Energy Markets: additional Actions Would Help Ensure That FERC's
Oversight and Enforcement Capability Is Comprehensive and
Systematic (15-AUG-03, GAO-03-845).
In June 2002, GAO reported that the Federal Energy Regulatory
Commission (FERC) had not yet adequately revised its regulatory
and oversight approach for the natural gas and electricity
industries' transition from regulated monopolies to competitive
markets. GAO also concluded that FERC faced significant human
capital challenges to transform its workforce to meet such
changes. In responding to the report, FERC said that the new
Office of Market Oversight and Investigations (OMOI) it was
creating and human capital improvements under way would address
these concerns. GAO was asked to report on FERC's progress in (1)
establishing an oversight and enforcement capability for
competitive energy markets and (2) improving agency-wide human
capital management.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-845
ACCNO: A08057
TITLE: Energy Markets: additional Actions Would Help Ensure That
FERC's Oversight and Enforcement Capability Is Comprehensive and
Systematic
DATE: 08/15/2003
SUBJECT: Competition
Electric energy
Electric utilities
Natural gas
Prices and pricing
Regulatory agencies
Utility rates
Human resources utilization
Federal agency reorganization
Agency missions
Performance measures
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GAO-03-845
A
Contents Letter 1
Results in Brief 3 Background 4 FERC Has Made Progress, but Work Remains
to Ensure That Its
Oversight and Enforcement Capability Is Comprehensive and Systematic 9
FERC Is Taking Important Steps to Improve Its Human Capital
Management 34 Conclusions 41 Recommendations for Executive Action 42
Agency Comments 43
Appendixes
Appendix I: Scope and Methodology 45
Appendix II: GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations 47
Appendix III: FERC*s Approach to Addressing Market Manipulation Schemes
and Other Potentially Noncompetitive Actions 60
Appendix IV: Comments from the Federal Energy Regulatory Commission 67
Appendix V: GAO Contacts and Staff Acknowledgments 72 GAO Contacts 72
Staff Acknowledgments 72
Tables Table 1: OMOI*s Statements of Its Vision, Mission, and Functions 10
Table 2: OMOI*s Principal Oversight Reports or Products 19 Table 3:
Percentage of OMOI Staff Indicating That Additional
Training Would Help Them Better Oversee Energy Markets and Enforce Market
Rules 33 Table 4: FERC*s Agencywide Human Resource Goals and
Objectives 36 Table 5: FERC*s Approach to Addressing Market Manipulation
Schemes and Other Potentially Noncompetitive Actions 60 Figures Figure 1:
OMOI*s Organizational Chart and Position in FERC*s
Organizational Structure 8 Figure 2: OMOI*s Staffing Levels 29
Abbreviations
ERCOT Electric Reliability Council of Texas FERC Federal Energy Regulatory
Commission ISO independent system operator OMOI Office of Market Oversight
and Investigations PJM Pennsylvania, New Jersey, Maryland Interconnect RTO
regional transmission organization Transco Transcontinental Gas Pipe Line
Corporation
This is a work of the U. S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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copyright holder may be necessary if you wish to reproduce this material
separately.
Letter
August 15, 2003 The Honorable Joseph I. Lieberman Ranking Minority Member
Committee on Governmental Affairs United States Senate Dear Senator
Lieberman: The U. S. electricity and natural gas industries* transition to
competitive markets has not been smooth. Volatile prices, energy
shortages, financial difficulties such as the bankruptcy of the Enron
Corporation (the nation*s largest energy trading company before its
financial problems), and
accusations of price manipulation have raised questions about the
transition to competitive markets and the federal government*s ability to
regulate and oversee these new markets to protect market participants and
consumers. The Federal Energy Regulatory Commission (FERC)* the federal
agency primarily responsible for regulating and overseeing these
industries* will play an important role in developing competitive
wholesale markets and in protecting consumers against market abuses. In
June 2002, we reported that FERC had not yet adequately revised its
regulatory and oversight approach to respond to the transition to
competitive energy markets. 1 We also pointed out that FERC faced
significant human capital and organizational structure challenges as it
transformed its workforce to effectively regulate and oversee these
evolving markets. For example, we noted that the agency did not have
enough staff with knowledge of competitive energy markets, and that its
market oversight function was too dispersed across the agency. In
addition, we noted that FERC was attempting to regulate and oversee the
markets with outdated legal authorities that were mostly derived from laws
enacted when the industries were composed of highly regulated monopolies.
We made a number of recommendations to address these issues and improve
the agency*s capability of overseeing competitive energy markets. FERC
agreed with our conclusions and said that the report*s recommendations
were consistent with the agency*s plans for its new Office of Market
1 U. S. General Accounting Office, Energy Markets: Concerted Actions
Needed by FERC to Confront Challenges That Impede Effective Oversight,
GAO- 02- 656 (Washington, D. C.: June 14, 2002).
Oversight and Investigations (OMOI) and human capital management
improvements.
In response to concerns about its capability to oversee the evolving
energy markets, FERC announced, in January 2002, that it was creating
OMOI. In making the announcement, FERC stated that the new office would
report directly to the Chairman of FERC, and its functions would include
understanding energy markets and risk management issues, measuring market
performance, investigating compliance violations, and analyzing market
data. In April 2002, FERC hired the office*s director, who began to plan
its operations and hire its staff. In August 2002, the FERC Chairman
declared that OMOI, with about half of its planned personnel in place, was
a formal, functioning office within the agency. This change in FERC*s
approach to monitoring markets* requiring a reassessment and
reprioritizing of how it does business* will not be easy. Experience in
public and private organizations has shown that for an organization to
successfully *transform* itself, it must often change its culture to be
more
results oriented, collaborative, and customer focused. 2 In light of
FERC*s stated commitment to and your interest in market oversight, you
asked us to assess FERC*s progress in (1) establishing an oversight and
enforcement capability for competitive energy markets and (2) improving
agencywide human capital management. As agreed with your
office, we focused our review of FERC*s market oversight and enforcement
efforts on OMOI*s formation and operations. To respond to this request, we
reviewed appropriate plans, studies, reports, and other documents, such as
budget justifications, relating to OMOI*s activities and FERC*s human
capital management initiatives. We also interviewed OMOI*s managers and
FERC officials responsible for agencywide human capital management
programs. In addition, we surveyed OMOI*s employees to obtain their views
on the office*s effectiveness, morale, and work environment. About 87
percent of the employees responded to our survey. 3 Furthermore, we
contacted the heads of four units operating at the time of our review with
responsibility for monitoring regional wholesale electricity markets under
FERC*s guidance to obtain their views on OMOI*s progress in establishing
2 See U. S. General Accounting Office, Highlights of a GAO Forum: Mergers
and Transformation: Lessons Learned for a Department of Homeland Security
and Other Federal Agencies, GAO- 03- 293SP (Washington, D. C.: November
2002).
3 OMOI had 92 employees on March 28, 2003, when we made our survey
available. Eighty of these employees responded to the survey.
an oversight and enforcement capability for energy markets. We performed
our review from October 2002 through June 2003 in accordance with
generally accepted government auditing standards. (See app. I for a more
detailed discussion of our scope and methodology and app. II for a copy of
the OMOI employee survey with the quantitative results.)
Results in Brief OMOI 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. In its first year, OMOI has focused
primarily on outlining its vision, mission, and primary functions;
developing its basic work processes; integrating its use of an array of
tools to oversee the markets; and hiring new staff with market experience
or expertise. OMOI is continuing to hire staff, assess its information
needs, and develop its working relationships with others, such as the
electricity industry*s market monitoring units, that have related or
overlapping responsibilities. Still, the office has work to do to clearly
define its role and
how it will achieve its mission. For example, OMOI has not yet decided on
the level of detail at which it will review electricity markets,
particularly the extent that it will rely on the market monitoring units
to review daily market transactions for market manipulation and other
anticompetitive behavior. This decision has substantial implications for
the office*s data, technology, resource, and staff skill mix needs.
Moreover, OMOI has not yet formalized its processes and procedures. At
this point, its processes are largely informal and ad hoc, and it has few
written procedures to ensure that its efforts are coordinated, systematic,
and well understood by its staff and stakeholders. OMOI has had some early
accomplishments, for example, a $20 million civil penalty against a
company for anticompetitive behavior. However, it is difficult to judge
how effective the office will be until its role and major processes are
clearly set out. We are making recommendations to FERC aimed at more
clearly defining OMOI*s role and instituting formal processes and written
procedures.
FERC is making progress toward addressing its considerable human capital
management challenges. FERC*s success in human capital management is
important because the extent to which the agency can effectively carry out
its mission in a changing environment, such as the move to competitive
energy markets, depends on its ability to adjust its
staff skills and abilities in a difficult context. For example, over half
of FERC*s workforce will be eligible to retire by 2007, with a loss of
considerable institutional knowledge. In response, FERC is taking steps to
help transform its workforce. For example, it has expanded its use of
certain personnel flexibilities, such as a student loan repayment program
and recruiting and retention bonuses, and is considering additional
flexibilities that could improve its ability to recruit and retain needed
expertise. More importantly, since we issued our June 2002 report, FERC
has developed a human capital plan that is a promising first step toward
strategically managing the agency's workforce. However, the plan does not
contain some elements key to its successful implementation, including (1)
details on specific activities and resources needed to implement the
agency*s human capital initiatives 4 and (2) results- oriented measures
that can be used to track the agency's progress in implementing its
initiatives and evaluate their effectiveness. The agency also has not
established time frames for many of its initiatives. We are recommending
that FERC revise its plan to include these elements. We provided FERC with
a draft of our report for review and comment. In its written comments,
FERC generally agreed with our conclusions and
recommendations. Background The natural gas and electricity industries
perform three primary functions in delivering energy to consumers: (1)
producing the basic energy commodity, (2) transporting the commodity
through pipelines or over power lines, and (3) distributing the commodity
to the final consumer. A range of federal, state, and local entities
regulate different aspects of these functions. While generation siting,
intrastate transportation, and retail sales are generally regulated by
state or local entities, wholesale sales and interstate transportation
generally fall under federal regulation, primarily by FERC. 5 Under
federal law, FERC is responsible for ensuring that the terms, conditions,
and rates for the interstate transportation of natural gas and
electricity, certain sales for resale of natural gas, and wholesale sales
of electricity in interstate commerce are *just and reasonable.* Other
federal agencies also play an important role in regulating energy markets.
For
4 Human capital initiatives are the programs, policies, and processes that
agencies use to build and manage their workforces. 5 FERC was established
in 1977 as a successor to the Federal Power Commission and is an
independent regulatory agency. It also regulates the interstate
transmission of oil by pipeline; licenses and inspects private, municipal,
and state hydroelectric projects; and approves site choices as well as
decisions to abandon interstate pipelines and related facilities no longer
in use.
example, the Commodity Futures Trading Commission regulates commodity
futures and options markets in the United States and protects market
participants against manipulation, abusive trade practices, and fraud.
For nearly a century, the natural gas and electricity industries were
regulated as natural monopolies and dominated by a relatively few, large
public utilities that produced, transported, and sold natural gas and
electricity to the ultimate users. 6 This monopoly structure controlled
the entry, prices, and profits of industry participants. Under this
regulatory framework, FERC established individual utilities* terms,
conditions, and rates for transportation and wholesale sale of natural gas
and electricity in interstate commerce. To ensure that the rates these
utilities charged were just and reasonable, FERC based the rates on the
utilities* cost to provide the service plus a fair return on investment,
which is generally referred to as cost- of- service regulation.
