[Senate Hearing 113-288]
[From the U.S. Government Publishing Office]
S. Hrg. 113-288
LAFLEUR AND BAY NOMINATIONS
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
TO
CONSIDER THE NOMINATIONS OF MS. CHERYL A. LAFLEUR AND MR. NORMAN C.
BAY, TO BE MEMBERS OF THE FEDERAL ENERGY REGULATORY COMMISSION
__________
MAY 20, 2014
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
MARY L. LANDRIEU, Louisiana, Chair
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont MIKE LEE, Utah
DEBBIE STABENOW, Michigan DEAN HELLER, Nevada
MARK UDALL, Colorado JEFF FLAKE, Arizona
AL FRANKEN, Minnesota TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin
Elizabeth Leoty Craddock, Staff Director
Sam E. Fowler, Chief Counsel
Karen K. Billups, Republican Staff Director
Patrick J. McCormick III, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Bay, Norman C., Nominee to be a Member of the Federal Energy
Regulatory Commission.......................................... 15
Domenici, Hon. Pete, Former U.S. Senator From New Mexico......... 6
Heinrich, Hon. Martin, U.S. Senator From New Mexico.............. 8
LaFleur, Cheryl A., Nominee to be a Member of the Federal Energy
Regulatory Commission.......................................... 12
Landrieu, Hon. Mary L., U.S. Senator From Louisiana.............. 1
Murkowski, Hon. Lisa, U.S. Senator From Alaska................... 4
Shaheen, Hon. Jeanne, U.S. Senator From New Hampshire............ 9
Wyden, Hon. Ron, U.S. Senator From Oregon........................ 3
APPENDIX
Responses to additional questions................................ 43
LAFLEUR AND BAY NOMINATIONS
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TUESDAY, MAY 20, 2014
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:19 a.m. in
room SD-366, Dirksen Senate Office Building, Hon. Mary
Landrieu, chair, presiding.
OPENING STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR FROM
LOUISIANA
The Chair. Good morning. Let me call the Committee on
Energy and Natural Resources to order for the purpose of
reviewing the nominations of 2 nominees before the committee
today.
Mrs. Cheryl LaFleur for a second term which will end June
30, 2019, if she is moved through this committee and confirmed.
Mr. Norman Bay for the 4 years remaining on the term ending
June 30, 2018 which was left vacant by the resignation of John
Wellinghoff last November.
Before I get into my opening remarks let me please welcome
back to our committee our chairman, Senator Domenici, who
served as Chair of this committee for many years.
Senator, it is wonderful to see you here. We're honored
with your presence. We thank you for your extraordinary
leadership over the time that you served in this capacity as
Chair. We're thrilled to have you here.
Let's give Senator Domenici a round of applause, please.
[Applause.]
The Chair. We will begin with opening statements. Then I'll
turn to Senator Shaheen and to other members, of course, to my
Ranking Member, but for introductions. But let me just begin
with a few opening remarks.
Congress established the Federal Energy Regulatory
Commission in 1977, as we know, to replace the former Federal
Power Commission. FERC has a big job. It oversees the orderly
development of plentiful supplies of electricity and natural
gas at reasonable prices, to protect the consumer from
exorbitant prices and unfair business practices when necessary
and to that end, to ensure that energy markets are reliable,
open, competitive and fair.
The reliability piece has been delegated to NERC, but it
still has general authority over reliability.
As the Supreme Court said, the Federal Power Commission
before it, FERC is the guardian of the public interest in our
natural gas and electricity markets. Its function is not only
to appraise the facts but also to bring to bear upon the
problem of expert judgment and determine where the public
interest lies.
FERC's job is particularly important today. The structure
of our natural gas and electricity markets has been radically
transformed over the last several decades making it more open
and more competitive, but it is indeed much more complex. The
need for more infrastructure is clear both for natural gas and
electricity is increasing. There are other sources of power as
we know, coal, nuclear and others play a part in this as well
which is a very important debate going on in this Congress.
As the reliability of the electric grid is growing concern
as its vulnerable to both natural disasters and terrorists
threats as well as some criminal activities as well. The need
for a well functioning commission and well qualified
commissioners to serve on it to perform FERC's historic roles
and face these emerging challenges has never been greater.
Just this weekend, for instance, I was home in Louisiana
visiting one of the great and the largest, non federally owned
reservoir in the United States, Toledo Bend, which divides the
State of Texas and Louisiana up in the Northern part of our
State. It was a dam and reservoir created for hydro, but it is
having enormously positive economic benefits for that region
with much more promise. FERC's regulation over this hydro
electric project is important that decisions continue to be
made for that region to grow and to prosper as well as being
able to generate the power that that community needs.
It also regulates natural gas pipelines. I am, again, I
hate to continue--I like to continue to bring up Louisiana
because we have probably more natural gas pipelines under our
State and Texas than anywhere in the Nation and the Gulf Coast
does more than its fair share contributing to the production of
gas and the distribution of gas around the country. There's an
issue before FERC right now with a potential abandonment of a
Midla pipeline which I'm extremely concerned about.
It also regulates oil pipelines of which there are dozens
in my State and of course, thousands around the country. In
fact I think Senator Domenici, you might like this statistic
that there are 2.9 million miles of pipe under the United
States right now. We need more of it, not less.
Its licensing FERC, the siting and construction of
liquefied natural gas export facilities that debate is going on
and those permits are moving through as we speak.
So these are important responsibilities. I know the ranking
member will add some of her thoughts to this. But this
committee is important to continue to--I mean this Commission
is important to continue to position itself in a way that can
accelerate the energy boom, create more high paying jobs and
protect consumers. So it's a great challenge, but FERC, I
believe, is up to it.
Mrs. LaFleur's previous nomination to the Commission, let
me first start with her, enjoyed strong support from this
committee and the Senate. She was approved by the committee by
voice vote and confirmed by the Senate unanimously. She's been
Acting Chair of the Commission since last November. Before
being appointed to the Commission in 2010 she had more than 20
years of experience in the electric and natural gas industries.
I'm going to let Senator Shaheen do a more further
introduction of Ms. LaFleur. I appreciate Senator, your
leadership on this entire subject and for your being here
today.
Let me say Mr. Bay is currently the Director of the Office
of Enforcement at the Federal Energy Regulatory Commission. The
Office of Enforcement is responsible for protecting consumers
from undue manipulation of the energy markets by ensuring
compliance with energy rules, regulations, orders and tariffs.
He served in this capacity for the past 5 years.
But before joining FERC he served in numerous capacities in
New Mexico. I'm going to leave the rest to Senator Domenici and
to Senator Heinrich for further introduction.
So again, Senator Domenici, we welcome you. You're always
welcome back to the committee for your sage advice and
encouragement. Both the ranking member and I want to make that
perfectly clear to you that you are more than welcome. We're
both thrilled to see you.
With that, Senator Murkowski, can I turn it over to you for
opening remarks?
STATEMENT OF HON. RON WYDEN, U.S. SENATOR
FROM OREGON
I believe both of the nominees here today are highly
qualified for the positions they have been nominated for, and I
plan to support them both.
FERC's primary tasks have been overseeing the orderly
development of the nation's waterpower resources and protecting
electric ratepayers and natural gas consumers from unjust and
unreasonable electric and gas prices.
More recently, FERC has been handed the task of protecting
electric and gas markets from manipulation and ensuring the
reliability of the electric grid.
Norman Bay has a strong track record in all of those areas.
As Director of FERC's Office of Enforcement since 2009, Mr.
Bay has ensured that big energy companies play by the rules.
This commonsense enforcement of existing regulatory measures
means that consumers across the country are getting a fair deal
on the energy they use every day.
Under Mr. Bay's direction, the Office of Enforcement
created an innovative Division of Analytics and Surveillance,
to detect possible market manipulation. Under his leadership,
enforcement transparency has also improved, through the
adoption of penalty guidelines, the Brady Policy, and Notices
of Alleged Violations. Additionally, Mr. Bay's Office of
Enforcement includes a division (Division of Energy Market
Oversight) that has produced expert materials on all aspects of
energy markets.
In 2013, a prominent energy trade journal named Bay as one
of the top 10 most influential people in energy.
Next, Cheryl LaFleur, also has a strong track record,
having served as the Acting Chair of FERC for the past year.
Since she joined the Commission in 2010, she has focused on
ensuring the reliability and security of the country's power
grid. She has shown a willingness to work with industry and on
behalf of consumers and has earned rave reviews from both sides
of the aisle.
LaFleur brings with her nearly 3 decades of experience in
the energy regulatory world, having spent 20 years as executive
vice president and acting CEO of National Grid USA.
I believe both of the nominees today are highly qualified
for the positions they have been nominated for. I plan to
support them both, and I encourage my colleagues to do the
same.
I look forward to learning more about the nominees'
thoughts on key issues, especially FERC Order 1000 and how we
will ensure that regions have the authority to plan for their
transmission needs and distribute costs in a way that is
appropriate.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Madame Chairman.
I join you in welcoming our friend and former colleague and
chairman of this great committee back to the committee. It's
good to see you, Pete. Hope you're doing well.
Thank you, Madame Chairman, for the opportunity to have a
hearing this morning on 2 nominees for the increasingly
important positions at the Federal Energy Regulatory
Commission.
You've outlined in good detail the significance and the
importance of FERC. I think for many FERC is not a household
word. They don't know a lot about it. They maybe know a little
bit more after having it included as mentioned in the House of
Cards.
[Laughter.]
Senator Murkowski. I don't know what that means, but I
would suggest that it's always better if our agencies stay out
of the news and out of the TV shows. But that's a subject for
another time.
I would like to, again, welcome you Ms. LaFleur and you,
Mr. Bay, to the committee.
Ms. LaFleur, it was just last month that we had the benefit
of your testimony and your expertise at our electric
reliability hearing. I would like to personally commend you for
your swift response to the disclosure of sensitive, national
security information that according to the IG, should have been
classified. You moved on that quickly.
I also appreciate your cooperation in answering the
questions that I had posed to FERC regarding the unprecedented
data leak.
While you and I may not always agree on policy, you have
demonstrated, I think, very strong leadership in your position
as the Acting Chair. You've got steady leadership combined with
your 25 years of work in the energy field. I think it
demonstrates the experience. You certainly have the temperament
and the judgment that we need at the Commission. So I
appreciate your willingness to continue to serve.
Mr. Bay, welcome to you to the committee. It was good to
meet with you last week. I appreciate the time that you had
given. I think your very forthright responses to the questions
that I had. So I appreciated that.
You clearly have an impressive personal story and resume.
But I will say that as I reflected back on our conversations I
did feel that our discussions had raised additional questions
regarding your nomination. Again, not just to be a sitting
Commissioner, but to serve as the next Chairman to FERC.
I have expressed some concern about your experience in the
energy policy field as being recent and limited. As we
discussed in my office, the issue of recusal is one that does
concern me. If confirmed you would likely have to recuse
yourself from the Commission's deliberations on at least a
number of enforcement proceedings.
You also highlighted what you asserted has been, I think, a
broad reach of the work the enforcement office has done under
your leadership. You mentioned, for example, reliability
matters and even merger review. So I will have some questions
for you about the scope of the assurances that might be needed
to quell concerns about actual or perceived unfairness stemming
from your recent work as a Commission employee.
I am troubled, though, that not only do you have a steep
learning curve on areas within FERC's foundational mission, but
again, that you may need to be recused from time to time on
matters where you do clearly have that expertise. I'm hoping to
learn how the Office of Enforcement, under your leadership, has
met the commitment that you made in our meeting. You described
it as bending over backward to be fair. I would agree with you
that that is exceptionally important.
I liked your citation of the Supreme Court's classic
statement on government prosecution in Berger vs. the United
States. In that case the court said that because he represents
a sovereignty the U.S. attorney is not an ordinary party to a
controversy and that ``while he may strike blows, hard blows,
he is not at liberty to strike foul ones.'' I think you will
agree that Senators should assure themselves that the blow that
your enforcement office has struck in matters over the years
have always been fair. I think that that will be a subject of
discussion here this morning.
I raised in our discussions the assertions that had
presented themselves in a Wall Street Journal article as well
as the more recent article coming out of the Energy Law Journal
that the enforcement office may violate due process and go too
far to force settlements. I think we recognize that it's one
thing to be the tough cop on the beat. It's quite another to
make up rules as you go along and deny those under
investigation basic due process rights whether it's access to
exculpatory evidence or even the ability to review prior
testimony.
I've said many, many times in this committee that we should
be operating under regular order. I believe that very much. So
I am certainly going to wait until after this hearing, after
we've had an opportunity to not only ask questions here today,
but to submit questions for the record, I will be considering
fairly and with an open mind here, all the answers to the
questions before making a final determination as to your
nomination.
But I do think it is important that I raise these issues
whether it's the issue of recusal, whether it is the, what I
believe, is perhaps limited relevant experience and then the
issue that I also mentioned which is the fact that our lone
female commissioner, who has clearly proven her leadership
would be moved down from the position that she currently holds
as Chairman of the Commission.
So I raise these issues. I know we will have a good and
fair hearing this morning. So I appreciate, again, the
opportunity to bring these issues up and have the questions
answered.
The Chair. Thank you, Senator.
Let's begin with Senator Domenici. Thank you so much for
being here, Senator, to introduce Mr. Bay and give your remarks
for the record about the qualifications of this nominee.
STATEMENT OF HON. PETE DOMENICI, FORMER U.S. SENATOR FROM NEW
MEXICO
Senator Domenici. Thank you. Thank you very much, Madame
Chairman.
It's terrific to be here. I'm looking around and first I
want to ask my voice has changed somewhat since I was the
Chairman. I didn't have to talk very loud and everybody got the
message.
[Laughter.]
Senator Domenici. But now it seems like I really have to
work at it. If I'm not talking loud enough would somebody tell
me and I'll try again.
I noticed in preparing for today that I didn't think that
you all would come. There's such terrific issues going in your
respective States that I would think today would be an exciting
day.
Senator Alexander, they're getting rid of a few jobs at Oak
Ridge and I read about that the day before yesterday.
Senator Portman, I read with very great interest what
you've been saying about how we must grow in order to get out
of this problem that the GDP of America must grow. We must find
ways to help it grow. Your package that you put together is
very interesting.
I'm using up time because this is such a fantastic nominee
he doesn't need a lot of verbiage from me. If you let me say a
few other things I will use less on him.
I would say I read with interest and it seemed like the old
days when Wyoming has a pond up there that they want to keep
some private sector person out. EPA wants to pay, them to pay
for it because the interstate streams ruling is going to take
place. That's nothing new.
I thought that was settled law. But that's 12 years ago or
14 as I recall when it first happened. That was the riparian
doctrine. If any of it rolled out anywhere than it got covered
by the law.
I hope that's not the right recollection. I hope I was
wrong in thinking that because I didn't like what I read.
Over on the left side here I know that Senator Manchin must
have been very thrilled to see that big story with the
Secretary of Energy and the great big coal burning power plant
that burns coal in the best and most serious way. I assume you
read that. It's a major story.
If I was in your shoes I would be excited for a change that
maybe they're getting close. We put so much money in conversion
of coal to gas and saving it in the process that maybe the
research is spread out a little differently now that one Robert
Byrd is no longer here. But anyway I noticed that's happened.
We thank him for his, all his work in this area.
Then I noticed over on our side that not only is the old
Senator from New Mexico in favor of this nominee, that's me,
the old Senator.
[Laughter.]
Senator Domenici. But the 2 new Senators are for him too.
One of them is here. He's a good one because if you get in
trouble you can ask him. He's an engineer.
Many times I wished I had an engineer in my pocket when we
were doing this big bill in 2005. Some of you were with me.
That was a real experience. That's the best piece of energy law
we have passed in the past 30 years, 40 years. Remember that
all the things we saw in that one bill.
But anyway now we're here for a much lesser issue and
that's this young man on my right here, Norman Bay.
I guess I would start by saying that he, Senator Alexander,
he typifies the American Dream. I don't see how we can escape
talking about that. He is the son of Chinese immigrants who
came to America and decided that they wanted to be serious
about having children. So they had 8.
[Laughter.]
Senator Domenici. It's not like only one of them has
succeeded. They all succeeded. This one that's here asking you
to confirm him, he not only got a great education and then went
and got a great law degree, he then taught law at the
University of New Mexico, not a bad law school incidentally.
The kids, the youngsters, voted him out the best professor
there. So it seems to me one could say he didn't know anything
about being a professor when he took the job, but he did it
right once he got it. That's, sort of, my pitch for him today.
He has been fair in almost everything he's done. He's here
today because the Energy Regulatory Commission has a vacancy.
He's been nominated by our President to fill it.
As I look at it, he's done everything right that would
entitle him to try this, try this job on. See whether he could
do as well on it as the other things he's done. I didn't finish
my little loop on the American Dream, but can you imagine this
young man, the son of a Chinese immigrant, a graduate of one of
the Big East schools and then going and getting a law degree at
Harvard and then teaching law and then working with the
National Laboratories when they were in need of help. Here is
before you now seeking confirmation to this position.
I don't think we really have to talk a lot about it. If
there are those who choose not to support him, that's their
prerogative. I would urge that they understand that isn't
always that we get a candidate of this stature, with this
background coming before you for this kind of job.
You kind of wonder sometimes why somebody of his astuteness
and his finesse and his fairness, you kind of wonder why he
would be wanting this job. But obviously he thoroughly enjoys
it. The job that he is seeking demands somebody just like him.
Obviously I would urge that this committee support him.
I'm not a great fan of the President of the United States
and people know that, but I think this is a great appointment.
So I am on his side on this. I don't see how you can miss.
It is with great concern that I hear that maybe it is being
planted by some that he isn't fair, that he bends over backward
in one direction. I don't find that anywhere in his background.
Maybe some who have been the beneficiaries or that had lost out
in some kind of process think they would have ruled
differently. But that's always the case.
The question is how might he do over a long period of time
in this job that you all know he seeks here because the
President asked him to do it. I don't think he was out trying
to get it. I think they asked him if he'd take the job.
So rather than go into further detail, I would just say to
all of you that I know you've been through some difficult
times. I know you wish from time to time that you could get on
with things. You worry, like I do and I'm not even a member
here, how we can get things going.
One way is to approve this kind of young man for this kind
of job. That's one way to move the ball down just a little bit,
not a lot. But I thank you very much.
I want to close by saying that the committee I once served
on, this one, has a very interesting make up. The 2 women that
head this committee have pledged to try to do things in a
bipartisan manner. Obviously if there's anything wrong with
this nominee it's that he is bipartisan, maybe some people
would not like him to be bipartisan. I don't know. But clearly
he is and he comes here with that mold part of his life.
We're always asking for that. Now we've got it. So we find
some reason not to want it. I don't quite understand that.
But I leave you today with the hope that this fine
committee will get some more real big work done. You know the
areas. I can see them as we talk here.
I can see you all working so hard to try to get things
done. I thank you for giving me an opportunity to sit at this
side of the table and talk with you for a few minutes. Thank
you very much. It's really a pleasure.
The Chair. Mr. Chairman, thank you so much for that
beautiful introduction, sage advice. You continue to be an
inspiration to all of us.
Senator Heinrich, did you want to say anything now about
your nominee or wait for later in the committee?
Senator Heinrich. At your pleasure, Madame Chair.
The Chair. Why don't you go ahead now and just add a few
words then?
STATEMENT OF HON. MARTIN HEINRICH, U.S. SENATOR
FROM NEW MEXICO
Senator Heinrich. OK. Great.
Madame Chair and Senator Murkowski, I am incredibly pleased
to say a few words regarding Mr. Norman C. Bay. I want to start
by saying what an honor it is to be here with Senator Domenici
in support of his nomination.
We have a long and storied history in energy policy in the
State of New Mexico. It's a deep honor for me to sit here with
all the great work that Chairman Domenici has done on this
committee over the years.
I join Senator Domenici in strongly supporting this
nomination. Since 2009 Mr. Bay has been the Director of the
Office of Enforcement at FERC where he gained extensive
experience into regulation of energy markets. The Office of
Enforcement is responsible for market oversight and
surveillance and for implementing the anti-manipulation
authority of this Committee's Energy Policy Act of 2005, an
incredible piece of energy legislation that certainly left its
stamp on this country in many positive ways. This authority
provided FERC new tools to combat the type of market
manipulation that produced the devastating power crisis in the
West a number of years ago.
Under Mr. Bay's leadership FERC has increased transparency
in its work, opening in a number of enforcement actions that
have helped protect the integrity of energy markets and
provided about $300 million in relief to consumers. I should
add that Mr. Bay is a proud New Mexican and I understand an
avid fly fisherman, something near and dear to my heart. He is
a graduate of Dartmouth College and Harvard Law School and has
had a long and distinguished career in public service.
Before FERC he taught at UNM. He also served as an
Assistant U.S. Attorney. In 2000 was nominated by the President
to be the U.S. Attorney to the District of New Mexico with
strong bipartisan support from New Mexico's 2 Senators, Senator
Domenici and Senator Bingaman. Mr. Bay was confirmed by the
full Senate by unanimous consent.
I had the pleasure of meeting in my office with Mr. Bay and
believe he will be fair, balanced, pragmatic and consensus
oriented. He will decide cases on the merits, based on the
facts, the law and the record, as they should be decided. Mr.
Bay is an outstanding career public servant with extensive
experience in the field of energy markets. I am very confident
he will judiciously implement the laws focused on FERC's
statutory responsibilities of energy infrastructure,
competitive markets and reliability.
Once again, it's an honor to introduce Mr. Bay today. I
strongly support his nomination to the FERC.
The Chair. Thank you very much.
Let me also submit a letter from the Governor, Suzanna
Martinez, who wanted to be here today on behalf of this
nominee, but submitted a letter strongly recommending him to
our committee.
The Chair. Also from the additional, another Chair of the
Committee, Senator Bingaman, who sent a strong letter of
recommendation for you, Mr. Bay.
The Chair. Let me now turn to Senator Shaheen for her
opening remarks.
Senator, thank you for your leadership on all of these
issues and for presenting Ms. LaFleur to our committee this
morning.
STATEMENT OF HON. JEANNE SHAHEEN, U.S. SENATOR
FROM NEW HAMPSHIRE
Senator Shaheen. Thank you very much, Chair Landrieu,
Ranking Member Murkowski, all of the members of the committee.
It's so nice to be back before the Energy Committee. I have to
say I miss it. So hopefully at some point I will be able to
come back.
But I'm very honored this morning to be asked to introduce
the current acting FERC Chair, Cheryl LaFleur. I had the
pleasure of introducing Cheryl to this committee in 2010 during
her first nomination hearing to serve as FERC Commissioner. I
strongly supported her nomination then as I do now. I would
point out, as several people have mentioned, that she has been
serving as Acting Chair of the Commission and I think, has done
an excellent job in that capacity as well.
