FERC is likely to adopt some of the changes that the energy industry recommended recently for the agency’s enforcement program, said Commissioner Suedeen Kelly last Tuesday.

“I anticipate that we’ll make some changes to our enforcement process” that were proposed in a recent industry white paper, she told reporters during a Platts’ Energy Podium briefing in Washington, DC. Kelly, however, did not identify what changes were being considered. Seven natural gas and electric groups issued the white paper in advance of FERC’s Nov. 16 enforcement policy conference (see NGI, Nov. 19).

Kelly said some of the regulatory models, such as the ones used by the Nuclear Regulatory Commission (NRC) and the Environmental Protection Agency (EPA), would be difficult to apply to the Federal Energy Regulatory Commission, as suggested by the energy groups. “The NRC enforcement regime is almost like sentencing guidelines,” she noted, adding that the North American Electric Reliability Corporation (NERC) has adopted the same approach.

“The difficulty that we have in adopting that [NRC, NERC] policy is that the rules that we implement are voluminous,” Kelly said. Not only does the Commission enforce its own rules and regulations, but it enforces the tariff provisions of all regulated entities, including regional transmission organizations and independent system operators, she noted.

The EPA’s enforcement model consists of a “tiering of violations” and penalties, Kelly said. “I’m sure that we’ll look at any meaningful way [to provide] a tiering of penalties,” but she noted that it would be difficult to do at FERC due to the breadth of its regulations.

The energy groups also recommended that FERC show forbearance to companies that self-report violations. “I think that our record…shows that we have engaged in forbearance with self-reports,” she said. Kelly pointed to a Commission staff report released last month, which showed that half of the 74 self-reported violations since passage of the Energy Policy Act of 2005 have been closed without investigation or penalties levied by the agency.

Kelly dismissed reports of a dispute between FERC and the Commodity Futures Trading Commission (CFTC) over their jurisdiction in energy markets (see NGI, Sept. 17). “[The] CFTC and FERC have not fought over jurisdiction…We have worked cooperatively in all of our investigations, including the Amaranth [Advisors LLC’s] investigation,” she said. “We haven’t had any bickering between ourselves over our respective jurisdictions.”

Having said that, she conceded that the CFTC did not side with FERC in its assertion of jurisdiction over the activities of the failed hedge fund Amaranth in the natural gas futures market. The Commission contends that Amaranth’s activities in the futures market affected the price of natural gas in the physical gas market, which triggered its jurisdiction.

“I agree that we have jurisdiction…over any entity that operates in a way as to cause a fraud or a deceit in connection with the purchase or sale of natural gas,” Kelly told reporters. “It’s clear to me that activity in the natural gas futures market, particularly the kind of activity that occurred in the Amaranth case, is activity that is connected to the physical gas market.”

Kelly said she was “surprised” when the CFTC failed to back FERC’s claim of jurisdiction in the gas futures market with respect to Amaranth. “I had no indication that they were dissatisfied with our exertion of authority.”

She said the issue of whether the Commission’s authority extends to the futures market will likely be decided in the U.S. District Court for the District of Columbia, and then appealed.

As for the status of Chairman Joseph’s Kelliher’s nomination that is pending in the Senate, she said, “I wouldn’t conclude that he isn’t going to be reconfirmed” for a second term. The nomination has been caught up in the squabbling between Democrats and Republicans in the Senate. Kelliher’s term officially ended in June, but he has been allowed to continue to serve until Congress adjourns for the year.

If the Senate should gavel to a close in the next two to three weeks without approving Kelliher’s nomination, Kelliher’s term would then come to an end, according to a Capitol Hill aide. However, if the Senate should stay in semi-session or pro forma session during its Christmas recess to prevent President Bush from making recess appointments, Kelliher would continue to serve for an indefinite period, he said.

Kelly, the only Democrat on the Commission, declined to say whether she would be interested in the chairman post if a Democrat is elected president in 2008. “The decision about a chairman is up to he or she” who is elected president, she said, adding that reporters should ask her that question again after next year’s election.

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