With technological, economic, and policy developments over the past twoto-
three decades, these industries have undergone a transition* commonly
known as *restructuring** from this highly regulated environment to one
that places greater reliance on competition to determine entry, prices,
and profits. Natural gas was first to make the shift, facilitated by
passage of the Natural Gas Policy Act of 1978 and subsequent FERC orders
in 1985 and 1992 that opened pipeline transportation to all on equal terms
and required pipeline companies to completely separate or *unbundle* their
transportation, storage, and sales services. As a result, natural gas
became a commodity bought and sold separately from its transportation.
The electricity industry has experienced similar restructuring, starting
about the same time but evolving more slowly than the natural gas
industry. The Public Utility Regulatory Policies Act in 1978 introduced
competition by requiring electric utilities to buy electricity produced by
nonutility, electric power generators. Then in 1992, the Congress passed
the Energy Policy Act, authorizing FERC to require utilities, on a case-
by- case basis, to allow competitors to use their transmission lines for
wholesale sales of electricity. In 1996, FERC ordered that electric
transmission systems be opened to all qualified wholesale buyers and
sellers of electric energy.
6 A natural monopoly is a company that becomes the only supplier of a
product or service because the nature of that product or service makes a
single supplier more efficient than competing ones.
FERC also required utilities to *functionally unbundle* their generation
and transmission businesses to prevent discriminatory practices, such as
not allowing competitors equal access to transmission lines. One option
FERC provided the utilities to help them achieve unbundling was to
transfer management of their transmission lines to an independent system
operator (ISO) that would manage the system without any special interests
and for
all users* benefit. Since 1996, six ISOs have formed and are operating,
each with its own set of operating rules. 7 Of these, four ISOs*
California; New England; New York; Pennsylvania, New Jersey, and Maryland
Interconnect (PJM)* operate interstate wholesale electricity markets in
which electricity suppliers and buyers submit bids to sell and buy power.
In 1999, FERC issued an order encouraging all privately owned electric
utilities to voluntarily place their transmission facilities under the
control of a broader market entity called a regional transmission
organization
(RTO). As a result, ISOs created under a previous FERC order would be
supplanted by larger RTOs, which would cover the entire nation. The
rationale behind FERC*s approach to forming RTOs was that the nation*s
transmission systems should be brought under regional control in order to
eliminate the remaining discriminatory practices in use, better meet the
increasing demands placed on the transmission system, improve management
of system congestion and reliability, and achieve fully competitive
wholesale power markets. FERC is in the process of trying to establish
these organizations to cover the continental United States and has
currently approved two RTOs* Midwest ISO and PJM. 8 In approving the
formation and operation of ISOs and RTOs, FERC requires
these organizations to, among other things, establish market monitoring
units. These units are to provide for objective monitoring of the markets
operated by the ISO or RTO to identify market design flaws, market power
7 These ISOs are the California ISO, ISO New England, Midwest ISO, PJM,
New York ISO, and the Electricity Reliability Council of Texas (ERCOT)
ISO. ERCOT established an ISO in 1996 to satisfy the requirements of the
Public Utility Commission of Texas for deregulating the wholesale
electricity market in that state. FERC has limited jurisdiction over the
ERCOT region because its market is essentially intrastate. FERC initially
approved the Midwest ISO and PJM as ISOs and has since approved them to
operate as regional transmission organizations.
8 As of December 2002, the Midwest ISO operated in all or parts of
Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Montana,
North Dakota, Ohio, South Dakota, Virginia, Wisconsin, and Manitoba
(Canada). PJM operates in Delaware, District of Columbia, New Jersey,
Maryland, Ohio, Pennsylvania, Virginia, and West Virginia.
abuses, and opportunities for efficiency improvement. The market
monitoring units of four ISOs or RTOs* California, New England, New York,
and PJM* have been operating for several years under FERC*s approval. FERC
has also approved a market monitoring unit for the
Midwest ISO, but Midwest does not currently operate a centralized power
market (it plans to do so by December 2003). FERC approves the units*
market monitoring plans and requires the units to periodically report on
their monitoring activities.
In July 2002, FERC issued a notice of proposed rulemaking to provide a
standard market design for all electric transmission providers. FERC*s
fundamental goal in this initiative is to create *seamless* wholesale
electricity markets, nationwide, that allow sellers to transact easily
across transmission boundaries and allow customers to receive the benefits
of a lower cost and more reliable electricity supply. Accordingly, FERC*s
standard market design proposal contains a wide range of rules to
standardize the structure and operation of wholesale electricity markets
and transmission services. Among other things, it (1) describes the rules
for how a portion of the nation*s electricity will be exchanged in
organized markets, (2) defines a new transmission service, and (3)
establishes new market power mitigation and monitoring requirements. The
proposal has been highly controversial. FERC estimates that the proposed
standard market design rule has generated about 1, 000 sets of formal
comments reflecting concerns and reservations about the scope and details
of the proposal. In April 2003, FERC issued a white paper explaining how
it intends to change its proposal in response to the comments and concerns
that had been raised. When the white paper was issued, FERC expected the
final rule to be promulgated later in the year. However, in commenting on
our draft report, FERC said that it is planning to hold technical
conferences in different regions of the country this fall and has
postponed the issuance of any final rule.
With the opening of pipelines and transmission lines, other energy
producers and marketers began to compete with the traditional utilities to
the point that a complex structure of formal and informal primary and
secondary energy markets has evolved. As competition has increased, FERC
has allowed more and more producers and marketers to sell their energy at
prices determined in the marketplace. This evolution to competitive energy
markets is requiring FERC to fundamentally change how it does business.
With the shift to market- based prices for natural gas and electricity,
FERC has concluded that its approach to ensuring just and reasonable
prices has to change: from one of reviewing individual
companies* rate requests and supporting cost data to one of proactively
monitoring energy markets to ensure that they are working well to produce
competitive prices. FERC established OMOI to coordinate and bring about
this shift in the agency*s energy market oversight efforts. Like the
agency*s other major offices, OMOI reports directly to the Chairman of
FERC (see
fig. 1).
Figure 1: OMOI*s Organizational Chart and Position in FERC*s
Organizational Structure
OMOI has organized its staff into eight divisions, which are grouped into
three main units: (1) Market Oversight and Assessment, (2) Investigations
and Enforcement, and (3) Management and Communication (see shaded area of
fig. 1). The Market Oversight and Assessment unit performs a variety of
tasks related to monitoring energy markets, monitoring financial markets,
researching new data sources, publishing reports on market surveillance,
and assisting with ongoing investigations. The Investigations and
Enforcement unit performs a variety of tasks related to investigating
market abuse, conducting audits of entities under FERC*s jurisdiction, and
manning the enforcement hotline. Finally, the Division of Management and
Communication and the OMOI director*s office provide administrative and
management support. OMOI*s budget request for fiscal year 2003 is about
$13.5 million and provides funding for 110 staff years, which includes
$500,000 in contracting services. For fiscal year 2004, FERC has requested
a budget for OMOI of about $14.3 million and 110 staff years, which
includes $1 million in
contracting services. FERC Has Made
With the formation of OMOI, FERC is making headway in establishing an
Progress, but Work
oversight and enforcement capability for competitive energy markets. OMOI
has taken a significant step forward in setting out its vision, mission,
Remains to Ensure and primary functions as a framework for comprehensively
overseeing the That Its Oversight and
markets; developing its basic work processes; and beginning to use an
Enforcement
array of tools to oversee the markets. The office also has almost
completed its staffing to authorized levels. Nonetheless, these efforts
are largely in
Capability Is their formative stage and OMOI continues to hire additional
staff, improve
Comprehensive and its oversight tools, and adjust its processes and
procedures. Additional
actions to formalize the office*s work processes and procedures and to
Systematic
more clearly define its role would help ensure that its efforts to oversee
energy markets are systematic and comprehensive. In addition, OMOI*s role
largely determines its resource, information, technology, and staff skill
mix needs.
OMOI Is Planning a OMOI*s statements of its vision, mission, and functions
set out the
Comprehensive Approach framework for a comprehensive market oversight and
enforcement
to Overseeing Energy approach. According to the statements, OMOI plans to
analyze and assess
Markets, but Important both market performance and market rules in the
broader context of the
markets* overall efficiency and effectiveness and market behavior and
Steps Have Not Been Taken
compliance with rules at the individual market participant level. (See
table to Clearly Define Its Role
1.)
Tabl e 1: OMOI*s Statements of Its Vision, Mission, and Functions
Vision Vigilant oversight and vigorous enforcement of proper market rules
ensure dependable, affordable, competitive energy markets to benefit end
use customers and other participants.
Mission Guide the evolution and operation of energy markets to ensure
effective regulation and protect customers through understanding markets
and their regulation, timely identification and remediation of market
problems, and assured compliance with Commission rules and regulations.
Functions Assess market performance through * analyzing market structures
and proposing policies for improvement, acquiring and analyzing public
and proprietary information data bases, conducting market research and
developing market models and simulation, analyzing effects of current
and proposed regulations, market rules, and policy options, and advising
the Commission on the market effects of current and proposed policies.
Ensure conformance with Commission rules through verifying compliance
with Commission rules and reporting requirements, investigating actions
of market participants, facilitating resolution of disputes among market
participants and regulated entities, and
enforcing Commission rules that govern the markets. Produce internal and
extenal reports describing the state of energy markets, reviewing and
analyzing market occurrences and trends, providing early warning of
vulnerable market conditions, and making recommendations on the
functioning and governance of energy markets.
Source: FERC.
These statements were a starting point for planning and organizing OMOI*s
activities and serve to provide a concise, if general, outline of the
office*s planned oversight and enforcement approach. OMOI decided to begin
operating under this broad framework and to work out more details as it
became more organized and gained experience with the markets and available
data and oversight tools. At this point, OMOI has not provided
additional details in writing on how it will carry out these functions to
achieve its mission. However as OMOI moves forward, several issues have
not been addressed that are important to the office*s credibility and to
ensuring that it comprehensively carries out its planned approach.
Recognizing that responsibility for making energy markets work well is
shared with the industries (including the ISOs and RTOs and their market
monitoring units), individual market participants, the states, other FERC
offices, and other federal agencies, it is important that OMOI clearly
define its role in achieving comprehensive oversight of the markets. This
role and how OMOI will carry it out largely determines its resource,
information, technology, and staff skill mix needs.
First, OMOI has not directly and clearly connected its vision, mission,
and functions to FERC*s statutory responsibilities for ensuring that
wholesale natural gas and electricity prices are just and reasonable.
Second, OMOI has not defined undue exercise of market power, although
identifying and addressing the exercise of market power is one of the
major aspects of market oversight, especially when the markets are in
transition. Third, the statements do not explicitly recognize that an
important function of the
office will be to integrate its work with that of the industries* market
monitoring units, other agencies such as the Commodity Futures Trading
Commission, and other parts of FERC, such as the Office of Markets,
Tariffs, and Rates. Fourth, OMOI is still deciding at what level of detail
it will review market transactions as it performs its oversight. Fifth,
the office has not developed outcome or results- oriented performance
measures that express what the office will be working to achieve and that
can be used to
assess its progress in carrying out its goals and objectives. FERC Has Not
Clearly Defined FERC is responsible for ensuring that certain sales for
resale of natural gas Just and Reasonable Prices in a
and wholesale sales of electricity in interstate commerce are just and
Competitive Marketplace
reasonable. With the move to competitive markets, these prices are
generally determined in the marketplace rather than set by FERC. FERC has
recognized that this change means that it needs a new approach to ensuring
that prices are just and reasonable and has begun to provide some guidance
on what just and reasonable means in the context of competitive markets,
most recently in its proposed rule on standardizing electricity markets.