Most important, Cheryl has routinely demonstrated an
unparalleled understanding of how to best address the
challenges facing our energy regulatory environment in a way
that will provide affordable, reliable energy to Americans. I
was talking to someone about an unrelated issue a couple of
weeks ago, who volunteered that he had come before the FERC on
a number of occasions and how impressed he was with then Acting
Chair LaFleur's unflappability, with her ability to make people
appearing before the FERC feel like they had been heard and
that there was someone there who was looking for common ground
to help people figure out how to get things done on the FERC in
a way that benefited all parties. So I was really pleased to
hear him volunteer those very positive comments.
I have to say personally I had the good fortune of working
with Cheryl when I was in the New Hampshire State Senate, back
in the 1990s and then as Governor. So I've had a chance to see
firsthand just how many abilities she has, her qualifications
that make her so, such an excellent Commissioner at the FERC.
Early in her career Cheryl led energy efficiency programs
in New Hampshire. You all know how much I believe in energy
efficiency and in the Northeast. Those programs focused on
residential efficiency and actually won her national
recognition for those efforts.
Later as President of Granite State Electric which was
headquartered in New Hampshire and then as Executive Vice
President and CEO of one of New England's largest utilities,
National Grid, Cheryl was responsible for providing electricity
to 3.4 million customers in the Northeast. I have to say, I
think she brings an understanding of the challenges that we
face in the East and the Northeast in a way that's very
important to have that kind of expertise on the FERC.
During her tenure at FERC Cheryl has focused much of her
time on improving reliability and grid security, promoting
regional transmission planning and supporting a clean and
diverse energy supply for the country. Her past experience
working directly for electricity and natural gas customers has
given her an important recognition of the hardship caused by
inadequate or overly expensive energy supplies that affect
working families, businesses and communities.
I have no doubt that FERC will continue to benefit from the
experience and knowledge that Cheryl brings to the Commission.
She has an impressive track record that clearly demonstrates
her commitment to providing reliable and affordable energy. She
is exceptionally qualified to continue serving as a
Commissioner.
I'm delighted, again as I said, to introduce her. I
strongly recommend her to this committee.
So thank you very much, Chair Landrieu and Ranking Member
Murkowski, all the members of the committee. I certainly hope
that you will swiftly and expeditiously vote out her
nomination.
Thank you.
The Chair. Thank you, Senator Shaheen. It's wonderful to
have you back.
We all thank you and Senator Portman for your leadership on
our energy efficiency legislation. We hope to find a way to
move that forward. Thank you for your leadership.
If the 2 nominees would please now stand and raise your
right hand?
The rules of our committee which apply to all nominees
require that they be sworn in in connection with their
testimony.
Do you solemnly swear that the testimony you are about to
give to the Senate Committee on Energy and Natural Resources
shall be the truth, the whole truth and nothing but the truth,
so help you God?
[Witnesses respond, I do.]
The Chair. OK.
Please be seated.
Before you begin your statement, I'd like to ask 3
questions that are asked of each nominee before they come
before this committee.
First, will you be available to appear before this
committee and other Congressional Committees to represent the
department positions and respond to issues of concern to
Congress?
[Witnesses respond, I will.]
The Chair. Are you aware of any personal holdings,
investments or interests that would constitute a conflict of
interest or create the appearance of such a conflict should you
be confirmed and assume the office to which you've been
nominated by the President of the United States?
Ms. LaFleur. My investments, personal holdings and other
interests have been reviewed both by myself and by appropriate
ethics counselors within the Federal Government. I've taken
appropriate action to avoid any conflicts of interest. There
are no conflicts of interest or appearances thereof to my
knowledge.
The Chair. Mr. Bay.
Mr. Bay. My investments----
The Chair. Can you turn your microphone on? You just have
to--there you go.
Mr. Bay. Yes.
My investments, personal holdings and other interests have
been reviewed both by myself and appropriate ethics counselors
within the Federal Government and pursuant to the agreement
that I signed, the letter I signed, I will take appropriate
action to avoid any conflicts of interest and based on that
representation in the letter, if confirmed there would be no
conflicts of interest or appearances thereof to my knowledge.
The Chair. Thank you, Mr. Bay.
Finally, are you involved or do you have any assets held in
a blind trust?
Ms. LaFleur. No.
Mr. Bay. I do not either.
The Chair. OK.
I will now call on each of the nominees for their
statement. You've prepared statements for the record. Ms.
LaFleur, let's begin with you.
TESTIMONY OF CHERYL A. LAFLEUR, NOMINEE TO BE A MEMBER OF THE
FEDERAL ENERGY REGULATORY COMMISSION
Ms. LaFleur. thank you very much, Chair Landrieu, Ranking
Member Murkowski and members of the committee. I'm honored to
appear before you this morning as a nominee for a second term
at the Federal Energy Regulatory Commission.
I'd like to thank Senator Shaheen for her generous
introduction and for everything that she's done for the people
of New England. I'm grateful for her continuing support.
I would like to thank President Obama for nominating me and
this committee for holding this hearing at which I'm pleased to
appear with my colleague, Norman Bay.
As the Chair has noted FERC's work encompasses a variety of
responsibilities. In my 4 years on the Commission I've voted on
approximately 3,500 orders as a commissioner and led the
decision of more than 500 as acting chairman. In each order
I've sought to use my independent judgment based on the facts
of the record and the law that binds us.
I've worked to understand the perspectives of all parties
and those of my colleagues to make decisions that are fair,
clear and timely. I've been aided by the wonderful team in my
office, all of whom are here this morning, and across the
Commission.
I also appreciate the continuing support of my family. I'm
very happy that my husband, Bill Kuncik, and our daughter,
Allison, are sitting behind me today. Our son, Dan, is teaching
high school back home just like Senator Shaheen did a long time
ago. We didn't want him to leave the kids with a sub just to be
here.
But I want to briefly use my time to touch on 3 areas that
have been priorities for me at the Commission.
As I frequently note, our nation is seeing substantial
changes in energy supply due to the increased availability and
use of domestic natural gas, the growth in renewables and
demand-side resources and new environmental rules. These
drivers of change are really largely outside FERC's
jurisdiction, but they're driving much of our work on both
infrastructure and markets. Our nation is investing in electric
transmission, gas pipelines and LNG facilities, and FERC's
regulation has a critical impact on those investments.
In addition, supply changes require adaptations in
competitive electric markets to assure that they attract needed
investment and coordinate effectively with gas markets. I've
sought to be a leader in those areas.
Throughout my time at FERC reliability, including grid
security, has been a top priority. Ensuring reliability
requires that we pay attention to day-to-day activities like
trimming trees as well as emerging issues like cyber security.
As I further explain in my written testimony I think we're
making progress on both fronts.
In recent months FERC has approved new and more
comprehensive cyber security standards and has ordered NERC to
develop standards to respond to geomagnetic disturbances and
physical security risks.
Finally, another area of priority for me, both as a
Commissioner and as Chairman, has been building relationships
between FERC and other agencies that regulate the same
industries that we do. Because of the overlapping jurisdiction
across the government, I believe that those relationships are
essential to effective regulation. One of my first actions as
Acting Chairman was to resume FERC's negotiations with the
Commodities Futures Trading Commission on 2 agreements required
by Dodd-Frank which we successfully executed January 2nd. As a
result the CFTC is now providing FERC with critical market data
that's enhanced our market surveillance.
I've also worked to build a strong relationship with the
EPA. I founded and co-chaired the joint FERC/NARUC forum on
reliability in the environment to discuss preparation for and
compliance with new environmental regulations and assure
reliability is sustained.
If confirmed I'll continue to work closely with Federal and
State agencies.
I've been blessed with a wonderful career. I began in a law
firm, held executive positions serving electric and gas
customers and led non-profit organizations. Compared to some I
came late to public service, but I found it both challenging
and extremely rewarding.
It's been an honor to serve on the Commission and work on
the critical issues I've mentioned and many others. I'm deeply
honored that President Obama has nominated me to continue this
work. Thank you for your consideration of my nomination. I look
forward to your questions.
[The prepared statement of Ms. LaFleur follows:]
Prepared Statement of Cheryl A. LaFleur, Nominee to be a Member of the
Federal Energy Regulatory Commission
Chair Landrieu, Ranking Member Murkowski, and members of the
Committee. I am honored to appear before you as a nominee for a second
term at the Federal Energy Regulatory Commission. I would like to thank
Senator Shaheen for her very generous introduction, and for all that
she has done for the people of New England. Senator Shaheen introduced
me at my confirmation hearing four years ago, and I am grateful for her
continuing support. I would like to thank President Obama for
nominating me and this Committee for scheduling this hearing, at which
I am pleased to appear with my colleague Norman Bay.
As you know, the Commission's work spans different industries and
encompasses a variety of responsibilities. In my four years on the
Commission, I have voted on approximately 3500 orders as a
Commissioner, and led the decision of more than 500 as Acting Chairman.
In each order, I have sought to use my independent judgment based on
the facts of the record and the law that binds us. I have worked to
understand the perspectives of all involved parties, as well as the
views of my colleagues, to help the Commission render decisions that
are fair, clear, and timely. I have certainly been aided in this by the
wonderful team in my office-all of whom are here-and throughout the
Commission. I also deeply appreciate the continuing support of my
family, and I am pleased to have my husband Bill Kuncik and our
daughter Allison with me today. Our son Dan is teaching high school
physics back home-he is not here because I didn't want him to leave his
students with a substitute for the day.
Four years ago at my hearing before this Committee, I pledged to
try to understand the unique needs and opportunities of different
geographic regions across the country. In my efforts to fulfill that
commitment, I have met with a wide variety of parties from across the
country and have traveled to many of those regions. For example, I have
visited each of the Regional Transmission Organizations and the
Bonneville Power Administration and have toured a variety of energy
infrastructure, from the Grand Coulee Dam to the Kemper carbon
sequestration facility under construction in Mississippi. If confirmed,
I look forward to applying what I have learned and continuing to learn
about the complex energy markets and infrastructure we oversee.
I would like to briefly mention three areas that have been
priorities for me and that I believe will continue to shape much of the
work of the Commission in the coming years.
Changes in Power Supply
As I frequently note, the nation is making substantial changes in
its power supply due to the increased availability of domestic natural
gas and its use for power generation, the growth of renewable and
demand-side resources, and new environmental requirements. Although
these drivers of change are largely outside the Commission's
jurisdiction, we must be aware of and adapt to them to caJTy out our
statutory responsibilities. These developments are driving a great deal
of the Commission's work on both infrastructure and markets. Our nation
is making substantial investments in electric transmission, gas
pipelines, and LNG facilities, and the Commission, through its
authority over transmission ratemaking and natural gas permitting and
ratemaking, has a critical impact on those investments. In addition,
power supply changes require adaptations in competitive electric
markets, to assure they attract needed investment and coordinate
effectively with natural gas markets. I have sought to be a leader on
these efforts.
Grid Reliability and Security
Throughout my time at the Commission, reliability, including grid
security, has been a top priority for me. Because of my past experience
working directly for customers, I know firsthand how hard even a short
outage can be on families, businesses, and communities.
Ensuring reliability requires that the Commission pay attention to
the day-to-day, nuts and bolts activities necessary to keep the lights
on, like tree trimming, as well as emerging issues, like cybersecurity.
I believe that the Commission is making progress on both fronts,
through its oversight of the North American Electric Reliability
Corporation (NERC). For example, last year, the Commission approved
Version 5 of the Critical Infrastructure Protection Standards, which
for the first time require that all electric system cyber assets
receive some level of protection, commensurate with their impact on the
grid. In addition, the Commission directed NERC to develop standards to
protect the grid from geomagnetic disturbance (GMD) events caused by
solar storms. Finally, the Commission recently directed NERC to develop
physical security standards for the grid, to ensure that critical
facilities are identified and protected.
Cooperative Relationships with Federal and State Agencies
Finally, as both a Commissioner and Acting Chairman, I have worked
to strengthen relationships between the Commission and other agencies-
both state and federal-that regulate some of the same industries we do.
I believe that the Commission must be independent, but never siloed.
Given the complex, overlapping authorities that govern the nation's
energy industry, cooperative relationships are essential.
One of my first actions as Acting Chairman was to resume the
Commission's negotiations with the Commodities Futures Trading
Commission (CFTC) on the two Memoranda of Understanding (MOUs) required
by the Dodd-Frank Act, which were successfully executed in January.
Under the new information-sharing MOU, the CFTC is now providing FERC
with critical market data on an ongoing basis, and this information has
already enhanced FERC's market surveillance abilities. I believe this
type of collaboration can help protect customers by strengthening both
agencies' oversight of energy markets.
I also believe it is important that the Commission continue its
relationship with the Environmental Protection Agency to ensure that
reliability is sustained as the electric sector complies with new
environmental regulations. To that end, I founded and cochaired the
joint FERC-National Association of Regulatory Utility Commissioners
(NARUC) Forum on Reliability and the Environment. The Forum brought
together federal and state energy regulators to discuss the electric
utility industry's preparation for, and efforts to comply with the
Mercury and Air Toxics Standards, upcoming carbon regulations, and
other rules. I have also served as the Commission liaison to the
Department of Energy's Electricity Advisory Committee.
Of course, because of the often intertwined nature of state and
federal energy regulation, one of the most important relationships for
federal regulators is with their state counterparts. If confinned, I
will continue to prioritize maintaining strong relations with NARUC and
the state public utility commissions that NARUC represents.
Closing
I have been blessed with a wonderful career: I began in a law fitm,
held executive positions in companies serving electricity and gas
customers, and led nonprofit organizations. I came late to public
service, but have found it both challenging and extremely rewarding. It
has been an honor to serve on the Commission and work on the critical
issues I have mentioned and many others. I am deeply honored that
President Obama has nominated me to this work. Thank you for your
consideration of my nomination, and I look forward to answering your
questions.
The Chair. Thank you very much.
Mr. Bay.
TESTIMONY OF NORMAN C. BAY, NOMINEE TO BE A MEMBER OF THE
FEDERAL ENERGY REGULATORY COMMISSION
Mr. Bay. Chair Landrieu, Ranking Member Murkowski and
distinguished members of the Senate Energy and Natural
Resources Committee, I'm honored to be here today as a nominee
for the Federal Energy Regulatory Commission. I would like to
thank President Obama for nominating me to this position. I
also thank Chair Landrieu and Ranking Member Murkowski for
holding this hearing.
I also owe a special thanks to Senator Domenici, who is a
long time Senator from New Mexico, is still called St. Pete by
his constituents and is still absolutely down to earth as a
former baseball player ought to be.
I'm honored to appear before this committee with Acting
Chairman LaFleur.
I also wish to thank my wife, Yuri Chayama, who is here
today in the committee hearing room.
I'm proud to call myself a New Mexican. New Mexico is an
amazing place to be. It's a place of great natural beauty. It
is also blessed to have an abundance of natural resources
including the sun, wind, oil and gas.
But despite its natural beauty and its natural resources,
unfortunately New Mexico is one of the poorer States in the
United States. As a result developing all of our resources
matters, it matters to the local economy, the State economy and
in turn the national economy and the energy security of the
United States. New Mexico is also home to 2 national labs, Los
Alamos and Sandia, that do the kind of cutting edge research
that leads to technological innovation and breakthroughs that
enhance our energy security. In my view New Mexico is a real
life example of an all of the above approach to energy.
Not only am I from New Mexico, but as Senator Domenici
noted I'm a child of immigrants. My parents left China to come
to the United States after World War II in search of a better
life, higher education and freedom. In the United States my
parents proceeded to have a large family. I have 3 brothers and
4 sisters.
My parents worked hard to support us and to put us through
school. My father worked for the Air Force. My mother was a
researcher at a Department of Energy facility. From my parents
I learned the value of hard work, education and public service,
of giving back something to this country that had been so good
to us. I've spent my life in public service with a bipartisan
commitment to good government.
I clerked for a Republican Federal judge, worked at the
State Department during a Reagan Administration and began
working at the Justice Department in the first Bush
Administration.
In 2000 I was nominated by President Clinton to be the
United States Attorney in New Mexico and was confirmed by
unanimous consent to the Senate.
After DOJ I went to the University of New Mexico School of
Law, taught there for 7 years and received tenure.
In 2009 I became the Director of the Office of Enforcement
at FERC. It has been a great honor to work at FERC. The Office
of Enforcement not only investigates potential wrong doing,
including market manipulation, but is also responsible for
doing market oversight, analytics and surveillance for the
Commission.
As Director I have been immersed in the wholesale, physical
gas and electric markets as well as the financial or
derivatives energy markets that settle off of physical prices.
While I've been the Director, the Commission has issued 49
settlement orders with 48 being reached by unanimous vote.
Every market manipulation settlement has been issued by
unanimous vote. These settlements have helped protect
consumers, ensure the integrity of the markets and provide a
level playing field for all market participants.
If confirmed let me tell you what my priorities would be in
light of the challenges ahead.
First, to be fair, balanced and pragmatic in addressing
issues, to decide cases on their merits based on the facts and
the law and to be consensus oriented.
Second, infrastructure.
FERC plays a critical role in permitting and incenting the
development of infrastructure. Right now as Chair Landrieu
noted, there is an important need for more infrastructure both
in terms of gas facilities and electric transmission.
Third, competitive markets.
To continue to look for ways to improve the efficiency of
the markets and to deliver greater value to consumers.
Fourth, reliability.
This is another critical responsibility for FERC. Not only
does this encompass physical security and cyber security but it
includes gas-electric coordination issues as well.
Thank you for giving me this opportunity to testify before
you today. I welcome any questions you have.
[The prepared statement of Mr. Bay follows:]
Prepared Statement of Norman C. Bay, Nominee to be a Member of the
Federal Energy Regulatory Commission
Chair Landrieu, Ranking Member Murkowski, and distinguished members
of the Senate Energy and Natural Resources Committee, I am honored to
be here today as a nominee for the Federal Energy Regulatory Commission
(FERC). I would like to thank President Obama for nominating me to this
position, and I also thank Chair Landrieu and Ranking Member Murkowski
for holding this hearing.
I am proud to call myself a New Mexican. New Mexico is an amazing
place; it is a place of great natural beauty. It is also blessed to
have an abundance of natural resources, including the sun, wind, oil,
and gas. But despite its natural beauty and its natural L sources,
unfortunately, New Mexico is one of the poorer states in the United
States.
As a result, developing all of our resources matters. It matters to
the local economy, the state economy, and, in turn, to the national
economy, and the energy security of the United States. New Mexico is
also home to two National Labs--Los Alamos and Sandia--that do the kind
of cutting edge research that leads to technological innovation and
breakthroughs that enhance our energy security. In my view, New Mexico
is a real life example of an ``all-of-the-above'' approach to energy.
Not only am I from New Mexico, but I am the child of immigrants. My
parents left China to come to the United States after World War II in
search of a better life, higher education, and freedom . In the United
States, my parents proceeded to have a large family. I have three
brothers and four sisters. My parents worked hard to support us and to
put us through school. My father worked for the U.S. Air Force; my
mother was a researcher at a Department of Energy facility.
From my parents, I learned the value of hard work, education, and
public service -of giving something back to this country that had been
so good to us. I've spent my life in public service, with a bipartisan
commitment to good government. I clerked for a Republican federal
judge, worked at the State Department during the Reagan Administration,
and began working at the Justice Department in the first Bush
Administration under Attorney General Richard Thornburgh. In 2000, I
was nominated by President Clinton to be the U.S. Attorney in New
Mexico and was confirmed by unanimous consent of the Senate. After DOJ,
I went to the University ofNew Mexico School of Law, taught there for
seven years, and received tenure.
In 2009, I became the Director of the Office of Enforcement at
FERC. It has been a great honor to work at FERC. The Office of
Enforcement not only investigates potential wrongdoing, including
market manipulation, but is also responsible for doing market
oversight, analytics, and surveillance for the Commission. As Director,
I have been immersed in the wholesale physical gas and electric
markets, as well as the financial or derivatives energy markets that
settle off of physical prices. While I have been Director, the
Commission has issued 49 settlement orders, with 48 being reached by
unanimous vote. Every market manipulation settlement has been issued by
unanimous vote. These settlements have helped protect consumers, ensure
the integrity of the markets, and provide a level playing field for all
market participants.
If confirmed, let me tell you whatmy priorities would be in light
of the challenges ahead:
First, to be fair, balanced, and pragmatic in addressing issues. To
decide cases on the merits based on the facts and the law. to be
consensus oriented because the most stable policies command the
broadest support and because regulatory certainty is critical to market
participants when they make huge capital investment decisions.
Second, infrastructure. FERC plays a critical role in permitting
and incenting the development of infrastructure. Right now, there is an
important need for more infrastructure, both in terms of gas facilities
and electric transmission.
Third, competitive markets. To continue to look for ways to improve
the efficiency of the markets and to deliver greater value to
consumers. As part ofthat FERC must contin.ue to be a vigilant cop on
the beat to protect consumers and to ensure the integrity of the
markets.
Fourth, reliability. This is another critical responsibility for
FERC. Not only does this encompass physical security and cybersecurity,
but it encompasses gas-electric coordination issues as well.
Thank you for giving me this opportunity to testify before you
today. forward to answering any questions you may have.
The Chair. Thank you very much for your excellent opening
statements.
Let me begin, Mr. Bay, with you, if I could. The Department
of Energy Organizational Act requires members of FERC and I'm
going to quote the statute. This is the only requirement in the
law for your positions. ``To be individuals who by demonstrated
ability, background, training or experience are specifically
qualified to assess fairly the needs and concerns of all
interest affected by Federal energy policy.''
I want to--I know I submitted this earlier to the record
but in this question include a specific comment from the
Governor of New Mexico, Suzanna Martinez, who says on your
behalf, ``working closely with Norman I want to say that he
worked closely with State law enforcement officials regardless
of their political affiliation, to partner with them in
addressing border crime and to provide assistance wherever
possible. He listened to State officials and had a pragmatic,
collaborative approach to problem solving. My office worked
closely with him when he was U.S. Attorney on a variety of law
enforcement issues. What mattered to Norman was good government
and public safety and he enforced the law in an even handed
manner.''
How has your experience as Director of the Office of
Enforcement for the past 5 years and as United States Attorney
and U.S. Assistant Attorney during the last 9 years, do you
believe how do those experiences qualify you to assess fairly
the needs and concerns of all interested parties affected by
FERC? There are some many conflicts brought to your--before
your Commission. What do you think your experience in the past
has taught you about how you may perform in this new position?
Mr. Bay. The key is, whether you are a U.S. Attorney or
whether you are the Director of the Office of Enforcement, the
key is that you have to have a commitment to doing the right
thing. Everything begins with that.
