These issues came up at the AGA Federal Energy Regulatory Commission (FERC) Manual Users Forum held March 31, in AGA’s offices in Washington, DC.  The Forum was held to roll out the AGA FERC Manual: A Guide for Local Distribution Companies, a comprehensive guide to the FERC’s regulation of the natural gas industry with a particular focus on the needs and perspectives of gas distribution utilities.  The Manual was written by lawyers at Dewey & LeBoeuf LLP and is available for sale to the general public via AGA’s Web site.

Answering the question above usually entails trying to separate as much as possible the prosecutorial role from the adjudicatory (judge and jury) role.  The idea is that in order to ensure fairness, or at least the appearance of fairness, the same person should not both prosecute and ultimately decide an issue.  In FERC’s case, a separation of function rule applies once a case has gone to hearing before an administrative law judge that prevents the enforcement staff involved in a particular investigation from advising the Commissioners.  The intent is to put enforcement staff on equal footing with the subject of the investigation both before the administrative law judge who must determine the facts and the Commissioners who must ultimately decide the issues and impose any remedies.  Some would argue that the separation should occur even earlier and apply during the preliminary stages of the investigation.

Former FERC Commissioner, Suedeen Kelly (the keynote speaker for the Forum), however, suggested that a separation of functions ends up vesting the prosecutor with greater power because the Commissioners may be less able to provide a supervisory role over enforcement staff as to whether an investigation should be brought in the first place or otherwise guide the conduct of the investigation.  She makes a good point.  I firmly believe decision-makers at FERC at all levels must be held accountable for their actions.  But, how do Commissioners hold enforcement staff accountable while at the same time remaining impartial to decide enforcement matters?  This is an issue that admits of no easy answers and one that I think FERC and the industry will struggle with for some time.

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In the Energy Policy Act of 2005, Congress gave the Federal Energy Regulatory Commission (FERC) powerful enforcement authorities, including the ability to assess civil penalties of up to $1 million per day for violations of any FERC rule, regulation or order.  Users of pipeline services, in general, and gas utilities, in particular, have been the subject of a large number of FERC enforcement settlements in which civil penalties have been assessed.  These settlements have focused on the interstate transportation and sale of natural gas by LDCs, the relationship of an LDC to its affiliates, and LDCs as shippers on interstate pipelines.

In response to this increased scrutiny, AGA, with the support of over 30 sponsoring members, has published the AGA FERC Manual: A Guide for Local Distribution Companies.  The Manual, written by lawyers at Dewey & LeBoeuf LLP, is a comprehensive guide to FERC’s regulation of the natural gas industry.  It was intended to be one of the first places to which industry participants can turn for quick answers about FERC’s rules as well as for more detailed explanations and guides to additional research.  It was also written with the front line employee involved in buying and selling wholesale natural gas and arranging transportation and storage transactions in mind.  Its language is straightforward and not overly legalistic.

While the Manual was developed for AGA members with the needs of gas utilities in mind, anyone involved in the wholesale natural gas markets would find the Manual useful.  It broadly discusses rules regarding buying and selling natural gas, obtaining and releasing pipeline and storage capacity, preparing compliance plans, and other topics of general interest to natural gas market participants.  A set of DVDs accompanying the Manual contain lectures on each of the major topics of the Manual that are useful for training.

We hope that users of the Manual find it a valuable tool for building and maintaining a robust plan for compliance with FERC rules and regulations.

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As several have suggested, the significance of this ruling is far greater than the individual FERC proceeding involved and even greater than the case AGA had thought it was bringing to the court.  On its own, the court focused on FERC’s failure to address the arguments raised in dissent by then-commissioner, now-chairman Jon Wellinghoff.  This case will stand as precedent for all Federal agencies that, as a matter of administrative law, agencies must address the arguments raised by their dissenting commissioners.  Failure to do so will make their orders vulnerable to a court challenge.

A recent article in Inside FERC (“Court stance on FERC dissents seen as unworkable”) suggests that the ruling could adversely impact the decision-making process at FERC.  The article noted that, unlike courts, dissents in FERC cases are normally not circulated in advance.  Former FERC Chairman Joseph Kelliher was quoted as discussing the difficulty of requiring commissioners to supply a dissent in advance and the potential damage to comity among the commissioners of “gamesmanship” associated with the timing of supplying the dissent.

