Federal Energy Regulator Says Staff Was Forced to Abandon Case Against Southern Utility;
Cites Political Pressure

The Federal Energy Regulatory Commission (FERC) is bowing to political pressure and ignoring evidence that one of the nation’s biggest utilities, Southern Company, is using anticompetitive practices in blatant violation of FERC regulations, a FERC investigator and Government Accountability Project (GAP) client charged today. The whistleblower, Rich Heidorn, Jr., today also filed a Whistleblower Protection Act retaliation complaint charging that he has been exiled from the case for challenging the underlying breach of public trust.

Heidorn, an energy industry analyst in FERC’s Office of Market Oversight and Investigations (OMOI), said the chief of staff to FERC Chairman Joseph Kelliher secretly negotiated a settlement to be proposed this week in a case against Southern Co. behind the backs of the FERC Trial Staff without reviewing the evidence the staff had compiled. Heidorn was part of a trial staff team that had been preparing the case against Southern Company since 2005. The investigation focuses on violations of energy deregulation rules that bar vertically-integrated utilities from favoring their marketing affiliates over competitors in the wholesale energy industry.

In February, Heidorn disclosed his concerns to the staff of Rep. Henry A. Waxman (D-CA), ranking minority member of the House Government Reform Committee. Today, Waxman sent a letter to FERC calling for an explanation after his staff’s investigation found a solid basis for Heidorn’s whistleblowing disclosures, which included contemporaneous accounts of a meeting in which the chief of staff of FERC’s Chairman said the case was being settled because of Southern’s “political pressure.”

“If the Commission approves this sweetheart deal, it cannot credibly claim to be enforcing the law and protecting ratepayers,” Heidorn said. “The public deserves to know why the Commission’s chief of staff worked with Southern Co. to prevent the Commission’s professional staff from pursuing the facts.”

GAP Legal Director Tom Devine explained why the watchdog group filed Heidorn’s complaint. “This is exactly why we have whistleblower laws, so public servants can finish what they start in defense of taxpayers. FERC yanked Mr. Heidorn from the trial staff team because he challenged a political decision to cancel the enforcement of laws intended to prevent deregulation from spawning new Enrons. The stakes here are high for voters in the Southeast. Politically-powerful energy giants can blackmail the public, as Enron did in California, if the government allows deregulation to mean ‘open season’ against smaller, law-abiding companies. One company affected by Southern Co.’s actions was already forced to declare bankruptcy.”

In 2004, Southern made $477,021 in campaign contributions, second among investor-owned electric utilities. So far in 2006, the company has added another $209,737, mostly to incumbents. Southern Co. provides power to much of Georgia, Mississippi, Alabama and Florida.

According to contemporaneous accounts by FERC insiders, chief of staff Dan Larcamp said he was settling the case at the behest of Kelliher, who took over as FERC chairman last July, two months after the case was initiated under former Chairman Pat Wood (See “Order establishing hearing procedures regarding Southern Company Services, Inc et al,” Docket No. EL05-102).

Another memo summarized why the politicians wanted to settle: “(Larcamp) said Southern thinks it has two votes on the Commission in its favor on this issue. He said that if that didn’t work, Southern would likely apply political pressure…. But he said that even if the case goes forward, the Chairman would not be eager to expedite it and it would likely languish through 2007.”

The trial staff included FERC attorneys, an engineer, economists and industry analysts from OMOI and the Office of Administrative Litigation (OAL). Other parties in the case were Southern and Calpine Corp., a Southern competitor that filed as an intervener.

The trial staff planned to present testimony in a hearing before an Administrative Law Judge (ALJ). After reviewing the evidence from trial staff, Southern and Calpine, the judge would issue a recommended ruling to the Commission. The Commission can accept or reject the ALJ’s recommendations in whole or in part.

FERC rules prohibit Trial Staff, Southern or Calpine from having “ex-parte” communications with the judge, the Commissioners or any of their “decisional” staff about the merits of a pending case. But the circumstances and timing of Larcamp’s entry into the case suggest that Southern and FERC management engaged in ex-parte communications, Heidorn said.

Larcamp entered the case in September after Southern learned that Deme Anas, a senior OMOI attorney who wrote FERC’s “Standards of Conduct” rules on affiliate dealings, had joined the trial team.

“Deme is the Commission’s premier expert on Standard of Conduct. When we showed up at Southern’s headquarters for a site visit and Deme was with us, Southern knew it was going to be forced to comply with the rules,” Heidorn said.

The trial staff visited Southern offices in Birmingham and Atlanta on the week of Sept.
19, 2005. On Sept. 21, while the FERC team was still in Birmingham, Larcamp filed a notice with the clerk of the Commission declaring himself “non-decisional” in the case to bypass normal ex-parte rules. “The public deserves to know what communications occurred between Southern Co. and senior FERC management before the chief of staff’s non-decisional declaration,” Heidorn said.

Larcamp later told OAL he was not going to take part in the trial staff’s handling of the case. In fact, this was the first step in his plans to take the case away from the trial staff.

The trial staff had obtained evidence indicating that Southern’s subsidiary, Southern Power, attended meetings at which sensitive information (i.e., plant retirements, present and future load characteristics, expected resource additions and industrial energy sales) was exchanged. This is information that Southern Power would not have been allowed to receive were it properly classified as a “marketing” affiliate under FERC’s regulations.

Larcamp never met with the trial team to discuss the evidence in the case before beginning his settlement talks with Southern, Heidorn said. The team did not even know Larcamp was talking to Southern, until he abruptly informed OAL managers in November while team members were deposing Southern officials in Birmingham and Atlanta. Staff was ordered to cancel the remaining depositions and return to Washington.

Larcamp refused to provide a copy of the resulting settlement “term sheet” to the trial staff. It wasn’t until Jan. 25 that staff finally got a copy – from Southern’s attorney.

When the trial staff attempted to insert language into the settlement document that would have benefited ratepayers, it was rejected by Larcamp. When Heidorn followed through with more disclosures, he and several of his colleagues were removed from the trial staff. The resulting settlement, Heidorn said, “is a complete capitulation to Southern Co. The ratepayers get nothing out of it.”

Notably, the settlement allows Southern to continue sharing information between its transmission units and its distributor Southern Power, in blatant violation of the Commission’s rules. It also ignores evidence that Southern’s regulated ratepayers are subsidizing its marketing unit, to the detriment of competition in the Southeast.

Supporting documents and additional information on this case is available through Rep. Waxman’s WebsiteFilings in the case (Docket No. EL05-102) can be reviewed through FERC’s e-library system.