Whether you are a U.S. Attorney or whether you are the
Director of an Office of Enforcement and do civil work, you
have to have a commitment to fairness because fairness has to
be a cornerstone of your office. It goes to the very legitimacy
of the work that you do. So when you decide cases, when you
examine cases, you have to be fair, you have to be thoughtful,
you have to be balanced and you have to be impartial. You have
to decide cases based on the merits.
That's what I would take from my positions as both U.S.
Attorney and Director of the Office of Enforcement. If
confirmed, I would bring that to the Commission.
The Chair. There have been--thank you.
There have been some recent criticisms by some lawyers that
sent testimony to this committee saying that some of your
decisions have been lopsided and unfair. Among other things the
Commission has been criticized for levying excessive fines on
market participants for manipulating energy markets.
Please explain how FERC arrives at the amount of its civil
penalties? Is the amount left to you as the head of
Enforcement? Is it to your discretion or are you bound by
Commission guidelines?
What factors enter into the calculation of the penalties
and who ultimately determines the fine amount of the penalty,
the Office of Enforcement or the Commission?
Could you clarify for the record because there are some
concerns in this regard?
Mr. Bay. Chair Landrieu, you raise a very important point.
When the Office of Enforcement engages in significant
action it does so at the direction and with the authorization
of the Commission. So, for example, if we want to enter into
settlement negotiations we have to prepare a memo that the
Commission reviews and that the Commission has to approve in
order for us to enter into those formal settlement
negotiations. Even if we're able to reach a proposed settlement
at the staff level, the Commission has to review the proposed
settlement and it has to determine whether or not it is in the
public interest to accept the settlement.
As I mentioned, while I've been the Director of the Office
of Enforcement we have concluded 49 settlements. Fourty-eight
of the 49 have been by bipartisan vote of the Commission. So
Democrats and Republicans alike, coming together to prove a
settlement and to find, as they must, that the settlement was
in the public interest.
With respect to market manipulation cases, all of those
settlements have been approved unanimously by the Commission.
The Chair. Thank you.
Let me ask my next question to Mrs. LaFleur.
There's been some concern that some of the regional
electricity markets are not functioning as openly and as
transparently, particularly the New England market. We had a
hearing recently. Senator Manchin was helping us to try to
figure out what was happening there, Senator--in the Midwest
also with Senator Franken and Senator Baldwin.
There seems to be insufficient incentives to spur
investment in the generation where the demand is needed most.
One aspect of the situation in New England is that generators
appear to be largely unwilling to contract for firm
transmission services, etcetera.
In response the gas industry seemed to be unwilling to
invest in new pipeline capacity unless they have the contracts.
You've been on the Commission. How is FERC going to try to
work through some of these important issues between, you know,
generators of gas and power and contracts to make sure that
those investments get done?
Ms. LaFleur. Thank you, Senator. Those are some of the most
important issues we're looking at.
At the time when the competitive markets were created about
15 years ago, in New England and really everywhere else in the
country were very, very long on generation. So mostly the
markets have reallocated resources among existing generators
that came into the market.
Right now we're in a different place. We're in an
investment cycle. Really taking a very hard look, particularly
at the forward capacity markets, to make sure that they
function to attract the investment that they need.
We actually have an open inquiry that I started at the
Commission looking at the capacity markets and if we need to
make changes.
The specific issue that you raise is--arises from the fact
that electricity and gas attract capital differently.
Electricity, the farthest ahead the markets look is 3 to 5
years generally, and the gas pipelines require a 10 to 15 year
commitment for firm supply. Therefore, they are not meshing.
Right now we're looking at the ways to price more fuel security
into the electric markets so it will pull the pipeline
investment we need.
The Chair. Thank you very much.
Let me turn this over to Senator Murkowski.
Senator Murkowski. Thank you, Madame Chairman.
Let me follow on the question from the Chairman here about
the assertions that have been made, not only through the Wall
Street Journal article with the interview of Kevin and Rich
Gates, who assert that they have been denied, what they
believe, is basic fairness over a period of years by the Office
of Enforcement.
The suggestion is that there is a form of bullying or
perhaps worse. I mentioned it in my opening the Energy Law
Journal article that came out last week which, I understand,
has been in the process of being written for some period of
time. So I'm assuming was not timed, Mr. Bay, to coincide with
this hearing.
But the statements contained in that article which the
Chairman references are pretty tough, suggesting that while
most members of the regulated community and practitioners
within the Energy Bar are reluctant to say so publicly there is
a widespread view that the FERC enforcement process has become
lopsided and unfair. I think it's just critically important
that the FERC be viewed as this unbiased entity that really is
even handed. Again, Mr. Bay, your comments to me about the
importance, really, of going the extra mile to make sure that
that fairness in fact is in place.
So I have a couple questions and I'll start off with you,
Mr. Bay. But Ms. LaFleur, I want you in this conversation as
well.
As it relates particularly to the information in the Wall
Street Journal article, you've indicated to me, Mr. Bay, that
you couldn't respond directly to my questions pertaining to
that case because of Commission rules that you couldn't divulge
certain information. I'm assuming that that is still the case
or is there more that you can convey to the committee that
would allay these concerns about the particular Gates
allegations?
Mr. Bay. Only the Commission can disclose whether or not an
investigation exists and thus changing the investigation from
its non-public status to a public status.
What I can say and what is a matter of public record is
that the PJM market monitor referred the up--to congestion
matter to the Commission and the Commission issued an order,
unanimously, directing the Office of Enforcement to open up the
investigation. But I can't say anything more than that because
everything else would be non-public.
Senator Murkowski. So is it your understanding then that it
will be opened up to investigation?
Mr. Bay. That will be a decision for the Commission to
make.
Senator Murkowski. OK.
Then just following on this. The law review article asserts
that when individuals are under FERC investigation, FERC
enforcement does not have to provide access to deposition
transcripts or provide the information to individuals, even
exculpatory evidence, that has been shared with the Commission.
Is this also correct?
I guess the broader question would be do you believe that
individuals should have access to their deposition transcripts
and the information that's been shared with the Commissioners?
Mr. Bay. Senator Murkowski, you raise an important issue.
They are really 2 issues.
One goes to exculpatory evidence.
Another one goes to access to deposition transcripts.
On access to deposition transcripts, in a great majority of
cases the transcripts are released to the person who has been
deposed. The regulations that FERC has, however, provide that
the transcript access can be denied if there is a concern over
the integrity of the investigation. In those instances,
however, while the access to the transcript might be delayed,
eventually it is released.
It's not a question of whether or not the transcript will
be released. It's a question of when.
The other thing is that----
Senator Murkowski. But, if I may just interrupt there?
Mr. Bay. Yes, please.
Senator Murkowski. If individual isn't able to gain access
to that in a timely manner in order to prepare his or her
rebuttal, doesn't this limit their ability to effectively
advocate their side of the issue?
Mr. Bay. What happens under the process we have is that the
lawyer for the witness is able to attend the deposition. The
lawyer can bring a paralegal. The paralegal can take copious
notes. The transcripts are released before the show cause stage
of the proceedings.
I would also say that one thing that's very unique about
FERC's process is that staff prepares a preliminary findings
letter for the subjects of investigations that includes a
factual summary, as well as the allegations regarding potential
violations.
So there's a lot there that does happen even if in
individual cases there's a concern over the integrity of the
investigation. So there's some delay in sharing the
transcripts.
Senator Murkowski. Ms. LaFleur, I'll ask this of you as
well.
If you have allegations or assertions that the FERC's
enforcement process raises serious fundamental due process and
substantive concerns, I would suggest that this is a problem
for us whether it's within the Office of Enforcement or whether
it's the Commission as a whole. I don't think that this
reflects well on the Commission, but even more so on the Office
of Enforcement either.
How do we respond to allegations of serious fundamental due
process and substantive concerns?
Ms. LaFleur. Senator, I think anytime anyone who practices
before the Commission expresses views we have to listen to them
among all the views that we hear. You know, I respect Bill
Scherman and his, you know, the thoughts he expresses in the
article. I think I'm quoted in the article at a House Committee
saying we should always be open to ways to improve any aspects
of our work.
At the same time, I think there is an alternative point of
view to that expressed in the article. Enforcement is a very
important part of our work because it underlies reliability and
market fairness, 2 tenets of our work. It's normal that the
people who were subjects of investigations might have a
different view that those conducting them. You know, I stand by
all my votes on both enforcement orders to show cause and
settlements because I think they were fairly conducted.
But if there are ways we can learn to do it better in the
future I think we should.
Senator Murkowski. This is something that I would like us
to have an opportunity to get into further. It's one thing if
you have a disgruntled CEO or corporation because they don't
like the penalty that has been assessed. But it would appear to
me that we're talking about more than a few disgruntled
individuals, that there's a concern, perhaps, about process.
Mr. Bay, you know, unfortunately it reflects on you since
you have been at the Office of Enforcement now since 2009. So
this is something I would like to delve into a little bit more.
Let me ask Mr. Bay on the issue of recusal because this was
something that I have expressed concern about. If, as the
Chair, you would have to recuse yourself from certain matters
that you had been involved with at the Office of Enforcement,
it limits our Commission in terms of the ability to advance.
You did say that, if confirmed you would work with the Ethics
Counsel at FERC to determine how to proceed. I appreciate that.
But what standards effectively would be in place in order
to determine if you should be disqualified from a Commission
hearing? What standards would you impose on yourself? Also, do
you believe that your decision to decline to recuse yourself
would be appealable and whether or not it even should be?
Mr. Bay. In terms of the legal standard I would want to
talk to the designated Ethics Officer to figure out what the
precise legal standard is. But the gist of it has to be that
there can't be an actual conflict of interest. I think even
going beyond that there is a concern over an apparent conflict
of interest.
So I would want to work closely with the Ethics Officer to
figure out what I had to recuse myself from. In terms of
whether or not a recusal decision is appealable or not, I don't
know the answer to that question. But I certainly would be
happy to discuss the issue with the General Counsel at FERC and
get back to you on that particular point.
Senator Murkowski. Do you still think that the number of
proceedings from which you would have to recuse yourself is 43
or thereabouts? Is that correct?
Mr. Bay. I think it would be 43 if you take the most
sweeping approach which is to say that any matter that has been
opened as an investigation whether it is formal or informal
requires my recusal. If you're talking about investigations
that are formal or where there has been a show cause order
where the Commission has issued charges, the equivalent of
charges, the number is much, much smaller.
So this is one of the issues that I would want to explore
with the designated Ethics Officer.
Senator Murkowski. Madame Chairman, the clock is a little
off, but I think I've gone over.
Thanks.
The Chair. Thank you.
I'm going to recognize Senator--well, Senator Manchin,
Senator Heinrich next.
But let me just say, in these hearings questions are always
raised I think to hone in on the nature of the questions about
the nominees. I want to just underscore one thing that I heard
because if I heard it wrong it needs to be corrected now before
we go forward.
The ability of FERC to open an investigation is done by the
Head of Enforcement or is it done by the Commission itself? Ms.
LaFleur? The decision to open an investigation?
Ms. LaFleur. Generally, it can happen either way. The Head
of Enforcement can commence an investigation. There are times
when in the course of the Commission's work, the Commission
might issue an order, ordering that an investigation be
commenced. That's not the majority of times.
The Chair. For the record could you both submit in the last
43 cases that are--seem to come up this morning which ones the
Commission has instituted and which one the Head of Enforcement
as the 2----
Ms. LaFleur. You mean the commencement of the
investigation?
The Chair. The commencement and I have 43.
Ms. LaFleur. I have already--that as a question for the
record.
The Chair. OK.
Ms. LaFleur. I think most were start--bubbled up and then
came to the Commission.
The Chair. OK. Would you give us that information, please?
The Chair. Alright, Senator Manchin, you're next, I
believe.
Senator Manchin. Thank you, Madame Chairman.
Thank both of you for the service you have been given--that
you've given and the service that you would like to continue to
give. I appreciate that.
I'll think I'll start with you, Mr. Bay. First I want to
thank you for coming and visiting with me. I would like to
start with you.
If you could just describe to me your understanding of the,
you know, the role now as a Commissioner verses the difference
of being the Enforcement and what you see as the most important
aspect of this job as far as with FERC and the responsibilities
that FERC has?
Mr. Bay. I think there are substantial differences between
being the Director of an office at FERC and being a member of
the Commission, particularly being Chairman of the Commission.
In the Office of Enforcement certainly the office does
investigations and it does market oversight and market
analytics and surveillance, but obviously the work of the
Commission goes beyond that and it includes infrastructure and
other areas. So there's much more that you have to do on the
Commission, in a sense, than what you would do as an office
director because you cover the entire range of the work at the
Commission.
Senator Manchin. What steps, if you're confirmed as the
Chairman of this Commission, what steps would you be prepared
to take that will review the impacts of the 111D greenhouse gas
emissions by EPA? How would you proceed with that?
What would you be looking for?
Mr. Bay. That's an important issue. Obviously the rule will
be coming out in early June.
Senator Manchin. Hm hmmm.
Mr. Bay. At FERC, given our statutory responsibilities,
reliability has to be job one. So as I review that draft
rulemaking I would be looking, if confirmed, to try to assess
what the reliability impacts are and what FERC can do working
with key stakeholders like the EPA, the States and State
commissions and NARUC, the RTOs, ISOs and industry to ensure
that there is sufficient planning and preparation and
discussion that any challenges can be met.
Senator Manchin. If the 111D rule comes out and shows that
basically the difference, if you will, the required resources
be dispatched based on the environmental attributes rather than
cost how would you rule? Against or for or in favor?
Mr. Bay. So, I very much respect the work of the EPA. They
have an important job to do, but FERC has an important job as
well. For FERC 2 of our key statutory responsibilities are
reliability and ensuring that rates remain just and reasonable.
Senator Manchin. You believe that's been done lately? I
mean, are--we've been going down that path with seeing where--
is EPA taking that into consideration, I might add? In your
estimation?
Mr. Bay. I have not been following the decisional process
at the EPA closely enough to know. But I do know that staff at
the Commission does meet with the EPA and they do discuss
reliability issues. Certainly that is an important role for
FERC to play going forward.
Senator Manchin. Were you concerned about the Polar Vortex
that we had this past winter of what it might have done, I
mean, most of the PGM system is the system that I live in, were
you concerned about that?
Mr. Bay. I think everyone who was either living through the
Polar Vortex or involved with the work at FERC watched closely
as the Polar Vortexes unfolded.
Senator Manchin. Ms. LaFleur, very quickly. I know in your
position as Acting Chairman right now, is reliability, do you
believe, that enough emphasis and that FERC Commissioners, as
they stand today, understand that reliability is their main
concern and goal with cost?
Ms. LaFleur. Yes, I think we clearly understand that. I
think as new EPA rules are developed we really have 2 big jobs.
One is to comment on the rules and help be part of the
process to assure reliability is sustained when the----
Senator Manchin. If you're at odds how do you all handle
that if you're at odds with where the EPA is going and it's not
practicality, it's not going to happen?
I mean it's a wonderful thing to wish something to happen
but if you--the fact of what you're dealing with. Are we going
to put people in jeopardy of their life or?
Ms. LaFleur. I think the fact that, for example, the 111d
rules that you mentioned, Senator, are going to have a year for
review. I've heard several times Administrator McCarthy say
that year is to make sure that all the States and FERC and the
RTOs are involved to make sure that reliability can be
sustained.
But I think beyond just commenting, FERC, as the
Administrator of the markets and the infrastructure, for
example, if we need to burn more gas we need more gas
pipelines. We have a role.
If for renewables we need more transmission, we have a
role. We can't just comment. We have to make sure the system
adapts because reliability is not optional.
Senator Manchin. I'm just saying, if I may?
The desirability of where the EPA might want to go verses
the reliability of what you're responsible for. Would you
overrule and do based on reliability and basically not adhere
to the desirability if it's not practical?
Ms. LaFleur. I don't have control over what they ultimately
rule. But I would always speak honestly if there were a
reliability issue.
Senator Manchin. Mr. Bay.
The Chair. Thank you, Senator Manchin.
Senator Alexander.
Senator Alexander. Thanks, Madame Chairman.
Welcome to both of you.
Reliability is job one, Mr. Bay. I hear that from Ms.
LaFleur too, correct?
Mr. Bay. Yes, Senator Alexander.
Senator Alexander. Rates are just and reasonable, I think
you said that a minute ago and I've heard the words that your
job is to keep the electricity markets open, competitive and
fair. Is that correct?
Mr. Bay. That's correct.
Senator Alexander. Mr. Bay, you're aware of the wind
production tax credit?
Mr. Bay. Yes, I am.
Senator Alexander. That it pays wind developers about 2.3
cents per kilowatt/hour for every hour produced?
Mr. Bay. I don't know the precise number, Senator
Alexander, but I know----
Senator Alexander. That is the number.
You're aware that that sometimes is much as some markets as
the value of the electricity sold wholesale. Are you aware of
that?
Mr. Bay. Yes.
Senator Alexander. Let's take the example of it's 3 a.m. in
Chicago and the wind is blowing which it does at night and
everybody is asleep so the demand for electricity is not great.
Are you aware that wind developers can literally pay utilities
to take their electricity, drive the price below zero and
create a condition called negative pricing?
Mr. Bay. There is negative pricing in a number of the RTO/
ISOs.
Senator Alexander. Isn't it true that when that happens
that base load power such as coal and nuclear power becomes
less economical to operate and that a pervasive system of
negative pricing for wind power could contribute to the closing
of base load plants?
Mr. Bay. I assume that that is possible, Senator Alexander.
Senator Alexander. Would you say that if wind developers
engage in negative pricing and sell and basically pay utilities
to take their electricity that that amounts to market
manipulation?
Mr. Bay. The market manipulation rule requires a showing of
an intent to defraud and so one difficulty with calling that
type of behavior market manipulation is that it is behavior
that has been basically permitted by Congress in passing the
Production Tax Credit.
Senator Alexander. So would it also be fair to say then
that if there is a law or a tariff of the Commission that
establishes something as legal that that would be a complete
defense to market manipulation?
Mr. Bay. In order 670 which is the order that implemented
the EPACT 2005 Anti-manipulation Authority, the Commission
which issued order 670 by unanimous vote under Chairman
Kelliher noted that conduct that was specifically authorized by
a tariff created a defense.
Senator Alexander. Does create a defense?
Is it a complete defense?
Mr. Bay. If it--I can't recall the exact language and I
would have to look at the language of Order 670. But it's
recognized in the Order that if conduct is specifically
authorized by the tariff that that's a defense.
Senator Alexander. So a wind developer can relax if they're
engaging in paying utilities to take their wind power because
even though it might not be good policy, it's specifically
permitted by law?
Mr. Bay. I think it depends upon the market tariffs and
that RTO/ISO, Senator Alexander.
Senator Alexander. Do you think it is good policy for--if
job reliability is No. 1, to create a condition where wind
producers can actually pay utilities to take their electricity
sometimes in some markets?
Mr. Bay. I don't think I'm in a position to evaluate the
merits of the Production Tax Credit for wind.
Senator Alexander. I would think if reliability is job one
and keeping markets open and competitive and fair and rates
just and reasonable that that would be forefront of your job.
The Center for Strategic and International Studies says
that there may be 25 of our nuclear plants close between now
and 2020. Now the principle cause of that is probably the low
cost of natural gas. Another cause might be over regulation.
But one cause is, they say, negative pricing. It would seem to
me that that would be important.
Would it be consistent with the Obama Administration's
concern about climate change to allow to continue a system of
negative pricing that contributed, even in a small way, to the
closing of nuclear power plants that produce 60 percent of our
carbon free electricity?
Mr. Bay. I can't comment more broadly on the Obama
Administration's climate plan. I can tell you that I do
recognize that nuclear currently constitutes about 20 percent
of the generation in the United States and it has----
Senator Alexander. Sixty percent of the clean electricity.
Mr. Bay. It has advantages because it is, you know, there
are no carbon emissions and it has little price volatility and
it's reliable.
Senator Alexander. Thank you, Mr. Bay.
My time is up, Madame Chair.
The Chair. Thank you.
This is the order, Senator Heinrich, then Senator Barrasso,
then Senator Cantwell, Senator Portman, Baldwin, Lee and
Senator Wyden.
Proceed, Senator Heinrich.
Senator Heinrich. Thank you, Madame Chair.
I wanted to just be clear about a couple of things that
have come up over the course of the hearing. In particular with
reference to the Wall Street Journal article I wanted to make
it clear that that was an op ed, not so much an article as an
opinion piece authored by Mr. Schereman.
Also remark a little bit on the legal journal article
because I would suggest that there certainly could be a bit of
a sour grapes factor at play considering that Mr. Schereman has
clearly represented the losing side in a number of cases.
But I think the bigger issue with regard to exculpatory
evidence and deposition transcripts is a very good question.
However, I don't believe it's one that we should blame on the
staff, Mr. Bay or anyone else at enforcement for following the
legal and regulatory environment that they clearly work under.
In fact, I think if there is a valid due process concern it's
probably the job of this committee to get to the bottom of that
and rectify it, if it exists.
I want to start my questions for both of you by asking you
a little bit about your opinions on how best to modernize the
grid. I guess I'd start out with a question that's more
specific to my home State and then move on to some that are
clearly a broader viewpoint for the purpose of the Nation as a
whole.
New Mexico is fairly fortunate to have an abundant supply
of a number of energy sources, in particular, natural gas,
solar and wind. However, without the infrastructure to deliver
that energy to markets these resources may never be fully
developed. In the West, in particular, we have long distances
and very complex land ownership, split between private, State,
Federal, throw in Department of Defense as a whole additional
layer of Federal.
I'd like to know from each of you, your thoughts on how the
Commission can help promote investment in new interstate
transmission capacity.
Mr. Bay, we'll start with you and then go to Ms. LaFleur.
Mr. Bay. I think there are a few generic factors that I
would look to, if confirmed.
One would be to make sure that we provide as much
regulatory certainty as possible to transmission developers,
particularly with respect to rates, terms and conditions of
service.
Second, FERC does have the ability to offer incentives for
transmission development. So that's something. That's a tool in
the tool kit, that upon the proper showing by the developer,
that incentive might be available.
I think a third thing that FERC can do is to ensure that
its review of the proposals is always thorough, professional
and prompt.
Finally I would say that there is always the possibility of
looking for additional efficiencies, looking for additional
ways to streamline the process. That may involve changes within
FERC.
Although my own personal view is that staff at FERC is
outstanding, particularly in those offices. But it may be that
there are ways of working with other key stakeholders where the
process can be facilitated. In that regard I read that the
White House has issued an executive order requiring Federal
agencies to streamline the permitting process. I think that's a
step in the right direction.
Senator Heinrich. Thank you.