Statements in the proposed rule indicate that just and reasonable prices
are those produced by structurally competitive markets. However, the
statements do not define what a structurally competitive market is. In
addition, these statements concern the operations of market monitoring
units rather than FERC*s own role and responsibilities. Furthermore, the
proposed rule has been highly controversial and may be substantially
delayed and/ or modified. The heads of the market monitoring units told us
they recognize the
difficulty of defining just and reasonable prices. They also said that
they believe FERC had made progress in doing so. However, they generally
believed that FERC had not yet gone far enough. For example, the head of
the California ISO*s monitoring unit told us that for FERC to define what
it will consider just and reasonable prices in a competitive marketplace
is critical to achieving the Federal Power Act*s goal. She stated that a
clear standard for just and reasonable is also critical to performing
monitoring and oversight functions, and, without such a standard, existing
ISOs or
RTOs cannot move forward and other geographical areas will have no
confidence in ISOs or RTOs and will not wish to develop them. On the other
hand, the heads of the ISO New England, PJM, and New York ISO monitoring
units stated that FERC should not develop overly detailed or prescriptive
definitions that would reduce needed flexibility. The heads of the PJM and
ISO New England units said that FERC should instead develop a strong
policy statement or paper defining the term at a general or theoretical
level and leave it to the market monitoring units to
operationalize or put it into practice. Similarly, the head of the New
York ISO unit cautioned that, with overly prescriptive criteria, market
participants can structure behavior to avoid specific rules, conditions,
or definitions, while engaging in behavior that would not be deemed
acceptable. He added that, in orders that it has issued in individual
cases, FERC has established precedent that prices can be considered just
and reasonable when they are the product of workably competitive markets,
and determining whether a market is competitive requires some room for
considering individual circumstances.
FERC officials, including OMOI managers, told us that they recognize the
importance of defining just and reasonable prices in a competitive energy
marketplace but are finding it difficult to do. For example, the Senior
Energy Policy Advisor to the Chairman of FERC told us that FERC has been
trying to define the term for several years. The Director of OMOI said
that OMOI has the operational responsibility to give guidance on just and
reasonable rates, but agreed that an important consideration for the
agency is the level of detail at which it needs to be defined. FERC Has
Not Clearly Defined In its proposed standard market design rulemaking,
FERC provides some Market Power
details on what it considers market power. In the proposed rule, FERC
states that market power is the ability to raise price above the
competitive level. The agency further states that identifying market power
with precision is difficult, both because it is difficult to identify the
competitive price (which should recover both fixed and variable costs over
the long run) and because it can be difficult to isolate the impact of one
entity on the competitive market. FERC adds that, in the proposed rule, it
is incorporating the concept of when to intervene in the markets, rather
than defining what constitutes market power. The market monitoring units
would review market data, such as bidding patterns, to identify and
intervene in market situations in which market power could be occurring.
In its April 2003 white paper explaining the changes it planned to make in
the final standard market design rule, FERC said that it would require the
ISOs and RTOs to have clear and enforceable rules to define and police
market manipulation and gaming strategies by market participants trying to
unduly exercise their market power. The white paper also said that the
ISOs and RTOs would be required to have a clear set of rules governing
market participant conduct with the consequences for violations clearly
spelled out. The white paper then provided areas of anticompetitive
behaviors* such as physical and economic withholding of supplies* that, at
a minimum, should be included. Again, the heads of the market monitoring
units did not believe that FERC
had yet gone far enough in defining market power. The head of the
California ISO monitoring unit said that FERC needs to define what it will
consider market power, and that the definition must be agreed on in order
for FERC to perform its market development and oversight obligations. She
added that inappropriate or anticompetitive behavior need not be defined
through an exhaustive list of specific market behaviors but rather through
a general set of characteristics. According to the heads of the market
monitoring units of ISO New England and PJM RTO, FERC should develop a
policy statement or paper on market power rather than a highly detailed
definition. In contrast, the head of the NY ISO*s market monitoring unit
stated that FERC needs to define what it will consider market power
only in the context of specific market monitoring proposals. He told us
that his market monitoring unit has been very successful in preventing
market power by using very specific tests for market power abuse, enabling
the unit to take appropriate action with minimal delay. He added that FERC
should not adopt generic definitions that would restrict the ability of
the New York ISO to implement the tests and market mitigation measures
that have been approved for its use.
The Director of OMOI agreed that a clarifying definition of market power
to communicate the parameters of acceptable market behavior is needed. He
added that developing such a definition is complex, and his office has to
be careful in deciding what constitutes market power abuse because there
is a necessary element of judgment involved in determining what is and
what is not abuse in individual cases that should not be eliminated with a
definition.
OMOI Has Not Explicitly Set Out An important OMOI function is to integrate
its work with that of others
How It Will Integrate Its Work inside and outside of FERC who also have a
role in market oversight or
with That of Others who carry out related responsibilities. For example,
FERC*s Office of
Markets, Tariffs, and Rates has major responsibilities relating to
building competitive energy markets and authorizing companies to
participate in those markets. The office is currently leading FERC*s
effort to establish a standard market design for wholesale electricity
markets. Thus, it is important for the offices to work together so that
OMOI can (1) better understand the markets that are being created and that
OMOI is to oversee and (2) provide effective input from an oversight
standpoint into
structuring the markets. In addition, OMOI officials told us that they
share oversight responsibility with other federal agencies* particularly
the Commodity Futures Trading Commission* in areas where the financial and
futures markets overlap or affect the physical natural gas and electricity
markets. For example, OMOI officials stated that OMOI, along with the
Commodity Futures Trading Commission and the Department of Justice, would
be responsible for detecting the false reporting of natural gas prices or
volumes to index publishers (see app. III). Moreover, as we discuss later
in this report, OMOI is relying heavily on the market monitoring units to
oversee electricity markets. OMOI has various initiatives under way to
build its working relationship
with these parties. However, because of the market monitoring units*
substantial role in its market oversight approach, OMOI has devoted
considerable attention to improving its working relationship with these
units, and its efforts with respect to other FERC offices and other
federal agencies are in the early stages. For example, in responding to
our survey, about 50 percent of OMOI managers and staff expressed
dissatisfaction with communication with other FERC offices. (About 26
percent were satisfied, about 14 percent were as equally satisfied as
dissatisfied, and 10 percent had no basis to judge.) In providing more
detailed responses, several OMOI staff indicated that they thought
communication and cooperation between OMOI and FERC*s Office of Markets,
Tariffs, and Rates was a problem. In addition, the head of a market
monitoring unit told
us that he has had to inform OMOI staff about the issuance of orders
initiated in other FERC offices.
The Director of OMOI told us that he understands these concerns about the
office*s working relationship with other FERC offices. According to the
Director, OMOI wanted to first get its *act together* before reaching out
to the other offices. He added that OMOI has been working hard the past
couple of months with FERC*s Office of Markets, Tariffs, and Rates and
Office of the General Counsel to establish more formal connections.
OMOI officials told us that they plan to coordinate their work with other
federal agencies to better incorporate their knowledge and views about
related market activities. For example, the Director of OMOI*s Division of
Financial Market Assessment told us that he would like to develop a formal
information- sharing arrangement with the Commodity Futures Trading
Commission so that OMOI has better access to financial information. He
said that while FERC has limited jurisdiction over financial markets, OMOI
wants to monitor these markets because the financial marketplace affects
the health of wholesale electricity and natural gas markets. According to
OMOI officials, they have regularly scheduled meetings with the Federal
Trade Commission and the Department of Justice to discuss overlapping
issues, specifically focusing on antitrust and market manipulation
practices.
As we previously reported, events such as the collapse of the Enron
Corporation bring to light the importance of clarifying jurisdiction
across the federal government as restructuring progresses. As we pointed
out,
effective coordination between FERC and the Commodity Futures Trading
Commission is particularly important because of jurisdictional
uncertainties regarding the oversight of on- line trading activities, such
as those previously operated by Enron. In the same way, we also noted that
in a Senate Governmental Affairs report and memorandum, 9 and other
congressional hearings, both FERC and the Security and Exchange Commission
have been questioned about their lack of diligence in following through on
Enron*s activities* even though they had indications of improper conduct.
The report commented that effective coordination
9 Report of the Staff to the Senate Committee on Governmental Affairs,
Financial Oversight of Enron: The SEC and Private- Sector Watchdogs, Oct.
8, 2002, and Majority Staff Memorandum to the Committee on Governmental
Affairs, Subject: Committee Staff Investigation of the Federal Energy
Regulatory Commission*s Oversight of Enron Corp., Nov. 12, 2002.
between agencies prevents companies from exploiting the lack of oversight
in areas where neither agency may have taken full responsibility. OMOI Has
Not Decided on the
According to OMOI, its primary functions are to assess market Level of
Detail at Which It Will
performance, ensure conformance with Commission rules, and produce Review
Market Transactions
internal and external reports on the results. This description of its
functions is general and broad at this point. According to OMOI*s Deputy
Director for Market Oversight and Assessment, as the office builds its
capability, it must decide at what level of detail it should monitor the
markets. This issue largely centers around whether OMOI should operate at
a high level* that is, assess the markets* overall performance and major
outcomes, such as competitiveness, supply, and price, and leave the
detailed monitoring to the market monitoring units* or *get down in the
weeds* to review market transactional data as market monitoring units do
for their individual markets. The Deputy Director anticipates that OMOI
will operate somewhere in between these two levels. The level at which
OMOI reviews the markets affects both the number and skill mix of the
staff that OMOI needs. For example, the head of the New York ISO*s market
monitoring unit told us that, by the end of 2003, his unit will have 30
staff, consisting of engineers, economists, business majors, analysts, and
information technologists, to cover the New York market alone. He
indicated that OMOI would need many more staff than this if it plans to
review the markets at the same level of detail on a national basis.
The responses to our survey and our discussions with OMOI staff indicate
that opinions vary on this issue. In responding to our survey, 57 percent
of OMOI*s managers and staff said that top management had clearly defined
what role OMOI will play in monitoring markets, while about 32 percent
disagreed. (The remaining 11 percent neither agreed nor disagreed.)
Additional comments provided for our survey indicate that agreement has
not been reached on how OMOI should carry out that role. Survey
respondents expressed concerns that OMOI was not reviewing and analyzing
market data in enough depth. For example, some OMOI staff said that OMOI
should be continuously reviewing market data on a real- time basis to
identify market power abuses. During our interviews, OMOI managers also
expressed different opinions about the issue. For example, an OMOI
division director told us that the office will examine similar data at a
level similar to what the market monitoring units currently do, and that
OMOI has most of the data it needs to do so. On the other hand, another
division director told us said that he was not certain what the office*s
vision for overseeing the markets will be, and that he was not sure if it
has the
information technology capability to perform detailed analysis of market
transactions like the market monitoring units do. He also stated that OMOI
would need to have staff who performed this work on a daily basis in order
to become skilled at it, and that they could not gain this expertise on an
ad hoc basis.
OMOI*s stakeholders have also expressed varying views. For example, the
heads of the market monitoring units have generally suggested that OMOI
leave the detailed monitoring of market transactions to them and focus on
broader, national issues. On the other hand, others such as consumer
groups have called for FERC to closely monitor the markets to prevent
market abuse or violations by market participants.
