and other public resources. He modernized FERC staff’s data capabilities, drove robust analysis into decision-making and tore down silos between FERC offices.

Current and former FERC staff (including this author) attest to Bay’s commitment to economically sound market design. His genuine intent was to level the playing field. This manifested most notably in a notice of proposed rulemaking to reduce regulatory barriers to entry for energy storage and distributed energy resources. This departed thematically from some prior FERC policies that gave preferential treatment to certain resources (and still need correction). He also continued FERC’s price formation initiative, which epitomizes the appropriate role of a regulator – to foster competition and healthy markets. But these rules remain merely proposed; the Trump Administration’s choice for permanent FERC chair will determine their fate.

Going forward, the theme of FERC policy should be more one of refinement than course correction. In most areas, Bay’s agenda was consistent with conservative principles that support markets and transparency. But his otherwise pro-market legacy is overshadowed by his reputation as a backer of exuberant enforcement practices.

Enforcement policy marked Bay’s clearest disconnect with conservatives and has grown contentious within industry, policymaker and media circles. Criticisms were prone to hyperbole, such as The Wall Street Journal declaring Bay “Harry Reid’s personal prosecutor.” More thoughtful critiques emerged from scholars who were concerned with FERC enforcement’s legal processes and how it determined what constitutes “manipulative” behavior. LaFleur herself expressed concerns with FERC penalty guidelines and procedural aspects affecting investigation targets. This discrepancy with Bay may have tipped the political scales in her favor.

LaFleur’s policy stances matter little, as her chair status remains temporary until the administration fills other vacancies and presumably appoints a new chair. In the meantime, FERC lacks a quorum to advance a policy agenda.

It could easily take two to three months to confirm a new FERC commissioner. In the interim, FERC cannot act on major orders, rules and policy pronouncements. At least some routine business will continue under authority delegated to FERC office directors, which FERC may expand in the interim. But given pending rulemakings and infrastructure applications, a hobbled FERC cannot approve proposed mergers, including a major pending power plant purchase by Dynegy. Nor can it respond to pressing complaints or enact rule reforms slated to enhance price formation and enable market access for advanced technologies. Lack of a quorum also stalls FERC approval of natural gas infrastructure projects, including pipelines and LNG facilities.

It’s unlikely that delaying pipeline approvals several months would disrupt service, but it does add costs, as pipeline congestion increases the delivered price of natural gas to customers. In particular, extended delay may cause four major Appalachian pipeline projects to miss their in-service dates. This coincides with market forces driving a rebound in natural gas prices – perhaps the highest since 2014. That’s a tricky political calculus for a new administration promising lower energy prices, more infrastructure and less red tape.

The Trump administration should consider accelerating one commissioner nomination. As they mull candidates, it’s worth noting that LaFleur’s leadership, especially in an interim role, should mostly align with administration priorities and not raise red flags. It may be worth nominating the least-controversial candidate first, to restore FERC promptly under LaFleur’s watch. That would serve as a bridge to the permanent chair, whose confirmation process may face greater scrutiny and delay.

By U.S. Government – Public Domain, Wikimedia Commons

Senate leadership also needs to prioritize FERC restoration. Fortunately, Sen. Lisa Murkowski, R-Alaska, has warned of a FERC crisis and promised to move nominees rapidly to re-establish a working quorum. In addition to avoiding infrastructure delays, Senate Republicans should remain mindful that returning FERC to its full functional capacity is simply good governance. After all, the major pending rulemakings would, on balance, enhance market competition. They’d also reduce barriers and bolster compensation for some advanced clean technologies, which should appeal to Democrats. Dems should also note that natural gas expansion has led to large emissions reductions, and pipeline congestion causes the most customer headaches in the Northeast.

Promptly restoring FERC will require that the Senate avoid a drawn-out nominations process. This should be a bipartisan exercise in search of good governance. However, some on the environmental left have already voiced opposition to Trump’s nominees, even though they haven’t been announced. If nominations prove unworkably contentious, it’s plausible that a pro-market Democrat would make the best choice, even for the Republican agenda. This may swiftly cut through partisan debate and serve as the eventual replacement for Democratic Commissioner Colette Honorable, whose term ends in June (Republicans can only fill three of the five FERC spots). It would delay seating a Republican until the expiration of Honorable’s term, a price the GOP may be willing to pay to expedite FERC restoration. Regardless of the political calculus, expediting FERC nominations is a pressing economic need both parties must address.

 

This report prepared by Devin Hartman for R Street.