The Energy Policy Act of 2005 (EPAct), which was signed into law one year ago, has “permanently changed” FERC, making it for the first time an enforcement agency with real penalty authority, said Chairman Joseph Kelliher Tuesday.

“We are now an enforcement agency,” he told reporters during a briefing at the agency’s headquarters in Washington, DC. FERC “couldn’t by any stretch say we were an enforcement agency before August of last year” when EPAct was enacted. But that changed with the new energy law, which Kelliher said resulted in the “biggest single expansion” of the Commission’s regulatory power since the New Deal 70 years ago.

The Federal Energy Regulatory Commission now has the authority to police natural gas and electricity markets for manipulation, and can assess — for the first time — civil penalties of up to $1 million a day per violation for the duration of the violation.

FERC has yet to flex its new penalty authority, but “I think you will see some enforcement actions later this year,” Kelliher said. He noted that FERC currently is conducting a number of investigations on the natural gas and electric sides and in other areas. “I think some of them will result in enforcement actions,” Kelliher told reporters.

“There are a couple of candidates [to be] the first object of a civil penalty order,” he said. Kelliher confirmed that one potential candidate is Columbia Gulf Transmission, which repeatedly has failed to comply with FERC orders approving Tennessee Gas Pipeline’s request for an interconnection on a pipeline that is jointly operated by the two companies on the Gulf Coast of Louisiana (see Daily GPI, July 26).

He said the Commission’s swift implementation of EPAct directives has “helped strengthen the Commission’s relationship with Congress.” It “restores the relationship that Congress and the Commission have had historically.”

FERC has “made all the deadlines [in EPAct] and beaten a few,” Kelliher said. Still, he noted the Commission has more work to do. It’s “tempting sometimes to think we’re done,” but that’s not the case. “We’re at the end of the beginning,” rather than the beginning of the end as far as implementing the requirements of EPAct, Kelliher said.

In addition, the Commission has a lot of work ahead of itself in non-EPAct areas. He said the next FERC meeting on Sept. 20 will be a “very big meeting,” with the agency expected to act on electric reliability standards. Kelliher noted that the Commission hopes to have a strong reliability regime in place for the summer of 2007, along with a strong regional enforcement regime. He said to expect major natural gas orders at the September meeting, although he declined to discuss what they would be.

In an unrelated item, Kelliher said he did not view last week’s verdict in the false-price reporting trial as a setback for the federal government. A Houston jury found a former Dynegy Inc. natural gas trader and ex-El Paso trader guilty of wire fraud charges, but it failed to convict them on the false-price reporting charges that were at the core of the trial (see Daily GPI, Aug. 7). “I don’t see it as a defeat at all,” Kelliher said, adding that “the fraud was related to [the] false reporting.”

Nor does he believe that the fallout from BP’s oil pipeline leak in Alaska could impede progress on the proposed Alaska gas pipeline. “I don’t really think it has [any] bearing on the construction of the Alaska pipeline,” he said.

In fact, if the Alaska legislature acts on the pipeline this year, Kelliher believes there could be some action — field studies, collection of environmental data and initial work on the pipeline’s application — being carried out next year. But if the Alaska legislature does nothing, he said, the targeted 2016 in-service date for the pipeline will be pushed back even further.

Questioned on the market transparency initiative which the Commission is currently working on, Kelliher said FERC would have to be careful how it exercised its new authority under EPAct2005 to provide information to the marketplace, making sure it did no harm. “The temptation is to think if transparency is good, then more transparency is better. But transparency also can create an opportunity for market manipulation.”

He cited the example of proposals to make available more storage data, noting that with the new law FERC could compel nonjurisdictional parties to supply storage information and so could provide more complete data. However, he noted that at FERC’s technical conference on the subject two years ago there was testimony that more frequent reporting of storage data could increase volatility. “We have to be careful if we exercise our authority that we do it in a responsible way.”

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