Ms. LaFleur.
Ms. LaFleur. Thank you, Senator.
I think there's a number of things that FERC can do to help
modernize the grid through its oversight of interstate
transmission.
One of the major issues we've been working on is Order 1000
which requires regional planning and cost allocation to try to
make sure the region plans together with so much money going
into transmission. New Mexico is in the WestConnect region with
a wealth of renewables to plan for. The order requires that
public policy requirements like renewable standards be
considered.
Second as Mr. Bay alluded to, we do regulate transmission
rates. That's both base ROE and incentives that Mr. Domenici
and his colleagues gave us in 2005, the right to give out
incentives. That includes incentives for advanced transmission
technologies.
Finally, a lot of what I would call the geeky market rules
really impact how easy it is to build and connect renewables
and transmission in places like New Mexico, requiring more
frequent transmission scheduling in shorter increments,
streamlined rules for storage and ancillary services in the
West. Some of these energy ``geek'' rules, I call, you know,
really affect how feasible it is to bring in the new
technologies.
Senator Heinrich. Do you think those regional orders are
working well?
Ms. LaFleur. I think it has great potential. I think in--so
far what we've seen is that in the parts of the country that
already had regional markets and regional planning have taken
the next step and are doing competitive transmission
solicitation already under Order 1000. In the parts of the
country, like New Mexico, that had bilateral markets are a
little earlier in their process. But the potential is very
great.
Senator Heinrich. Thank you.
The Chair. Thank you.
Senator Barrasso.
Senator Barrasso. Thank you very much, Madame Chairman.
Mr. Bay, I note your comments to the Chairman about your
commitment to do the right thing and a commitment to fairness.
I'd like to ask you about an article published in the Energy
Law Journal last week. It addresses the office your currently
lead, the Office of Enforcement.
The author is a former general counsel at FERC and it
relates to the fundamental principle of due process. I assume
you believe in due process for someone accused of wrong doing
because you said you have this commitment to do the right thing
and committed to fairness.
According to this article there was a widespread view that
the FERC enforcement process,'' you know, under you, had
become, ``lopsided and unfair.'' They go on to say that one
needs only to observe the fact that enforcement staff denies in
case after case the existence of exculpatory or exonerating
materials only to produce a subset of these materials too late
in the process to be of use in raising defenses.
They go on saying one of the fundamental principles of due
process is that the government is not permitted to hide
information from the accused that may aide in his or her
defense.
The author states that the enforcement staff routinely, not
occasionally, routinely fails to produce these documents. This
seems to imply a level of bullying and tactics that seem to be
unethical, biased and prejudiced.
I find this very troubling. I believe this raises serious
questions about your fitness to be on the Commission. I also
believe that these tactics have contributed to driving
investors out of the electricity markets and that means a less
reliable electric grid and higher costs for consumers.
So is it true that your staff has repeatedly failed to
disclose exculpatory materials? If so, why have you failed to
end this practice? Were you ignorant of what was going on by
your staff or was your staff acting at your direction?
Mr. Bay. Senator Barrasso, if those allegations were true I
would be very concerned. I do not believe those allegations are
true, however.
Let me give you a little background about the Brady
Doctrine. I was actually, when I came to the Office of
Enforcement, it was at my recommendation that the Commission
adopt the Brady policy, that is this policy that requires the
disclosure of material, exculpatory evidence, to the defense
where the defense doesn't have it and can't reasonably obtain
it. It was my recommendation that the Commission adopt this
policy, this written policy. The Commission unanimously agreed
to do so.
So it is something that I care about. In fact I helped, as
I said, bring it about.
But I'm not aware of the kind of, I would describe it as
rampant, in a way that this article is written. If that were
the case I would have the same concerns as you.
Senator Barrasso. Let me ask one other principle question I
think many of us are asking is why have you been nominated to
the Commission? Not just why have you been nominated as a
Commissioner, but why you've been nominated to be Chairman?
The nomination papers reveal no experience with the energy
sector prior to 2009.
Prior to then you did not work in the energy industry nor
did you work as a regulator of the industry.
Moreover, the Commission already has a Chair, Chairwoman
LaFleur. She has been serving as a Commissioner for nearly 4
years, as Chairwoman for 6 months. While I don't often agree
with her policy positions one can't deny that she's qualified
to serve.
Prior to her confirmation she had spent over 20 years at 2
utilities, New England Electric System. She's also been
President and Acting CEO of National Grid.
So given the wide gap in experience between you and
Chairwoman LaFleur, why should we demote Chairwoman LaFleur to
make room for you? What specific qualifications do you have to
be Chairman of FERC?
Mr. Bay. I have great respect for Acting Chairman LaFleur.
I have always worked well with her. If I'm confirmed and we're
both confirmed, I would be able to work well with her. I look
forward to working with her if I'm confirmed.
You would have to ask the White House that particular
question, Senator Barrasso. But I would like to think that the
White House might have considered a number of factors.
First, that I've done work and good work to protect
consumers and the integrity of the marketplace and to ensure
that there is a level playing field for all market
participants. The bills that people pay for energy, they need
to know that those bills have not been inflated, that they have
not been ripped off in some fashion.
That's an issue that not only affects all the families that
live on Main Street, all the middle class families that live on
Main Street. It also affects large industrial end users,
manufacturers and the like. So if there was one lesson from
Enron and the Western Power Crisis it was that FERC had to be a
cop on the beat to protect the energy markets.
Second, I do have experience with respect to the energy
markets, particularly the physical markets and the financial
markets. My experience, by the way, didn't just start at FERC
in the sense that when I was a U.S. Attorney I worked closely
with the national labs. After I left DOJ I was counsel to
Sandia Labs for a number of years which Senator Domenici
alluded to. There were even 2 summers when I was in college
when I worked at a DOE 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. Westerners and Pacific North westerners have always cast
a long shadow, not only on this committee, but at FERC as well.
Senator Barrasso. Thank you, Madame Chairman.
The Chair. Thank you.
Senator Cantwell.
Senator Cantwell. Thank you, Madame Chair.
Thank you for this important hearing. It was so good to see
our colleague Senator, former colleague, Senator Domenici, here
this morning. It was reminding me of all the work that this
committee has done over the past many years. I was thinking as
I was looking around, I'm so glad we're joined by such smart
and talented new colleagues, but I'm also reminding myself as
we sit here that I think there's only a handful of us that were
even on the committee in 2005. I think maybe 4 or 5 of us.
So when it comes to this issue I think some of our
colleagues are just catching up to speed on the importance of
the anti-manipulation laws that are on the books and what FERC
has done in that regard. So I hope people will spend time on
that issue because we had many hearings during this process.
I'm reminded of another hearing that we had, actually I think
it was before the Finance Committee, where Rex Tillerson, the
Exxon Mobile Chairman testified about how outside Wall Street
markets were driving up energy costs and basically it resulted
in a headline, Exxon CEO says Wall Street is driving up gas
prices by 50 percent.
So while people don't remember those days or remember all
the enforcement that now come into these energy markets. If we
want to have a hearing about whether our manipulation laws are
hitting the mark, don't go far enough, you know, we should have
that hearing. I don't think that's about Mr. Bay as much as
it's about whether Wall Street has really been policed in the
efficient ways to not drive up, artificially, the cost of
energy markets.
I think energy markets are the lifeblood of any economy. If
we don't police them properly then we are going to police
ourselves out of economic development.
So I wanted to, if I could, Ms. LaFleur, you know, we've
had all this discussion here. I think you said it best when you
said, you know, FERC's job is about the, you know, interstate
transmission lines, correct?
Ms. LaFleur. Yes.
Senator Cantwell. Applying just and reasonable rates,
correct?
Ms. LaFleur. Yes.
Senator Cantwell. So I think some of my colleagues think
that somehow you or Mr. Bay are going to decide in some
individual State what generation is going to come online.
That's for the State to decide, correct, whether it's----
Ms. LaFleur. That's correct, as you know, under the Federal
Power Act. That's left to the States.
Senator Cantwell. So whether it's coal or nuclear power or
what have you, the State decides that. You only decide whether
it's a just and reasonable rate?
Ms. LaFleur. That's essentially correct.
The State definitely has the right to build transmission--
build generation and decide what they want. Sometimes the rules
of how much the generation gets paid in the market affects what
gets built. But we don't site generation or require generation
to be built.
Senator Cantwell. Which I think is important that somehow
the long arm of a FERC Commissioner could come down and make
that decision. I don't hear anybody saying that it's happened
so far one way or another, right?
Ms. LaFleur. That's correct.
Senator Cantwell. Like no one is here saying this is what
happened, you know, when this commissioner was on or that
commissioner was on and here's how they drove this policy to
favor one source over another. I haven't heard of those
arguments.
To this point about, you know, the Commission and
manipulation, is there anything that the enforcement division
has recommended over the last several years, you know, 4 or 5
years that you have disagreed with as far as a case on
manipulation?
I mean, one that's been decided by the Commission?
Ms. LaFleur. I have not substantively dissented in any of
the orders to show cause. That's not true, in any of the
settlements. I have dissented on a few orders to show cause in
terms of the application of the penalty guidelines. I've also
had some procedural dissents in some of the procedures that are
used in the investigations.
I think that this is a relatively new area of our work.
It's to be expected that we'd have debates about how the rules
are to be applied. I think that's why we have 5 Commissioners.
But I haven't dissented on any of the settlements or the
substance of the orders to show cause, just the penalties and
procedures.
Senator Cantwell. I guess I would just say I think that
some people think they don't like the fact that Mr. Obama has
nominated Mr. Bay, maybe over you, to be the head of the
Commission. But yet, you've agreed with every decision that
he's recommended on manipulation and principles. So the issue
is, on at least this point, you know, I don't see the
difference.
Madame Chair, if there is some issue about exculpatory
evidence and the comparison between FERC and say, what DOJ does
on exculpatory evidence or what the FCC does on exculpatory
evidence. Let's have that hearing, as my colleague from New
Mexico was pointing out, let's look at that.
But I would say that the decision on releasing exculpatory
evidence is the Commission. It's the Commissioners
responsibility, not Mr. Bay's. He's the staff member. At this
point, he's the staff member.
They are the Commissioners. They decide.
So if somebody wants to find fault with exculpatory
evidence I would say, start with the Commission.
Thank you.
The Chair. Thank you, Senator Cantwell, for your leadership
on that issue in particular.
Let's go to Senator Portman.
Senator Portman. Thank you, Madame Chair.
Appreciate your holding this hearing and your hearing on
reliability. The grid reliability hearing I thought was an
excellent opportunity for us to talk about something that's a
big deal in Ohio. We've got, as you know, probably 41 of our
coal fired plants that are being phased out. I think that's the
most of any State in the country.
Some are going to retire altogether. Some are being
converted to another fuel source. To the question that my
colleague, Senator Cantwell, asked about the difference between
you 2 in terms of your decisions, I guess the concern that some
of us have is just the question of experience. This is a very
complex sector of our economy. Certainly the whole grid
reliability issue has raised a lot of very difficult issues
that as Acting Chair, Ms. LaFleur, you've been involved with.
I appreciated the fact that last time we talked about this
there seemed to be an understanding that, you know, this is a
serious issue, a danger in terms of prices to the consumer.
Ultimately I think about what happened last winter. Natural gas
prices jumped to as high as $2000 a megawatt for some
utilities. I mean, I really think if it had not been for the
grid operators at PJM, it might have brought down the grid in
our area of the country.
So this is a serious issue. It has to do, again, with this
traditional coal fired plant base generation shifting to more
reliance on natural gas. It also has to do heavily with Federal
regulations. In Ohio we're seeing that very directly as we
heard testimony from at this committee.
So I guess I would ask you a question, Mr. Bay, if I could.
What do you think the FERC should do, if anything, to help the
Environmental Protection Agency understand how, collectively,
their rules are impacting grid liability because the
reliability of the grid is really a FERC responsibility? So
what would you do to ensure that EPA understands how these
rules affect reliability?
Mr. Bay. FERC has to work closely with the EPA and has to
provide technical assistance to the EPA to make sure that the
reliability issues are recognized. Then I think what FERC also
has to do is to monitor the situation and work with other key
stakeholders. It's not just the EPA. It would include NERC, the
RTOs/ISOs and the States which do their own resource advocacy
planning.
Senator Portman. In response to that question Acting Chair
LaFleur said we've tried to be a source of reliability
expertise to EPA. I think as those rules are developed we need
to be commenters in the draft stage such as the Greenhouse Gas
Rules that are coming out on June 2nd. Would you agree with
that?
Mr. Bay. I would support that, if confirmed.
Senator Portman. OK.
I think her response was a little stronger than yours.
Without giving you the benefit of what she had said and I hate
to pit you guys against one another.
But that's our concern, really, is just to ensure that as a
member Ms. LaFleur continues to take this role seriously of
ensuring that the regulators understand what their impact is on
reliability and that as a new chair that you would be someone
to provide, really not just technical assistance, but helping
as a commenter as you said on draft rules as they're being
developed by EPA.
A couple of other questions for you, Mr. Bay.
We also had a discussion about base load operation and
there seem to be a consensus developing in our last hearing
that base load generation should receive a higher value in the
capacity market to ensure that we had enough of this kind of
generation to support the system. I guess I would ask you if
you agree that the capacity markets are not properly rewarding
base load generation.
Mr. Bay. This is an issue that the Commission has teed up
at the April 1st technical conference that it just had with the
question being whether or not certain resources are providing
value that's not being adequately recognized or compensated by
the markets, in this case the capacity markets. So comments
have been invited. If I'm confirmed, I certainly look forward
to reviewing those comments and talking to other stakeholders
about it.
Senator Portman. Going back to this cumulative effect of
regulations, would you commit to modeling what the cumulative
effects are of EPA regulations if you became chairman?
Mr. Bay. Senator Portman, I know that this is a very
important issue for you. I know that you've raised it in a
number of hearings. This might take a little bit of time to
explain but if you can indulge me, I'll try.
Currently there are a number of assessments that are done,
although they do not focus exclusively on EPA rulemakings. NERC
does a study on reserve margins. It's actually a very helpful
study. It was relied upon by staff at FERC in doing their
summer assessment.
The RTOs/ISOs do a study as well. Of course, States do
studies.
So one question I have is what FERC could bring to the
table given the other studies. It's certainly something that is
doable although I think that there are some challenges.
One is that you would have to try to do the modeling before
the rules have been finalized. There's a little bit of a moving
target issue.
Then, of course, you have to try to project load. It
depends how granular you want to be and how weedy whether
you're looking at States or whether you're looking at regions
or whether you're looking at regions or whether you're looking
nationally.
Then, you would have to try to determine the business plans
of generators. Are they planning to close? Are they planning to
retrofit or are they going to be opening up a new unit?
So and then, of course, you would have to try to determine
the reason why the current plant is closing. Is it because of
the EPA rulemaking or is it because the plant is 40 to 50 years
old, has a high heat rate, is inefficient and the like.
So there are a number of issues there. But all of that
being said, if confirmed, I'm certainly willing to discuss the
issue with my colleagues on the Commission and to see if we
can't reach some sort of consensus.
Senator Portman. My time is expired and others are here,
but I would just say that I, for one, and I think the committee
would benefit from this as well.
We'd like to see that modeling from a national perspective.
We understand it require certain assumptions. We would hope you
would be totally transparent on what those assumptions are so
people could understand what the business models are, what
regions you're talking about in terms of why plants are
closing. You know, you should also talk to the operators
because, as I testified under oath before this committee, that
regulations clearly have an impact.
So I would hope that you would work with us on that
modeling. I assume you're going to be confirmed. I think we
would benefit greatly from that information to avoid, again, a
near disaster last winter, some suggested problems this summer,
perhaps and certainly next winter, if there's another cold
winter. We would benefit from that expertise that FERC
exclusively has.
Thank you, Madame Chair.
The Chair. Thank you, Senator Portman.
Senator Baldwin.
Thank you for your patience, Senator.
Senator Baldwin. It's well worth the wait to get this
opportunity, thank you, Madame Chair.
Thank you to both of our nominees for taking the time to
meet with me earlier in this process.
I wanted to have the opportunity to ask a couple of
questions of both of you.
One that very closely ties into a hearing that the Chair
and ranking member were very--well, that I was very pleased
that you arranged to look at a crisis that occurred throughout
parts of the United States, but certainly affecting Wisconsin
which was a very severe propane shortage last winter. The
hearing had a witness, one of the staff members at FERC, Nils
Nichols, who is an expert on pipelines. We were very pleased to
have him on hand to discuss the role that the Commission played
in responding to this crisis.
I just wanted to follow up on that testimony because I
think the experts that were assembled for that panel agreed
that it was FERC's emergency order to reprioritize propane on a
particular batch pipeline that really helped ease the crisis.
It was, sort of, a turning point in what was a long crisis for
us.
But there was also some discussion about the tool that was
used to accomplish this task. What might need to be revisited
in case it needs to be used in the future. So this emergency
authority was clearly critical to the Midwest and other--to the
Midwest this year. I would say as a--ask as a FERC Commissioner
how would you work to update this particular power authority
tool or advise us to create greater legislative clarity to
ensure that the Commission has the ability to respond in this--
in a like manner in a future crisis.
Please?
Ms. LaFleur. Thank you, Senator.
I was very pleased that we were able to use our authority
under the Interstate Commerce Act in February. It was the first
time it had ever been used since the time of the railroads.
I think, in terms of what we can do better under our
existing authority, I would try to be more alert next winter to
the emergency earlier so we could maybe get ahead of it a
little more than we did this winter. It wasn't something that
we normally do so we weren't necessarily--it was brought to us
by the National Propane Gas Association, some of the pipelines
and we reacted. I would like to be a little more proactive in
monitoring it.
In terms of what Congress could do? They could certainly
expand the authority. But I, since it's only been used once in
decades, I guess given how difficult it is to change
legislation, I think we should focus on using what we have
effectively right now.
Senator Baldwin. OK.
Mr. Bay, do you have any comment on this?
Mr. Bay. Just a few thoughts, Senator Baldwin.
I appreciate your leadership on this issue. I know that
your letters to the Commission have been very effective in
making sure that the Commission focused on the needs of your
constituents.
I would underscore the points that Acting Chairman LaFleur
made. I think there are several things that FERC can do going
forward.
One is to continue to closely monitor propane. We do have
market monitoring capabilities in the Office of Enforcement.
They do track propane.
Second, make sure that these good lines of communication
that opened up this past winter continue to stay open and that
FERC continue to have these discussions with key stakeholders
like State officials, Congress, industry. The National Gas
Propane Association took a very active role here. It was very
helpful. With other stakeholders.
Then finally I think that the Commission could consider
issuing a policy statement with respect to its emergency
authority under the Interstate Commerce Act delineating the
conditions under which it might invoke that emergency
authority.
But I give tremendous credit to Acting Chairman LaFleur for
her leadership in taking charge of that order and making sure
it got issued.
Senator Baldwin. Thank you.
Additionally I wanted to talk about natural gas pipelines.
Obviously we have changing circumstances in the United States
with regard to production of natural gas. I know my home State
has a strong manufacturing sector and many are eager to switch
or transition to natural gas. Although some have found
themselves unable to access supplies, the supplies of gas that
they need.
But many of the pipeline projects that will become--will
come before the Commission in the future will carry fuel
directly to export and not to domestic consumers. Other
projects will be proposed to serve domestic consumers after the
lines that they have previously or historically relied upon and
paid for over the years have been diverted to provide for the
export market.
So what will guide you, as FERC Commissioners, in the
review processes to ensure that domestic rate payers are not
footing the bill to get our fuel to foreign customers?
Ms. LaFleur. Senator Baldwin, our authority over LNG export
is really limited to the environmental and safety review of the
export facilities and the appurtenant pipelines. The actual
export of the commodity is approved or disapproved by the
Department of Energy.
I will say though that implied in your question was somehow
changing the direction of a pipeline. In any case where someone
seeks to abandon a pipeline or change its direction FERC does
have a Consumer Protection Authority to make sure that the
customers who were relying on that pipeline for gas are
protected under the rights and the existing tariff. It's not
something we take lightly to change the use of a pipeline.
So, but as to the commodity export, that's not something we
look at.
Senator Baldwin. Right.
Mr. Bay.
Mr. Bay. I don't have any additional comments, Senator
Baldwin.
The Chair. Thank you.
Senator Lee I think will be our last questioner and then
Senator Murkowski and I will wrap up with finals unless other
members have it. We'll try to conclude in about 10 minutes.
Senator Lee.
Senator Lee. Thank you, Madame Chairman.
Mr. Bay, I've got a few questions for you.
First of all, my first line of questions relates to an Op
Ed that was referred to briefly earlier penned by Bill Scherman
in the Wall Street Journal, in yesterday's copy of the Wall
Street Journal. He raised some concerns with some of FERC's
enforcement activities. Let me just read a portion of it to you
here.
He said, ``Unlike such agencies as the Securities Exchange
Commission, at FERC subjects are forced to fight with one hand
tied behind their backs. FERC often doesn't provide the subject
with the information it collected during the investigation even
when its allegations are based on that information. FERC
enforcement also often does not even provide the subjects with
all the information it has shared with the Commission.''
He goes on later to explain that FERC recently said its
enforcement is under no obligation to provide any response to
the legal and factual arguments raised by subjects.
Are these statements made by Mr. Scherman true as far as
you are aware? Do you think that we need some reforms to the
way FERC enforcement is proceeding?
Mr. Bay. Certainly I am always open to suggestions if the
suggestions can improve what we do. But I actually do not think
that those particular criticisms are correct.
Mr. Scherman makes the allegation that there is no sharing
of information by FERC enforcement staff, but in point and fact
there is a preliminary findings letter that subjects of
investigations receive. That preliminary findings letter
provides what its name suggests.
It contains the preliminary findings.
It lists the allegations.
There's just a tremendous amount of information in there.
Senator Lee. OK, so I don't dispute that there is
information shared by FERC. But that's not--I don't see that as
necessarily refuting what he's saying. If what he's saying is
that they're not sharing the information they've got. They
might be sharing some of it but withholding other aspects of
it.
Do you concede that point?
Mr. Bay. The information--so not only is there the
preliminary findings letter, but if the case proceeds to the
show cause stage my understanding is that staff will share
information with the subject of the show cause order.
The other thing I would say, so there is sharing of
information. By the way, my understanding, Senator Lee, is that
is consistent with practice at the SEC where once the action is
filed, that's when the SEC provides the information. So I don't
think that FERC practice is an outlier in this regard.
The other point I would make----
Senator Lee. But both as to the type and quantity of
information shared and as to the timing of it, you think it
mirrors----
Mr. Bay. I don't----
Senator Lee. That which is granted by the SEC?
