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White House grants FERC Commissioner McNamee ethics waiver in PJM proceeding

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Bernard McNamee speaks during a Nov. 15, 2018, hearing before the U.S. Senate Energy and Natural Resources Committee.

Source: U.S. Senate

The White House has granted Federal Energy Regulatory Commission member Bernard McNamee an ethics waiver to participate in a closely watched proceeding for a delayed PJM Interconnection capacity market auction involving three of his former clients.

The waiver was issued Aug. 29 by White House Senior Counsel Scott Gast just before Commissioner Cheryl LaFleur left the agency, leaving FERC with a 2-1 Republican majority and the minimum number of commissioners needed to act on a PJM proposal to compensate for increasingly aggressive state action on climate change.

"After careful consideration, I find that it is appropriate and in the public interest to grant this limited waiver to ensure Commissioner McNamee's participation in significant issues pending before the commission," Gast wrote in a letter to Charles Beamon, FERC's designated ethics official. "His duties cannot be adjusted and his role cannot be performed by another commission employee."

McNamee previously represented three electric utility companies — Dominion Energy Inc., Duke Energy Corp., and Direct Energy Inc. — at the law firm McGuireWoods LLP prior to his appointment as general counsel to the U.S. Department of Energy with a start date of May 30, 2017.

While McNamee has recused himself from dockets in which Dominion has commented since he was confirmed to FERC in December 2018, he joined three other commissioners in July in voting to further postpone PJM's already-delayed capacity auction, which was scheduled to take place in August.

Dominion, Duke Energy and Direct Energy have all engaged in the PJM capacity market docket since 2016 "through and including the period during which Commissioner McNamee represented clients at his former law firm," the Sierra Club and Natural Resources Defense Council, or NRDC, noted in a Sept. 9 filing with FERC. The filing requested that McNamee either recuse himself from the proceeding (FERC dockets EL16-49; EL18-178) or explain how his participation is consistent with the due process clause of the U.S. Constitution and his ethics obligations.

"If the Commission were to issue an order instituting tariff changes that directly and predictably affect the financial interests of Commissioner McNamee's former clients, it would cause a reasonable person to question the impartiality of this proceeding," the groups said. "Recusal is called for under these circumstances even absent any finding of actual bias."

A McNamee spokesman said in a Sept. 10 email that the commissioner has previously sought individual waivers to participate in various proceedings. The Aug. 29 waiver goes further than individual waiver by allowing McNamee to fully participate in the PJM capacity market proceeding.

Under the Trump administration's ethics policy, attorneys are prohibited from participating in "any particular matter involving specific parties that is directly and substantially related" to their former employers or clients for two years from the date of their appointment.

That provision of the ethics pledge would have no longer applied to McNamee if he had not left the DOE to work at the Texas Public Policy Foundation, a conservative think tank, from February to May 2018. McNamee signed a second ethics pledge prior to rejoining the DOE with a start date of June 6, 2018, a spokesperson said.

"Were it not for a four-month break in federal service, which resulted in the execution of a second Ethics Pledge, the restrictions of … the Ethics Pledge would have already lapsed," Gast said in his letter.

Meanwhile, the Sierra Club and NRDC asserted in their Sept. 9 filing that both Dominion and Duke Energy have advocated for exceptional treatment of their resources in the PJM capacity market proceeding. "Determination of the matters in the docket will incontrovertibly directly impact their financial interests," the groups argued.

In response to a June 2018 order from FERC, PJM has proposed to establish new rules that would apply a Minimum Offer Price Rule, or MOPR, to virtually all new and existing state-supported resources to protect its capacity market from the price-suppressive impacts of state subsidies. The grid operator's pending proposal before the commission would also allow state-supported resources to opt-out of the grid operator's capacity market through a resource carve-out and engage in direct bilateral capacity commitments. Notably, the proposal includes a repricing mechanism that would leave an exiting resource's corresponding demand in the capacity auction, effectively increasing prices.

Dominion has urged that any replacement rate distinguish between resources owned by integrated public utilities subject to regulation by state public utility commissions, such as its subsidiary Virginia Electric and Power Co., from resources in restructured states, the Sierra Club and NRDC noted. The company has argued in its filings that state-regulated utilities' self-supply resources should not be subject to a revised MOPR or other mitigation in the capacity market.

In addition, Duke has argued that while state-regulated cost recovery through retail rates could be considered a "material subsidy" triggering the MOPR, an exception should apply to the benefit of its resource, the Sierra Club and NRDC said. They further noted that while generally supportive of an expanded MOPR with minimal exceptions, Direct Energy has advocated for changes to the reference price formula that would apply to existing resources newly affected by an expanded MOPR.

FERC Chairman Neil Chatterjee declined to comment on the status of the PJM capacity market proceeding at a Sept. 4 event, but he told reporters that he was confident the commission "will not have any recusal issues on any of the significant matters or other matters we have going forward." Observers expect the commission to issue an order in the proceeding sometime in the fall.