Trump Names LaFleur Acting FERC Chairman; Bay Resigns, Leaving Quorum Concerns

Like he did on the campaign trail to the White House, President Donald Trump shook things up in Washington in his first week in office with a flurry of activity that included an executive order, memorandums to boost pipeline development and naming FERC Commissioner Cheryl LaFleur acting chairman at the Commission.

But the shocker was the resignation of FERC Chairman Norman Bay, which came on January 26, and has the potential to halt approval of several big natural gas pipeline projects pending at the Commission.

Bay’s resignation letter to Trump came on the same day the president named LaFleur as acting chairman.

No Quorum. Since there already was two commissioner vacancies at FERC, the departure of Bay, effective February 3, will leave FERC without a quorum to vote on significant issues. That means that unless FERC issues certificate orders on Rover Pipeline LLC, Northern Access 2016, Transcontinental Gas Pipe Line’s Atlantic Sunrise Project and other major projects pending at the Commission by February 3, those projects could be stalled until any Trump nominees to FERC are confirmed by the Senate.

Given that the Trump administration has given no indication of when any nominations will be made, the prospect of an extended period without a quorum at FERC became the center of attention in Washington energy circles.

Because FERC has focused on market oversight and enforcement in the electric power sector with Bay as chairman and LaFleur is viewed as more moderate Democrat to lead the agency until any Trump nominees are in place, her being named acting chairman was somewhat expected, sources said. But Bay’s resignation threw a wrench in the works.

“We’re shocked” that Bay resigned, said an official with a Washington energy group who asked not to be identified.

Prior to January 26, the possibility of Bay leaving was addressed as a possibility but deemed unlikely by several sources who cited Bay’s respect for the agency and his professionalism as a public servant to not leave the Commission in a bind without a quorum.

“I would be surprised if he did that,” one Washington source said on January 25. As a presidential appointee, “you don’t leave an agency in the lurch . . . it looks petty and that’s not his temperament,” said the source, who asked not to be named.

Another source noted that because Bay ascended to be Chairman under a 2014 deal brokered by former Senate Majority Leader Harry Reid (D-Nev.), when LaFleur was chairman for a stint before handing the gavel to Bay in April 2015, partisan politics may be behind the timing of Bay’s resignation letter and Trump naming LaFleur acting chairman.

When a new president takes office, it is common for the heads of independent agencies to tender their resignations and facilitate a leadership change, but because FERC was down to three commissioners, all of whom are Democrats, several energy industry officials expected Bay to stay at FERC to allow for a smooth transition for any Trump nominees.

“I’m surprised” by Bay’s resignation, said Tyson Slocum, energy program director for consumer group Public Citizen. “This clearly leaves FERC in a position to not function properly” once Bay leaves, Slocum told The Foster Report.

While the Department of Energy and other cabinet post nominees gain a lot of public attention, “FERC is an incredibly active and important agency,” and not having a quorum “could have a significant impact on a variety of markets,” Slocum said.

LaFleur essentially acknowledged that in a statement, commenting that FERC “is working to get as many orders out as possible, to maximize the time we have with Norman Bay here. I am confident that, with the strong team that we have here at the Commission, we can continue to do our work.”

FERC also is evaluating how best to perform its duties as much as possible after Bay’s departure, and “I expect there will be more to communicate on this in the coming weeks,” LaFleur said.

Nominations from the Trump administration for the three openings at FERC “would be very welcome, and I look forward to the day when we will have a full, five-member Commission working here again,” she said.

INGAA. The Interstate Natural Gas Association of America (INGAA) echoed that sentiment in a January 26 statement, noting that FERC may be unable to act on pending gas pipeline projects of national importance.

“Given President Trump’s focus on infrastructure and domestic energy resources, we urge him to nominate candidates to fill the commission’s three existing vacancies as soon as possible. We, likewise, urge the Senate to act expeditiously on those nominations,” INGAA President and CEO Don Santa said in the statement.

Santa, a former FERC commissioner, encouraged the Commission to act on all matters that are ripe for a decision prior to Bay’s departure. “We also urge the Commission to exercise to the fullest extent possible its authority to delegate certain functions to the staff in anticipation of the period during which it will lack a quorum,” he said.

Bay’s Resignation. In his resignation letter to President Trump, Bay said it has been the greatest honor and privilege of his professional life to lead FERC and its dedicated staff. He gave no reason for his prompt departure and mentioned providing consensus-driven, bipartisan leadership. In 2015 and 2016, FERC’s orders were unanimous decisions on 97% and 98%, respectively, with very few dissents involving a split between Democrats and Republicans, Bay said.

Bay highlighted numerous accomplishments during his tenure, including innovative use of analytics and data for market oversight and surveillance, approving certificates for more than 32 Bcf/d of pipeline capacity and authorization of seven LNG facilities, winning two cases at the Supreme Court that recognized FERC’s authority over wholesale power markets, strengthened reliability of the power grid with cybersecurity protections, enhanced the coordination of natural gas and electricity markets and improved price formation in organized power markets.

