A SEARCH FOR BIAS IN THE FEDERAL ENERGY
REGULATORY COMMISSION AND
RECO~~ENDATIONS
CONCERNING THE APPOINTMENT PROCESS
INDEPENDENT
FOR
REGULATORY COMMISSIONS
By:
Lisa Wheeler
A SEARCH FOR BIAS IN THE FEDERAL ENERGY
REGULATORY COMMISSION AND RECOMMENDATIONS
CONCERNING THE APPOINTMENT PROCESS FOR
INDEPENDENT REGULATORY COMMISSIONS
America is often said to have four branches of government:
executive, legislative, judicial, and beaurocratic, the latter
being composed of the various government agencies.
Foremost
among these agencies, in the public eye and ire, are the
independent regulatory commissions.
These regulate various
aspects of American life with no apparent check.
The lack
of any obvious public control or input makes them the target
of suspicion.
This evidences itself in the nuisance suits
which play on public opinion.
Typical of this type of case 1s Metcalf v. National
Petro 1 eum Counc1'1 . 1
The suit alleged that the National
Petroleum Council failed to give adequate weight to environmental considerations.
Those listed bear a remarkable
resemblance to typical public complaints made to politicians.
Senator Metcalf counted on his position of United States
Senator to assure standing.
v. Morton
2
A careful reading of Sierra Club
would have prevented his erroneous assumption.
The
point is, suits of this type afford a fair amount of policital
mileage, making one appear aligned with a cause with no real
effect.
Environmental groups make use of this technique.
Many of their suits stand no more of a chance than the Metcalf
suit.
The delay afforded by the legal action gives the group
time to stir up public interest and bring pressure to bear.
If the public had more confidence in the agencies or the special
interest groups a representative on the commission, such suits
001fG
might be avoided.
These suits are costly to both the govern-
ment and industry in time and money.
The Federal Energy Regulatory Commission 1s a fairly
typical independant regulatory agency.
It 1s one of the
creations of the 1977 Department of Energy Reorganization Act. 3
The stated purpose of the Act and the department is to coordinate
energy regulation and conservation efforts in the federal
government.
4
Initially, these had been spread between the
Department of the Interior, the Federal Energy Administration,
the Department of the Navy, and a myriad of others.
Within
the Department of Energy, there is the Federal Energy Regulatory
Commission, the Federal Information Administration, the
Economic Regulatory Administration, an Office of the Inspector
General, and an Office of Energy Research.
The task of
efficient energy regulation is supposedly dispersed between
these entities.
The Federal Energy Regulatory Commission is
specifically responsible for all permits relating to hydroelectric power (dams, transmission lines, et cetera), sale
of energy from hydroelectric plants, sale of natural gas under
the Natural Gas Act, certificates of public convenience in
accordance with the same act, enforcement of natural gas
curtailments, regulation of mergers under the Federal Power
Act, all functions of the Interstate Commerce Commission with
regards to rates for transportation of oil by pipeline, and
various emergency functions.
5
-2-
The Federal Energy Regulatory Commission has four
commissioners and a chairman.
will be discussed later.
The manner of their selection
They were, as of early 1981,
Georgiana Sheldon, Chairman, Charles Curtis, Matthew Holden,
Jr., George Hall, and John D. Hughes.
Sheldon is the former
chairman of the Civil Service Commission. 6
Curtis' experience
is largely in securities, having served as chief of the
Securities Exchange Commission branch of Regulation and
Inspection.
Holden was a member of the Wisconsin Public
Service Commission, and is a political scientist.
economist from the Rand Corporation.
Hall is an
Hughes, the newest
member of the group, is a Lubbock attorney and a former chief
of the Energy Division of the Texas Attorney General's Office.
7
Geographically, two are from New England, one from the south,
one from the southwest, and one from the northwest.
For purposes of this paper, regulations dealing with
. d.8
h ydro 1 ogy were exam1ne
water power is a touchy subject,
especially along major semi wild waterways.
None of the
commissioners come from such an area.
On March 1, 1981, the final rule on the Safety of Water
Power Projects and Project Works was promulgated by the
.
.
Comm1ss1on.
9
Its purpose is to insure that dams are safe
and to guarantee the existence of an emergency program.
motivation for this was, at least in part, political.
The
In
the 1970's, three major dams (the Teton, Taccoa, and Walter
Bouldin) failed, causing substantial loss of property and life.
Failure of this agency, or its predecessor 1n such matters,
the Federal Power Commission, to act would have been politically
unwise.
While most aspects of the rule are common sense,
a few do not seem particularly useful
or w1se.
An example of this are the requirements for the independent
consultant required to inspect the installation and the
adequacy of its emergency plan. 10
His independance is
supposedly insured by his not having been regularly employed
by the licensee during the two years prior.
Given the number
of qualified engineers, two years is grossly inadequate to
insure an unbiased evaluation.
As with most licensing regulations, it is possible for
a project to be listed as exempt from preparing an emergency
plan.