Mr. Bay. I think it does. That's certainly something that I
can follow up with you on in the questions that are submitted
after the hearing.
Mr. Bay. I think it does, but I do not believe that FERC's
practice is, again, is an outlier relative to other enforcement
offices.
Senator Lee. OK. Yes, I'd like to follow up on that because
Mr. Scherman, who has represented dozens of people under
investigation by FERC and is also familiar with the SEC's
practices, takes issue with that and seems to disagree with it.
What about this other point that FERC, itself, and he's
quoting here. FERC recently said that its enforcement, ``is
under no obligation to provide any response to the legal and
factual arguments'' raised by subjects.
Mr. Bay. So, I don't think that's correct in this sense.
Senator Lee. But these are quotes.
Mr. Bay. Right.
Senator Lee. I mean, there are quotation marks around what
I just uttered. Are you saying that----
The Chair. They're not his quotation marks. They're someone
else's.
Mr. Bay. They're not my quotation marks, yes. No.
Senator Lee. OK.
Mr. Bay. So I don't know where he got the quote. But and I
don't know what context that comment was made, you know, for
which quotation marks were added.
This is what I can tell you though is, if there is a
preliminary findings letter the subject of the investigation is
given the opportunity to respond. Of course, there is a lot of
discussion even before you get up to that point where there's a
lot of back and forth with the subject of the investigation
which they have the opportunity to convince FERC staff that the
matter should be dismissed.
If the matter proceeds that's when the preliminary findings
letter is created which the subject has the ability, which the
subject has the ability to respond to. Then what FERC staff has
to do is seek settlement authority if it believes the matter
should still proceed. It has to seek settlement authority from
the Commission.
So the Commission then would receive not only the FERC's
staff memo, but it would also receive the response from the
subject of the investigation.
Then if the matter doesn't settle then FERC staff would
issue something known as a Wells notice which the subject of
the investigation, again, has the opportunity to respond to.
If FERC staff still believes that a show cause order should
be issued it prepares a report for the Commission attaching the
prior filings by the subject of the investigation. FERC staff
does not necessarily respond to the counter arguments raised by
the defense to the 1b.9 note or the 1b.19 note. So that is the
Wells notice.
But all of this then goes to the Commission which then has
the opportunity to review it. After the show cause order is
issued, if it is issued, the subject of the investigation has
the ability to respond.
Honestly, FERC provides a tremendous amount of process to
the subjects of investigations. They are, in my view, there's a
lot of transparency into the work of the Office of Enforcement
because it's been very important to the Commission over the
years that that transparency be provided whether it's Brady
evidence, exculpatory evidence or whether it's penalty
guidelines, whether it's a notice of alleged violations,
whether it's our annual report which indicates, for example,
cases that we've dismissed and why.
Senator Lee. OK, Chairman, I want to follow up in writing.
The Chair. Yes, thank you.
Senator Lee. I see my time has expired. It sounds to me
like what you're saying is that the procedures are adequate,
but I'll want to follow up with you on why you believe that to
be the case. We'll do that in writing.
Thank you very much.
Mr. Bay. Thank you, Senator Lee.
Senator Lee. Thank you, Madame Chairman.
The Chair. Thank you, Senator.
Let me just end with 3 brief comments and then Senator
Murkowski, you may have some comments as well.
I think this has been a very excellent hearing in regular
order to evaluate the qualifications of these 2 nominees.
The Commission, Mrs. LaFleur, Ms. LaFleur, has received
from me recently and some local elected officials from
Louisiana a number of letters regarding a Boston based hedge
fund, ArcLight, their plans to abandon a pipeline that has
served 9 parishes in Northeast and Central Louisiana would
effectively end affordable natural gas services to these
parishes that are sparsely populated, relatively poor. I know
that you can't comment on ongoing investigations. But I'm going
to ask in writing, without getting into specifics of this case.
Do you and I want to ask you, Mr. Bay, do you agree that is
a violation of the Natural Gas Act public interest standard, as
currently written, to abandon a pipeline and effectively strand
the affected customers with no service or unreasonable terms of
service?
Ms. LaFleur.
Ms. LaFleur. I'll look forward to those questions. I know
we've had correspondence on this before.
As I indicated earlier when we have an application to
abandon, our responsibility is to make sure that customers are
protected.
The Chair. You understand that to be the current law?
Ms. LaFleur. Yes.
The Chair. The current law that they cannot be left with no
service, but they also cannot be left with unreasonable terms
of, you know, different service?
Ms. LaFleur. Of course, I can't comment. I wish I could,
but I can't comment on the Midla pipeline.
The Chair. I know, but generally.
Ms. LaFleur. But I certainly believe that when we get an
application to abandon, we have to make sure the customers are
protected in their service and rates.
The Chair. OK.
Let me ask this general question. I know I said in terms of
safety of pipe, not safety of pipelines but in the upkeep of
pipelines that is important so that service can continue over
time because rates are paid. Who makes sure that the companies
that own pipelines are investing back in the safety and
security and just general maintenance of pipelines so that they
actually last as long as they are supposed to?
Ms. LaFleur. PHMSA, the Pipeline--it's part of the
Department of Transportation, I believe. H stands for
Hazardous. But the Pipeline Authority, PHMSA, Cynthia
Quarterman's authority----
The Chair. Do you know how many people they have working
for them?
Ms. LaFleur. I believe several hundred. I've been over to
meet with them, but I don't know exactly. But we do the rate
regulation that supports safety.
The Chair. Hm hmmmm.
Ms. LaFleur. But I could take that as question for the
record.
The Chair. OK.
The Chair. Thank you.
Then on the Toledo Bend issue and thank you for the
courtesy here, Senator. I just did a field hearing in
Louisiana, I mentioned it in my opening statement. Toledo Bend
Reserve is the largest, non-federally owned reservoir in the
country.
The local authority which is a relatively poor and rural
parish, Sabine River Authority, has already spent over $10
million on a licensing process that's taking 7 years and is not
completed yet.
FERC can partially offset these costs by granting a longer
50 year term, as I requested, as opposed to 30. I just want to
follow up and continue to call that to your attention. I know
that, you know, $10 million is not a lot of money by Washington
standards, but by Sabine Parish, I can promise you $10 million
is an awful lot of money.
So I want to continue and then finally, following up on
Senator Baldwin. She and I are in a little bit opposite ends
but both understand that we want to have natural gas for our
country. But I also believe that a proper, reasonable level of
exports can provide more vibrant markets, more aggressive
exploration and production. But we also don't want to undermine
our domestic markets for creating jobs right here in America.
So I'm going to submit some additional details on the
liquefied natural gas export process. I thank both of you for
responding in writing.
The Chair. Senator, any final comments from you? Thank you
for your courtesy.
Senator Murkowski. Just very briefly, Madame Chairman.
Again thank you to both of you.
This is probably going to be more of a statement than a
question, but I think we've had some good discussion here today
about some of the processes that are inherent within the FERC
and within the Office of Enforcement. I think many of us would
suggest that this needs to be looked at. When there are,
continuous, allegations or criticism that due process is
lacking, that there is, there are substantive issues at play
when we're talking about the inability to obtain exculpatory
evidence, and the inability to really be able to engage at a
timely part of the process.
I think this causes concerns. It is suggested in an article
that came out, again, a day before yesterday here, but it
suggested that if the Commission is willing and I'm reading
this from the Wall Street Journal article, that the FERC, ``can
adopt limits on its enforcement power and appoint
administrative judges to oversee the investigation process.''
Then it details what other fixes might be included in providing
investigation subjects with collected information including
exculpatory information, granting subjects some limited
discovery rights, defining market manipulation, laying out
clear rules, defenses and safe harbors are also essential.
I think--I know, Madame Chairman, that the purpose of
today's hearing is to determine whether or not Ms. LaFleur
should be re-nominated and Mr. Bay, nominated as Chair, but I
think there have been some interesting issues that have been
raised. I don't know how much of it would actually have to be
driven through legislative changes verses what can be done
administratively from within the Commission.
But again, I will repeat and I think most everyone here on
the Dais has said, this is an extraordinarily important
Commission and becomes more important every day as we talk
about the issues that so many have raised today as it relates
to reliability, as it relates to capacity, to pricing for the
consumers. This is big and important stuff. If it is viewed
that the Commission is not operating in a manner that delivers
a level of credibility this is a problem for us.
So, I'd like to explore this a little more in detail. But I
do think, again, it goes to, again, the significance of the
character and the quality of those who we are tasking to serve
on this Commission.
Ms. LaFleur, I have stated repeatedly I have great
confidence in you. I think that you have clearly risen to the
challenges you've taken on, the acting role. I've made no
secret of the fact that I would like to see you continue in
that capacity.
Mr. Bay, you have presented yourself well in terms of
response to the questions. But when it comes to the specifics
on the policy my observation is that there are still areas
where you have yet to gain that level of experience just on
that policy side.
I want to make sure that the FERC is not rolled over by the
EPA. I think sometimes that's what happens. Yet, you've got to
work with the EPA, but you need to stand shoulder to shoulder
with them as an agency.
So, again, I appreciate the willingness of both of you to
serve. I know we'll have further opportunity to provide
questions for the record which we hope that you would answer in
a timely manner. But again, thank you for the opportunity this
afternoon.
The Chair. Thank you.
Senator Cantwell. Madame Chairman?
The Chair. Yes?
Senator Cantwell. If I just could because I too appreciate
this hearing. I hope that, you know, we'll step back and take a
larger look because, you know, we're drilling down into detail
here on one particular element of the Commission. Believe me, I
know it's important and it's, I guess I would be where the
Ranking Member was in her statement about FERC and not being
like a household name.
But unfortunately in the Northwest we learned it was a
household name in the Enron crisis. We depended on it. We had
to depend on it. Otherwise we would have been the deep pockets
in much manipulation.
So I just want to make sure we all step back for a second
and realize the home run that has been hit by FERC when it
comes to enforcing anti-manipulation language that we gave to
them in 2005. They are the shining light in a regulatory scheme
of making sure that energy prices are just and reasonable.
Now, we wish we would have had that happen before. That
they would have just been enforced as just and reasonable, but
there was a lot of attempts by a lot of previous people to make
sure they weren't enforced. That's why we have the new law.
But as far as agencies and the policing of the market, they
have been a leader. So if we need to get something fine tuned
and right, we shouldn't hesitate to look at that and to observe
that. But I would definitely make sure we're holding the
Commission at large as part of that effort.
Madame Chair, I just believe so much that, you know, I
believe in investment. I took over your job as a small business
chair. I can guarantee you, I believe in access to capital.
But I also believe that our energy markets cannot be the
tool of a lot of people who just want to invest for the
purposes of their own manipulation of the market. We have to
have policemen on the beat. So I just, while we drill down here
also remind people that the policemen have been on the beat and
have done a lot of great work.
Thank you.
The Chair. Thank you, Senator Cantwell.
The record will remain open until 5 o'clock tomorrow
afternoon for members to submit questions to these 2 nominees.
The Chair. Then we will proceed under regular order.
Meeting adjourned.
[Whereupon, at 12:26 p.m., the hearing was adjourned.]
APPENDIX
Responses to Additional Questions
----------
Responses of Cheryl A. LaFleur to Questions From Senator Landrieu
Louisiana is at the center of America's energy revolution and
issues before FERC affect Louisianans in many different ways.
I understand that both Commissioner LaFleur and Mr. Bay cannot
answer questions about disputed issues pending before the Commission
due to ex parte rules, but I would like remind you both of a number of
issues that I have previously raised with FERC. These are by no means a
comprehensive list of my concerns that impact Louisiana directly.
TOLEDO BEND
Last weekend, I held a field hearing in Louisiana at the beautiful
Toledo Bend Reservoir to discuss how the hydroelectric project there
can further enhance the economic benefits it brings to the region.
The Toledo Bend dam and reservoir provide significant benefits to
Northwest Louisiana through the abundant supply of clean water,
renewable electricity, and recreation opportunities. The ongoing FERC
relicensing process, however, threatens the economic promise of the
project. The Sabine River Authority has already spent $10 million over
the past 7 years on relicensing, a huge sum of money that could have
otherwise been invested in new infrastructure needed to secure
additional economic development and create jobs.
FERC can partially offset these costs by granting the Toledo Bend
Project a new 50-year term as I requested in a letter I sent on
February 5. Without objection, a copy of this letter will be entered
into the Committee record of this hearing.
Question 1. The problems Toledo Bend has faced over the past
several years are not unique. What is FERC doing to simplify the
relicensing process and how it is making sure that the costs associated
with relicensing aren't diminishing the economic benefits of
hydroelectric projects like Toledo Bend?
Answer. The Federal Power Act requires the Commission to ensure
that hydropower licenses are best adapted to a comprehensive plan for
developing affected waterways, which the Supreme Court has held
requires an examination of all public interest considerations. In order
to provide sufficient information for the Commission to understand the
environmental impacts of relicensing a project, license applicants must
provide the Commission information regarding affected resources. The
costs of gathering this information will vary, depending on the
complexity of the issues and the extent to which there is already
existing information available.
Proceedings may become more lengthy and expensive if state and
federal resource agencies with mandatory conditioning authority seek
substantial new information, or if there are significant disputes among
stakeholders. Within these constraints, the Commission makes every
effort to ensure that hydropower relicensing proceedings are as
efficient and cost-effective as possible, requiring only those studies
that are justified and shown to be reasonably cost-effective, and
encouraging stakeholders to reach agreement on the scope of the process
and the issues in the proceeding. In addition, pursuant to the
Hydropower Regulatory Efficiency Act of 2013, the Commission is
investigating the feasibility of a two-year licensing process for
projects at non-powered dams and for closed-loop pumped storage
projects. To date, the Commission has held a public workshop, received
public comment, and issued criteria and solicited applications for
projects to test a two-year process.
LIQUID NATURAL GAS
FERC remains at the center of our efforts to efficiently approve
licenses for Liquefied Natural Gas (LNG) export facilities in Louisiana
and across the country. Responsibly exporting LNG will create thousands
of high-paying jobs and help provide energy security for our allies. We
should be exploring how to expedite the approval of LNG export
facilities.
On April 2, 2014, I wrote a letter calling on FERC to swiftly
approve Sempra's planned LNG export facility in Cameron Parish that
would create nearly 3,000 jobs. Without objection, this letter will be
included in the official record of this hearing.
On April 24, 2014, I wrote the Commission a letter in strong
support of Trunkline's Lake Charles LN G export facility asking that
FERC move expeditiously through the regulatory process. This facility
is expected to create about 250 permanent positions and several
thousand jobs. Without objection, this shall be made part of the
hearing record.
Question 2. What can FERC doing to expedite the approval of LNG
export facilities in the United States?
Answer. In general, FERC acts on both pipeline and LNG project
applications expeditiously. About 92 percent of applications are acted
on within a year of the filing of a complete application. To date, and
in light of this record, I have not identified specific changes that I
believe are needed at this time. However, I believe that that the
Commission should continue to dedicate sufficient resources to maintain
an expeditious review process, and I am always open to looking for ways
to improve the Commission's processes.
MIDLA PIPELINE
The Commission has heard from me a number of times about Boston-
based hedge fund ArcLight's plans to abandon the Midla Pipeline and the
people of nine parishes in Northeast and Central Louisiana. ArcLight's
plan would effectively end affordable natural gas service to nine
parishes in Louisiana--Franklin, Catahoula, Ouachita, Richard, Tensas,
Concordia, West Feliciana, East Feliciania and East Baton Rouge.
ArcLight should have known the pipeline was in serious need of
repair to maintain safe operations when it purchased Midla in April
2013. I agree with Louisiana customers that ArcLight should be held
responsible for the poor condition of the pipeline, which it recently
purchased and now owns, and is also responsible to finance the
necessary maintenance, repair and possible replacement without saddling
customers with an unaffordable bill. ArcLight must take responsibility
for the safety and operation of the Midla pipeline and offer
constructive solutions to solve the safety and operational problems of
the pipeline in a way that allows 9,000 Louisiana customers to continue
to get natural gas at an affordable price.
Question 3. Without getting into specifics of the ArcLight
abandonment proceedings, do you agree that it is a violation of the
Natural Gas Act public interest standard to abandon a pipeline and
effectively strand the affected customers with no service, or
unreasonable terms of service?
Answer. Under Section 7(b) of the Natural Gas Act, an interstate
pipeline company may only abandon jurisdictional facilities or services
if the abandonment is permitted by the ``present or future public
convenience or necessity.'' Central to the Commission's consideration
of any request for abandonment authorization are the principles that
(1) a pipeline which has obtained a certificate of public convenience
and necessity to serve a particular market has an obligation to
continue to serve, and (2) the burden of proof is on the applicant to
show that the public convenience or necessity permits abandonment, that
is, that the public interest will in no way be disserved by
abandonment.
Responses of Cheryl A. LaFleur to Questions From Senator Johnson
Question 1. Expanding transmission has been a big hurdle to wind
energy development in the Dakotas. What policy steps should we be
taking to encourage transmission? And what are your views on the
allocation of costs from building new transmission?
Answer. The Commission has undertaken and continues to undertake a
number of policy steps to encourage appropriate development of
transmission facilities. For example, I supported Order No. 1000
because I believe it promotes robust regional transmission planning
processes to identify more efficient or cost-effective transmission
facilities to meet regional needs, as well as greater certainty
regarding how the costs of new transmission facilities will be
allocated, both of which are key to increasing the likelihood that
needed transmission will move forward to construction. Further, in
response to policy direction from Congress in the Energy Policy Act of
2005, the Commission provides incentive rate treatments to encourage
transmission development in appropriate circumstances. In 2012, I
supported a policy statement that refocused those incentives to
encourage utilities to use ratemaking tools that mitigate risk, and
that provides guidance as to the kinds of transmission projects that
the Commission believes would merit a higher return on equity.
With respect to allocating costs of new transmission, I believe the
Commission's policies must be flexible to account for differing
regional needs. In my time on the Commission, I have supported orders
approving different approaches across the country that all respect the
central principle that costs must be allocated in a manner at least
roughly commensurate with benefits.
Question 2. South Dakota has a large number of rural electric
cooperatives and public power entities that focus first and foremost on
low costs for their customers. How can the need to preserve low rates
be reconciled with the Administration's environmental and clean
electricity goals?
Answer. Virtually all energy issues and decisions require
consideration of--and sometimes tradeoffs among--reliability, cost, and
the environment. Rural electric cooperatives and municipal utilities
are often leaders in efforts to bring down the cost of clean energy to
their customers, including through deployment of new technologies. If
confirmed, I am committed to continuing to work to help all segments of
industry fairly balance all three considerations.
Question 3. What are your thoughts on FERC's authorities to combat
financial manipulation in energy markets? Does FERC have the right
tools and information to combat fraud?
Answer. I believe FERC has strong authority to combat financial
manipulation in the energy markets. I have noted that it would be
helpful for Congress to provide clarification of the respective
jurisdictions of the Commission and the Commodities Futures Trading
Commission (CFTC) in the wake of last year's Court of Appeals for the
District of Columbia case, Hunter v. FERC, 711 F.3d 155 (D.C. Cir.
2013) related to exclusive jurisdiction over futures contracts.
However, if confirmed, I would continue to focus on ensuring the
Commission effectively uses the authority to combat market manipulation
that Congress provided in the Energy Policy Act of 2005.
I also believe that FERC has sufficient tools and information to
combat fraud. Over the past several years, the Commission has
promulgated a number of rulemakings--such as Order No. 760, requiring
RTO and ISOs to provide FERC with certain market transaction data, and
Order No. 771, providing FERC with access to information (e-tags) used
for scheduling electricity transmission--to increase the quantity and
quality of information it receives about the energy markets. In
addition, under the information sharing Memorandum of Understanding
with the CFTC that I and then-CFTC Chairman Gensler executed on January
2, 2014, the Commission recently began receiving important financial
energy trading data from the CFTC's Large Trader Report. This
information has significantly aided the Commission's efforts to conduct
market surveillance and analysis. I also worked with CFTC Acting
Chairman Wetjen to create a staff-level Interagency Surveillance and
Data Analytics Working Group to coordinate information sharing between
the agencies and focus on data security, data sharing infrastructure,
and the use of analytical tools for regulatory purposes. If confirmed,
I believe the Commission should continue to look for ways within its
jurisdiction to improve its market oversight abilities.
Responses of Cheryl A. LaFleur to Questions From Senator Stabenow
In July, 2013 the FERC imposed $410 million in penalties on JP
Morgan for manipulating electricity markets in Michigan and California
in 2010 and 2011. The company had to pay back $1 million it had
defrauded from electricity customers in Michigan and $124 million for
customers in California.
Question 1. This demonstrates the need for FERC's oversight to
ensure that energy markets provide customers with a fair price for the
energy they depend on in their homes, farms, and businesses. What ideas
will you bring to enhance FERC's efforts to detect instances of illegal
market manipulation?
Answer. I agree that market oversight is a critical part of FERC's
work, and that the Commission should act within its existing
jurisdiction to rigorously monitor the energy markets for instances of
manipulative behavior. In order to strengthen the Commission's ability
to do that work, on January 2, 2014 I executed the information sharing
Memorandum of Understanding (MOU) with the CFTC required by the Dodd-
Frank Act. Under that MOU, the CFTC recently began providing key data
from its Large Trader Report, which the Office of Enforcement uses in
its market surveillance and oversight efforts. In addition, CFTC Acting
Chairman Wetjen and I created a staff-level Interagency Surveillance
and Data Analytics Working Group to coordinate information sharing
between the agencies and focus on data security, data sharing
infrastructure, and the use of analytical tools for regulatory
purposes. Furthermore, over the past several years, the Commission has
promulgated a number of rulemakings--such as Order No. 760, requiring
RTO and ISOs to provide FERC with certain market transaction data, and
Order No. 771, providing FERC with access to information (e-tags) used
for scheduling electricity transmission--to increase the quantity and
quality of information it receives about the energy markets. If
confirmed, I believe the Commission should continue to look for ways
within its jurisdiction to improve its market oversight abilities.
Question 2. Under FERC's Order 1000, one of the standards of review
for a regional cost allocation formula for electric transmission is
that the costs imposed are ``roughly commensurate'' to the benefits
received. What do you interpret ``roughly commensurate'' to mean and
what types of information would you look for to determine whether the
standard has been met in a particular instance?
Answer. I agree with the bedrock foundation underlying the Order
No. 1000 cost allocation principles: costs of new transmission
facilities must be allocated in a manner at least roughly commensurate
with benefits received. As the U.S. Court of Appeals for the Seventh
Circuit (Seventh Circuit) has stated, ``[t]o the extent that a utility
benefits from the costs of new facilities, it may be said to have
`caused' a part of those costs to be incurred.'' The ``roughly
commensurate'' standard referenced in your question stems from the same
Seventh Circuit decision. As there is no formulaic definition for
``roughly commensurate,'' I have previously stated that the Commission
should remain flexible in assessing potential regional variations in
the application of this standard. In evaluating filings submitted in
compliance with Order No. 1000, we have not mandated a ``one-size-fits-
all'' approach. Indeed, the Commission has found that various cost
allocation proposals will allocate costs in a manner at least ``roughly
commensurate'' with benefits received.
