FERC Follies

The Monday lead editorial in the Wall Street Journal on a FERC (Federal Energy Regulatory Commission) story is revealing on the increasingly politicized nature of the American Regulatory State. Pulling the FERC story out of the editorial's larger point,

For 10 years Mr. Van Scotter has run a paper mill in the northern Maine town of Lincoln, population 3,000. [FERC Director] Mr. Bay accuses Lincoln Paper and Tissue of having manipulated in 2007-08 a federal program meant to promote energy conservation.... Lincoln Paper may be liable for a $5 million civil penalty and $379,016.03 in disgorgement, plus interest.

... Yet Lincoln Paper broke no known law.... 

Lincoln Paper chose to participate in "demand response" on the New England electric grid, where large power users were paid for the electricity they didn't use...Lincoln Paper had an aging steam-powered generator on site that supplied a minority of the mill's energy needs and took the remainder from the regular grid. Mr. Bay claims that Mr. Van Scotter intentionally ran this generator less than he normally would when the baseline was being created. Then he ramped the generator back up to make it seem as if he was drawing less energy off the meter and thus stealing the demand payments. ...

But...FERC never defined "baseline" and made no rules about the right way to set one or how equipment should be operated during the measurement period.

So how can Mr. Van Scotter be accused?

As Mr. Bay recently told the Senate in a letter, "the absence of a violation of market rules is not a defense to market manipulation..

The journal calls this "Orwellian."  Catch-22 might be better. Under a FERC program, you can get federal money for cutting energy below a baseline. How do we compute the baseline? We won't tell you. But we can come after you later if we don't like what you did.

I found the last tidbit the most revealing.

...Lincoln Paper is entitled to no discovery during FERC investigations or even to know the identity of its accusers. Seven of the nine deposed witnesses remain anonymous under Mr. Bay's rules. He wants to play prosecutor, jury and executioner.

In the regulatory state, rights that we have had since about the Magna Carta dissolve.

With "baseline" undefined, surely lots of companies made, er, interesting computations to get Federal dollars. How did Mr. Van Scotter attract attention? Who did he not pay off, or do a favor for? Did he give to the wrong political action committees? Did he say something impolite about the FERC? The secrecy with which the FERC operates is an open invitation to this sort of abuse. (See, IRS.)

Keeping this kind of trouble at bay is how companies less "unsophisticated in the ways of Washington" now operate -- see big banks, health insurers, energy companies.  Long and vague laws, authorizing longer and vaguer regulation, with few of the rights of the accused that legal proceedings involve, let politically-appointed regulators treat companies with capricious discretion.  Threatening this kind of trouble is how Washington gains political support. Smart companies play along.

Fortunately, in this case, there is a legal remedy, though slow and expensive. Smart journalism still serves its disinfecting role, as the existence of the editorial attests. And eventually, one hopes, an outraged electorate will rise to demand change once it understands what "regulation" has become.