The Energy Policy Act of 2005, Joe Kelliher likes to say, marked the largest grant of regulatory power to the Federal Energy Regulatory Commission in 70 years.

"It's the single biggest grant of regulatory power since the New Deal," says Kelliher, the chairman of the FERC. That's because it gave FERC the power to impose civil penalties for infractions and also mandated the agency to monitor energy markets for price manipulation.

And since the civil penalties can reach as much a $1 million a day, Kelliher reckons that FERC, theoretically at least, has the greatest penalizing power of any federal agency.

This new power, and the responsibility that goes with it, has spurred the agency to restructure and expand its oversight and investigative units. "We are like the SEC in 1935," Kelliher says, shortly after the passage of the securities legislation that gave the Wall Street watchdog real teeth. FERC officials have studied the SEC, the Commodity Futures Trading Commission, the Federal Communications Commission and other federal regulators for clues about how to make rules and enforce them.

"We'll be building the precedents for the industry and people will want to be involved," says Kelliher, who became chair in 2003. It's clearly a task that he relishes. The Republican Party loyalist, who served on the Bush-Cheney transition team in 2000, has embraced his role as regulator. "He wants to cast himself as a professional regulator, above party lines," says an industry executive who has dealt with Kelliher.

Though Kelliher's term expired in July, he can remain active in office as long as his re-nomination is pending, through the end of next year. If there is a change of party in the White House, it's not likely that a Democratic president would let Kelliher remain chairman even if he is confirmed for a new five-year term as commissioner. Nor is it likely that Kelliher would remain on the commission as a member if he were demoted from the chairman's job.

As with other federal agencies, political balance in FERC is anchored in law. That is, each party must have at least two members on the five-member commission, with the chairman normally belonging to the party that occupies the White House. Along with Kelliher, current Republican members are Philip Moeller, a former lobbyist, and Marc Spitzer, a former state legislator and regulator in Arizona. The Democratic members are Suedeen Kelly, a former law professor and regulator in New Mexico, and Jon Wellinghoff, an energy lawyer.

Kelliher feels that most of the work at FERC is nonpartisan in any case. He notes that of 1,400-some orders voted on during his chairmanship, only two or three dozen might have been 3-2, and if those fell along party lines it was often an accident.

Right Job

Democratic commissioner Kelly, the longest-serving member after Kelliher, notes that it's harder to get consensus with five members than it was with three. The task is made even more difficult by the requirements of the Sunshine Act, which prohibit more than two commissioners discussing commission business together outside of an open meeting - though staff can shuttle between the commissioners to find common ground on issues. However, she agrees that most decisions are not partisan. "Energy issues at the implementation level are not partisan political," Kelly says.

There are two issues where she and the other Democratic commissioner, Wellinghoff, often find themselves in the minority on a 3-2 vote. One issue is what constitutes a just and reasonable standard of review for rate terms and conditions when a litigation settlement changes the terms of a contract and not everyone is present at the table. The other issue is the granting of transmission incentives to projects that would get built on a commercial basis anyway, rather than targeting projects that might need extra incentive to be realized.

FERC has used its new penalizing power sparingly, though the agency did debut with a splash at the beginning of the year, leveling multimillion-dollar fines even in cases that were self-reported. Industry executives felt it was overkill and not a way to encourage self-reporting. One case involved a $10 million fine against PacifiCorp and another involved a $9 million fine against SCANA.

"Let's keep in mind that these fines were agreed to by the companies -- not imposed," Kelly notes. In any case, the agreed-upon fines were much less than the maximum that could have been imposed according to the authority granted by Congress in the 2005 energy act. "It's a recognition that Congress takes violation of the energy laws very seriously," she said.

Kelliher says those initial penalties have not dampened self-reporting. "The incidence of self-reporting has actually increased," he says. And of the 64 cases of self-reporting since those initial penalties, 36 have been settled without publicizing them or identifying the companies.

"The objective here is compliance," Kelliher says. FERC wants to help companies improve their practices more than impose punishments, he says.

Developing the guidelines for determining the size of penalties is one area FERC has relied on the experience of the SEC and other agencies with experience in imposing fines. Criteria include the actual harm done, the attitude of the company toward compliance, cooperation of the company in investigating the violations and correcting procedures to avoid future violations and other conditions derived from agencies that have more experience in the matter.

It will take the agency some time to grow into the new dimensions mapped out by the 2005 energy act, but Kelliher, who has become a student of regulatory history, is happy to launch that effort. "It's the right job at the right time for me," he says.


 

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