Question 3. Although I am not opposed to all exports of natural
gas, I am concerned that large-scale exports of natural gas could
result in higher prices for residential consumers and squander what is
clearly a competitive advantage right now for American manufacturers
and for the American economy. The new abundance in American natural gas
has led to more than $100 billion in announced investments in more than
120 new manufacturing projects. A study by the Boston Consulting Group
concluded that affordable natural gas prices could lead to 5 million
more manufacturing jobs by the end of the decade. A recent study by
Charles River Associates found that using natural gas to increase
American manufacturing output creates twice the direct value to our
economy and creates eight times as many jobs as exporting the gas.
Thirteen projects to export natural gas have been proposed to FERC.
Combined with the export terminal at Sabine pass that has already been
approved, the projects represent a total export capacity of 20.9
billion cubic feet per day, equivalent to 31 percent of U.S. production
in 2013. With such a significant volume of exports under consideration,
FERC's responsibility for ensuring that project are constructed and
operated safely and with minimal environmental impacts takes on
significant importance. What lessons have you learned so far about
FERC's natural gas export terminal evaluation process that would help
FERC carry out its responsibilities in a thorough way?
Answer. The Commission's role with respect to exports is limited to
approving the physical facilities used in exports, and ensuring, as you
explain, that the facilities are designed and constructed safely and
with minimal environmental impacts. Each export facility is unique as
to its potential environmental impacts and also, to some extent, in its
design. Therefore, every project must be evaluated on its own merits
and it is difficult to draw many general conclusions from the projects
that we have reviewed to date. I believe it is important that the
review of every proposed project be thorough, and that the Commission
dedicates sufficient resources to that task.
Response of Cheryl A. LaFleur to Question From Senator Heinrich
Question 1. I understand there are cases still pending at the
Commission that are inhibiting generators from gaining access to
existing transmission capacity because FERC has effectively delayed a
decision by issuing tolling orders. In the west, development of a
number of clean-energy projects depends on open access to the grid.
Will you commit to acting on these types of cases as quickly as
possible without issuing tolling orders that extend statutory
deadlines?
Answer. Under the Federal Power Act, parties must seek rehearing of
a Commission order within 30 days after the issuance of an order, and
rehearing requests are denied by operation of law if the Commission
does not act within 30 days after a party seeks rehearing. The
Commission issues tolling orders of rehearing requests to prevent the
denial of those requests by operation of law, and to ensure that the
arguments raised by parties on rehearing receive fair and full
consideration by the Commission. I certainly agree that the Commission
should act on all matters before it in a timely manner, and, if
confirmed, I commit to continue my efforts to help ensure that the
Commission acts in a fair, clear, and timely manner on issues that come
before it.
Responses of Cheryl A. LaFleur to Questions From Senator Manchin
Question 1. Would you describe to the Committee your views on the
Commission's duties, responsibility and authority provided to it under
Section 215 of the Federal Power Act?
Answer. The Commission's role under section 215, generally, is to
certify and oversee the Electric Reliability Organization (ERO), to
approve or remand mandatory reliability standards proposed by the ERO,
and oversee enforcement of the approved standards. The Commission also
may direct the ERO to file a new or modified reliability standard, as
it did recently in directing the ERO to file new standards on physical
security and geomagnetic disturbances. It is important to note that the
Commission cannot write these standards itself. Fundamentally, the
Commission's role under section 215 is to ensure, within the scope of
jurisdiction granted by Congress, that these standards help maintain
the reliability and security of the bulk-power system.
Question 2. What steps are you preparing to take to carefully and
objectively review the impacts of the pending 111(d) GHG rules on grid
reliability?
Answer. The Commission has a responsibility to help ensure that
grid reliability is maintained as EPA rules are implemented. The
Commission's formal role in reviewing EPA rules occurs during the
Office of Management and Budget (OMB) interagency review process.
Commission staff reviewed parts of the draft Greenhouse Gas rule as a
part of that OMB process and provided input to the EPA from a
reliability perspective. I am reviewing the June 2 proposal and note
that it gives significant flexibility to states and permits regional
approaches to compliance. I look forward to discussing the proposed
rule with the EPA, utilities, the National Association of Regulatory
Utility Commissioners (NARUC), Independent System Operators/Regional
Transmission Organizations (ISOs/RTOs), the North American Electric
Reliability Corporation (NERC), and industry.
In addition to commenting on EPA's proposal, FERC has a role in
ensuring that the energy infrastructure and markets adapt to new
environmental requirements through its authority over transmission
ratemaking and natural gas permitting and ratemaking. For example, if
additional gas generating capacity is needed and more gas pipelines
need to be built, FERC has a role in certificating those pipelines.
FERC also has a role in ensuring that the regulations under its
jurisdiction are sufficient to attract needed investment in electric
transmission and gas pipelines.
Question 3. Can you assure the Committee the commission will work
closely with EPA, utilities and NERC to ensure that reliability is not
compromised by the pending rule?
Answer. Yes. I believe it is important that the Commission continue
its relationship with the EPA, utilities, NERC, and other stakeholders
to ensure that reliability is sustained as the electric sector complies
with new environmental regulations.
Question 4. What steps are you prepared to take to address the
possibility that the 111(d) rule would require resources to be
dispatched on the basis on environmental ``attributes'' rather than
cost?
Answer. Generally, the dispatch of resources by the markets
reflects their costs (or bids) but also reflects any applicable
requirements imposed under other laws, including federal or state
environmental requirements. For example, if a valid and approved State
implementation plan under the federal Clean Air Act were to require an
``environmental dispatch,'' that requirement would have to be met by
the affected utilities and ISOs/RTOs. Under such a scenario, the
Commission's statutory responsibilities would remain unchanged: to
ensure just and reasonable rates, a reliable power grid, and fair and
efficient markets. I note that markets in the East and in California
have already begun to incorporate the price of compliance with
greenhouse gas emissions reduction goals in response to the creation of
the Regional Greenhouse Gas Initiative (RGGI) and California's carbon
cap-and-trade program.
Question 5. Should FERC adopt policies that support one fuel type
over another?
Answer. No. FERC policies should focus on ensuring that the rules
that govern organized and bilateral wholesale electric markets promote
the delivery of reliable power in a manner that is nondiscriminatory
and resource-neutral, resulting in efficient price signals that market
participants can rely on to make investment decisions. Although the
drivers of power supply changes are largely outside of the Commission's
jurisdiction, we must be aware of, and adapt to, these developments in
order to carry out our statutory responsibilities to ensure just and
reasonable rates, a reliable power grid, and fair and efficient
markets.
Question 6. Are there currently any FERC policies, in your view,
that promote one fuel type or energy source over another?
Answer. No. Please see my answer to question 5.
Question 7. EPA projected that its Mercury and Air Toxics Standards
would not endanger grid reliability because the regulation would result
in less than 5 GW of power plant retirements. Yet, EIA now projects
that the regulation will close for 50 GW of power plants. More EPA
regulations are to come--particularly for GHG emissions from existing
plants. How will you address the inaccuracy to date on EPA projections
on regulatory impacts on reliability?
Answer. FERC's formal role in reviewing EPA rules occurs during the
OMB interagency review process. I believe that FERC should be involved
in commenting on draft rules, monitoring industry's progress in
responding to rules that potentially impact electric reliability, and
helping assure that energy infrastructure and markets support
environmental compliance.
Commission staff reviewed parts of the draft Greenhouse Gas rule as
a part of the OMB process and provided input to the EPA. EPA issued its
proposal on June 2. I am reviewing the June 2 proposal and note that it
gives significant flexibility to states and permits regional approaches
to compliance. I look forward to discussing the proposed rule with the
EPA, utilities, NARUC,,ISOs/RTOs, NERC, and industry.
Question 8. We hear that base load energy is essential to the grid
but struggles in organized markets. Can you describe benefits to the
grid that base load power is uniquely positioned to provide?
Answer. Serving customers reliably at the lowest possible cost
requires the use of multiple types of resources with different
characteristics. Base load generation is characterized by the ability
to continuously meet energy demand at a relatively constant rate and
base load generators have traditionally been a source of dependability,
fuel security, and resource diversity. In addition to base load
generation, system operators also rely on other resources that can
change output levels quickly or otherwise provide flexibility to the
system. The importance of any one characteristic depends on system
conditions at a given time. For instance, during the extreme weather
events experienced last winter, resources that had a secure fuel supply
enhanced system operations and reliability. During significant
fluctuations in load or variable energy resource output, flexibility
and responsiveness are of primary importance.
I am aware that certain types of baseload resources are finding it
difficult to recover their costs in the organized markets. The docket
the Commission opened last fall on eastern RTO/ISO capacity markets is
a potential forum for consideration of this issue.
Question 9. Do you believe that base load energy resources are
essential to the reliable operation of the gird?
Answer. I believe that base load generation, which can provide
continuous power to the grid, is one resource that provides system
operators with the tools they need to reliably satisfy load at least
cost.
Question 10. Why shouldn't FERC treat any net metering sale as a
wholesale sale?
Answer. Although no net-metering cases have come before me during
my time at the Commission, I have been following with interest the
debates surrounding net metering that are occurring at the state level.
While it would be inappropriate for me to prejudge issues related to
net metering that could be presented to the Commission in the future, I
look forward to participating, if confirmed, in any Commission
consideration of this important issue.
Question 11. If a utility's grid operating costs are being shifted
from net metering customers to other customers, is that just and
reasonable?
Answer. Issues related to net metering, including the potential for
cost shifting among customers, have received increased attention in
recent months. I know such cases require careful balancing of the costs
to interconnection customers with the costs borne by all other
customers on the system. Although discussions have occurred primarily
at the state level, it would be inappropriate for me to prejudge issues
related to net metering that could be presented to the Commission in
the future. However, I look forward to participating, if confirmed, in
any Commission consideration of this important issue.
Question 12. Under what circumstances do you believe FERC should
take action to prevent cost shifting from net metering customers to
other customers?
Answer. As noted above, issues related to net metering, including
the potential for cost shifting among customers, have received
increased attention in recent months. I know such cases require careful
balancing of the costs to interconnection customers with the costs
borne by all other customers on the system. Although discussions have
occurred primarily at the state level, it would be inappropriate for me
to prejudge issues related to net metering that could be presented to
the Commission in the future. However, I look forward to participating,
if confirmed, in any Commission consideration of this important issue.
Question 13. FERC has determined that demand response should be
given the locational marginal price. Do you believe this is the right
policy or should it be overturned?
Answer. I voted in favor of Order No. 745, which, among other
things, established rules for pricing demand response services in the
organized energy markets. On Friday, May 23, 2014, the U.S. Court of
Appeals for the D.C. Circuit issued a decision vacating Order No. 745
and addressing both the Commission's jurisdiction over demand response
and Order No. 745's compensation requirements. The Commission is in the
process of reviewing that decision and determining next steps. It would
be inappropriate for me to prejudge any actions the Commission might
take in response to the D.C. Circuit opinion.
Question 14. Should FERC treat a megawatt of energy produced the
same as a ``negawatt'' of energy saved? What are the issues that
differentiate a megawatt from a negawatt?
Answer. As noted above, the U.S. Court of Appeals for the D.C.
Circuit recently issued a decision vacating Order No. 745 and
addressing both the Commission's jurisdiction over demand response and
Order No. 745's compensation requirements. The Commission is in the
process of reviewing that decision and determining next steps. It would
be inappropriate for me to prejudge any actions the Commission might
take in response to the D.C. Circuit opinion.
Question 15. Will the physical security standard recently passed by
NERC adequately protect the public from electric grid outage caused by
terrorist attack?
Answer. NERC's petition to approve the physical security standard
was filed with the Commission for review on May 23, 2014. It would be
inappropriate for me to judge the merits before interested parties have
an opportunity to submit comments to the Commission, so that we can
consider all relevant arguments. I assure you that I will carefully
consider the proposal and all filed comments to ensure that NERC's
filing does adequately protect the public.
Question 16. Could an attack on an electric generation plant cause
a cascading outage or long-term power shortage?
Answer. A carefully planned and executed attack on a single or
multiple generation plants could cause cascading outages, but I have
not seen information that would lead me to believe that it could cause
a long-term power shortage. The extent and duration of any outage from
an attack would depend upon a number of factors, such as the size and
location of the plant, system loads, the configuration of the grid, the
availability of replacement equipment and fuel, and the resilience of
the systems under attack. Resilience begins with how the system is
planned, designed, constructed, and operated, and is informed by how
asset owners and grid operators respond to and learn from events. Many
of these factors are addressed in detail in the FERC-approved mandatory
reliability standards, such as standards requiring that the grid be
able to continue to operate after a single contingency event and
certain blackstart capabilities be in place, ensuring that additional
generation is able to come online to replace units lost unexpectedly.
Building a resilient grid requires comprehensive and ongoing
assessments under a range of conditions, and, if confirmed, I will be
dedicated to carrying out this work with NERC and others.
Question 17. Why were generation plants exempted from NERC's
physical security standard?
Answer. NERC's petition to approve the physical security standard
was filed with the Commission for review on May 23, 2014. In the
petition, NERC states that a generation facility does not have the same
critical functionality as certain transmission substations, and also
that the planning process for the electric grid already plans for the
possible loss of a generator. NERC adds that limiting the standard to
certain transmission substations and their associated primary control
centers will allow the industry to focus resources where they are most
essential for maintaining reliable operations. It would be
inappropriate for me to judge the merits before interested parties have
an opportunity to submit comments to the Commission, so that we can
consider all relevant arguments. I assure you that I will carefully
consider the merits to ensure that NERC's filing does adequately
protect the public.
Question 18. Why did NERC exempt operators of critical control
centers--including the two major control centers for the western half
of the United States--from physical security requirements?
Answer. NERC's petition to approve the physical security standard
states that the drafting team determined that the standard should only
provide additional physical security protections to those primary
control centers that can physically operate critical substations. The
drafting team also determined that a physical attack on a control
center that only has monitoring or oversight capabilities of a critical
substation would not have a direct impact on reliability in real-time.
It would be inappropriate for me to judge the merits before interested
parties have an opportunity to submit comments to the Commission, so
that we can consider all relevant arguments. I assure you that I will
carefully consider the merits to ensure that NERC's filing does
adequately protect the public. I also note that control centers are
required to be protected under the recently-approved NERC Version 5
cyber security reliability standard.
Question 19. Is it true that an electromagnetic pulse device in a
suitcase or van could take out a critical grid control center or
substation?
Answer. My understanding is that this is possible. The
effectiveness of such an attack would depend on a number of factors,
including the strength of the device, the proximity of the device to
the target, the type of equipment that is being targeted, and the type
of shelter housing that equipment.
Question 20. How much would it cost to build an electromagnetic
pulse device capable of taking out a grid control center or substation?
Answer. It is my understanding that these devices generally cost
tens of thousands of dollars to build. However, the effectiveness of
such a device would depend upon the factors described above in response
to Question 19.
Question 21. Why doesn't the new physical security standard
approved by NERC contain required protection against local
electromagnetic pulse devices?
Answer. NERC's petition does not directly address this issue. It
would be inappropriate for me to judge the merits before interested
parties have an opportunity to submit comments to the Commission, so
that we can consider all relevant arguments. I assure you that I will
carefully consider the merits to ensure that NERC's filing does protect
the public adequately. However, it is worth noting that the Commission
has directed NERC to propose reliability standards to address the
threat posed by a geomagnetic disturbance event. Because of the
similarities between GMD and EMP events and impacts, the forthcoming
GMD standards could also help address the threat of EMP attacks.
Question 22. Do you agree that with the basic principle that the
``cost causer'' should pay for transmission upgrades--that is, that
when transmission upgrades are needed, the entities that made them
necessary should pay?
Answer. I agree that the ``cost causation'' principle, as it has
been established by the courts and applied by the Commission, is a
central tenet of fair cost allocation.
It is important to note that needed transmission upgrades may be
identified in a number of ways. For example, transmission upgrades may
be needed to reliably interconnect individual new generation resources
or to create capacity to satisfy individual requests for transmission
service. In these situations, long-standing Commission policy allows a
transmission provider to charge the customer a rate equal to the higher
of either: (1) the incremental cost of the required upgrades or (2) the
embedded costs of the transmission provider's system. This policy
ensures that individual interconnecting generators and transmission
service customers pay the full cost of the upgrades they require (or
``cause''), and that existing customers do not subsidize any costs
caused by these new customers.
More recently, in Order Nos. 890 and 1000, the Commission adopted
cost allocation requirements for transmission facilities that are
identified in a regional transmission planning process as needed to
meet reliability requirements, provide economic benefits, or address
transmission needs driven by public policy requirements enacted by
federal, state or local governmental authorities. Notably, these types
of transmission facilities are not driven by a specific service
request. To address these types of transmission facilities, I supported
adopting the cost allocation principles in Order No. 1000 to guide the
allocation of the costs of regionally-planned projects, while giving
each region the flexibility to design its own cost allocation approach
to meet its own needs, consistent with these principles.
I agree with the bedrock foundation underlying the Order No. 1000
cost allocation principles: costs must be allocated in a manner at
least roughly commensurate with benefits received. Allocating
transmission costs commensurate with the benefits received by grid
users is not a departure from the ``cost causation'' principle; in
explaining the ``cost causation'' principle, the U.S. Court of Appeals
for the Seventh Circuit Court has stated that ``[t]o the extent that a
utility benefits from the costs of new facilities, it may be said to
have `caused' a part of those costs to be incurred.''
Question 23. I recognize that you cannot address merits of specific
compliance proceedings pending before the Commission. But I have a
couple of questions I trust you can answer about the general policy
behind FERC Order 1000:
A number of observers believe that FERC has overreached its
statutory authority (under the Federal Power Act)--by effectively
pursuing a preference for renewable-based electricity under Order 1000.
(This results from the Order's subsidization, or ``socialization''
of the cost of new long-distance transmission lines. Order 1000
allocates such costs very broadly, even though these lines are designed
primarily to transmit wind power thousands of miles to faraway markets.
The result is that consumers in states which do not need the power or
otherwise benefit from the new lines have to help pay for them.)
Answer. I do not believe that Order No. 1000 either exceeds FERC's
statutory authority or establishes a preference for renewable-based
electricity. Rather, Order No. 1000 facilitates the identification of
transmission facilities that are more efficient or cost-effective
solutions to regional transmission needs, including reliability and
economic needs, as well as transmission needs driven by federal, state,
or local public policy requirements. Order No. 1000 does not mandate
any particular regional cost allocation methodology, and I agree with
the bedrock foundation underlying the Order No. 1000 cost allocation
principles: costs of new transmission facilities must be allocated in a
manner at least roughly commensurate with benefits received.
Ultimately, the Federal Power Act requires that the rates, terms and
conditions of transmission service provided by public utilities be just
and reasonable and not unduly discriminatory or preferential, and I
believe that Order No. 1000's cost allocation principles further that
statutory requirement.
Question 24. Shouldn't FERC transmission policy be neutral with
respect to the source of electricity generation? Do you agree or
disagree?
Answer. I agree. FERC policies should focus on ensuring that the
rules that govern organized and bilateral wholesale electric markets
promote the delivery of reliable power in a manner that is
nondiscriminatory and resource-neutral, resulting in efficient price
signals that market participants can rely on to make investment
decisions.
Question 25. If you disagree, can you identify provisions in the
Federal Power Act that authorize FERC to favor a particular source of
generation over others?
Answer. See answer to Question 24; I am not aware of any provisions
in the Federal Power Act that authorize FERC to implement transmission
policies that favor a particular source of generation.
Question 26. If Congress wanted to express a preference for a
particular generation source, don't you think it would have so stated--
for example, by enacting a federal renewable portfolio standard? Isn't
this Congress' prerogative--not FERC's?
Answer. The Commission can only act under the authority delegated
to it by Congress. It is the prerogative of Congress to enact
legislation, such as you mention. As noted above, FERC policies should
focus on ensuring that the rules that govern organized and bilateral
wholesale electric markets promote the delivery of reliable power in a
manner that is nondiscriminatory and resource-neutral, resulting in
efficient price signals that market participants can rely on to make
investment decisions. Those markets should be capable of accommodating
changes in power supply that may be driven by factors outside of the
Commission's jurisdiction, such as changes in law enacted by Congress.
Although the drivers of power supply changes are largely outside of the
Commission's jurisdiction, we must be aware of, and adapt to, these
developments in order to carry out our statutory responsibilities to
ensure just and reasonable rates, a reliable power grid, and fair and
efficient markets.
Question 27. Do you support this aspect of Order 1000--specifically
that FERC has ordered states to plan for new transmission lines on the
basis of undefined and unspecified ``public policies'' including
environmental mandates?
Answer. I supported the reforms required in Order No. 1000, which
did not order states to plan for new transmission lines based on
undefined and unspecified public policies. Rather, Order No. 1000
requires local and regional transmission planning processes to consider
transmission needs driven by public policy requirements established by
duly enacted federal, state or local laws or regulations. The
Commission stated in Order No. 1000 that recent increases in
transmission development combined with projections by industry and NERC
of the need for significant future additional transmission investments,
as well as changes in the generation mix driven in part by public
policy developments, required action to ensure that transmission
planning and cost allocation requirements are adequate to support more
efficient and cost-effective transmission facility decisions. The
Commission will monitor transmission planning processes to ensure that
they are effective in meeting regional transmission needs and
supporting the provision of Commission-jurisdictional service at rates,
terms and conditions that are just and reasonable and not unduly
discriminatory or preferential.
Question 28. If so, can you direct me to the provision of the
Federal Power Act that authorizes FERC to require states to conduct
this type of planning?
Answer. As explained in the answer to Question 27, FERC has not
ordered states to plan for new transmission lines based on undefined
public policies. In Order No. 1000, the Commission relied on section
206 of the Federal Power Act, which obligates the Commission to ensure
that jurisdictional electric rates are just and reasonable and not
unduly discriminatory or preferential. In addition, the Commission
explained that section 201(b)(l) of the Federal Power Act grants the
Commission jurisdiction over the transmission of electric energy in
interstate commerce, as well as jurisdiction over all facilities for
the transmission of electric energy.
Question 29. Couldn't this policy result in the construction of new
transmission lines--the need for which is premised on EPA rules that
currently subject to challenge in the courts--which may be struck down?
Wouldn't that be wasteful? How is this fair to consumers?
