By Rich Heidorn Jr. and Ted Caddell

WASHINGTON — President Trump on Thursday appointed Commissioner Cheryl LaFleur as acting FERC chair, replacing Norman Bay.

Hours after the announcement, Bay said he would resign his post Feb. 3, 16 months before the end of his term.

Bay’s departure, announced in a six-page letter reciting the agency’s recent accomplishments, will leave the commission with only LaFleur and fellow Democrat Colette Honorable — one member short of the three-person quorum required to issue other than routine orders. (See related story, Backlog, Delays Feared as FERC Loses Quorum.)

That will add urgency to the need to fill the three vacant Republican seats on the five-member panel. It could allow the reappointment of Honorable, whose term expires June 30 and was otherwise expected to be replaced by a Republican.

Calling his service on the commission “the greatest honor and privilege of my professional life,” Bay praised his fellow commissioners and the “dedicated and talented career staff” with whom he had worked.

“The last few years have brought dramatic change to the energy space. The shale revolution and an abundance of low-priced natural gas, technological innovation, the expanded use of renewable energy, increased energy efficiency and flat load growth, state and federal public policy, and consumer choice have been drivers for change,” Bay said. “As chairman, I have sought to help consumers realize the benefits from this change, while assisting the wholesale markets and industry in adapting to the change and maintaining just and reasonable rates and reliability.”

LaFleur’s Focus

LaFleur said she will remain focused on the same priorities as before: system reliability, grid security, transmission, energy supply diversity “and trying to adapt competitive markets to some of the state initiatives that we’ve seen.”

“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 in a statement. “I would particularly like to thank Chairman Norman Bay for his leadership of the commission over the past two years, and I look forward to working with him, Commissioner Colette Honorable, the terrific staff throughout the agency and future colleagues at FERC to continue to address the important energy issues facing our nation.”

Honorable issued a statement Monday praising Bay for his “grace and humility.”

“His leadership was critical for our continued work on gas and electric coordination, competitive transmission development, price formation and energy storage,” she said. “The utility sector is in the midst of profound change, and former Chairman Bay made certain that the commission kept pace and did not leave consumers behind.”

Republican Distrust

LaFleur’s appointment as acting chair suggests Bay never overcame the distrust of Republican congressional leaders, who had sought to keep LaFleur in the top spot she had ascended to after Jon Wellinghoff’s departure in November 2013.

President Barack Obama nominated Bay as chairman in a move engineered by then-Senate Majority Leader Harry Reid (D-Nev.), who publicly said he did not want LaFleur as chairman.

Bay was confirmed on a 52-45 party-line vote in July 2014, following a deal with the White House that delayed his move to the chairmanship for nine months. LaFleur was confirmed to a second term at the same time by a 90-7 vote.

The deal was a concession to those who questioned why Bay — who had served as director of FERC’s Office of Enforcement since 2009 but had never served as a state utility regulator — would be appointed directly to the chairmanship over LaFleur, a former utility executive who has served on the commission since 2010. The last five chairmen before then had served a median of 30 months before becoming chair.

Bay also came under fire for what some energy lawyers and legislators called his heavy-handed running of the commission’s enforcement division.

Bay’s appointment to the chairmanship was strongly opposed by Sen. Lisa Murkowski (R-Alaska), ranking member at the time, now chairman of the Senate Energy and Natural Resources Committee. Sen. Mitch McConnell (R-Ky.), now Senate majority leader, said he feared Bay would be a “rubber stamp for the [Obama] administration’s anti-coal agenda.” (See At FERC, Uncertainty Remains Despite Norman Bay’s Nod.)

Republican Majority Coming

LaFleur acknowledged that her return to the center seat at the commissioners’ table is likely temporary. In a podcast posted Monday, she said that her appointment and Bay’s resignation made for “a pretty strange week.”

“I’d already decided to serve out my term,” she said. “I’ve been part of the Democratic majority ever since I’ve been here, and I knew that going forward I would be part of a Democratic minority, and if I was going to be here, and asked to lead, I thought I should.”

Although the commission has not traditionally been marked by partisan divisions, the president gets to appoint members of his party to three of the five seats and to pick the chairman. Since Republicans Philip Moeller and Tony Clark left, the five-member panel has been all Democrats.

Bay’s term would have expired in June 2018. LaFleur’s term expires in June 2019. (See CPP, FERC’s Bay, Honorable Among Losers in Trump Win.)

Carolyn Elefant, a former FERC attorney advisor and partner at a D.C. law firm specializing in energy regulatory issues, wondered why the Trump administration didn’t have a Republican ready to fill the slot immediately. “I cannot recall a time in my 27 years of FERC practice that the commission has been down to two members,” she said.

“I know that Sen. Murkowski has posted a statement on the Senate Energy Committee website about the importance of filling the seats promptly, but I don’t know how much pull she has with the administration,” Elefant said.

“The fact that Commissioner LaFleur — a Democratic appointee — was elevated to the chairmanship suggests to me that the administration hasn’t given much thought to FERC appointments; if it had, I would have expected a Republican nominee for chairman right out of the gate.”

Differences over Enforcement

LaFleur and Bay have always been cordial publicly, regardless of which one of them held the gavel. But they have had differences on policy.

When Bay was enforcement chief, FERC won more than $670 million in fines and disgorged profits from Morgan Stanley, Constellation Energy, Deutsche Bank and JPMorgan Chase.

Although LaFleur supported all of the settlements Bay brought to the commission, the two have not always seen eye-to-eye. In response to questions from the Senate, LaFleur detailed seven cases in which she issued separate concurrences or dissented from the majority on matters such as the way the commission applied its penalty guidelines or when it would share deposition transcripts with investigation targets.

Subjects in four of the cases LaFleur cited were represented by former FERC General Counsel William Scherman, who coauthored an Energy Law Journal article in May 2014 accusing Bay’s unit of ignoring subjects’ due process rights. Scherman and some other members of the energy bar had been criticizing Bay’s enforcement tactics privately and in industry forums for months.

The criticism became louder when the principals of Powhatan Energy Fund, which had been under investigation by Bay’s unit for three years without being charged, released documents they say prove they had been unfairly hounded.

On Bay’s last day as enforcement chief in August 2014 — before his swearing in to the commission — FERC issued a “notice of alleged violations” against Powhatan and its principals accusing them of market manipulation for making riskless back-to-back up-to-congestion trades to profit on line-loss rebates. In May 2015, the commission ordered Powhatan and its leaders to pay $34.5 million in penalties and disgorged profits in the case (IN15-3). The company is fighting the case in U.S. District Court for the Eastern District of Virginia.

Policy Changes?

Elefant said that once the Trump administration installs its three new members, FERC is likely to act swiftly to undo many of Bay’s enforcement initiatives. “I think that many of his aggressive enforcement policies will be dismantled — if not immediately, then once other commissioners are appointed,” she said.

But attorney Ken Irvin, co-leader of Sidley Austin’s global energy practice, said he doesn’t see anti-manipulation enforcement being significantly curtailed. “They’ve made a robust effort and collected a lot of monetary penalties,” he said in a statement. “I don’t expect to see any let-up.”