Bay noted that the last few years have seen dramatic change in the energy sector, and that for any successes FERC has had, his colleagues share in the accomplishments as much as he does.

“You and my successors at FERC have my best wishes as you build on the progress we have achieved to date and work to address the energy challenges of the future,” Bay told Trump.

LaFleur, who has been at FERC since 2010, will have the distinction of serving as acting chairman twice, having the role under former President Barack Obama from November 2013 to July 2014 and in the Trump administration. She was chairman from July 2014 until April 2015, when she handed the gavel to Bay under the political agreement reached at the time.

LaFleur thanked Bay for his leadership at FERC over the past two years and thanked President Trump for asking her to serve as acting chairman. “While I recognize that FERC is in a state of transition as we await nominations to fill vacant seats at the agency, it is important that FERC’s work on the nation’s energy markets and infrastructure move forward,” she said.

Potential Nominees. With Bay’s resignation and the term of Commissioner Colette Honorable, a Democrat, due to expire in June, Trump may have an opportunity to name four new commissioners to FERC, including a Republican to serve as chairman. The pending lack of a quorum may force his hand to nominate someone who could be confirmed quickly by the Senate, and the leading candidate mentioned by most sources is Neil Chatterjee, energy policy advisor to Senate Majority Leader Mitch McConnell, R-Kent., who has been vetted and could be confirmed without much delay.

Slocum and others, who asked not to be identified to avoid to be seen as picking favorites, commented that Chatterjee would make a suitable addition at FERC given his experience on Capitol Hill and knowledge of energy matters. Prior to joining McConnell’s staff, Chatterjee worked at the National Rural Electric Cooperative Association and in the House of Representatives.

While Chatterjee might look like a shoo-in, the presidential nomination process can be prone to political maneuvers, such as holds by senators or bundling nominees together by the president to gain Senate approval, a few sources cautioned.

“Will the Trump nominees be more oriented towards free markets or more deferential to the states? That matters a lot for the issues we care about,” said an official in the electric power industry.

A FERC chairman can have priorities that drive Commission policies, such as Bay’s focus on price transparency and enforcement and former chairman Jon Wellinghoff’s emphasis on demand response and integration of renewable resources in power markets, Slocum said.

Sen. Lisa Murkowski (R-Alaska), and chairman of the Senate Energy and Natural Resources Committee, will have a big influence over who will be named to lead FERC, Slocum said. He and others commented that Patrick McCormick, a Republican special counsel on the Senate Energy and Natural Resources Committee, is a potential Trump nominee as a FERC commissioner.

Other possible nominees mentioned in interviews include Janet Sena, senior vice president and director of policy and external affairs at the North American Electric Reliability Corp., Bill Marsan, executive vice president and general counsel at American Transmission Co., Kenneth Minesinger, attorney and co-chair of the global energy & infrastructure practice at Greenberg Traurig, and Richard Lehfeldt, attorney and partner at Crowell & Moring.

A few current and former state regulators have been mentioned as possible Trump appointees, including Travis Kavulla of the Montana Public Service Commission and Robert Powelson of the Pennsylvania Public Utility Commission, and Former Texas Public Utility Commission Chairman Barry Smitherman, who recently resigned his partnership at Vinson & Elkins and regulated the natural gas industry in the state when he was chairman of the Texas Railroad Commission.

Presidential Action. For all the oil and gas industry, the lack of a quorum at FERC may supersede the flurry of activity from the White House that included an executive order and memorandums from Trump to boost pipeline development.

Several groups praised the Trump administration while sorting through the directives and assessing their implications on pipeline construction.

Memorandums to complete the Dakota Access Pipeline (DAPL), the Keystone XL Pipeline, to have the developers of all pipelines use U.S. steel and an executive order to expedite environmental reviews and approvals for high priority infrastructure projects were among the announcements from the White House in the first week of the Trump administration.

Reactions as of January 26 included praise from the American Petroleum Institute (API), the Association of Oil Pipe Lines (AOPL), Republicans on Capitol Hill and others, along with criticism from some Democrat lawmakers, environmental groups and Native Americans challenging the completion of DAPL. A few sources termed the memorandums largely symbolic with little true market impact, while others noted that even the messaging from the White House is important in showing the relevance of energy infrastructure to the U.S. economy.

DAPL. Because DAPL is nearly complete, with only about 1,000 feet of pipeline in North Dakota yet to be installed near the Standing Rock Reservation, the presidential memo to complete the project could enable the remaining pipeline to be installed, even if U.S. steel must be used. In the memo, Trump directed the relevant federal agencies, including the Army Corps of Engineers, to expedite reviews and approvals for the remaining portions of DAPL.

Keystone XL. The Keystone XL project of owner TransCanada faces a less certain future because it will essentially have to start from scratch, sources noted.