Answer. I believe that robust regional transmission planning
processes that comply with the requirements of Order No. 1000 will
benefit consumers by promoting more efficient and cost-effective
transmission facilities. I supported the Commission's requirement that
public utility transmission providers in a transmission planning region
consider transmission needs driven by public policy requirements. Like
you, I recognize that the public policy requirements that drive such
transmission needs could change over time for a variety of reasons.
Nonetheless, I believe that it is prudent to consider transmission
needs driven by duly enacted public policy requirements as a
transmission planning region identifies transmission solutions.
Furthermore, I believe the concern that you have identified will be
mitigated by a number of aspects of regional transmission planning.
First, transmission lines are frequently designed and constructed to
serve multiple needs, including not only needs driven by enacted public
policies, but also reliability needs and efforts to reduce congestion.
Thus, comprehensive transmission planning can ensure that ratepayers
receive benefits beyond those associated with public policies. Second,
transmission planning regions may reevaluate their regional
transmission plans each planning cycle to determine whether a
transmission need still exists and whether a transmission project is
still needed. If enacted public policies change over time, the
transmission planning process is therefore equipped to address
associated changes in transmission needs. Finally, as you know,
planning and constructing new transmission infrastructure can take a
significant amount of time. Given this lengthy process, I believe that
transmission planning processes will be able to account for changes in
enacted public policies that drive transmission needs.
Responses of Cheryl A. LaFleur to Questions From Senator Wyden
Question 1. I view FERC Order 1000-where FERC has insisted that the
Bonneville Power Administration and other governmental utilities in the
Northwest agree to cede their transmission cost-allocation authority to
FERC-as a significant overreach. Can you assure me that if you are
confirmed you will support policies that keep the locus of Northwest
electricity decisions in the Northwest as opposed to shifting authority
to FERC headquarters in Washington, D.C.?
Answer. If confirmed, I will give due consideration to the concerns
you raise. With respect to Order No. 1000, I do not believe that the
Commission sought to centralize authority over regional transmission
planning at FERC; rather, the requirements of Order No. 1000 are
intended to facilitate transmission planning and decision-making at the
regional level, using criteria and processes developed by public
utility transmission providers, enrolled non-public utility
transmission providers, and interested stakeholders. Importantly, the
Commission in Order No. 1000 did not require non-public utility
transmission providers to participate in regional transmission planning
processes and corresponding cost allocation methods. Instead, the
Commission encouraged such participation and noted that the success of
the reforms called for in the rule would be enhanced if all
transmission owners, including non-public utility transmission
providers, participate. If confirmed, I will continue to carefully
consider the concerns raised by non-public utility transmission
providers as the Commission addresses further filings related to Order
No. 1000 implementation.
Question 2. The nation's electricity sector is in a period of
transition, with significant shifts in the past decade due to the
greater usage of renewables, lowered costs of natural gas, and many
older units scheduled to come offline. One important effect of these
changes has been decrease in carbon emissions from the power sector, a
trend that needs to continue for our nation to move to a truly low-
carbon economy. As the power sector continues to evolve in this manner,
what challenges do you see coming up in the future as a result of this
transition, and what role do you envision for the FERC in helping to
manage the challenges that will come along with that transition?
Answer. As I frequently note, the nation is making substantial
changes in its energy supply due to the increased availability of
domestic natural gas and its use for power generation, the growth of
renewable and demand-side resources, and new environmental
requirements. Although these drivers of change are largely outside the
Commission's jurisdiction, we must be aware of and adapt to them to
carry out our statutory responsibilities. These developments are
driving a great deal of the Commission's work on both infrastructure
and markets. Our nation is making substantial investments in electric
transmission and gas pipelines, and the Commission, through its
authority over transmission ratemaking and natural gas permitting and
ratemaking, has a critical impact on those investments. In addition,
power supply changes require adaptations in competitive electric
markets, to assure they attract needed investment and coordinate
effectively with natural gas markets.
Responses of Cheryl A. LaFleur to Questions From Senator Franken
Question 1. I want to commend the Federal Energy Regulatory
Commission (FERC) for issuing an order last year that effectively fast-
tracked the ability of small wind projects to get connected to the
grid. How would you continue to support the interconnection of
community wind projects with the electric grid, and how would you
ensure that community wind owners are offered fair rates by utilities?
Answer. I believe that the revisions adopted last year to the
Commission's pro forma small generator interconnection procedures will
help facilitate the interconnection of community wind projects.
Compliance filings to implement the Commission's order are due in
August 2014. If confirmed, I look forward to continuing to monitor the
impact of the rule going forward, as well as looking for other
opportunities to remove barriers to interconnection while ensuring that
all generators receive just and reasonable prices for their power.
Question 2. For large wind farms, are there other steps you would
take to ensure efficient and cost-effective transmission of wind energy
from places that generate the energy to places that need it?
Answer. I believe that a number of recent Commission initiatives,
including Order No. 1000, will facilitate the construction of new
efficient and cost-effective transmission infrastructure for new
resources of various types in the coming years as those initiatives are
implemented. In addition, the Commission has been, and should continue
to be, responsive to requests for flexibility in rates, terms and
conditions from developers of transmission projects under non-
traditional business models, including merchant transmission, that can
foster needed development.
Question 3. In Minnesota and across the Midwest and other areas of
the country this past winter, we experienced a very serious propane
shortage. I was pleased that FERC used its authority to prioritize
shipments of propane on the Enterprise pipeline running from Mont
Belvieu, Texas to distributors further north. This action helped get
propane to those who needed it. However, the Cochin pipeline, which has
been transporting a very substantial amount of propane from Canada to
the Midwest, is being repurposed to send other petroleum products in
the opposite direction. Should FERC be given additional authorities to
conduct a public interest determination before permitting the reversal
of pipelines such as Cochin?
Answer. As your question recognizes, under the Interstate Commerce
Act, the Commission does not have the statutory authority to prevent an
oil pipeline or product pipeline from abandoning service in one
direction and then starting service in the opposite direction. The
Commission's emergency powers under ICA section 1(15) provide
discretion to the Commission to address situations on an ad hoc basis
as they may arise. As I said at the hearing, I believe that the
Commission should first ensure that it uses its existing authority
effectively, and that the Commission should continue to be alert and
proactive in monitoring the propane markets. If I am confirmed and
Congress chooses to grant the Commission additional authority over such
pipelines, I will work to ensure that the Commission faithfully
executes that additional authority.
Question 4. Another issue during the propane shortage this past
winter was that some pipeline terminals had long lines of truck drivers
waiting to pick up loads of propane, while other terminals had no lines
because truck drivers didn't know that propane was available there. Do
you think it would be a good idea for FERC to improve transparency into
pipeline operations so that we avoid this kind of confusion in the
future?
Answer. I support efforts to improve transparency into pipeline
operations, though I believe that these efforts should be consistent
with the regulatory authority vested by Congress in the Commission.
Under the Interstate Commerce Act, common carriers are prohibited from
disclosing certain information, including the nature, kind, quantity,
destination, or routing of any property delivered over the pipeline,
that may be used to the detriment of shippers or improperly disclose
business transactions to a competitor. Thus, the Commission does not
currently receive from oil or product pipelines product shipment
information, including when and where, for example, propane is shipped.
However, if confirmed, I commit to continue the Commission's efforts to
be alert and proactive in monitoring the propane markets.
Question 5. Utilities installing wind turbines are often exempt
from local zoning laws and can install 100-foot structures at will, but
homeowners and businesses are subject to 35-foot or other height
restrictions. What actions could FERC take to help homeowners and
businesses who wish to install distributed generation projects such as
community wind?
Answer. Under the Federal Power Act, the Commission does not have
jurisdiction over the siting of generation, including height
restrictions governed by state or local zoning laws. As mentioned
above, if confirmed, I will continue to look for opportunities to
remove barriers to interconnection of new resources while ensuring that
all generators receive just and reasonable prices for their power.
Question 6. The attacks on the Metcalf substation have shown that
physical security of the electric grid is a critical problem. As you
know, I wrote to FERC on this issue, and you responded by tasking the
North American Electric Reliability Corporation (NERC) to develop a
national reliability standard. Should NERC also provide input on an
approach for maintaining spare transformers that can be moved around
the country as circumstances require?
Answer. I agree that the adequacy of transformer supply is
important to the resiliency of the electric grid. In addressing supply
chain and appropriate inventory levels, it is important to have a clear
understanding of which assets are the most critical in terms of how
their loss would impact operation of the bulk power system. The version
of cybersecurity reliability standards recently approved by FERC (CIP
version 5) expressly requires utilities to determine the criticality of
cyber assets and tailor protections accordingly. The FERC directive
that NERC develop a physical security standard also requires
identification of the most critical facilities. In addition, FERC's
final rule on geomagnetic disturbance standards also required
identification of the assets most important to protect and explicitly
identified inventory management as a possible mitigation strategy to be
used under the standards.
NERC's petition to approve a physical security standard was filed
with the Commission for review on May 23, 2014. It would be
inappropriate for me to judge the merits before interested parties have
an opportunity to submit comments to the Commission, so that we can
consider all relevant arguments. I assure you that I will carefully
consider the proposal and all filed comments to ensure that NERC's
filing does adequately protect the public.
I also note that the Edison Electric Institute (EEI) has undertaken
the voluntary Spare Transformer Program (STEP) and that NERC maintains
the Spare Equipment Database (SED) Program. These programs are designed
to help utilities identify and share spare transformers in emergencies.
Finally, the Department of Homeland Security, the Department of Energy,
and others are working to develop the Recovery Transformer (RecX), a
prototype extra-high voltage (EHV) transformer that would significantly
reduce the recovery time associated with EHV transformers. This
initiative may play an important role in improving our ability to
recover if a number of transformers are damaged concurrently for any
reason.
Question 7. This reliability standard is intended to help safeguard
the grid against attacks by humans. Do you believe that this standard
would also provide adequate protection against extreme weather events?
Answer. As mentioned above, NERC's petition to approve a physical
security standard was filed with the Commission for review on May 23,
2014. Because the reliability standard is pending before the
Commission, I cannot comment on it at this time. I note that many other
existing reliability standards are intended to mitigate the type of
system impacts that may be caused by an extreme weather event.
Responses of Cheryl A. LaFleur to Questions From Senator Heller
Question on Order No. 1000
Mr. Bay and Ms. LaFleur,
Order No. 1000 creates obligations for neighboring transmission
planning regions to develop procedures for joint identification and
evaluation of regional and interregional transmission needs, potential
facilities to address those needs, and a cost allocation methodology
for allocating the costs of such facilities. The costs of regional and
interregional transmission facilities are expected to be allocated to
customers roughly commensurate to the benefits they receive. FERC gave
the industry some flexibility to comply with very broad directives. It
is my understanding that the compliance process has been messy, and
getting the requirements of the order into effect has been a
significant challenge that has consumed FERC's time and policy
attention for over a year and counting.
Question 1. In your view, how much flexibility and deference, if
any, should FERC provide individual planning regions to develop and
implement unique methods for allocating costs to the recipients of the
benefits? Do you think FERC should mandate certain aspects of
compliance for sensitive issues such as binding cost allocation, or
simply defer to each region's direction?
Answer. I believe that FERC's cost allocation policies should be
flexible to meet regional needs in both established regional
transmission organizations and in bilateral market regions. That is why
I supported the regional transmission planning and cost allocation
approach of Order No. 1000, which adopted minimum requirements for
regional transmission planning and cost allocation, but gave regions
flexibility to develop specific proposals that will meet regional needs
and reflect regional differences. In evaluating filings submitted in
compliance with Order No. 1000, we have not mandated a ``one-size-fits-
all'' approach. Indeed, we have approved a variety of cost allocation
proposals that satisfy the minimum requirements established in Order
No. 1000.
Because the issue of binding cost allocation is pending before the
Commission, I cannot comment on it at this time.
Question 2. As you know, the West has a predominance of non-
jurisdictional transmission providers compared to other regions. Given
their significant footprint and unique compliance status on one hand
and the need for enhanced operational coordination and planning across
the region on the other, how should FERC balance these factors in
seeking to facilitate broad utility participation, on a comparable and
non-discriminatory basis, in the regional and interregional planning
processes formed under the order?
Answer. I recognize the significant contributions of non-public
utility transmission providers to regional transmission planning, and
in Order No. 1000, the Commission encouraged their participation,
noting that the success of the reforms called for in the rule would be
enhanced if all transmission owners, including non-public utility
transmission providers, participate. In particular, the Commission
stated that regions may propose as part of their Order No. 1000
compliance filings any tariff provisions they believe are necessary to
recognize the unique status of non-public utilities that seek to
participate in the regional planning process. A number of proposals
addressing the enrollment and participation of non-public utility
transmission providers are currently pending before the Commission on
rehearing and compliance, and, accordingly, I cannot comment on them at
this time.
Question 3. What role do you see for existing vertically electric
utilities in future transmission development? What role do you see for
new entrants in this area?
Answer. I expect that existing vertically-integrated electric
utilities will have a significant role in future transmission
development at the local, regional, and interregional levels. As the
Commission noted in Order No. 1000, existing utilities bring certain
strengths they can rely on when proposing to construct transmission
projects, such as unique knowledge of their own transmission systems,
familiarity with the communities they serve, economies of scale,
experience in building and maintaining transmission facilities, and
access to funds needed to maintain reliability.
Meanwhile, following implementation of the non-incumbent
transmission developer reforms in Order No. 1000, I expect new entrants
to pursue opportunities to identify, propose, and develop transmission
facilities, primarily, though not exclusively, at the regional level.
It is important to note that Order No. 1000's non-incumbent developer
reforms did not seek to define specific roles for existing utilities
and new entrants; rather, Order No. 1000 simply sought to remove a
barrier to entry that the Commission concluded has the potential to
undermine the identification and evaluation of more efficient or cost
effective transmission projects and result in unjust and unreasonable
rates or undue discrimination by public utility transmission providers.
Accordingly, I expect to see new entrants focus primarily on new
transmission facilities that are governed by the requirements of Order
No. 1000.
Renewable Development
Geothermal energy is base load renewable power that plays an
extremely important role in Nevada but gets too little attention
nationally. It provides 24/7 power without emissions and, in the case
of binary geothermal, with negligible water consumption. Geothermal is
a valuable energy resource and yet it is lagging behind other
renewables sources in development.
Question 1. What is your view of geothermal energy and the
challenges it faces?
Answer. Geothermal energy is a sustainable source of base load
energy, with growing potential due to the development of new
technologies to utilize it. Similar to other types of technologies that
may be located a distance from load centers, geothermal energy will
need to obtain cost-effective access to transmission lines to move that
power from its source to the loads. As noted below, FERC works to
ensure open access to transmission facilities and promote transmission
planning and generator interconnection policies that are fair to all
resources.
Question 2. What can FERC do to help our markets value exactly what
geothermal provides-reliable clean energy?
Answer. One of the Commission's core responsibilities is to ensure
that wholesale rates are just and reasonable. As such, the Commission
has long supported the development of competitive wholesale power
markets that support investment and are fair to all types of
technologies and sources of power, including geothermal. I believe that
the Commission should continue to assess our competitive power markets
in the upcoming years to, among other things, ensure they properly
value the contributions of all types of resources.
[Preamble to Question 3]
In October 2012, the Secretary of the Interior signed the Record of
Decision finalizing a program to facilitate development of solar energy
on public lands in six southwestern states. The Western Solar Plan
provides a blueprint for utility-scale solar energy permitting in
Arizona, California, Colorado, Nevada, New Mexico and Utah by
establishing solar energy zones, incentives for development within
those zones, and a process through which to consider additional zones
and solar projects. The Western Solar Plan established an initial set
of 17 Solar Energy Zones, totaling about 285,000 acres of public lands,
that serve as priority areas for commercial-scale solar development,
with the potential for additional zones through ongoing and future
regional planning processes. Two additional Solar Energy Zones were
designated in 2013 in Arizona and California. Additionally, a
programmatic environmental impact statement relating to the
authorization of geothermal leasing in Nevada was completed in October
2008.
Energy development is critical to the economic development of the
West but one of the primary barriers to development is access
transmission.
Question 3. What can FERC do to improve its permitting process to
get transmission lines built on public lands in the West, so that all
forms of energy development can proceed where it is suitable?
Answer. The Commission currently has no direct ability to authorize
transmission lines on public lands in the West, other than in the
limited case of primary transmission lines that connect hydropower
projects to the interstate electric transmission grid. While the Energy
Policy Act of 2005 granted limited ``backstop'' authority to the
Commission, subsequent court decisions have effectively prevented the
Commission from exercising that authority. Nonetheless, the Commission
has participated, and will continue to participate, in interagency
efforts that seek to improve and streamline federal permitting
processes for construction of new transmission infrastructure on public
lands, such as the Rapid Response Team for Transmission.
Although FERC does not have a direct role in permitting
transmission facilities, it is the Commission's responsibility to
ensure open access to transmission facilities and develop transmission
planning and generator interconnection policies that are fair to all
resources. For example, the Commission recently issued a Notice of
Proposed Rulemaking concerning open access for Interconnection
Facilities, proposing new rules to remove barriers to competitive
generation development.
Question 4. Specifically, what can be done to improve access to
transmission in these ``solar and geothermal energy zones?''
Answer. Access to transmission is a critical issue for location-
constrained resources. As noted above, the Commission has worked with
relevant federal agencies to improve and streamline federal permitting
processes for transmission on public lands. If confirmed, I will
continue to support these important interagency efforts.
Responses of Cheryl A. LaFleur to Questions From Senator Heller
Waste Heat recovery
In their 2009-2014 Strategic Plan, FERC established a ``Long Term
Performance goal'' that by FY2013, 100 percent of jurisdictional
natural gas companies will be ``examined for feasibility of installing
waste-heat recovery systems.'' The plan called for FERC to conduct bi-
monthly reviews of electronic bulletin boards (EBB) ``to gauge the
availability of information on waste-heat recovery potential,''
beginning in FY2010 and continuing through FY2014 and for Pipeline
companies to voluntarily post information about waste heat feasibility
on their Electronic Bulletin Boards (EBBs).
FERC made these recommendations formal in July 2012 rulemaking,
Order No. 587-V. O It is my understanding that the rulemakings have had
limited impact to encourage companies to actually move toward
implementing waste heat.
Question 1. How has FERC worked toward this goal since that time?
Has the natural gas supply chain made measurable progress in
implementing waste heat technologies on pipelines and other operations?
Answer. Consistent with the performance goal you cite, the
Commission has examined 100 percent of interstate pipelines' EBBs to
verify that each pipeline has examined its system to identify resources
conducive to the installation of waste-heat recovery facilities and
made such information publicly available. The Commission does not track
installation of waste-heat recovery facilities, but I understand that
the industry has moved to seek opportunities to install such
facilities.
Question 2. FERC requires pipeline companies to demonstrate
consideration of waste heat recovery technologies when they work with
FERC to site a new facility. Does FERC have any mechanisms for
prioritizing siting applications for pipelines and other natural gas
operations that include co-benefits like waste heat?
Answer. The Commission acts on all natural gas project applications
as soon as the record is complete in each case, and processes multiple
applications simultaneously. Because Commission practice does not
establish a queue for pipeline applications, there is no process by
which certain projects can be prioritized over others.
Responses of Norman C. Bay and Cheryl A. LaFleur to Questions From
Senator Heller
Wholesale Electric Market Reform
It is my understanding that FERC is currently investigating the
current centralized capacity markets to ensure they function
efficiently and support the procurement and retention of resources
necessary to meet future reliability and operational needs. In
particular, FERC is examining whether rule changes are necessary so
that these markets send the proper investment signals in light of
structural changes impacting the power sector.
Question 1. As the nation's energy supply becomes more diverse, how
important do you think regional coordination and more efficient
dispatch services will ensuring that variable energy resources like
geothermal and solar power generation are cost-effectively integrated
into the electric grid?
Answer. I believe that regional coordination and efficient dispatch
services are very important to ensure that variable energy resources
are cost-effectively integrated into the grid. In recent years, the
Commission has issued significant orders that address these issues,
including Order No. 1000 to improve regional coordination and
transmission planning, and Order No. 764 to remove barriers to the
integration of variable energy resources. If confirmed, I will continue
to work to ensure that the rules governing organized and bilateral
wholesale electric markets, including rules governing regional
coordination and resource dispatch, further non-discriminatory access
to those markets for all resources.
As you may have heard, the biggest electric utility in my state, NV
Energy, is attempting to form a regional energy imbalance market with
PacifiCorp, and California ISO.
Question 2. What are your thoughts on the ongoing voluntary efforts
in the West to explore potential customer, clean energy, and
reliability benefits that can be achieved by implementing a regional
energy imbalance market?
Answer. I have been closely following the discussions surrounding
the potential for developing an energy imbalance market in the West
over the past several years. Commission staff has served as a resource
to those exploring the idea of a Western energy imbalance market and to
those with questions about how such a market might affect them.
However, because a number of cases concerning the formation of a
Western energy imbalance market are currently pending before
Commission, I cannot comment specifically on the merits of such a
market.
Question 3. It has been contended that capacity markets should
remain voluntary and that states and regions should make the decision
whether or not to implement such a market, and if so, be allowed to
design them to reflect the unique features of the relevant market.
What's your view here?
Answer. Membership in a regional transmission organization (RTO) or
independent system operator (ISO) is voluntary, and I believe it should
continue to be voluntary. Regulatory structures in different regions of
the country appropriately reflect the unique features of the relevant
region. Within an RTO or ISO structure, I believe that states would
have an important role in any consideration of implementing a capacity
market.
Responses of Norman C. Bay and Cheryl A. LaFleur to Questions From
Senator Murkowski
Lessons learned from surviving January's polar vortex revealed that
key systems relied on coal capacity slated for retirement to keep the
power on. For example, I was told AEP relied upon 89 percent of the
coal capacity that is slated for retirement next year, in order to meet
demand. You recently stated that during the polar vortex the
electricity grid was ``close to the edge'' of breaking. Commissioner
Moeller has said that ``the power grid is now already at the limit.''
The Department of Energy estimates that EPA rules will force several
hundred coal-based electricity plants to close, and pending rules for
greenhouse gases could close another 100 power plants.
Question 1a. What actions has FERC taken to advise the EPA of the
dangerous impacts their rules are having on grid reliability? Is FERC
playing a formal role in evaluating the EPA proposed rules? Does a MOU
exist between the EPA and FERC to govern your discussions?
Answer. The Commission has a responsibility to help ensure that
grid reliability is maintained as EPA rules are implemented. The
Commission's formal role in reviewing EPA rules occurs during the OMB
interagency review process. Commission staff reviewed parts of the
draft Greenhouse Gas rule as a part of that OMB process and provided
input to the EPA from a reliability perspective. I am reviewing the
June 2 proposal and note that it gives significant flexibility to
states and permits regional approaches to compliance. I look forward to
discussing the proposed rule with the EPA, utilities, NARUC, ISOs/RTOs,
NERC, and industry.
