Union Tribune

August 28, 2003

FERC takes knocks again from GAO in new report
Agency made headway, but need for more cited


WASHINGTON Two years after California's power crisis, federal energy regulators are "making headway" toward better policing of electricity and natural gas markets but still have a long way to go, congressional investigators said yesterday.

The Federal Energy Regulatory Commission, or FERC, has yet to clearly define unfair market practices or "just and reasonable prices" despite the intense debate over those issues during the 2000-01 power crisis, according to a report by the General Accounting Office.

FERC's new Office of Market Oversight and Investigations "has made strides in putting an energy market oversight and enforcement capability in place, but these efforts are largely in their formative stage, and work remains to ensure that they will be comprehensive and systematic," the report concluded.

While it was less critical than a similar study by the General Accounting Office, or GAO, last year, one key lawmaker blistered FERC for not making more headway.

"After a decade of leading the charge to deregulate the electricity and natural gas markets, after the experience of the devastating electricity crisis in California . . . and after the Enron debacle . . . FERC is still at the starting gate when it comes to being able to prevent these problems," said Sen. Joseph Lieberman, D-Conn., who requested the study. "Another year has gone by and FERC is still not capable of effectively protecting consumers."

Lieberman is the top Democrat on the Senate Governmental Affairs Committee and a candidate for the party's presidential nomination.

While generally agreeing with the GAO's recommendations, FERC Chairman Pat Wood defended the agency's "considerable progress."

"We have opened more investigations and audits than before. And we have had a number of important successes," Wood said in a written response to the report.

He cited cases in which FERC has collected more than $30 million in fines and refunds from companies for anti-competitive practices and other violations, as well as its discovery of manipulation in natural gas price reporting.

The California crisis which featured soaring wholesale electricity and natural gas prices, widespread shortages and sporadic blackouts put a spotlight on FERC and its policing of the wholesale power market. Critics accused FERC of abdicating its responsibility under federal law to ensure "just and reasonable" prices.

Wood became FERC chairman in September 2001, vowing to be a tougher market cop. He inaugurated the Office of Market Oversight and Investigations in August 2002.

The agency launched a yearlong investigation after the collapse of energy giant Enron Corp. that revealed widespread manipulation of the California market. But Gov. Gray Davis and other officials complain that FERC has been slow to act on refunds and other remedies for the state.

The recent blackouts in the Northeast and Midwest have brought additional scrutiny to FERC's proposal to create a more seamless power grid to facilitate competition in the wholesale market.

The GAO report said the market oversight office "has not defined undue exercise of market power, although identifying and addressing (that) is one of the major aspects of market oversight, especially when markets are in transition."

While FERC "has begun to provide some guidance on what just and reasonable (price) means in the context of competitive markets . . . the statements do not define what a structurally competitive market is," the GAO added.

Both issues are addressed in FERC's new market design proposal. But the GAO noted that the overall proposal has met stiff resistance in the Southeast and Pacific Northwest and might be delayed by Congress.

Defining market power and just and reasonable rates "is inherently very difficult," Wood said, pointing to differences between power grid managers in California and other states over how FERC should address the issue.

The GAO also said the market oversight office:

Has not formalized its processes and procedures or explicitly outlined how it will integrate its work with other units of FERC and outside agencies, like the Justice Department.

Must decide whether it will monitor the power market broadly by assessing its overall performance or in more detail, such as scrutinizing particular transactions.

Wood said he agreed with many of the GAO's findings, but he also said it was important to maintain flexibility in some areas.

"It is now time to formalize and document many of the processes, but not at the cost of stifling creativity and experimentation so important for a new organizational unit," he wrote.