Ex Parte Rules Raised in Case of FERC Rejecting FirstEnergy Power Plant Sale

While the ruling from FERC in a case rejecting a power plant sale from the marketing arm of FirstEnergy Corp. to a FirstEnergy utility was noteworthy, commissioner statements and discussion of ex parte communications have created more of a buzz in energy legal circles.

FERC Chairman Kevin McIntyre said he is meeting with staff to assess whether FERC staff tipped off an outside attorney about how FERC was going to rule in the case before the order was issued on January 12. “I’m going to be discussing that with my staff,” McIntyre said during a media briefing following the Commission’s January 18 meeting.

The outside attorney is William Scherman, a former general counsel at FERC and chair of the energy regulation and litigation practice at the law firm Gibson, Dunn & Crutcher LLP. Scherman has represented FirstEnergy in other matters, and the case of the proposed power plant sale involves FirstEnergy subsidiaries Monongahela Power Co., a regulated utility in West Virginia, and Allegheny Energy Supply Co. LLC, a power marketing company that owns the Pleasants Power Station.

The FERC order (EC17-88, ES18-4) was issued on January 12, the same day Commissioner Neil Chatterjee issued a notice to report an ex parte communication in the case between himself and Scherman. Chatterjee said Scherman contacted him on January 11 “indicating his concern that the Commission would shortly issue an order adverse to the interests of Monongahela Power.” Scherman also indicated a preference that FERC set the issue for hearing instead of issuing an adverse order rejecting the utility’s application outright, Chatterjee said in his statement.

“As soon as I realized that Mr. Scherman’s communication concerned the merits of the contested proceeding, I terminated the communication and did not respond to Mr. Scherman’s statements,” Chatterjee said.

Scherman maintains that he did violate any rules and pointed to a previous statement that the Commission’s ex parte regulations need to be updated. “Based upon my experience, I do not believe I engaged in any ex parte communications,” he said in an email.

Ex parte rules can differ among state and federal agencies, but in general they prohibit parties participating in a contested proceeding from having off-the-record communications with commissioners or decision-making staff in that proceeding.

Scherman asserted that ex parte rules often prohibit commissioners and staff from discussing important policy issues and shield them from relevant information that should be shared in an open and transparent manner. Such rules “are mostly gray, difficult to enforce and serve to cut off federal and state commissioners from vital information,” he said. “These are analog rules in a digital age,” that are outdated and in need of revision, he said.

Scherman made similar comments in a 2015 guest commentary for The Energy Daily that he wrote with attorney Jennifer Mansh of Gibson Dunn. They argued for revised ex parte rules that allow more sharing of information while maintaining the integrity and fairness of the decision-making process, highlighting the need for change within FERC’s enforcement proceedings.

“In the Twitter era, where communications already occur in ways never anticipated, wouldn’t it be better if more open communications to regulators were generally permitted and reported in an open and transparent manner?” Scherman and Mansh wrote.

FERC has addressed ex parte rules over the years, but it has been a while since the last iteration, a final rule (RM98-1) issued in 2000. FERC commissioners and staff provide notice of off-the-record communications in challenged proceedings, and the rules call for sanctions or suspensions from practicing at FERC if a violation is found.

At the media briefing following the January 18 meeting, McIntyre said “Commissioner Chatterjee did exactly the right thing,” by reporting the communication with Scherman. The rules that FERC has in place for such situations “worked perfectly,” and “as far as I’m concerned, I’m very satisfied with where it came out,” McIntyre said.

When asked if he is concerned about FERC staff leaking information before an order is issued, McIntyre said he would be discussing the issue with staff.

He added that he considers Scherman a terrific lawyer and good friend. “In this instance I’ve had no contact with him on the matter that you raised,” he said in response to a reporter’s question.

In his email, Scherman noted that he has been involved at FERC and known FERC commissioners over the past 30 years. He said Chatterjee is thoughtful and dedicated to doing what is right for the American people. “Based upon his short time at FERC, it is apparent to me that Neil Chatterjee will be one of the finest members the Commission will ever have,” Scherman said.

An attorney who asked not to be named noted that the timing of the communication raises questions about how Scherman knew what type of order might be issued. The communication so close to the order issue date makes it likely that any tips could have come from commissioner staff offices, rather than the Office of General Counsel or other FERC staff that prepare orders well in advance of commissioner votes, the attorney said.

The order in the FirstEnergy case was issued notationally, so it would not have been discussed by staff as part of an open meeting agenda gathering, the attorney added.

In the proposed transaction under the Federal Power Act (FPA), Monongahela Power sought permission to buy the coal-fired power plant from its affiliate. The Pleasants facility is a 1,159-MW plant in Willow Island, West Virginia, that the utility aimed to purchase following a request for proposals (RFP) process overseen by consulting firm Charles River Associates.

In a move hailed by the Electric Power Supply Association and others who support competitive markets and challenged the utility’s application, FERC denied the transaction because the applicants did not demonstrate that it was in the public interest. The order sided with consumer advocates and others who said the deal would foist unnecessary costs upon utility customers, ruling that the RFP process was slanted to favor the purchase of the Pleasants facility and did not meet FPA rules guarding against cross-subsidization among affiliates.

By Tom Tiernan TTiernan@fosterreport.com

 

This article appears as published in The Foster Report No. 3183, issued January 26, 2018

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