In addition to commenting on EPA's proposal, FERC also has a role
in ensuring that the energy infrastructure and markets adapt to new
environmental requirements through its authority over transmission
ratemaking and natural gas permitting and ratemaking. For example, if
additional gas generating capacity is needed and more gas pipelines
need to be built, FERC has a role in certificating those pipelines.
FERC also has a role in ensuring that the regulatory rules under its
jurisdiction are sufficient to attract needed investment in electric
transmission and gas pipelines.
FERC, EPA and DOE staff have jointly developed a document that
describes how the three agencies are monitoring, within their
respective jurisdictions, the progress in responding to certain EPA
regulations affecting the electric power sector.
Question 1b. Did FERC conduct, or are you in the process of
conducting, a grid impact analysis on the greenhouse gas regulations
that are proposed by the EPA?
Answer. The greenhouse gas regulations were proposed on Monday,
June 2, 2014. FERC has not conducted a grid impact analysis of those
regulations.
Question 1c. What do you believe are the three largest threats to
baseload generation?
Answer. I believe that baseload generation plays a critical role in
our resource mix. However, I am aware that certain of these resources
have recently found it difficult to ensure cost recovery in the
wholesale power markets. For example, the relatively low cost of
natural gas has helped drive down energy prices and revenues. In
addition, state and federal policies that impose new environmental
requirements and seek to procure specific resource types have
challenged baseload resources. Finally, the emergence of new
competitive technologies has also challenged baseload resources.
FERC policies should focus on ensuring that the rules that govern
organized and bilateral wholesale electric markets promote the delivery
of reliable power in a manner that is nondiscriminatory and resource-
neutral, resulting in efficient price signals that market participants
can rely on to make investment decisions. Although the drivers of power
supply changes are largely outside of the Commission's jurisdiction, we
must be aware of, and adapt to, these developments in order to carry
out our statutory responsibilities to ensure just and reasonable rates,
a reliable power grid, and fair and efficient markets
Question 1d. In general, widespread and persistent outages to the
Bulk Power System are rare. However, as assets begin to retire, there
is a quiet consensus that the risk of a ``localized'' reliability
effect is growing. If true, would you find this impact acceptable if
caused by federal policy?
Answer. Reliability is a top priority for me and must be sustained
in the face of any change in federal policy. That is why I think it is
important to work with NERC, utilities, NARUC, the RTOs/ISOs, and
industry to understand the impacts of changes in policy and understand
any reliability impacts that might occur as a result of such changes.
Question 2a. As you may be aware, the Energy Law Journal recently
published an article that alleges numerous due process and substantive
violations in FERC enforcement. Has the Commission adopted a definition
of market manipulation? What definition does the Commission use to
identify market manipulation?
Answer. The Commission adopted a definition of market manipulation
in Order No. 670 in 2006. Under the Commission's regulations, ``[t]he
Commission will act in cases where an entity: (1) uses a fraudulent
device, scheme or artifice, or makes a material misrepresentation or a
material omission as to which there is a duty to speak under a
Commission-filed tariff, Commission order, rule or regulation, or
engages in any act, practice, or course of business that operates or
would operate as a fraud or deceit upon any entity; (2) with the
requisite scienter; (3) in connection with the purchase or sale of
natural gas or electric energy or transportation of natural gas or
transmission of electric energy subject to the jurisdiction of the
Commission.'' An essential element of our anti-manipulation rule, as
noted, is scienter-which refers to the state of mind of the individual
or company engaging in the conduct. To establish a violation of the
rule, the Commission must show that the subject of a market
manipulation investigation engaged in the conduct at issue with actual
intent or recklessness. That being said, the Commission is early in our
work on manipulation cases and I believe the Commission should continue
to assess whether additional guidance may be helpful going forward.
Question 2b. Should a person or company be liable for acting
consistently with the governing market rules?
Answer. Under Order No. 670, ``[i]f a market participant undertakes
an action or transaction that is explicitly contemplated in Commission-
approved rules and regulations, we will presume that the market
participant is not in violation of the Final Rule.'' However, this
presumption is not dispositive of whether or not an entity has violated
Commission rules and regulations, and market manipulation under the
Commission's Rule 1c is not limited to tariff violations. In
considering enforcement matters before the Commission, I always take
into account the principle set forth in Order No. 670.
Question 2c. Do you believe FERC investigations should be reformed
to follow guidelines similar to those adopted by the SEC?
Answer. My understanding is that many of the rules that govern FERC
investigations are similar to those adopted by the SEC. While there may
be some differences in the text of the rules and investigative
practices, I am not aware of any specific FERC rules or practices that
should be changed to make them more similar to the SEC's investigative
guidelines. However, I am always looking for ways to improve our
procedures to make them more efficient and fair, and that is true of
Enforcement matters and matters throughout the Commission.
Question 2d. The law review article asserts when individuals are
under FERC investigation, FERC enforcement does not have to provide
access to deposition transcripts or provide the information--even if
exculpatory-- to individuals that has been shared with the Commission.
Is this true, and if so, do you personally believe individuals should
have timely access to their deposition transcripts and information that
was shared with Commissioners?
Answer. Commission regulations set forth at 18 C.F.R. Sec. 1b.12
do require that subjects of investigations be given access to their
deposition transcripts. In addition, Commission policy, set forth in
the Policy Statement on Disclosure of Exculpatory Materials,
Enforcement of Statutes, Regulations, and Orders, 129 F.E.R.C. 61,248
(2009), requires that ``[d]uring the course of an investigation
conducted under Section 1b of the Commission's regulations, Enforcement
staff will scrutinize materials it receives from sources other than the
investigative subject(s) for material that would be required to be
disclosed under Brady [the policy requiring the provision of
exculpatory information]. Any such materials or information that are
not known to be in the subject's possession shall be provided to the
subject.'' I personally believe that individuals should have timely
access to both their deposition transcripts and exculpatory material.
I have not previously considered the question of whether subjects
of investigations should have access to all of the information that
Enforcement staff has shared with the Commission. I note that there are
some categories of information that would not be appropriate to share
with individual investigative subjects. For example, there are work
product, attorney-client, and deliberative process protections that
allow Commissioners to communicate effectively with Commission staff-
whether Enforcement staff or any other program office staff. However, I
am always looking for ways to improve our procedures to make them more
efficient and fair, and that is true of Enforcement matters and matters
throughout the Commission.
Question 2e. Should subjects of non-public investigations have the
same access to the Commission as the Enforcement staff at an earlier
stage in the proceedings than today? If so, when should parity be
imposed? If not, why not?
Answer. The Commission's policies provide that the subject of an
investigation may communicate directly with the Commission, in writing,
about anything relating to the case that the subject wishes to
communicate-and at any time throughout the course of an investigation.
Many investigative subjects avail themselves of this opportunity, and
some have made multiple submissions directly to the Commission during
the investigation stage. I believe this direct communication between
subjects and the Commission is important for both the subject and the
Commissioners. However, as noted above, I am always looking for ways to
improve our procedures to make them more efficient and fair, and that
is true of Enforcement matters and matters throughout the Commission.
Question 3a. One of the responses to the EPA's regulations on the
use of coal is a ``rush to gas''. Industry is turning to natural gas as
an alternative to coal as a result of the lower price and increased
supply of natural gas, causing a new reliance on natural gas to fuel
existing and new power plants. However, the polar vortex highlighted
coordination problems between the gas and electricity markets. What
steps should FERC take to ensure that gas-electric coordination does
not become a problem in terms of reliability or excessive price
volatility? Does FERC have sufficient authority to impose and enforce
any necessary solutions?
Answer. FERC has proactively engaged the electric and natural gas
industries to work to enhance gas-electric coordination. The Commission
convened conferences throughout the country in 2012; they were widely
attended by gas and electric industry stakeholders, representatives
from state regulatory commissions, and staff from NERC. The subjects at
these conferences--communications and scheduling--were discussed at
length over the series of meetings. The result was that the Commission
issued a Final Rule allowing interstate natural gas pipelines and
electric transmission operators to share non-public operational
information to promote the reliability and integrity of their systems.
In addition, in March of 2014, the Commission issued a NOPR to gather
public comments on its proposals to revise the natural gas operating
day and scheduling practices used by interstate pipelines to schedule
natural gas transportation service. In order to address gas-electric
coordination issues, the proposed revisions include starting the
natural gas operating day earlier, moving the Timely Nomination Cycle
later, and increasing the number of intra-day nomination opportunities
to help shippers adjust their scheduling to reflect changes in demand.
The Commission also initiated investigations under section 206 of
the FPA into the day-ahead scheduling practices of the RTOs and ISOs to
determine if they are just and reasonable and to ensure that these
entities' scheduling practices correlate with any revisions to the
natural gas scheduling practices that may be adopted by the Commission
in a Final Rule stemming from the NOPR. In a third order, the
Commission initiated an NGA section 5 show cause proceeding requiring
all interstate natural gas pipelines to revise their tariffs to provide
for the posting of offers to purchase released pipeline capacity in
compliance with 18 CFR Sec. 284.8(d) of the Commission's regulations,
or to otherwise demonstrate full compliance with that regulation.
The Commission has also asked staff for quarterly reports through
2014 on industry efforts and initiatives on gas-electric coordination.
Those reports are posted on the Commission's website.
Question 3b. Does the shale gas revolution raise the prospect of an
overreliance on a single fuel for U.S. power generation? What would
this mean for electric reliability?
Answer. An adequately diverse fuel supply can help in addressing a
range of possible risks or problems. For example, coal supplies were
recently affected by delivery curtailments; this summer, hydropower
generation may be affected in some locations by drought conditions.
Similarly, natural gas delivery can be impacted by pipeline
constraints. As noted in my answer to Question 3(a), the Commission has
focused extensively on the coordination of the electric and natural gas
industries, and will continue to do so. The broader issue of fuel
diversity was discussed at our April technical conference on winter
market operations in the RTOs/ISOs.
Question 3c. What in your view are the reliability implications of
increasing natural gas use for electricity generation, especially in
the Northeast? Are existing federal policies and initiatives adequate
to ensure gas-electric interdependency does not become a reliability
problem in the future?
Answer. The rapid increase in the use of natural gas for
electricity generation will continue to require significant work by the
industry, State commissions and FERC to ensure that reliability is
maintained. While natural gas can provide economic benefits, its
increased use in the generation of electricity contributes to potential
coordination issues. As noted in my answer to Question 3(a), the
Commission has proposed certain regulatory changes to address this
issue.
Question 3d. Does FERC have a role in encouraging the development
of gas pipeline infrastructure to serve regions of increasing demand
but with limited logistics?
Answer. FERC plays a key role in facilitating interstate pipeline
expansions to serve regions of increasing demand by issuing
certificates for the construction of new facilities. Over the past 10
years (since the beginning of 2003 through the present), FERC has
certified 93.1 Bcfd of capacity in new pipelines and expansions,
1,053.7 Bcf of storage capacity, and nearly 37 Bcfd of LNG
regasification capacity. The Commission has also approved 2.76 Bcfd of
LNG liquefaction capacity at one terminal. With respect to encouraging
pipeline infrastructure development in other ways, at our April
technical conference on winter market operations in the RTOs/ISOs,
there was discussion concerning the pricing of fuel security into the
wholesale power markets. The Commission is presently evaluating this
issue in its evaluation of the comments received from the technical
conference.
Question 4a. Regarding capacity markets: What is the appropriate
path forward with respect to organized and bilateral wholesale markets?
Can and should they co-exist or should all utilities ultimately be in
organized markets?
Answer. I do not believe that there is one particular path forward
with respect to market participation. Membership in an RTO or ISO is
voluntary, and I believe it should continue to be voluntary. Thus,
organized and bilateral wholesale markets will continue to co-exist.
The Commission exercises its jurisdiction to ensure that rates, terms
and conditions of service are just and reasonable over both organized
and bilateral wholesale markets.
Question 4b. Do you believe that the wholesale electricity markets
operated by regional transmission organizations are achieving net
benefits for consumers as compared to those regions without RTOs?
Answer. It is difficult to validly compare results in RTO and
bilateral market regions since those areas of the country with
historically higher energy costs have been more likely to utilize
competitive markets. However, I believe that those entities that have
voluntarily joined organized regional wholesale markets have found
significant benefits associated with RTO membership, such as greater
price transparency, access to more efficient ancillary and balancing
services, more efficient transmission grid management, and decreased
opportunities for discriminatory transmission practices. As detailed in
the Commission's April 2011 report to Congress on performance metrics
for RTOs and ISOs, security constrained economic dispatch and ISO/RTO
efficiency programs have yielded demonstrable benefits. For example,
PJM was able to reduce annual generation production costs by $122
million due to improved generation dispatch in 2009. Security
constrained economic dispatch also reduced reliance by ISOs and RTOs on
less efficient and less reliable physical and manual procedures, such
as transmission loading relief, to resolve system constraint problems.
Question 4c. Do you think that there is a sufficient level of
transparency in pricing and other relevant data from the electricity
markets, particularly those operated by RTOs?
Answer. I believe that the Commission has enacted rules that
provide for transparency in the electricity markets. First, each public
utility transmission provider must post information on available
transmission capacity on its website. In addition, Commission
regulations require sellers of wholesale services to make quarterly
reports detailing transactions, and this information is made available
to the public roughly one month after it is submitted. The RTOs and
ISOs also provide a source of price transparency by posting pricing
data on their websites. I believe that the Commission should always
remain open to ideas to promote additional transparency.
Question 4d. How might FERC ensure that the capacity markets do not
impede local and state resource decisions?
Answer. The Commission staff issued a white paper and held a
technical conference in September 2013 to consider how current
centralized capacity market rules and structures are supporting the
procurement and retention of resources necessary to meet future
reliability and operational needs. The issue of how capacity markets
can support local and state resources decisions was a key issue in this
technical conference. The Commission is presently evaluating this issue
in its consideration of possible next steps as a follow-up to the
technical conference.
Question 4e. Do you believe a 3-year capacity market commitment
period used by RTOs is the appropriate time period to capture the value
of capacity?
Answer. Both the staff white paper on capacity markets and the
September 2013 technical conference explored the issue of what is the
appropriate commitment and forward period in centralized capacity
markets. The Commission is presently evaluating this issue in its
consideration of possible next steps as a follow-up to the technical
conference.
Question 4f. Do you believe the RTO capacity markets are attracting
and/or retaining baseload power resources?
Answer. The centralized capacity markets are designed to provide
appropriate price signals to facilitate entry of new resources as
needed and provide for the appropriate price signals for the orderly
retirement of older, less efficient resources. The capacity markets
have been attracting and retaining many types of resources, including
baseload resources. For example, PJM's base residual action for 2017/
2018 procured about 4,800 MW of new combined cycle generation. The
Commission is presently evaluating this issue in its consideration of
possible next steps as a follow-up to the technical conference.
Responses of Norman C. Bay and Cheryl A. LaFleur to Questions From
Senator Flake
Question 1. In response to a question from Senator Cantwell, you
indicated that you have ``dissented on a few orders to show cause in
terms of the application of the penalty guidelines, and [you have] also
had some procedural dissents in some of the procedures that are used in
the investigations.'' Please list your dissents to cases that were
brought before the Commission during Mr. Bay's tenure as the head of
the enforcement division?
Answer. My dissents (and relevant concurrences) in public
Commission enforcement orders are as follows:
Competitive Energy Services, LLC, 140 FERC 61,032 (2012) Rumford
Paper Company, 140 FERC 61,030 (2012) Barclays Bank PLC, 143 FERC
61,024 (2013) Competitive Energy Services, 144 FERC 61,163 (2013)
Richard Silkman, 144 FERC 61,164 (2013) Lincoln Paper and Tissue,
LLC, 144 FERC 61,162 (2013)
I have also dissented on one non-public order related to the timing
of access to deposition transcripts in a confidential enforcement
matter.
Finally, although not strictly an enforcement case, I dissented in
J.P. Morgan Ventures Energy Corporation, 141 FERC 61,131 (2012), a
rate case related to alleged misrepresentations during the course of an
enforcement investigation.
Question 2. Please identify the specific investigative procedures
employed by Mr. Bay's enforcement division that you opposed?
Answer. As I noted during the May 20 hearing, the bulk of my
enforcement-related dissents were focused on procedural issues.
One such issue was the application of the Commission's Penalty
Guidelines, which were established in two policy statements from which
the Commission has the discretion to depart.\1\ In the Competitive
Energy Services, LLC (CES), Lincoln Paper and Tissue, LLC (Lincoln),
and Rumford Paper Company (Rumford) cases cited above, I dissented (or,
in some instances, concurred) with respect to the narrow issue of the
calculation of the civil penalty range. Specifically, I believe that in
those cases strict adherence to the Penalty Guidelines had the effect
of double-counting the duration of the violations and unduly increasing
the amount of the civil penalty range.
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\1\ Revised Policy Statement on Penalty Guidelines, Enforcement of
Statutes, Orders, Rules, and Regulations, 132 F.E.R.C. 61,216 (2010);
Policy Statement on Penalty Guidelines, Enforcement of Statutes,
Orders, Rules, and Regulations, 130 F.E.R.C. 61,220 (2010)
(collectively, ``Penalty Guidelines'').
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The Commission's Penalty Guidelines increase penalty levels based
on the cumulative value of the monetary loss caused by the violation,
which in those cases was directly attributable to the duration of the
behavior at issue. The Penalty Guidelines also include a separate
duration adder that increases the penalty level based on the number of
days the behavior persisted. Thus, in the CES, Lincoln, and Rumford
cases, the duration of the violation was counted twice in calculating
the civil penalty range, as much as tripling the top end of the range
that would have been resulted if duration had not been double counted.
I believe that civil penalties should reflect the magnitude of the
fraud committed and that applying a separate duration adder may be
appropriate in some circumstances. However, when the Commission
exercises its civil penalty authority, it must do so with care and due
regard for the circumstances of the particular violation. In some
situations, the Commission may have to depart from the Penalty
Guidelines and assess a civil penalty that is tailored to the
circumstances at hand. I believe that in order to appropriately match
the penalty to the violations in the CES, Lincoln, and Rumford cases,
the Commission should have exercised its discretion to depart from the
Penalty Guidelines.
Similarly, in Richard Silkman, I dissented in part, with
Commissioner Norris, on the narrow issue of the penalty assessed on Dr.
Silkman, who as a managing member at CES was involved in fraudulent
behavior in the ISO-New England market. Commissioner Norris and I
agreed with the majority that Dr. Silkman, as an individual, and CES,
as the corporate entity, were separately liable for violating the
Commission's regulations. However, we disagreed with the penalty amount
determination because it failed to account for the fact that Dr.
Silkman, as a managing member, would likely also be required to pay
some portion of the penalty imposed upon CES, a fact recognized in the
Commission's order assessing a civil penalty on CES. Therefore, we
believed that the Commission should have considered the collective
impacts of both the penalty against CES and the individual penalty
against Dr. Silkman in determining the appropriate penalty amount.
I have also dissented on two procedural matters unrelated to the
assessment of civil penalties. First, in the Barclays case cited above,
I dissented from the majority's decision to reject Barclay's motion to
quash a subpoena. The Office of Enforcement sought to enforce a
subpoena against Barclays after the Commission had issued an Order to
Show Cause why Barclays should not be found to have violated the Anti-
Market Manipulation Rule, and after Barclays had elected, under Section
31(d) of the Federal Power Act, to forego a hearing before an
administrative law judge and instead have the Commission ``promptly
assess'' a civil penalty for the alleged misconduct that could be
reviewed in U.S. District Court. In my view, the statutory directive
that the Commission ``promptly assess'' a civil penalty could not be
reconciled with further investigation into the conduct that was
detailed in the Order to Show Cause and that would be reviewed by a
District Court. Second, I dissented in a non-public order related to
the timing of an investigation subject's access to deposition
transcripts. The Commission's regulations state that even if good cause
exists to deny witnesses a copy of his or her deposition transcript,
``[i]n any event, any witness or his counsel, upon proper
identification, shall have the right to inspect the official transcript
of the witness' own testimony.'' I believe this regulation does not
permit a delay in providing access to transcripts.
Finally, in the J.P. Morgan Energy Ventures case cited above, I
disagreed with the majority's decision to suspend J.P. Morgan's market-
based rate authority (which allows a utility to sell energy and
ancillary services at market-based rather than cost-based rates) in
response to J.P. Morgan's alleged misrepresentations during the course
of an investigation into whether the company violated the prohibition
on energy market manipulation. I viewed such a suspension as
inconsistent with the Commission's market-based rate regulations.
Instead, I believe that any misrepresentations should have been
addressed as part of the ongoing investigation into J.P. Morgan's
bidding activities, either as separate counts of obstruction, or as
aggravating circumstances factoring into the determination of a civil
penalty.
Question 3. Environmental Protection Agency (``EPA'') regulations
are having a significant impact on the nation's energy portfolio. With
plant retirements and the prospect of stringent EPA rules on the
horizon, plant retirements are occurring and more are likely. Those
retirements could have a corresponding impact on the reliability of the
electric grid. To what extent do you believe EPA should consider the
impact its regulations will have on reliability of the grid?
Answer. It is critically important that reliability be sustained in
the face of any change in federal policy. Commission staff reviewed
parts of the draft Greenhouse Gas rule as a part of the OMB interagency
review process and provided input to the EPA from a reliability
perspective. EPA issued its proposal on June 2. I am reviewing that
proposal and note that that it gives significant flexibility to states
and permits regional approaches to compliance. I look forward to
discussing the proposed rule with the EPA, utilities, NARUC, ISOs/RTOs,
NERC and industry.
Question 4. What do you believe FERC's agenda should be in the next
year?
Answer. As I noted in my recent nomination hearing before this
Committee, the nation is going through a significant change in energy
supply, which is shaping much of the Commission's agenda on both
infrastructure and markets. In the area of infrastructure, we are
seeing substantial investment in electric transmission, gas pipelines,
and liquefied natural gas facilities, which is driving work at the
Commission on both electric and gas ratemaking and project permitting.
In addition, the changes in the nation's resource mix will require
continued oversight of competitive electric markets, to ensure they are
fair and efficient and attract investment needed to support reliability
and compliance with environmental regulations. Finally, grid
reliability and security, including the Commission's oversight of NERC,
must remain a high priority, with particular emphasis on emerging
issues like cyber and physical security. As I noted in my testimony at
the hearing, these priorities will require that FERC continue to engage
with other federal agencies like the EPA and the Commodities Futures
Trading Commission, and with our state counterparts.
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