May 6 2014, 6:07pm CDT | by Forbes
The outcome of the confirmation hearing may matter far more than most people appreciate.
Before teaching criminal law at the University of New Mexico School of Law, Bay served as a federal prosecutor for more than a decade in the District of Columbia and New Mexico. Bay is a borne and bred “federal prosecutor.” By contrast, prior to joining FERC as the head of enforcement in 2009, Bay had virtually no experience in energy regulation or markets.
Bay’s prosecutorial instincts have shaped the core policies and procedures FERC has developed to implement the expanded enforcement authority Congress granted it in EPAct 2005 to address manipulative conduct and deceptive practices in the wholesale electricity and natural gas markets.
In particular, Bay has been instrumental in shifting FERC’s institutional practices away from more traditional energy regulation and toward a kind of shock-and-awe paradigm for policing markets.
During tenure at FERC, Bay has expanded the scope of his office’s powers to “prosecute” allegedly fraudulent activity by bureaucratic fiat with few if any meaningful mechanisms for ensuring public accountability.
In 2010, FERC adopted the so-called “Policy Statement on Penalty Guidelines” to calculate civil fines and assess penalties for fraud and market manipulation. The Penalty Guidelines were modeled on the U.S. Sentencing Guidelines, which establish the formulas for calculating fines and prison sentences for criminals convicted of a federal crime.
Congress enacted the U.S. Sentencing Guidelines during the Reagan administration to provide certainty, fairness, and transparency for criminal sentences. The objective was to avoid conflicting sentences for the same offense in different jurisdictions. One judge fines a driver $5 for driving five miles over the speed limit while another judge fines a driver charged with the same offense $2 million.
After FERC adopted the Guidelines, it received considerable pushback from the industry, which argued that the Sentencing Guidelines were not intended to apply to violations of regulatory regimes of the sort enforced by FERC.
Per FERC’s summary: “Specifically, these commenters suggest that modeling the Penalty Guidelines on a criminal framework is wrong because, unlike in the civil and regulatory context, criminal cases require the government to prove, and an independent jury or judge to find, a defendant guilty beyond a reasonable doubt before imposing penalties on organizations,” said the Edison Electric Institute in comments.
Like the Sentencing Guidelines, the Penalty Guidelines implicitly grant enormous discretion to the attorneys representing FERC’s office of enforcement. This is dangerous.
“It has been a virtual mantra for observers of federal sentencing . . . that the Guidelines produced a great ‘transfer of power’ to prosecutors,” Robert Weisberg, a professor of criminal law at Stanford Law School wrote in 2005.
“If the prosecutor is obliged to choose his cases, it follows he can choose his defendants,” said Jackson. This results in “[t]he most dangerous power of the prosecutor: that he will pick people he thinks he should get, rather than pick cases that need to be prosecuted.”
A series of recent decisions by the U.S. Supreme Court has begun to reign in this prosecutorial discretion.
Notably, in 2006, Bay published a law review article arguing that these recent decisions would not appreciably curtail the prosecutorial discretion in federal courts.
“Power corrupts, and absolute power corrupts absolutely,” said Lord Acton. This is a basic idea behind the U.S. Constitution. So is due process./>/>
For better or worse, FERC‘s recent flurry of aggressive enforcement actions charging financial institutions with alleged fraud is symptomatic of the regulatory overreach that inevitably results when too much discretion is combined with too little accountability.
Exhibit A: the alleged fraudsters targeted in FERC’s most aggressive actions have uniformly refused to admit any actual wrongdoing.
FERC’s growing culpability gap has not been entirely overlooked by decision makers.
Rather than explaining why FERC didn’t demand an admission of wrongdoing from JP Morgan, Wellinghoff’s response merely begged the question, stating that, “in certain circumstances, it is appropriate to insist on an admission of liability.”
FERC’s recent enforcement actions are so cloaked in non-public proceedings that only bits and pieces of the evidence and supporting legal analysis are available.
If Powhatan’s experience is any indication of FERC’s anti-manipulation enforcement policies, the political risks of participating in wholesale power markets are approaching Hugo Chavez-scale proportions.
But more about than later . . .
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