OMOI Has Not Yet Developed a According to FERC*s Annual Performance Report
for Fiscal Year 2001 Comprehensive Set of ResultsOriented
(March 2002), the agency recognizes that accountability requires strong
Performance Measures
performance measures of the following two types: output measures that
specify targets for the specific work items that the
agency produces* such as orders, decisions, and environmental reviews* and
for when it produces them, and
results- oriented or outcome measures that specify the results that the
agency is working to create in the larger world.
FERC has been developing output measures for many years for its strategic
and annual performance plans but has established few outcome measures in
the energy markets oversight area. The agency has stated that developing
outcome measures is proving to be difficult but believes that it is
possible. In our June 2002 report, we recommended that FERC develop
such measures to assess how well it is doing in achieving its goals and
objectives for overseeing competitive energy markets.
Although FERC developed new performance measures for its market oversight
goals and objectives for fiscal years 2003 and 2004, the new measures are
generally not outcome- oriented and do not lend themselves to assessing
OMOI*s effectiveness. For example, one key performance measure is to
*track performance of natural gas and electric markets,* while another is
to *assess performance of natural gas and electric markets.* The
performance targets for these measures are to *issue market surveillance
reports to the Commission twice each month* and *publish
regular summer and winter seasonal market assessments, state of the market
reports, and other reports as conditions warrant,* respectively. While it
can be determined if OMOI issues these products, the products*
mere issuance does not indicate whether OMOI is achieving its goal of
protecting customers and market participants through vigilant and fair
oversight of energy markets. Although outcome measures most
importantly allow the agency, the Congress, and other stakeholders to
assess OMOI*s performance in carrying out its mission, establishing these
measures also helps to more clearly communicate what the office is working
to achieve.
OMOI Implemented OMOI does not yet have formal processes and written
procedures to direct
Informal Processes and its staff in their activities. Instead, it is using
a series of key meetings and
Procedures to Begin Its internal and external reports. According to OMOI
managers, staff receive
Work direction and guidance as they prepare for and participate in these
meetings and help prepare these reports. The key meetings are of two
types: (1) regularly scheduled meetings of OMOI managers and staff and (2)
OMOI*s closed- door meetings with the FERC commissioners. The key
regularly scheduled meetings have been weekly. However, according to the
Director of OMOI, morning meetings to discuss plans for the day*s
activities are also becoming important to the office*s operations. The
predominant subject of the weekly meetings alternates from electricity
markets one week to natural gas markets the next. At these meetings, which
can last for several hours, OMOI managers
and staff share the results of their market oversight activities and
projects since the last meeting. Staff also use the weekly meetings to
make a variety of decisions, including (1) whether the oversight staff
should follow up on an issue with the appropriate market monitoring unit
and/ or begin collecting and analyzing their own data on the issue or (2)
whether the enforcement staff should begin investigating a situation or
should audit
market participants* compliance with certain FERC requirements. They also
identify issues to be discussed in the closed- door meetings. At the
closed- door meetings, OMOI discusses national and regional issues
concerning electricity and natural gas markets* such as changes in prices
and the adequacy of supply and infrastructure* with the commissioners.
The commissioners are also informed of any complaints received, progress
on significant enforcement investigations, and any new investigations. 10
10 According to OMOI staff, FERC patterned its closed- door meetings after
similar meetings
held at the Commodity Futures Trading Commission.
OMOI*s also prepares a series of market oversight reports or products on a
daily to annual basis (see table 2). These reports are intended to (1)
help OMOI staff and the FERC commissioners stay abreast of market
developments and activities and (2) inform market participants and others
of market performance issues and OMOI*s activities. OMOI managers also
believe that the information needed for these reports helps inform the
office*s staff as to the types of analyses that they need to perform and
how their work is linked.
Tabl e 2: OMOI*s Principal Oversight Reports or Products Type of report
Timing/ purpose/ content
Daily Produced daily from news reports and publicly available energy
market data to keep FERC commissioners and staff aware of current events
in the electricity and natural gas markets. OMOI has been producing these
reports almost from its formation. Biweekly market surveillance Generally
produced every 2 to 3 weeks to brief the FERC commissioners on emerging
and ongoing national and regional energy market issues* such as high
prices and energy companies* financial
condition. The reports, which are in the form of briefing charts, also
present information on OMOI*s major market monitoring and enforcement
activities, including major cases and overall statistics on the number of
investigations and complaints and inquiries received from market
participants and others. OMOI has been producing these reports since June
2002. Seasonal assessment Produced as public documents twice a year* once
during the summer cooling season and once during the winter heating
season. These reports seek to identify issues important to electricity/
natural
gas customers and market participants and to signal the areas of greatest
concern to FERC at the time. The reports are intended to (1) provide FERC
with an early warning on market issues, (2) guide short- term oversight
and investigation priorities, and (3) communicate priorities to market
participants. The first of these reports by OMOI was issued in late
January 2003 on natural gas markets. OMOI had
initially intended to issue the report in November 2002 at the beginning
of the winter heating season. The report was delayed as the agency
deliberated on what type of information should be in the report and how it
should be presented. On issuance, the energy trade press produced more
than a dozen articles outlining the report*s major findings and
conclusions as to the challenges facing the markets. The report also
received some criticism in the press as providing little new information,
especially on market conditions and performance at the end of 2002 and
whether conditions had improved or worsened since 2001.
Annual state of the markets To be produced annually and made available to
the public. According to the Director of OMOI, the first such report by
OMOI may be issued in September 2003. (FERC previously issued a state of
the markets report in March 2000.) As currently planned, the reports are
to give a comprehensive review of the year and provide measures for energy
market performance. Source: GAO analysis of FERC information.
In our survey of OMOI managers and staff, we asked if the office had
established effective processes to oversee natural gas and electricity
markets. Just slightly over half* about 53 percent* said that the office
had established effective processes to oversee the markets. About 28
percent did not believe that effective processes had been established for
electricity,
while 22 percent did not believe they had been established for natural
gas. The remaining respondents said that they neither agreed nor disagreed
that effective processes had been established or said that they had no
basis to judge. In providing more detailed responses to our survey,
several OMOI staff commented on the office*s processes and procedures. For
example, one respondent stated that processes and procedures do not exist,
and that most of what is done is ad hoc. Another said that the office
needs adequate planning tools to be efficient and effective, while another
stated that no operational market monitoring plan has been developed for
electricity or natural gas and to the extent that any plans for the
office*s operations have been developed, they are at a high level and not
suitable for monitoring markets. According to OMOI*s Deputy Director for
Market Oversight and
Assessment, his divisions plan to establish a consistent process to
monitor the electric, natural gas, and related financial markets, as well
as both strong priority setting and management processes.
FERC officials, including OMOI managers, agreed that OMOI needs to
formalize its processes. However, they said that they did not want to do
so too quickly because OMOI is a new office and constantly learning. The
Senior Energy Policy Advisor to the Chairman of FERC told us that
formalizing OMOI*s processes is a matter of timing. She stated that she
would not want the office to *lock down* its processes until it is sure
that they are working well.
OMOI Has a Variety of To carry out its oversight activities, OMOI*s major
tools are its (1) Market
Oversight Tools and Is Monitoring Center, (2) enforcement hotline, (3)
investigations and
Working to Improve Them operational audits, and (4) partnership with the
market monitoring units.
Although these tools potentially provide OMOI with the means to oversee
the energy markets, they have some significant limitations in coverage and
available data. For example, the Market Monitoring Center lacks important
market information, and market monitoring units do not operate in most
parts of the United States. OMOI is aware of and is working to address
these limitations. Opportunities also exist to use these tools more
systematically to improve their effectiveness.
The Market Monitoring Center Is Patterned after market operation centers
of the ISOs and major energy an Important Research Tool but
trading companies, the center uses computers and various market Lacks
Critical Data to
reporting services and software packages to make large amounts of data on
Systematically Monitor the natural gas and electricity markets available
in a useable format. For Markets example, electricity market information
includes prices on the spot market and for futures contracts, plant outage
information, business news, and
historical data for trend analysis. Natural gas market data includes spot
and futures prices, market commentary, storage levels, imports and
exports, and supply/ demand statistics. In addition, several weather
services are available to monitor changing conditions nationwide, as
weather and climate affect energy supply and demand in both spot and
futures markets.
OMOI*s staff uses the Market Monitoring Center as a research tool in
carrying out their assigned projects. During these projects, they often
review the center*s wholesale price and other market information, such as
the data on power plant outages and transmission constraints, for
anomalies. These anomalies generally include large price increases or
spikes or unexpected constraints in areas of the national grid of electric
transmission lines or the natural gas pipeline network. For example, OMOI
monitored a natural gas price spike in February 2003 and tracked its
effects on the electricity market in the New York area. When anomalies are
identified, OMOI staff investigate to determine the cause by calling the
applicable market monitoring unit or using data in the center or otherwise
available to FERC. Depending on the results of this examination, the
results are presented to the commissioners and other agency managers as an
early warning of market problems or OMOI initiates a preliminary
investigation or operational audit. In some cases, OMOI staff has worked
with ISO or RTO representatives to change market rules that led to the
identified anomaly. OMOI may also become aware of a market anomaly or
potential market problem through another source, such as a market
monitoring unit, and use the center to collect additional data on it.
OMOI also uses a number of market performance measures or metrics to
graphically capture market trends. OMOI is working to develop additional
metrics and anticipates that, with a more comprehensive set of these
metrics, it will be able to inform the FERC commissioners and stakeholders
such as the Congress, market participants, and the financial markets as to
how well the energy markets are working and give early warning of
problems.
While the center*s information is substantial, it is significantly limited
in certain areas. For example, the center has limited up- to- the- minute
information on electricity prices, fuel costs, and spot and futures
contracts
prices. It also has limited information on the operations of the electric
system. Operations information, such as data on power plant outages and
the availability of capacity on transmission lines, is important to detect
and
analyze changes in the markets and to identify potential anticompetitive
behaviors.
In addition, the center does not have access to nonfederal information
needed to assess reliability of the electric power grid and monitor
overall electricity market performance. This information includes data
system frequency (a measure of how well the system is balancing
electricity demand and supply), power flows on key transmission lines, and
transmission between parties. According to OMOI officials, market
performance and electricity system reliability are mutually dependent, and
such information would help them to determine whether market participants
are behaving anticompetitively. The center also does not have access to a
third party source for price or quantity information on most
bilateral transactions of wholesale electricity, which are the major
portion of market transactions. However, FERC has revised its filing
requirements for utilities to require them to electronically file
quarterly reports on their electric power sales, including information on
prices and quantities. FERC is continuing to expand the information
available in the center. It has
added four information services since our June 2002 report. For example,
Genscape measures power plant operations for selected power plants. In
addition, OMOI is continuing to assess its energy market information
needs. During fiscal year 2002, FERC completed studies to take stock of
the agency*s current and future market information needs. As part of that
effort, FERC formed teams to identify information that FERC currently
collects and additional information that it might need to perform its
duties related to restructured markets. According to OMOI officials, the
office is using the information from these teams as a baseline to assess
its overall market information needs. 11
Although these data shortcomings significantly limit the Market Monitoring
Center*s potential use for comprehensive and real- time monitoring of the
markets, some OMOI staff knowledgeable about the center*s operations and
use highlighted the potential to use the center more systematically. For
example, a process is currently not in place to use the center to
continuously monitor the markets, and written protocols have not been
developed for what data are to be reviewed and what actions OMOI staff
should take when certain market situations are noticed. Currently, OMOI
staff use the center intermittently as they do research for their
projects. According to an OMOI staff person, the center is not in use at
times. 11 See our June 2003 report, Electricity Restructuring: Action
Needed to Address Emerging Gaps in Federal Information Collection, GAO-
03- 586, for a more detailed discussion of the
limitations in FERC*s electricity information and its authority to collect
it.
