The trail of evidence from most political crime scenes eventually traces back to Harry Reid‘s Capitol chambers these days, as the Majority Leader and the White House plot to keep the Senate. But an energy nomination fight seems to be producing more innocent casualties than usual.

Mr. Reid and President Obama have weaponized the formerly obscure Federal Energy Regulatory Commission in the name of their anticarbon agenda, and their nominee to lead FERC is prosecutor Norman Bay. Mr. Bay cleared the Senate Energy Committee last week on a chaotic 13-9 vote that departed from regular order, and his nomination may reach the floor this week.

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Mr. Reid is moving with unusual dispatch because many Democrats are scrutinizing Mr. Bay’s record of prosecutorial abuse as the head of FERC’s enforcement office. Mr. Bay’s skeletons long ago filled up the closet, and Senators should meet one of them: Keith Van Scotter.

For 10 years Mr. Van Scotter has run a paper mill in the northern Maine town of Lincoln, population 3,000. Mr. Bay accuses Lincoln Paper and Tissue of having manipulated in 2007-08 a federal program meant to promote energy conservation. If a court doesn’t dismiss the case later this month or the company loses at trial, Lincoln Paper may be liable for a $5 million civil penalty and $379,016.03 in disgorgement, plus interest.

 

U.S. Senate Majority Leader Harry Reid Reuters

That’s about twice its annual capital spending and could force the mill out of business. Yet Lincoln Paper broke no known law. Meanwhile, last month a federal appeals court confirmed that the government had no jurisdiction over energy savings programs of this type and the attempt to regulate them was an abuse of power. “The whole process has been through-the-looking-glass bizarre,” says Mr. Van Scotter.

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. Such energy efficiency incentives are a key feature of the anticarbon agenda at the Environmental Protection Agency and FERC.

The problem is that no one knows how to value the cost of not buying something a customer might or might not otherwise buy over time. Establishing the “right” amount of electricity off which to measure savings is an inherent voodoo science.

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.

Given the age and unreliability of the unit, Lincoln Paper made a good-faith effort to try to reflect “normal” operations, whatever that may be. In fact, Lincoln Paper reduced its consumption from the grid, i.e., conserved energy, by more than what was required by the program Lincoln is accused of manipulating.

But more to the point, 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. 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.”

That’s Orwellian enough, but the D.C. Circuit Court of Appeals also tossed the demand-response programs last month as “arbitrary and capricious.” FERC is still trying to deny Mr. Van Scotter his day in court by asking a district judge to decline to hear the case de novo and simply rubber-stamp Mr. Bay’s punishment. Yet 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.

So Mr. Bay may ruin a small-business owner unsophisticated in the ways of Washington for running a machine at somewhat less than maximum capacity in a now defunct program that was extralegal because FERC lacked jurisdiction. In the process the feds are devastating a rural community. One of the largest employers in the region, Lincoln Paper was recently forced to lay off half of its 400 workers—with the overhang of litigation and the risk of fines and penalties “a contributing factor,” notes Mr. Van Scotter.

The American paper industry may still be carbon-intensive, but it has survived global competition through innovation and specialization. Lincoln Paper manufactures a product called deep-dye tissue and it is merely one out of four Maine paper concerns or industry consultants Mr. Bay has pursued at FERC. One went bankrupt.

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This record suggests Mr. Bay would be a FERC chairman who will act as a law unto himself, which seems to be what Messrs. Reid and Obama want. FERC is already capably led by acting Chairman Cheryl LaFleur, a Democrat and Obama nominee whom the Energy Committee supported for a new term last week on a 21-1 vote. Yet Mr. Reid has openly said he wants to demote her because she sometimes disagreed with his previous man at FERC, former Chairman Jon Wellinghoff. That is, she tends to obey statutes rather than rewrite them.

The White House also boxed out Ms. LaFleur with an unusual personnel order limiting the powers of the “acting” FERC Chairman, which would otherwise broadly resemble those of a CEO. Senators who vote to confirm Mr. Bay will be endorsing the FERC injustice against Mr. Van Scotter—and all the others likely to come.