Criticism of FERC heats up ahead of Senate confirmation hearing

Source: Hannah Northey, E&E reporter • Posted: Tuesday, May 20, 2014

A hedge fund that decided to publicly fume over the Federal Energy Regulatory Commission’s investigation of its operations got louder yesterday ahead of the high-stakes Senate confirmation hearing for Norman Bay, whom President Obama tapped to lead the agency.

Speaking at a Cato Institute event in Washington, D.C., yesterday, Kevin Gates, vice president of the Powhatan Energy Fund LLC, reiterated his company’s innocence despite an ongoing FERC investigation for allegedly gaming the energy markets.Gates said the hedge fund he created with his twin brother, Rich, in Pennsylvania could face “tens of millions of dollars” in fines even though FERC’s allegations make little sense.

Gates said he was forced to go public in “open kimono” style about the otherwise secret investigation to defend his “good name,” echoing a public campaign the company launched that’s garnered the attention of conservative and free market groups and The Wall Street Journal’s editorial board.

Although Gates’ criticism is not new, his timing is notable.

The Senate Energy and Natural Resources Committee will hold a confirmation hearing today for Bay — best known as the director of FERC’s Office of Enforcement since 2009, where he had a hand in large settlements with Wall Street energy traders. The Senate committee will also consider Cheryl LaFleur, the agency’s current acting chairwoman, for another five-year term.

“I obviously have some strong views about his qualifications,” Gates said of Bay yesterday.

The Gates twins have reached out to members of the Senate ENR panel to discuss Bay, but it’s unclear just how much traction they’ve had.

Despite the criticism, Bay has warmed to critical allies on the Senate panel of 12 Democrats and 10 Republicans, including Chairwoman Sen. Mary Landrieu (D-La.).

But obstacles and question marks abound.

Sen. Joe Manchin, a Democrat from West Virginia, has said he has concerns about Bay’s lack of energy policy experience but that he’s keeping an open mind. Republicans, including ranking member Lisa Murkowski of Alaska, have questions about Bay’s policy chops and experience — and want to know why LaFleur was overlooked for the job.

Separately yesterday, William Scherman, FERC’s former general counsel and a partner with Gibson, Dunn & Crutcher LLP, penned an op-ed in The Wall Street Journal saying Gates’ experience with FERC is just the “tip of the iceberg.” Scherman, notably, has been critical of FERC for not clarifying what constitutes market manipulation.

“Having represented dozens of clients under investigation by FERC, we know the Gateses’ experience is the tip of the iceberg,” Scherman wrote.

Scherman said FERC, unlike other agencies, doesn’t share information the agency collected with individuals under investigation nor does the commission allow individuals to go out and collect their own information.

“Even worse, FERC recently said its enforcement ‘is under no obligation to provide any response’ to the ‘legal and factual arguments’ raised by subjects,” he wrote. “This hardly creates confidence in the fairness and integrity of the process.”

Yesterday’s event also showed conservative groups are taking aim at FERC — a scenario that played into Obama’s failed nomination of former Colorado regulator Ron Binz to lead the commission.

William Yeatman, a senior fellow at the Competitive Enterprise Institute, accused FERC of taking a “willy nilly” approach to enforcement, adding that manipulation lies in the eye of the beholder. CEI last year joined the American Energy Alliance, a group backed by the Koch brothers, in warning that Binz would seek to harm coal, natural gas and other fossil fuels to promote the White House’s efforts to curb emissions and promote renewables.

The Gates’ case, Yeatman added, shows how federal regulation of complex markets “moving at the speed of technology” cannot work, saying regulators are “always a step behind.”