OMOI Is Incorporating the FERC*s primary purpose in creating the hotline
was to provide a
Enforcement Hotline into Its mechanism to informally receive complaints or
inquiries from industry and Market Oversight Efforts
the public so that the agency can deal with concerns more quickly and with
fewer resources than would be required under FERC*s formal complaint
process. Since the hotline*s creation in FERC*s Office of General Counsel
in 1987, the number of complaints and inquiries has increased
substantially. For example, the hotline received 145 complaints and
inquiries in fiscal year 1996, compared with 584 in fiscal year 2002.
FERC*s goal has been to respond to and resolve the complaints and
inquiries very quickly. For example, FERC set a goal in its fiscal year
2003 performance plan to resolve 80 percent of the complaints and
inquiries within 1 week of the initial contact. When a complaint or
inquiry is received (by telephone, letter, or E- mail), an attorney is
assigned to investigate. The attorney contacts the other party, usually
the same day, and attempts to resolve the
issue. If the issue cannot be resolved through this informal process, the
complainant can file a formal complaint or, if OMOI finds indications of a
more egregious violation of rules or regulations, it can launch an
investigation into the matter. With the hotline*s transfer to OMOI in
August 2002, it has become an important market oversight tool by providing
market participants the
opportunity to anonymously and informally make complaints to OMOI about
anticompetitive actions by other parties. According to the Enforcement
Hotline Director, the hotline*s underlying philosophy is that of a
neighborhood watch with participants patrolling their own markets. To this
end, OMOI has encouraged market participants and the general public to
call, e- mail, or write the hotline to complain or report market
activities
that may be an abuse of market power, an abuse of an affiliate
relationship, a tariff violation, or another type of violation by an
entity regulated by FERC. According to OMOI, hotline calls have included
complaints about
bidding anomalies, price spikes, inappropriate use of certain financial
instruments, fluctuations in available capacity on electric transmission
lines and natural gas pipelines, discrimination in interconnection to the
electric grid, and improper market transactions between a company and an
affiliate. Hotline complaints have led to or contributed to decisions to
initiate several enforcement investigations. OMOI officials also told us
that the hotline staff has been focusing more attention on tracking
market- related calls to look for trends because OMOI is trying to use the
hotline as a tool for identifying market issues early. For example, the
officials said that the hotline received several calls from energy
marketers who said that they could be driven out of business by
stricter standards for creditworthiness. According to the officials, FERC
had been reviewing creditworthiness issues on a case- by- case basis but,
after the calls, decided to convene a technical conference in February
2003 to begin to address these issues on a broader basis.
OMOI Has Increased Led by attorneys in OMOI*s Enforcement Division,
investigations are
Investigative Activities, but Its designed to collect and analyze
information regarding specific concerns Audits Do Not Systematically
about whether a party has violated the energy- related laws, regulations,
Review Compliance with Market
and/ or market rules administered by FERC. OMOI may initiate an Rules
investigation as a result of an action such as a hotline complaint, a
formal complaint, a referral from a market monitoring unit or another
office within FERC, the findings of an audit, or routine market
monitoring. In addition, the enforcement staff may begin an investigation
based on its scanning or tracking of industry or market events through
news or other accounts. OMOI*s Division of Operational Investigations is
responsible for conducting audits to review compliance with FERC*s
regulations such as those governing companies* transactions or dealings
with their affiliates to prevent discriminatory practices and reporting of
market information. OMOI initiates operational audits for a variety of
reasons, including providing input to policy deliberations, regulations
development, and enforcement cases.
FERC*s investigations and operational audits relating to energy markets
have increased almost steadily each month since this responsibility was
moved to OMOI. For example, on June 1, 2002* about a month before the
enforcement staff was transferred to OMOI from FERC*s Office of the
General Counsel* FERC was conducting 37 investigations and operational
audits related to the electricity and natural gas industries and other
areas such as hydroelectric projects. This number was 68 as of May 31,
2003. During this period, OMOI opened a total of 79 investigations and
operational audits and closed 48. Of the investigations that OMOI closed,
several resulted in entities paying
refunds, civil penalties, or the costs of the investigations, as well as
preparing compliance plans and taking other remediation actions. One
highly visible example is the recently settled case against the
Transcontinental Gas Pipe Line Corporation (Transco) for anticompetitive
practices that included a civil penalty of $20 million* the largest civil
penalty in FERC*s history. However, in other cases, no further action was
taken* beyond working with the parties under investigation to bring them
into compliance with the rules and regulations* because there is no civil
penalty authority associated with the activities. The civil penalty
imposed
on Transco stemmed from the company*s violation of rules in one of the few
areas in which FERC had the authority to impose such penalties. While FERC
can order refunds of excessive rates, FERC generally lacks authority to
impose appropriate penalties. No section of the Federal Power Act allows
FERC to levy monetary penalties against market participants who charge
unjust or unreasonable rates for electricity. Although the Natural Gas
Policy Act of 1978 gave FERC some authority to levy civil penalties, this
authority applies to a limited number of natural gas transactions in
interstate commerce. Given this situation, legislation was recently
introduced in the Congress that would give FERC additional penalty
authority. On April 11, 2003, the House passed H. R. 6, which would expand
FERC*s penalty authority under the Federal Power Act and increase the
maximum civil penalty for certain violations from $10,000 to $1 million
per violation per day. The bill is currently awaiting action by the
Senate, which is considering similar legislation.
While investigations are almost always opened in response to specific
complaints or concerns about a potential violation, operational audits
provide the opportunity to review compliance with regulations and market
rules on a broader basis. However, OMOI has limited resources devoted to
these audits. At the end of June 2003, the Division of Operational
Investigations was conducting audits of 16 entities under FERC*s
jurisdiction* 11 in the Pacific Northwest, 1 in the Midwest, 2 in the
midAtlantic, and 2 in the Southwest* with respect to certain aspects of
FERC*s regulations. According to the Director of the Division of
Operational Investigations, most of the work by the division*s staff is in
supporting ongoing enforcement investigations rather than performing
audits. He said that his staff provides technical support to these
investigations by reviewing regulations and accounting and trading issues.
The Director said that he would like to develop, but has not yet
developed, a strategy for systematically auditing compliance with FERC*s
regulations and market rules on a cyclical basis. Absent this type of more
comprehensive review, OMOI has to rely on the limited coverage provided by
hotline calls and
enforcement investigations. For example, hotline calls depend on
individuals knowing about violations and being willing to report them to
FERC.
OMOI Is Working to Improve Its Recognizing that market monitoring units
play a significant role in
Partnership with the Market overseeing wholesale electric power markets,
OMOI is devoting Monitoring Units, but the Units considerable attention to
improving its working relationship with these
Do Not Cover Much of the units. However, FERC has not yet put in place a
process to periodically
United States assess the monitoring units* effectiveness so that it will
have assurances
that they are effectively carrying out their responsibilities. Moreover,
the partnership*s effectiveness in overseeing the nation*s electricity
markets is limited because most of the United States is not covered by
these units.
FERC has described the role of the market monitoring units in various
terms, including as the *first line of defense* against market problems,
its *eyes and ears,* its *soldiers on the front line,* and as *practically
an extension of, or a surrogate for, the Commission*s own market
monitoring and investigative staff.* The significance of the monitoring
units* role is illustrated by OMOI*s response to our request for
information on how the office*s market oversight approach will identify
certain trading schemes, such as those used by the Enron Corporation in
the California electricity market and other manipulations of the energy
markets. In their response, OMOI officials said the monitoring units are
responsible for detecting most of the schemes and manipulations in their
respective electricity markets. (See app. III for OMOI*s response.)
OMOI is taking a number of steps to improve communication and to better
ensure that its staff and the market monitoring units work well together.
For example, the office has assigned specific staff members as contact
points for the ISOs/ RTOs and their market monitoring units. Because many
of the issues arising and enforcement cases being initiated concern
California, OMOI has located two of its staff with the California ISO*s
market monitoring unit. OMOI has also formalized the frequency and nature
of communication between itself and the units, for example, by
establishing a series of routine meetings and drafting guidelines on how
the units will communicate certain market events to OMOI. Furthermore,
OMOI is working with the market monitoring units to develop a joint OMOI-
market monitoring unit mission statement and has taken steps to
standardize the way the market monitoring units will report on their
markets. For example, OMOI is working with the monitoring units to develop
a set of standardized measures or metrics by January 2004. With standard
metrics, FERC can compare and contrast the individual regional markets and
better report on how markets are performing nationwide. According to the
heads of the four market monitoring units, their
communication with FERC has improved since the creation of OMOI. The head
of one unit told us that the frequency and the detail of their discussions
with OMOI were notable improvements, while another said that the
improvement had been significant. The third market monitor told us that
communication has improved considerably and the more frequent
communication with OMOI has improved OMOI staff*s knowledge of their
markets. According to the remaining market monitor, his ability to
communicate with FERC was very poor before OMOI was formed, but since then
the frequency and content of this communication has improved. He added
that he hopes that OMOI*s enforcement staff is letting him know
when it is conducting investigations relating to the markets that he
monitors, but he does not know whether or not they are.
In our June 2002 report, we recommended that FERC update its strategic
plan to set out clear expectations for how the ISOs/ RTOs will monitor
energy markets and how FERC will evaluate their monitoring units*
effectiveness. While a key strategy in FERC*s current strategic plan is to
integrate FERC*s market oversight activities with the work of the
monitoring units, the plan does not yet set out clear expectations for
these units or how FERC will ensure that they are effectively carrying out
their market oversight role. OMOI*s Director of Management and
Communication told us that performance expectations for the market
monitoring units make sense, and that the office expects to begin the
process to incorporate expectations into FERC*s fiscal years 2003- 2008
strategic plan that is scheduled to be issued in September 2003. The heads
of the market monitoring units agreed that FERC needs
assurances that their units are carrying out their monitoring functions
effectively and suggested ways that the agency could obtain these
assurances. For example, the head of the New York ISO*s market monitoring
unit said that FERC should monitor market outcomes, maintain
close contact with the individual units, and operate a hotline that market
participants can use to register concerns about the units. Similarly, the
head of the New England ISO*s monitoring unit said that OMOI should
develop additional expertise for each market and, more importantly, should
synthesize comments from stakeholders in each market regarding the
units* performance. While the market monitoring units are highly important
to OMOI*s efforts to oversee electricity markets, the units* coverage of
the nation*s electricity markets is limited. The monitoring units of the
PJM Interconnection RTO, ISO New England, and New York ISO cover the
Northeastern markets, while the California ISO*s monitoring unit covers
the markets in that state. The Electric Reliability Council of Texas, over
which FERC has only
limited jurisdiction because the market is essentially intrastate, also
has a market monitoring unit that essentially covers Texas. FERC has also
approved a market monitor for the Midwest ISO, which plans to operate a
centralized power market by December 2003. In addition, FERC has efforts
under way to expand the number and/ or the market coverage of RTOs. At
present, according to FERC, five other RTOs have been conditionally
approved. However, it could be several years before these organizations
are operating and have market monitoring units in place.
