As the nation gears up for new leadership in Washington, natural gas and electricity companies find themselves in kind of a regulatory limbo as they await word on who will chair FERC in the Obama administration.

Both existing Commissioners Jon Wellinghoff and Suedeen Kelly are said to be interested in the leadership post. At the very least, either one could be named acting chair until President-elect Obama picks his nominee and he or she is confirmed by the Senate. Senate Majority Leader Harry Reid (D-NV) has said he supports Wellinghoff, a fellow Nevadan, to head FERC. One Washington source said she believed Wellinghoff, a strong proponent of renewable fuel energy and demand-side management programs, was better suited for the Department of Energy than the Federal Energy Regulatory Commission (FERC).

Two FERC outsiders — Charles E. Box, chairman of the Illinois Commerce Commission, and John Norris, chairman of the Iowa Utilities Board — also have been mentioned as possible successors to Chairman Joseph Kelliher. Norris is a close friend of Obama, and his wife, Jackie, has been selected as incoming First Lady Michelle Obama’s chief of staff. Box, if selected, would be the first African-American to head FERC (see NGI, Dec. 1, 2008, Dec. 8, 2008).

If Wellinghoff is picked as chairman and Kelliher resigns from the Commission, then that would leave a seat vacant on the Commission — one that would have to be filled by a Democratic candidate.

“I wouldn’t be surprised” if Obama picked someone from outside the agency for chairman, the Washington source said, adding that such a person was more likely to have actively supported Obama during his campaign than the sitting FERC commissioners. “By the time you win the White House, you owe a lot of favors along the way.”

Donald Santa, president of the Interstate Natural Gas Association of America (INGAA), said he doubts that the focus of FERC will significantly change under a Democratic administration. For now, “there’s no real strong impetus to change natural gas policies” at the Commission in 2009, but companies still “need to be prepared” for a new chairman and his or her priorities, he said.

“Restructuring [of the gas market] has been very, very successful,” and “a lot of key issues that were open — such as standards of conduct and capacity release — were brought to conclusion,” Santa said. This may take much of the spotlight off of gas in the New Year.

But Dena Wiggins, general counsel for the Process Gas Consumers Group, believes there still are gas issues that need to be addressed by FERC. For one, she wants the agency to revisit its decision to terminate an inquiry into whether it should put an end to the pipeline practice of recovering fuel costs through fixed fuel retention percentages.

“I would like to see FERC bring back the notice of inquiry and turn it into a rulemaking,” Wiggins said. She noted that gas pipelines are making “enormous amounts of money” — hundreds of millions of dollars for some pipelines — through the recovery of fuel costs from shippers.

Wiggins said she also would like to see a reform of the Section 5 complaint process at FERC, making a complainant or complainants eligible for rate refunds from the date a complaint is filed (as is currently provided for in the Federal Power Act). The Natural Gas Act (NGA) only provides for prospective relief as spelled out in a Commission decision. To make this reform possible, Congress would have to amend the NGA, she noted.

Santa believes “greater time and effort is going to be spent on electricity issues” at FERC in the ensuing months.

“We want positive attention from both FERC and the states” in the New Year, said Ed Legge, a spokesman for the Edison Electric Institute. He believes transmission siting will “certainly be a hot button issue” in the months ahead. “Everybody’s going to have a hand” in the issue of how best siting should be done — by the states, FERC or a combination of the two.

In the courts, Santa said a key case to watch will be NRG Power Marketing LLC’s petition for the Supreme Court to reverse a decision by an appellate court that industry groups claim threatens the integrity of negotiated settlements when challenged by an entity that is not a party to a settlement (see related story). The U.S. Court of Appeals for the DC Circuit last year upheld most of FERC’s decision approving a 2006 comprehensive settlement that redesigned the New England electric capacity market. However, the court rejected and remanded a portion of the settlement that “unlawfully deprived nonsettling parties” of the right to challenge rates under the more lenient “just and reasonable” standard.

Both electric and natural gas groups have filed amicus briefs in the case, Maine Public Utilities Commission v. Federal Energy Regulatory Commission. INGAA has not filed a brief, according to Santa.

Unlike with FERC, Obama was quick to pick his nominee for chairman of the Commodity Futures Trading Commission (CFTC) — Gary Gensler, former undersecretary of the Treasury and partner at Goldman Sachs (see NGI, Dec. 22, 2008). The agency under Gensler is expected to continue enforcement oversight of the energy industry — only time will tell whether it will be more aggressive than the Bush administration.

And the clearing of over-the-counter credit default swap (CDS) transactions is likely to top the CFTC’s agenda, particularly if Congress mandates that exchanges do this. House Agriculture Chairman Collin Peterson (D-MN) has said he plans to introduce a bill as early as January that would call for mandated clearing of swaps. CDS transactions are a form of insurance against the default of debt securities, and they have contributed to much of the turmoil in the credit markets due to a lack of adequate oversight.

On Capitol Hill, “we do not see the Obama White House/Democratic Congress combination as something that will hurt energy investors. Consumers, yes…energy investors, no. Even the centerpiece of Obama’s energy platform — binding carbon reductions — is not something that would impact the oil and gas industry or the coal industry anytime soon,” said Raymond James & Associates last Monday in its energy “Stat of the Week.”

The Obama administration has taken a tax on windfall profits off the table — at least temporarily (see NGI, Dec. 8, 2008). “[The] latest commentary suggests that $80/bbl is the price threshold where such a tax would again be considered by the new administration…That would be 2010 under our current commodity price assumptions,” the financial services firm said.

The issue of whether hydraulic fracturing, or “fracing,” contaminates water supply may rear its head in Congress in 2009. Fracing is a key type of well stimulation that’s used in virtually every natural gas well drilled in the United States. The Environmental Protection Agency in 2004 said there was no risk from fracing and the Energy Policy Act of 2005 exempted fracing from the provisions of the Safe Drinking Water Act, but “there is speculation that congressional Democrats may seek to reverse previous policy and introduce federal regulation into the mix.”

As for renewable energy, “we do not envision immediate action (within the first three to six months) on these issues. To put it bluntly, while solar and wind are important, there are much bigger things on the plate that the new administration will need to focus on within the context of the global economic crisis,” said Raymond James.

“Realistically we think it will be mid-2009 at the earliest before any tangible policy initiatives move through Congress, such as a national renewable portfolio standard (RPS) or major new funding programs. A national RPS looks like the most realistic bet to be passed in 2009, though it would have limited near-term impact, in part because 27 states (including seven of the 10 most populous ones) already have their own RPSs.”

With respect to climate change, “any legislation will most likely occur as part of an international agreement, and we do not foresee it happening until 2010 at the earliest. That said, we believe that there is a better than 50% chance of enacting a comprehensive, legally binding carbon trading system (cap-and-trade) during Obama’s first term,” Raymond James said.

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