I take a contrary view.  I believe that the ruling will actually strengthen the decision-making process at FERC.  In the article, both Kelliher and former FERC general counsel William Sherman acknowledged that even though dissents are not normally circulated in advance, the views of a dissenting commissioner are generally known before the order is voted on.  Therefore, the ruling will simply require the majority to pay a little more attention to them.  During the deliberative process, the chairmen and staff will need to know when a commissioner will dissent and what the fundamental concerns are.  That can only help the process.  When I worked for former FERC Chairman Pat Wood, it was part of my job to know when a commissioner would dissent and what the dissent would say.  Pat told me he wanted to know because “I may agree with them.”

The concerns that have been raised regarding the potential for delay or gamesmanship can be easily addressed.  First, problems can be fixed on rehearing.  A large part of FERC’s vulnerability in the orders that led to the court’s decision stemmed from the fact that FERC waited until the rehearing order to even address AGA’s arguments, and it was the rehearing order to which Wellinghoff dissented.  FERC can reduce the impact of this ruling if it adequately addresses the arguments that are raised the first time around.  The dissent will have been revealed initially, which FERC can address on rehearing.

Second, even if the press of business prevents full consideration of all of the arguments initially and a dissent surfaces in a rehearing order, voluntary remand is available.  In any court case, FERC has an opportunity to seek a remand of the orders for which judicial review is sought in order to further consider them and even provide additional support and reasoning for its decisions.  The FERC solicitor can review the orders that have been taken up and, if there is a dissent, make a determination if the arguments were adequately addressed.  If additional reasoning is needed, FERC can seek a voluntary remand.

In the end, the court’s opinion should stand for the proposition that an agency must adequately justify its decisions, even when the challenge comes from one of its own commissioners.  The outcome of the court’s opinion should be better, more well-reasoned agency decisions.

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The commission comprises five members who serve staggered, five-year terms.  No more than three commissioners may be of the same political party.  With Norris’ confirmation, FERC now has four commissioners:  Phil Moeller, a Republican, has been on the commission since 2006, and his term expires this year (June 30, 2010); Marc Spitzer, also a Republican, joined the commission shortly after Phil Moeller, and his term expires next year (June 30, 2011); John Norris, a Democrat who was recently confirmed, will serve a term ending June 30, 2012; and Jon Wellinghoff, also a Democrat, serves as chairman of the commission, and his term will end June 30, 2013.  There is an open seat with a term expiring June 30, 2014.  This seat was recently vacated by Suedeen Kelly, who had been on the commission since 2003 but declined President Obama’s invitation to serve for another five years.

Serving as a FERC commissioner is a demanding job – the workload is heavy, the policy calls are significant and the demands on one’s time from interested parties wanting to hear and express views are never ending.  There should be five commissioners to spread the work around.  While the commission can function with four and even three commissioners, the decision-making process is improved when different perspectives and opinions are brought to bear on the myriad policy calls that arise on a daily basis.  Having only four commissioners means that every decision must command a three-fourths majority, and although the issues with which FERC deals do not usually break along partisan lines, having two Republican commissioners and two Democratic commissioners only invites partisan considerations.

I look forward to John Norris’ term on the commission and wish him the best.  I hope that President Obama soon nominates someone of high quality to fill the open seat and that the Senate confirms him or her shortly thereafter.  To be truly effective the Commission should have a full complement of five commissioners.

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Natural gas will play an important role in enabling this “smart” vision whether through traditional uses in space and water heating, or in the production of electricity inside of or nearer to homes and businesses.  As part of the state-wide New Jersey Clean Energy Program, natural gas utilities in that state administer Pay for Performance, which provides incentives of up to $1 million to industrial and commercial customers for purchasing and installing Combined Heat and Power (CHP) units.  This emerging technology is expected to become increasingly prevalent as an innovative way to enhance energy efficiency through recovery and productive use of waste heat, thus reducing both demand on the electric power grid and carbon dioxide emissions. And although it’s not yet ready for the mass market, even micro CHP (the smaller version designed for residential use) is beginning to earn some attention.

In short, Chairman Wellinghoff is definitely on to something “smart” and natural gas will be key to his vision becoming a reality.

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