According to the Director of OMOI, one of the office*s major challenges is
how to monitor the markets in places where there is no market monitoring
unit. He added that the office has limited access to market data without
the existence of the formal markets provided by an ISO or RTO to generate
the data and a market monitoring unit to make it available to them. OMOI
officials told us that they are using calls to the enforcement hotline and
audits as a way to provide some oversight in these areas. These efforts,
however, do not replicate the extensive and detailed monitoring performed
by the market monitoring units. OMOI Faces Challenges as
OMOI has almost completed its staffing to authorized levels, including the
It Completes Its Hiring
hiring of a substantial number of staff from outside FERC with energy
market experience. The office also has trained staff to increase their
knowledge about competitive energy markets, and has contracted to acquire
additional market expertise. However, several key management positions
have not been filled. In addition, OMOI staff raised several issues,
including the adequacy of the office*s staffing levels, skills mix, the
need for additional training, and morale. OMOI Has Almost Completed Its
As of June 17, 2003, OMOI had a staff of 98 employees* 12 less than the
110 Staffing to Authorized Levels positions budgeted for fiscal year 2003.
OMOI has staffed the office with a mix of reassigned FERC employees and
outside hires (see fig. 2). OMOI*s director and two of three office
directors are outside hires. During its first 4
months, the office principally consisted of its top leadership and
employees reassigned from other FERC offices, such as the Office of
Markets, Tariffs, and Rates and the Office of General Counsel*s Market
Oversight and Enforcement Division, that had some experience related to
energy market oversight and investigation. These internal transfers
continued until they reached a total of 61 employees in September 2002.
Senior OMOI officials told us that transferring to OMOI was voluntary, but
not everyone was selected. According to OMOI officials, approximately 180
FERC employees applied for OMOI.
Figure 2: OMOI*s Staffing Levels As of June 17, 2003, OMOI had hired 45
employees from outside FERC* 5 less than the 50 positions budgeted for
fiscal year 2003. To recruit qualified individuals with industry
experience, OMOI offered a number of recruitment bonuses. Because of the
specialized skills required to monitor energy markets, OMOI has generally
offered larger recruitment bonuses than other FERC offices* an average of
$12,852 given to 10 individuals. According to OMOI officials, they are
still receiving resumes from interested applicants and plan to continue
their recruiting and hiring efforts over the next few months.
OMOI officials told us that, in hiring potential applicants, they looked
at the applicants* experience in energy markets. In its fiscal year 2003
budget request, one of FERC*s performance targets for OMOI was the *hiring
of staff with market expertise.* In the fiscal year 2004 budget request,
FERC is revising the performance target to state that *30 percent of OMOI
staff have energy market experience gained through direct activity in
those markets.* According to OMOI officials, 29 of the office*s current
employees (or 29. 6
percent) have energy market experience. More specifically, OMOI officials
told us that 19 (or 19.4 percent) of the employees have worked for
energyrelated companies and have direct experience with some aspect of
energy markets. An additional 10 employees (or 10.3 percent) have worked
as
consultants, legal counsel, or other positions that demonstrated detailed
understanding of market activities without active participation, according
to the officials. OMOI said that they review the resumes of both internal
transfers and outside hires to determine market experience. One reason
that OMOI has not yet reached its authorized staffing level is
that 13 of its employees have left to go to another FERC office, another
federal agency, or to private industry. The majority of those leaving* 10
of 13* had originally transferred in from other FERC offices. According to
OMOI officials, most of these employees moved to other FERC offices to
take more senior positions. They said that because OMOI had to bring in a
number of outside hires at a high grade (at the GS- 15 level),
opportunities for promotion within OMOI are very limited. Of the three
outside hires that have left, two were interns with limited appointments.
OMOI Is Using Training and In addition to hiring staff with needed skills,
OMOI has offered a variety of
Contracting to Increase Its internal and external training programs. For
example, OMOI has
Expertise instituted technical sessions on a biweekly basis during which
OMOI
staff informally share information and expertise with other staff,
invited industry experts for presentations on market issues, invited
representatives from market monitoring units to provide the
versions of the training classes they offer their own staffs, visited
market monitoring units at various RTOs to interact with them
and learn about their markets and functions, interacted with vital
market participants such as credit rating agencies
and generation and transmission operators to enhance their overall
knowledge of the gas and electricity markets, and identified leadership
and managerial training as a critical need and plans
to develop targeted training in these areas. OMOI has also used
contractors to obtain skills not available internally. For example, OMOI
has hired, on a consulting basis, an energy trader formerly
with the Enron Corporation. OMOI also has used contractors to assist them
in a variety of other ways, including developing measurement metrics for
the market monitoring units and studying power plant outages. In addition,
OMOI used contractors to help develop its first seasonal market report.
Furthermore, the office has contracted with knowledgeable vendors to
provide employees with information on key aspects of energy markets.
Since its inception in fiscal year 2002, OMOI has spent a total of about
$501, 000 on contract services. The office is requesting an increase in
funding for these services from $500,000 for fiscal year 2003 to $1
million
for fiscal year 2004. OMOI Faces Several Additional Although OMOI has made
progress in hiring staff, OMOI continues to face Staffing Challenges
challenges in filling some of its leadership and technical positions. As
of June 17, 2003, OMOI had not permanently staffed three of OMOI*s seven
division director positions. According to a senior OMOI official, finding
qualified applicants for the division director positions has been
particularly difficult because not many applicants have both technical
skills and leadership experience coupled with a public- service mentality.
For example, OMOI has advertised a *Division Director* position at the
senior executive service level for the Division of Energy Market Oversight
on several occasions, but FERC hiring officials did not find any
applicants suitable to meet OMOI*s needs. The position has been relisted.
OMOI*s difficulty in filling its leadership positions is particularly
important because
sustained, committed leadership is indispensable to successful
organizational transformations. By its very nature, the transformation
process entails fundamental change. Consistent leadership helps the
process stay the course and helps ensure changes are thoroughly
implemented and sustained over time. Senior OMOI officials also told us
that OMOI continues to face challenges hiring people with certain skills
such as engineers with market experience, people with technical skills for
performing sophisticated analysis, and people with forensic auditing
experience.
In addition, in responding to our survey, OMOI employees indicated a
relatively high level of concern about the office*s staffing levels and
skill mix. About 49 percent of OMOI employees did not believe that the
office*s staffing levels were satisfactory. In comparison, 22 percent
thought that the
levels were satisfactory. The remaining 30 percent neither agreed nor
disagreed that the staffing levels were satisfactory or stated that they
had no basis to judge. In addition, while about 45 percent of the
employees
believed that the office*s skill mix was adequate, 35 percent did not. The
remaining 21 percent neither agreed nor disagreed or had no basis to
judge.
In providing written comments for our survey, the employees often
commented on staffing levels and skill mix. For example, one respondent
wrote *the resources in the office are clearly inadequate to perform
comprehensive oversight of industries as large as wholesale electricity
and
natural gas.* Another wrote *staffing levels are not sufficient to
regularly, systematically evaluate all energy markets in the United States
to look for aberrant behavior.* The written comments on skill mix varied.
For example, some staff wrote that OMOI had too many employees with
natural gas experience and too few with electricity experience. Others
commented that the office had too few engineers, especially electrical
engineers, or needed more investigations staff, economists, attorneys, or
technical staff.
To some extent, these concerns about staffing levels and skill mix likely
reflect the staff*s individual views about what this new office should do
to oversee the markets, particularly the level of detail at which it
should review market transactions. It is difficult to judge the validity
of the staff*s concerns until OMOI has clearly defined its role. Of
course, the FERC commissioners and the Congress would be involved in
defining the role and committing the resources to carry it out.
Many of OMOI*s employees also indicated that they would benefit from
additional training. For example, in responding to our survey, over 70
percent of OMOI employees expressed a need for more training in areas such
as market functions, market structures, and the interaction of financial
markets and energy markets. In addition, more than half of the staff
indicated that additional training in economic theory and models would be
useful. (See table 3.)
Tabl e 3: Percentage of OMOI Staff Indicating That Additional Training
Would Help Them Better Oversee Energy Markets and Enforce Market Rules
(Percentage)
Additional training Already proficient Does not apply or Subject area
would assist me in this area no basis to judge
How financial markets interact with energy markets (including trading,
hedging, derivatives, and financial instruments) 76 15 9
Market structures 71 23 7 Market functions 70 24 7 Economic theory/ models
52 34 14 Statistical software packages 48 15 37 Regulatory theory/ process
44 43 13 Basic economic principles/ definitions 35 53 12
Source: GAO survey of OMOI employees.
Furthermore, our survey of OMOI staff uncovered a potential issue
regarding the office*s morale. In responding to the survey, about 49
percent of OMOI managers and staff characterized the office*s morale as
generally high or very high, compared to about 31 percent that said morale
was generally low or very low. (The remaining 20 percent characterized
morale as neither high nor low or said they had no basis to judge.)
However, there
was a disparity of opinion between new hires and internal transfers. Among
staff that had been with FERC for more than a year or before OMOI was
established (internal transfers), about 40 percent said the office*s
morale was low, slightly higher than the 38 percent that said it was high.
In comparison, 14 percent of staff that had been with FERC for less than 1
year (new hires) said the office*s morale was low, while 68 percent said
it was high. Additionally, several internal transfers expressed concern
that OMOI*s top managers do not value them as highly as those hired from
outside FERC. In their written comments to our survey, several staff
expressed their sense that a *double standard* exists in that (1) the work
of the *new FERC* employees (outside hires) is valued by top managers more
than that of the *old FERC* employees (transfers) and (2) the new FERC
employees receive higher pay and more than their share of the bonuses and
other rewards. Several employees also commented that there is not much
promotion potential for internal transfers. Furthermore, several employees
that left OMOI to go to other parts of FERC told us that they had left for
a promotion, but the sense that they were not valued was also a factor in
leaving.
FERC Is Taking Since we issued our June 2002 report, FERC has developed a
human capital
Important Steps to plan that lays the foundation for the agency to
strategically manage its
workforce. As our previous work has found, strategic human capital Improve
Its Human
planning must be the centerpiece of any serious change management Capital
Management
initiative, yet a key challenge for many federal agencies is to
strategically manage their human capital. 12 Given that many federal
agencies have not yet begun any comprehensive human capital planning,
FERC*s human capital plan is commendable and a promising first step.
Nonetheless, the plan is in the formative stages and lacks key elements.
The plan does not yet fully (1) identify specific activities, resources,
and time frames needed to implement the agency*s human capital initiatives
and (2) provide results oriented or outcome measures to track the agency*s
progress in implementing the plan*s initiatives and evaluate their
effectiveness. By including these key elements in its human capital plan,
FERC could better ensure that its workforce is able to effectively oversee
and monitor energy markets. In addition to human capital planning, the
agency is taking other
steps to help transform its workforce, including assessing additional
human capital flexibilities that could improve recruitment and retention
efforts.
FERC*s Human Capital In February 2003, the Chairman of FERC approved the
agency*s first human
Management Plan Is an capital management plan, a step forward in fostering
a more strategic
Important First Step but approach to human capital management. In our June
2002 report, we
Lacks Key Elements pointed out that FERC was one of many federal agencies
that had not given
adequate attention to human capital management. Specifically, we found
that FERC had not conducted systematic strategic human capital planning to
guide its efforts to recruit, develop, train, and retain the type of
workforce that can effectively oversee competitive energy markets.