TransCanada on January 26 announced it has begun that process by submitting a Presidential Permit application with the U.S. State Department. The planned pipeline to move Canadian oil to a market hub in Nebraska will help meet America’s growing energy needs and “create tens of thousands of well-paying jobs and generate substantial economic benefit throughout the U.S. and Canada,” said Russ Girling, TransCanada’s president and CEO.

API President and CEO Jack Gerard said the group is pleased to see the new direction being taken by the Trump administration “to recognize the importance of our nation’s energy infrastructure by restoring the rule of law in the permitting process that’s critical to pipelines and other infrastructure projects.” Projects like DAPL and Keystone XL will help bring energy to American consumers and businesses safely and efficiently, Gerard said.

AOPL thanked Trump on behalf of pipeline operators and consumers who will benefit from new pipeline infrastructure. The actions from the White House show that Trump supports streamlining the environmental review and approval process for pipelines, noted Andrew Black, president and CEO of AOPL.

Pipeline Memo. Trump’s memo on pipeline construction directs the Secretary of Commerce, in consultation with other departments and agencies, to come up with a plan under which all new pipelines, including retrofits, repairs, and expansions, use iron and steel materials produced in the U.S. It includes a few definitions, noting that steel or iron products manufactured in the U.S. from semi-finished steel or iron of foreign origin would not be considered produced in the U.S.

The Secretary of Commerce is to submit the plan to the president within 180 days of the January 24 memo.

In a statement, INGAA said a critical element will be an assessment of the ability of steel mills and pipe manufacturing facilities in the U.S. to produce sufficient pipeline-quality steel and pipe to meet the demands of the pipeline industry and other users of steel pipe. “INGAA and its members will seek to provide the Secretary of Commerce with input relevant to making this determination,” the group said.

Priority Infrastructure Projects. Trump’s executive order on high priority infrastructure projects said it is the policy of the executive branch to streamline and expedite projects that are a high priority for the nation, such as improving the power grid, telecommunications systems, repairing and upgrading critical port facilities, airports, pipelines, bridges, and highways.

It directs the chairman of the Council on Environmental Quality (CEQ), when asked by a state governor or the head of any executive agency, to decide within 30 days whether a project qualifies as a high priority infrastructure project. Once such a project has been identified, the CEQ chairman is to coordinate with the head of the relevant agency to establish, in a manner consistent with law, expedited procedures and deadlines for completion of environmental reviews and approvals for such projects.

If deadlines are not met, the head of the relevant agency is to provide a written explanation to CEQ on the causes for any delays and actions to be taken to complete any reviews as expeditiously as possible, according to the executive order.

Nothing in the order is to be construed to impair or otherwise affect the authority granted by law to any executive department or agency or the functions of the Office of Management and Budget relating to budgetary or legislative proposals, it noted.

Murkowski issued a statement that Trump recognizes the significant contributions that energy infrastructure makes to the U.S. economy and national security, which is a welcome sign from the White House.

“I support consultation with the people affected by infrastructure projects, and we must ensure that they are built and operated responsibly. However, for too long federal agencies have been sources of unnecessary delay and uncertainty. Reform is long overdue, and the president’s actions today are a good start,” Murkowski said.

From the House, key Energy and Commerce Committee lawmakers issued a joint statement that the memos on Keystone XL and DAPL have them looking forward to working with the Trump administration on issues such as energy affordability, jobs, and infrastructure development.

“It’s time for the federal government to stop picking winners and losers in the energy sector,” said Reps. Greg Walden (R-Ore.), Fred Upton (R-Mich.), and John Shimkus (R-Ill).

From the other side of the political spectrum, Sen. Edward Markey (D-Mass.), said Trump’s executive actions confirm his “oil above all” energy agenda. “President Trumps says that he wants an ‘America First’ energy plan, but moving forward with these pipelines is all about putting Big Oil first,” Markey said, adding that several of Trump’s choices for a cabinet are linked by their connections to the oil industry.

Markey vowed to fight against pipelines that would worsen climate change and put the interests of the oil industry ahead of the American people.

Several environmental groups and other parties opposed to the Keystone XL and DAPL projects issued similar statements.

INGAA said it supports executive branch policy to streamline and expedite infrastructure projects in a manner consistent with the law, environmental reviews and approvals for projects that meet the public interest.

While the executive order calls for more expediency on infrastructure at the federal level, FERC has been dealing with statutory deadlines for comments and waiting for input from other agencies on many projects, noted Christine Tezak, managing director at investment research firm Clear View Energy Partners. Water quality certificates from states under the Clean Water Act, consultation with the Environmental Protection Agency, the Fish and Wildlife Service and other matters can hold up FERC’s approval of gas pipeline projects, Tezak said.

By Tom Tiernan TTiernan@fosterreport.com

 

This article appears as published in The Foster Report No. 3133, issued January 27, 2017

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