11
These exemptions are granted for projects posing
no forseeable danger to life, health, or property.
This is to
be determined by the Commission's Regional Engineer.
Few, if
any, projects major enough to require licenses are minor enough
to fit this description.
The determinations would require
calculation of the minimum velocity of the water as it
escaped, the effect of the condition causing the escape on
tributaries, and a complete soil and mass movement analysis
for at least twenty miles downstream.
Under few, if any,
circumstances would a Regional Engineer have the time and
personnel for such an investigation.
If handled properly,
the costs of an exemption investigation would at least equal
those of an emergency plan.
Once a project is given exempt
-4-
status, the responsibility for reporting altered circumstances
requiring reevaluation is with the licensee. 12
These
"circumstances" are anything which might allow a project
emergency to endanger property.
While the Regional Engineer
may revoke the exemption when he learns of the new circumstances,
it is doubtful that he will learn of them quickly.
No special
provision is made for emergency plans of projects near nuclear
power plants except to say that they shall not be exempt,
that provision shall be made to insure that the purchaser of
the power will not be cut off, and that the project can
operate safely in the event of a nuclear accident.
In an attempt to classify these projects, the commission
uses the term "high hazard" to mean those projects which
stand to endanger human life or cause substantial property
damage. 13
Included as an afterthought are those projects
so classified by the Corps of Engineers.
Within the engineering
profession there are definite definitions for hazardous water
projects, and these regulations are to be applied by engineers.
These definitions, however, were not used.
A different set of problems arises with the Proposed
Regulations Governing Applications for Licenses for Major
Unconstructed Projects and Major Modified Projects published
for comment Fe b ruary 2 I 19 81 .
14
Th 1s
'
se t o f regu 1 a t 1. o ns
requires any project that is to have a capacity of over five
megawatts and is applying for an initial license, an unlicensed
project proposed to generate over one and a half megawatts with
a new impoundment, and any project modification that would
significantly alter the condition of an old impoundment to
15
file a report.
The report to be filed must include a
complete description of the project and an environmental
impact statement.
For its regulations, the act is overinclusive.
The
studies for the impact statement are of the sort that require
environmental specialists who generally command a large fee.
The report, especially for a modification, will be long and
costly for both the Commission and the industry.
Wording
of the regulation is sufficiently vague that a prudent power
company will file before making any improvement rather than
give basis for an environmentalists suit.
In many cases, dam
modifications which could enhance the safety and recreational
potential of the impoundment may not be made due to the cost
of the attendant report.
The cost of the report 1s such that it would be a major
burden on municipalities and small power producers.
Projects
proposed by such producers which fall into the target range
are often the ones most desperately needed.
Probable interpretation of the regulation will keep the
small producers from getting involved in water power.
The
wisdom or lack thereof is something for the economists -- it will
not be debated here.
Municipalities come under fire again in the denial of
rehearing for an exemption order in February of 1981.
16
The rehearing concerns itself with exemption priorities on
small projects, especially those proposed by states and munlcipalities.
The order, which upheld requires that project
owners request the exemption of their project from the licensing
provision if private lands are involved.
The rationale
given is that the exemption would discourage corporate
involvement in small water projects.
(The initial procedure,
as altered by the upheld order, allowed a preference for small
companies and state or locally owned ones.)
Municipalities
can still obtain the exemption by condemning the land necessary
and thereby becoming the owner.
Eminent domain proceedings,
however, are costly and this fact may serve to deter public
effort.
These three examples are indicative of the regulations
and orders proposed and inacted by the Federal Energy
Regulatory Commission while under the control of the listed
commissioners.
If any bias exists, it seems to be such as
would favor major corporations and their development.
Avail-
able biographies of the commissioners are sketchy at best.
Analysis of their stock holdings and other financial interests
and those of their families proved impossible in the g1ven
time.
Most regulatory commissions receive their commissioners
by Presidential appointment with the advice and consent of the
senate.
17
Various rules are set up in the enabling legislation
to insure nonpartisanship, small size, and so on.
Few, if any,
make any provision to insure that a person with expertise in
the field will be on the commission.
Commission was one of the minority.
The old Bituminous Coal
It required at least two
experienced mine workers, two coal producers, and two persons
from outside the industry. 18
It is now a defunct commission,
but appears to be the only one to have had such requirements.
The lack of practical experience may be one reason for the
animosity directed towards independent regulatory commissions.
While over much industry involvement could lead to charges of
collussion, too little leads to accusations of incompetance.
A middle ground is desperately needed.
The enabling legislation for the Federal Energy Regulatory
Commission gives some insight into the current standards for
appointments.
Its five commissioners are appointed by the
President with nominal advice and consent from the Senate. 19
The Chairman is appointed by the President. 20
office for four years, with staggered terms.
They hold
If a retiring
member is not replaced immediately, he may sit for another year
until the President fills his position.
21
While on the
commission, the members may not engage in other business nor
may more than three be from the same political party.
22
Each
of the commissioner fits the definition of "supervisory employee"
as set forth in the legislation and as such are liable to
.