Properly done, human capital planning provides managers with a strategic
basis for making human resources decisions and allows agencies to
systematically address issues driving workforce change, such as those
affecting OMOI. One tool that agencies can use to improve their human
capital management is a human capital plan that systematically identifies
the workforce needed for the future and identifies strategies for shaping
this workforce. Accordingly, we recommended that FERC develop a
12 U. S. General Accounting Office, High- Risk Series: Strategic Human
Capital Management, GAO- 03- 120 (Washington, D. C.: January 2003).
comprehensive strategic human capital management plan to include the
following:
a skills assessment program that would identify gaps in skills currently
held by the workforce that are necessary to carry out the agency*s
evolving regulatory and oversight responsibilities;
a recruitment and retention initiative, based on priorities for meeting
future regulatory and oversight staffing needs, which addresses filling
skill gaps in the current workforce;
a training effort targeted at increasing staff knowledge in the areas of
market functions and market structures so that FERC staff will be better
prepared to regulate and oversee competitive energy markets; and a
comprehensive succession plan for solving challenges posed by the
large number of impending retirements within the agency, including
reliable projections of the number of eligible staff who may actually
retire. The plan, which covers a period of from 2 to 5 years, is
essentially broken up into two major sections. The first section addresses
issues facing the agency as a whole. For example, the plan*s first section
describes FERC*s current human capital situation, including data on
overall workforce demographics such as size and composition of the
workforce, employee pay grade distribution, attrition rates, projected
retirement eligibility, and retirement rates. The plan then uses these
data to frame five broad workforce challenges and identifies five human
resource goals and 19 objectives to achieve these goals. (See table 4.)
The plan*s second section provides information specific to each major FERC
office. This section identifies each office*s specific human capital
challenges based on their particular workforce demographics and current
and future work requirements and includes a short- term hiring plan and
longer- term human capital initiatives.
Tabl e 4: FERC*s Agencywide Human Resource Goals and Objectives Human
resource goal Objectives
Goal 1: Attract and retain talented, diverse employees capable of
Institutionalize an agencywide workforce planning process maintaining
excellence Implement recruiting and retention strategies based on
workforce
planning results and office hiring plans Use the full range of hiring
flexibilities to increase hiring speed and
success Develop a demonstration project to increase hiring and retention
success and improve accountability
Goal 2: Provide development opportunities to expand individual Link
employee development activities to strategic goals and plans and
organizational capabilities Upgrade the effectiveness of office and
central training programs
Increase the capabilities of underperforming employees Institute
rotational assignments to build skills and learn new
business practices Goal 3: Build leadership to inspire and draw the best
from all
Establish a leadership succession planning program employees Deliver a
comprehensive training program for new and experienced
managers Create feedback mechanisms and development plans to foster
leadership development Increase support for managers handling human
resources and
employee development responsibilities Goal 4: Foster a performance culture
that rewards achievement Ensure employees understand agency priorities
and how to
contribute Strengthen the connections among accomplishments, awards and
performance feedback
Develop options for addressing shortfalls in accountability and
nonperformance Measure results and use the data to keep improving Goal
5: Create organizations with the ability to meet rapidly
Use flexible processes for acquiring specialized, limited- duration
changing conditions expertise Strengthen the role of subject matter
experts in helping managers
handle new program challenges Compile best practices and apply them to
help organizations and
teams at FERC successfully meet difficult workload challenges Share
innovations and creative approaches across organizational lines
Source: FERC.
The plan, to varying degrees, discusses the four major components that we
previously recommended be included* skills assessment, recruitment and
retention, training, and succession planning. Regarding skills assessment,
the second section of the plan identifies for each office the current and
future skills they need to achieve FERC*s strategic goals. Where gaps
existed between current and future skill needs, the offices have developed
human capital initiatives to close the gaps. According to a senior FERC
human resource official, the plan will improve as this skills assessment
process improves. The official said that the FERC offices are still
learning how to determine their skill needs and, as a result, when someone
retires or otherwise leaves, FERC managers tend to seek a replacement with
the same skills, rather than thinking about future skill needs.
Concerning recruitment and retention, the plan establishes attracting and
retaining talented, diverse employees capable of maintaining excellence as
a human resource goal. To accomplish this goal, FERC identifies various
objectives, including institutionalizing an agencywide workforce planning
process and implementing recruiting and retention strategies based on the
results of this workforce planning process and the offices* hiring plans.
Another of the objectives is to develop a demonstration project to
increase hiring and retention success and improve accountability for
hiring and
retention decisions. FERC*s plan also identifies a number of initiatives
to improve recruitment and retention. For example, FERC plans to implement
an exit interview process to track and document why employees leave.
According to the plan, the information gained from exit interviews will be
used to support or modify agency personnel practices in order to improve
employee retention. With respect to training, the plan establishes
development opportunities to expand individual and organizational
capabilities as a goal. An objective
under this goal is to upgrade the effectiveness of the central and
individual office training programs. The plan recognizes that FERC needs
to implement a revamped energy markets curriculum to ensure that staff,
such as those in OMOI, have current market- oriented skills and expertise.
One of the next steps in the plan is that the human resources staff will
coordinate the offices* efforts to design and offer training for managers
and
to develop a markets- oriented curriculum to build organizational and
staff capabilities. Human resources officials told us that FERC is already
using an agencywide team to develop such a curriculum. According to senior
human resources officials, the curriculum will likely be offered to all
FERC offices to develop a common foundation across the agency. Although
OMOI is the FERC office primarily responsible for monitoring competitive
energy markets, FERC officials indicated that a number of offices in
addition to OMOI are seeking markets training to do their jobs better. As
FERC develops this new curriculum, the current central program has been
temporarily suspended, and each office is responsible for providing
informal training to its own staff. For example, OMOI has offered a
variety of training to increase staff knowledge on competitive energy
markets. According to a senior FERC official, the new agencywide training
program should be implemented by the beginning of fiscal year 2004.
FERC*s plan identifies succession planning as a challenge and points out
that over half of FERC*s workforce will be eligible to retire by 2007. It
also sets out the establishment of a leadership succession planning
program as an objective under its building leadership goal. To address
this challenge, many of FERC*s offices intend to develop their own
succession planning
strategies. For example, the section of the plan for the Office of
Markets, Tariffs, and Rates states that because of its *graying*
leadership ranks, the office must develop a succession plan for its key
leadership positions. The section also states that because of its overall
graying workforce, the office must develop a larger entry- level/ career
ladder pipeline to maintain
adequate numbers of employees, both in total numbers and at the top level
of career- ladder positions. The section of the plan for OMOI also
addresses succession planning. In the plan, OMOI states that it will
develop a
succession plan to address the loss of leadership and skills due to
retirements and the return of employees to the private sector. However,
the human capital plan does not provide any additional information on how
these succession plans will be developed, what resources are needed, how
they will be implemented, and when they will be completed. Leading
organizations use their succession planning initiatives not only to
identify individual replacements for current leaders but also as a
strategic tool to build current and future organizational capacity by
identifying and
developing the right people, with the right skills, at the right time for
leadership, managerial, and other critical positions. 13
FERC*s plan also addresses other related human capital issues. For
example, it notes that the current performance management system may not
be adequate to sustain and build the workforce needed for the future. As
FERC takes steps to transform its workforce, performance management will
be a critical element. Our previous work has found that instituting a
results- oriented culture and creating a modern, credible, and effective
performance management system can be strategic tools to drive change and
achieve desired organizational results. 14 Under the plan*s goal of
fostering a performance culture that rewards achievement are four broad
performance management objectives. For example, the plan indicates that
the agency will strengthen connections among accomplishments, awards,
13 U. S. General Accounting Office, Human Capital: A Self- Assessment
Checklist for Agency Leaders, GAO/ OCG- 00- 14G (Washington, D. C.:
September 2000). 14 U. S. General Accounting Office, Results- Oriented
Cultures: Creating a Clear Linkage Between Individual Performance and
Organizational Success, GAO- 03- 488 (Washington, D. C.: March 2003).
and performance feedback but does not yet provide details on how this will
be done, what resources are needed, and when it will be completed.
According to senior FERC officials, the agency*s current performance
system does not meaningfully differentiate between high and low
performers, and performance is not directly linked with annual pay
increases. Instead of awarding pay increases based on annual performance
appraisals, performance is rewarded through the use of bonuses
throughout the year. As a result, employees are rewarded for specific
events rather than their overall contribution to agency results. According
to FERC officials, this system was put in place to avoid the problem of
too many outstanding ratings. Given that FERC is one of only a small
number of agencies that have begun
efforts to address their human capital challenges by developing human
capital plans, FERC*s efforts are commendable. However, work remains to be
done to ensure FERC*s plan is successful. Varying senior FERC human
resources officials described the plan as having a *ways to go* or as a
*baby step.* As we previously discussed, the plan, at this point, provides
limited
information how the agency*s goals and objectives will be achieved. While
the plan includes strategies, it generally does not yet identify specific
activities, resources, and time frames. This type of information helps
provide more clarity of direction and organizational commitment as the
plan is being implemented. The plan also does not provide results-
oriented performance measures to help FERC gauge its progress in achieving
the plan*s goals and objectives. Our previous work has shown that
highperforming organizations recognize the fundamental importance of
developing and using indicators to measure both the outcomes of human
capital strategies and how these outcomes have helped the organizations
accomplish their missions and programmatic goals. For example, a human
capital plan can include measures that indicate whether the agency
executed its human capital initiatives* such as hiring, retention,
training, or performance management strategies* as intended, whether it
achieved
the goals for these strategies, and how these initiatives helped improve
programmatic results. Although FERC intends to review and update the plan
on a quarterly basis and revise it annually, it may be difficult to review
the plan*s progress in a meaningful way without this type of specificity.
FERC Continues to Use a In our June 2002 report, we noted that although
FERC had taken steps to
Wide Range of Human acquire and develop the staff knowledge and skills it
needed to effectively
Capital Flexibilities, and Is regulate and oversee energy markets, it had
not fully explored all the
Exploring Opportunities for human capital flexibilities that are available
to federal agencies for
responding to workforce challenges. All federal agencies, including FERC,
Additional Flexibilities
have personnel flexibilities and tools available to them to help overcome
workforce recruitment and retention issues. Many of these flexibilities
and tools can be initiated by federal agencies on their own, while others
require approval from the Office of Personnel Management, the Office of
Management and Budget, or the Congress. In our prior report, we found
that FERC was using a number of available flexibilities such as
recruitment bonuses, retention allowances, tuition reimbursement, and
alternative work schedules but had not requested other flexibilities that
could help improve recruitment and retention. Accordingly, we recommended
that FERC (1) identify the personnel tools, flexibilities, and strategies,
other than those already in use by FERC, available to federal agencies to
recruit and retain employees; (2) conduct an internal assessment of the
effectiveness and applicability of these to FERC; and (3) develop an
action plan to use the appropriate tools, flexibilities, and strategies to
recruit and hire needed expertise.
Since our prior report, FERC has expanded its use of some existing human
capital flexibilities to improve its ability to recruit and retain
employees. One example is FERC*s student loan repayment program. As one of
the first federal agencies to employ this flexibility, FERC has used a
total of $331, 499 to help 41 employees repay their student loans.
