With FERC shorthanded, insiders worry energy sector permitting will 'grind to a halt'

After this week, FERC will not have enough members to issue major decisions, and confirming a new regulator could take months

To an observer of politics, the anemic slate of commissioners at the Federal Energy Regulatory Commission may be another indication of government upheaval. But for the energy sector, the impending departure of Commissioner Norman Bay means FERC will be unable to field a quorum -- bringing a chunk of the agency's work to a halt, putting gas and power projects in limbo, and potentially leading to legal challenges down the line.

"I'm afraid stuff is going to grind to a halt," said Kenneth Irvin, co-leader of Sidley Austin LLP's global energy practice.

That appears to be the wide-ranging consensus. Some work will continue at the commission, but until a new commissioner is confirmed the agency will be unable to issue significant orders.

"In the near-term there are going to be some issues," said Tony Clark, a former FERC commissioner and now a senior advisor at Wilkinson Barker Knauer LLP. Clark left the commission in September and his seat remains open.

"It is problematic for everyone in the industry," according to Advanced Energy Economy Vice President for Federal Policy Arvin Ganesan.

Bay resigned last week, shortly after President Donald Trump replaced him as the agency's head. The new administration named Commissioner Cheryl LaFleur as acting chairman, but once Bay is gone -- his last day is Feb. 3 -- the agency will have only two members until one or more new commissioners can be nominated and confirmed.

Just how long that may take is a key question, and depends on whether candidates have already been vetted and how quickly they can complete paperwork and background checks. Agency observers say it could take as little as three weeks -- or as long as three months.

"The process itself can move quickly, if the President can get the nominees' papers to the Senate quickly," said Ganesan. But he added, "one thing we've learned in first days of this administration: you really don't know until you know."

What FERC can do without a quorum

For every order the commissioners issue, five others are delegated by staff. Which is to say, much of FERC's day-to-day business will likely not be impacted. But for the most part, it is procedural matters on which staff can finalize orders — possibly meaning delays on major projects and issues.

There are several pipeline projects nearing a decision which may be affected, including Spectra's 250-mile NEXUS Gas Transmission system, which proposes to move Appalachian shale gas to markets in the Midwest and Ontario. The commission is also considering capacity rule changes for PJM Interconnection, an issue staff could not address either.

But investigations will continue, as will hydro inspections, liquefied natural gas safety inspections, audits and environmental reviews, according to acting Chairman Cheryl LaFleur.

"All of the existing staff delegations that are in place .... will continue during a period of no quorum," LaFleur said in a podcast posted yesterday to FERC's site. "We’re already working on a potential expansion of staff’s delegated authority during the period of non-quorum."

FERC has previously looked at expanding the delegated authority, but Clark said that's where the commission could run into trouble. "At the very least, if there's a party that is adverse they're probably going to challenge," he said.

LaFleur is generally seen as more favorable towards the industry than Bay, but natural questions about what direction the commission will take under new leadership may be less significant in this case. Both LaFleur and the Commissioner Collette Honorable are Democrats, making it likely that LaFleur will ultimately be replaced as chair, though no more than three of the five commissioners can be from one party.

The new chairman gently skirted the issue when asked on the podcast if she is holding down the fort "until the Republicans arrive." But she has unique perspective — LaFleur also served as acting chairman in 2013 and 2014, and chairman from 2014 until April 2015.

The situation in 2013 was a time of transition, she said. And, "I think we’re in another time of transition." But she added that she would "confront any issues that happen to come up during my tenure, working with my colleagues just like any other chairman would. I’m the chairman while I’m the chairman."

And what it can't do

A two-member commission will be restricted from issuing significant orders, or making determinations on pending infrastructure projects. In some instances, that could mean applications are automatically approved.

Jay Ryan, a partner with Baker Botts, explained in a statement that the lack of a quorum "creates a huge potential challenge for regulated utilities and energy companies." Regulated power utilities must file tariff changes 60 days before they become effective. If the commission fails to act, the new rates automatically go into effect — and changing them is a more difficult task.

"Further, any requests for rehearing of the FERC’s orders under those statutes that are not acted upon by the FERC within a prescribed period are automatically denied,” Ryan said.

There are two primary areas of impact, according to former Commissioner Clark. In some instances there are "certain findings where, just by operation of law, the filing is approved without commission action." Those might include electric and gas tariff findings.

"There's a statutory clock that is running," said Clark.  And "for those type of filings there's a good reason you want a quorum there."

But there are also filings and cases the commission is working on where there is no clock, but the regulators "need to stay on top of things," Clark said. FERC must be cognizant of contractual timelines and business development schedules, "where it's important the commission does its work in a thorough and timely manner."

In some instances, staff could issue tolling orders to essentially buy regulators more time, for instance in the case of pipeline projects. 

But the sheer volume of pending work at FERC could make that difficult. "I don't know if you can do an omnibus tolling order," Sidley Austin's Irvin joked.

How long to fill the at least 1 seat?

A FERC nominee will need to go through an FBI background check, fill out government ethics forms, and face financial vetting. That's a not-insubstantial hurdle that could take weeks. And then there's Senate confirmation. All told, a full confirmation proceeding could take two to three months.

"There are some practical realities and some political realities," said Clark.

The situation has the attention of Sen. Lisa Murkowski (R-AK) who chairs the U.S. Senate Committee on Energy and Natural Resources. She called finding Bay's replacement a "top priority," and said she would move the process forward.

"The Senate’s challenge will be to promptly consider, without undue delay, FERC nominations once they are received," Murkowski said in a statement. "I will make it a top priority to work with President Trump and my colleagues to move nominees rapidly and to re-establish a working quorum on the Commission."

There is a potential route to shave a few weeks off the process, and maybe gain some goodwill in the bargain. But it would require the Trump Administration to borrow work from the previous administration.

The commission has had open seats for some time now: FERC Commissioner Philip Moeller announced his departure in May 2015, a month before his term expired. There may be candidates Obama vetted, “in the can and ready to go,” said Clark.

Regardless of nominee, Clark said it's important for the White House to "have some urgency, at least getting one nominee up there and at least take the quorum seat off the table."

"The construction of FERC right now is the least-optimal construction," said Ganesan. "All major decisions wil have the be deferred. ... We're hoping President Trump will quickly appoint a new commissioner. Sen. Murkowski has indicated her willingness to move a nominee through the process."

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Filed Under: Generation Transmission & Distribution Regulation & Policy
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