.
. .
23
its confl1ct
o f 1nterest
prov1s1ons.
These provisions require that the supervisor have no
contact or relations with the energy industry.
Ownership of
stock in such a concern 1s expressly prohibited. 24
In
cases where the relationship is 1n the nature of a vested
interest, such as a pension, the Secretary of the Department
of Energy may, at his discretion and with due publication,
waive the forfeiture. 25
This requires a special showing by
the individual of his need for that benefit.
Personnel
must also give a full report on past employment with any
energy concern where they earned over $2,500 in the course of
one year.
This report must include a full description of his
duties and compensation while with the company.
They are also
prohibited from participating in any proceeding involving their
former employer unless it is a general proceeding involving
the energy industry at large.
26
This prohibition lasts for
one year after the termination of employment.
It is interesting
to note that, in the eyes of the commission, it takes an
engineer two years to lose his bias, in the eyes of Congress it
takes a commissioner one year, and an environmentalist can
discard his immediately!
Congressional suggestions for agency reform are plentiful,
and range from abolishing the entire beuracracy to setting
up a supervisory agency to oversee all the agencies.
27
The
following suggestion is based in part on some of these and
largely on an attempt to balance the commission in such a
way as would eliminate some of the nuisance suits.
The most visible portion of the Department, aside from
the Secretary, is the Commissions.
These suggestions are
specially tailored for the Federal Energy Regulatory Commission.
0{)1.!7
-. . ".
_..
A commission needs to show a division of interest on its
face and plainly enough so that the public can see it.
The
old Federal Reserve Board had representatives of business,
agriculture, finance, and other sectors of society on its
board.
This could be carried so far as to have an unwieldy
board.
The Federal Energy Regulatory Commission regulates
energy in many forms, yet forbids anyone with recent substantial
experience on its board.
While this may avoid collussion,
it doesn't promote efficiency.
An engineer with substantial
experience in the energy field would be a valuable addition.
What he would lack in the area of regulation writing ability
he would make up for in knowledge of practical application.
A screening for current financial interests in energy production
would be wise with all commissioners.
Because the Federal
Energy Regulatory Commission effects power companies, a
representative of their interest would not be amiss.
His
influence could be counterbalanced by a member of the
environmentalist lobby.
To avoid the inevitable squabbling
that would attend a Presidential choice, perhaps both of these
individuals should be chosen by their respective groups.
The remaining two, with the engineer, should be Presidential
appointees of the Commission's actions on the economy.
The
last person should be an attorney with experience in public law.
Many good regulations fall in their first trial due to drafting
errors caught by the court.
board, this could be avoided.
With an alert attorney on the
Tenure is a special problem.
If the commissioner stay
too long, they may become hidebound and ineffective.
A four
year staggered term for the Presidential appointees seems
adequate and proper.
The representatives of special interest
groups serve at the will of those groups, but should have a
minimum term of at least one year for continuity.
Any
commissioner can be removed for misconduct.
The Chairman should be a person with at least one year
experience on the Commission.
A person appointed by the President
to that position is often seen as carrying extra authority. 28
To avoid this, it 1s suggested that the Chairman be elected
by the Commission 1n accordance to rules set down by legislation.
Selecting a commission in this manner is not guaranteed
to eliminate nuisance suits.
When a commission has no apparent
bias on its board and its actions seem evenhanded, but it
still is the victim of such suits, actions need to be taken
to increase public confidence.
If the political mileage
was removed from suits such as the one instituted by Senator
Metcalf, perhaps they would be less frequent and actual problems
could be litigated.
FOOTNOTES
1
2
3
4
Metcalf v. National Petroleum Council, 553 F.2d 176 (1977).
Sierra Club v. Morton, 405 U.S. 727 (1972).
91 Stat. 565, P.L. 95-91.
id. Title 1, §102.
5 id. Title 4, §401.
6
7
8
9
10
11
12
13
14
15
16
FERC Annual Report (1979}.
Federal Energy Regulatory Commission, 16 Weekly Camp. of Pres. Doc.
813 (May 5, 1980).
The author is a qualified wildland hydrologist. Basic facts
about hydrology and hydroelectric power will not be footnoted.
46 Fed. Reg. 9036 (1981).
id. at §12.31.
id. at §12.21.
id.
id. at §12.3l(b).
46 Fed. Reg. 10169 (1981).
id. at §4.40(a).
46 Fed. Reg. 10458 (1981).
17 Robert Cushman, The Independent Regulatory Commissions, at
743 (1972).
18
id. at 761.
19 91 Stat. 565, P.L. 95-91.
20 id. Title 4, §40l(b).
21
22
id.
id.
23
24
id. at Title 6, §601 (1).
id. at Title 6, §602 (a).
25 id. at Title
6, §602 (c).
26
id. at Title 6, §604 (a).
27 id. at Title
6, §606 (a) .
28 American EnterErise
Institute! Regulation and Regulatory
Reform; A Survey of Proposals of the 95th Congress (1978).