In a move that portends continued intense enforcement of federal energy laws, President Obama has nominated Norman Bay to serve as the next chairman of the Federal Energy Regulatory Commission. Currently the Director of the Commission's Office of Enforcement, since 2009 Mr. Bay has led that office through a series of high-profile investigations and enforcement actions, culminating in record fines for alleged violations of federal energy law -- over $440 million in 2013, plus hundreds of millions more in penalties levied but not yet collected due to legal challenges. His nomination for chairman illustrates the growing importance within the Commission of enforcement, and suggests enforcement would continue to remain aggressive if he is confirmed.
The Federal Energy Regulatory Commission, or FERC, is an independent federal agency charged with regulating the interstate transmission of electricity, natural gas, and oil. The Commission also licenses hydropower projects and reviews proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines. The Commission is composed of up to five commissioners appointed by the President with the advice and consent of the Senate, each of whom serve five-year terms.
While the Commission has enforced federal energy laws since its inception, enforcement has become a higher priority for the Commission in recent years. The Energy Policy Act of 2005 increased the Commission's enforcement powers, giving it the authority to levy fines of up to $1,000,000 per day for some violations. Following that law's enactment and a restructuring of the Commission's Office of Enforcement, the Commission has ramped up its enforcement activities. For example, in its 2012 fiscal year the Commission ordered penalties for over 904 possible or confirmed violations, including over $5.8 million in refunds, over $148 million in civil penalties and disgorgement of over $119 million in unjust profits. Activity increased in 2013, with the Commission assessing over $304 million in civil penalties and ordering disgorgement of almost $141 million in unjust profits.
Last year also brought record-high individual penalties. Charged with market manipulation, a J.P. Morgan subsidiary agreed to pay a civil penalty of $285 million and to disgorge $125 million in unjust profits. In another case, the Commission assessed its largest civil penalty ever: finding that Barclays Bank PLC and four traders violated the Commission’s rule against market manipulation, the Commission imposed civil penalties of $435 million against Barclays and $18 million against the traders, and disgorgement of $34.9 million plus interest in unjust profits. Barclays has challenged the order, and the case is now before the U.S. District Court for the Eastern District of California.
Mr. Bay led the Office of Enforcement through this escalation in enforcement activity. An alumnus of Dartmouth College and Harvard Law School, prior to joining the Commission he served as a U.S. Attorney and as a law professor. He now faces confirmation by the U.S. Senate. While some confirmation hearings move quickly, the confirmation process for President Obama's last nominee to replace former Commissioner Jon Wellinghoff -- Ron Binz -- became controversial, leading the President to withdraw his nomination last year.
Mr. Bay may be viewed as less controversial than the previous nominee, but the outcome of the confirmation process remains uncertain. Whether Mr. Bay becomes a Commissioner -- and if so, how he leads the Commission -- will play out over the coming months and is likely to provoke further discussion on the role of enforcement in U.S. energy policy.