Participants in the program commit to staying at FERC for a minimum of 3
years. According to FERC officials, this program has been particularly
successful in retaining
attorneys, who often have high student loan debt. In addition, FERC has
expanded its use of recruitment and retention bonuses. For example, FERC
offered 10 retention bonuses in 2002 compared with 2 in 2001. FERC has
also given 75 recruitment bonuses of around $3,000 to $4,000 each to
attract qualified employees. As noted earlier, OMOI has typically offered
larger recruitment bonuses than other FERC offices because of the
specialized skills required to effectively monitor competitive energy
markets.
In addition, according to FERC*s human resources manager, the agency*s
senior human resources officials have identified additional human capital
flexibilities that could prove useful in attracting and retaining quality
employees and have assessed their applicability to FERC. However, the
Chairman of FERC has not yet decided which, if any, of these additional
flexibilities FERC will seek approval for from the Office of Personnel
Management, the Office of Management and Budget, or the Congress. As part
of their assessment, FERC officials examined the flexibilities in use at
agencies including the Internal Revenue Service, the Federal Aviation
Administration, the Securities and Exchange Commission, and the
Transportation Security Agency to identify lessons learned and strategies
for acquiring additional flexibilities. Senior FERC human resources
officials said that they may look to acquire many of the same
flexibilities currently available to the Securities and Exchange
Commission, a similar regulatory agency. However, these officials also
noted that FERC may have more difficulty obtaining approval for the
additional flexibilities because of its relatively low attrition rate, an
average of 7 percent since 1995. In contrast, the Security and Exchange
Commission, which has a turnover rate of around 30 percent, uses
compensation- based programs, such as special pay rates, more actively
than other government agencies.
Conclusions OMOI has made a credible start toward establishing an
oversight and enforcement capability for competitive energy markets.
Significantly, the
office recognizes that additional efforts are needed and has under way or
is planning a number of initiatives, including expanding its activities,
further identifying its information needs, and improving its working
relationships with the market monitoring units. While these initiatives
are important to OMOI*s success, the activities that the office needs to
engage in, the information and other resources it needs to carry out these
activities, and the working relationships it needs to establish with
others depend on the role that it has defined for itself to achieve its
mission. At this point, OMOI*s role lacks clarity in several respects. For
example, OMOI has not explicitly
and directly related its role and activities to the agency*s
responsibility for ensuring just and reasonable prices nor decided at what
level of detail it will review the markets. In addition, OMOI has not
clearly defined market power, although market power is a major oversight
concern and an issue that OMOI has to make sure is adequately addressed.
Moreover, OMOI has
not explicitly defined how it will work with others inside and outside of
FERC that either share energy market oversight responsibilities or have
related responsibilities.
OMOI is a new office with unique and broad responsibilities for overseeing
the nation*s energy markets. As such, its first months have been a
learning experience as it hired its staff and began to carry out its
activities. Thus, we
do not disagree with the office*s decision to begin its work with few
formal processes and written procedures as it, in effect, was developing
and
testing them. However, after almost a year, OMOI has added more staff, and
its oversight activities are becoming more complex. Establishing formal
processes and developing written procedures are important to help ensure
that they are systematic, understood, and implemented effectively. Formal
processes and written procedures also help provide assurances to OMOI*s
stakeholders that the office has fully thought through and is
systematically monitoring today*s energy markets.
Although FERC*s recently completed human capital plan begins to lay the
foundation for the agency to strategically manage its human capital, it
does not yet contain key elements that could increase the likelihood that
the plan will be effective. It generally does not identify specific
activities, resources, and milestones to implement the human capital
objectives. It also does not contain results oriented performance measures
that can help FERC measure progress toward achieving these objectives.
Setting out specific activities, resources, and milestones provide a
clearer road map for achieving the plan*s objectives and more clearly
defines the organizational commitment needed for the plan*s
implementation. Moreover, without
results oriented measures, FERC will be unable to determine whether its
initiatives are leading to better outcomes and achieving the desired
effects, such as whether its workforce is better able to meet the
challenges posed by competitive energy markets.
Recommendations for To help ensure that FERC*s oversight of competitive
energy markets is
Executive Action comprehensive and resources are effectively directed, we
recommend that
the Chairman of FERC more clearly define OMOI*s role in overseeing the
nation*s energy markets by taking the following actions:
Explicitly describe OMOI*s activities relative to carrying out the
agency*s statutory requirements to ensure just and reasonable prices and
to preventing market manipulation. Explicitly establish the level of
detail at which OMOI will routinely
review market transactions to carry out its oversight activities.
Delineate how other FERC offices and other organizations, including
the market monitoring units and other federal agencies, share in and
contribute to OMOI*s mission and establish expectations for how they will
work together.
To help ensure that OMOI carries out its role systematically and
effectively, we recommend that the Chairman of FERC direct OMOI to
establish formal processes and written procedures for its key activities.
To strengthen FERC*s human capital plan, we recommend that the Chairman of
FERC revise the agency*s plan to (1) identify specific activities,
resources, and time frames to implement the human capital initiatives and
(2) provide results- oriented measures to track the agency*s progress in
implementing the initiatives and evaluate their effectiveness.
Agency Comments We provided FERC with a draft of this report for review
and comment. In his written comments, the Chairman of FERC generally
agreed with the
report*s conclusions and recommendations. Specifically, the Chairman
stated that the report offers valuable advice for additional improvement
and accomplishment and that, in general, he agrees with the report on the
steps that are needed next to more clearly define the role of market
monitoring and expand the agency*s human capital initiative. The Chairman
further stated that he agrees that it is now time to formalize and
document
many of OMOI*s processes. The complete text of FERC*s comments on our
draft report is presented in appendix IV.
As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the report date. At that time, we will send copies to other appropriate
congressional committees; the Chairman, FERC; the Director, Office of
Management and Budget; and other interested parties. We also will make
copies available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http:// www. gao. gov.
If you or your staff have any questions about this report, please contact
me at (202) 512- 3841. Key contributors to this report are listed in
appendix V. Sincerely yours,
Jim Wells Director, Natural Resources and Environment
Appendi Appendi xes x I
Scope and Methodology To determine FERC*s progress in establishing an
oversight and enforcement capability for competitive energy markets, we
focused our review on the formation and operation of OMOI. We reviewed
pertinent FERC documents, including annual reports, budget requests,
strategic and annual performance plans, reports, speeches, and
congressional testimony by the FERC Chairman, commissioners, and other
officials relating to energy market oversight. We also reviewed OMOI
documents, including OMOI divisions* strategic plans, market oversight
reports, enforcement
reports, and information related to OMOI*s staffing levels and budget. In
addition, we interviewed OMOI managers at the division head level and
above, including the director and deputy directors of the office. We also
obtained the views of the heads of the four market monitoring units that
were operating at the time of our review on OMOI*s progress in
establishing a market oversight and enforcement capability at the national
level. Furthermore, we drew on our prior work in the areas of electricity
and natural gas markets. In addition to our document review and
interviews, we conducted a survey
of OMOI staff, up to and including those at the director and deputy
director level. The survey was conducted using a self- administered
electronic questionnaire posted on the World Wide Web. We sent E- mail
notifications to 92 OMOI staff beginning on March 24, 2003. We then sent
each employee who was surveyed a unique password by e- mail to ensure that
only
members of the target population could participate in our survey. We
closed the survey on April 11, 2003, having received a total of 80
responses, for an overall response rate of 87 percent. A copy of this
survey with the quantitative results can be found in appendix II.
While our survey results are generalizable to the current OMOI population
as described above, the practical difficulties of conducting surveys may
introduce errors into the results. Although we administered our survey to
all known members of the population of OMOI employees, and thus our
results are not subject to sampling error, nonresponse to the entire
survey or individual questions can introduce a similar type of variability
or bias into our results* to the extent that those not responding differ
from those who do respond in how they would have answered our survey
questions. We took steps in the design, data collection, and analysis
phases of our
survey to minimize population coverage, measurement, and dataprocessing
errors, such as checking our population list against known totals of
employees, pretesting and expert review of questionnaire questions, and
follow- up with those not immediately responding.
To determine FERC*s progress in improving agencywide human capital
management, we reviewed pertinent FERC documents, including the agency*s
human capital plan and information related to the agency*s training, human
capital flexibilities, and performance management programs. In addition,
we interviewed senior human resources officials at
FERC, including FERC*s Executive Director. We conducted our work between
October 2002 and June 2003 in accordance with generally accepted
government auditing standards.
GAO Survey of Current FERC Employees in the Office of Market Oversight and
Appendi x II
Investigations This appendix contains the questions and responses from our
survey of Federal Energy Regulatory Commission (FERC) employees in the
Office of Market Oversight and Investigations. Responses are expressed as
a percentage of those responding to the survey.
United States General Accounting Office
Survey of FERC Office of Market Oversight and Investigations Employees
Introduction The U. S. General Accounting Office ( GAO) , an independent
agency of Congress, is conducting a follow- up review of management issues
at the Federal Energy Regulatory Commission ( FERC) . As part of our
study, we are soliciting the views of the FERC staff in the Office of
Market Oversight and Investigations to obtain their opinions about a
variety of topics relating to the work of the FERC.
Most of the questions in this survey can be answered by checking boxes or
filling in blanks. Space has been provided at the end of the survey for
any additional comments. The survey should take about 20 minutes to
complete.
GAO will take steps to prevent the disclosure of individually identified
data from this survey. Only GAO staff assigned to this study can access
and view your responses. No one at the FERC will see your individual
responses.
The username and password associated with the survey is included only to
allow you to access the survey and enter your responses, and to aid us in
our follow- up efforts. Survey results will be reported in summary form.
If individual answers are discussed in our report, no information will be
included that could be used to identify individual respondents.
If you have any questions or are experiencing difficulties responding to
the questionnaire, please contact Adam Hoffman at ( 202) 512- 6667 or
hoffmana@ gao. gov or Jason Holliday at ( 202) 512- 4582 or
hollidayj@ gao. gov
Your participation is very important and we urge you to complete this
survey. We cannot provide meaningful information to the Congress on these
issues without your frank and honest answers.
Thank you for your time and assistance. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Please
refer to the following definitions when completing this survey:
Office - Refers to the Office of Market Oversight and Investigations (
OMOI)
Division - Refers to a division within OMOI such as the Division of Energy
Market Oversight, Division of Management and Communication, etc.
Background Information
The objective of this section is to obtain general information about your
current position with FERC.
1. How long have you been employed by FERC, including its predecessor, the
Federal Power Commission?
( Check one. ) 19% Less than 6 months 16% 6 to 11 months 15% 1 to 5 years
6% 6 to 10 years 24% 11 to 20 years 20% More than 20 years 0% No basis to
judge
2. Which of the following generally describes your current area of work? (
Check one. )
8% Accountant/ Auditor/ Examiner 13% Economist ( Industry, Financial, etc.
) 3% Engineer ( Electrical, Mechanical, Petroleum, etc. ) 38% Energy
Industry Analyst 11% Other Analyst ( Financial, Budget, Operations
Research, Program Management, etc. ) 0% Information Technology Specialist
23% Attorney 6% None of the above
If you checked " None of the above" , please enter your current area of
work in the space provided.
Organizational Effectiveness
The objective of this section is to obtain information about OMOI' s
effectiveness in meeting its mission goals and objectives.
3. In general, how clear or unclear to you are each of the following? (
Check one in each row. )
Very Somewhat Somewhat
Very No basis
clear clear
unclear unclear
to judge a. FERC' s overall mission/ goals and objectives 60% 38% 3% 0% 0%
b. OMOI' s goals and objectives 44 35 18 4 0 c. Your division' s goals and
objectives 47 25 18 9 1 d. Your current duties and responsibilities 48 33
16 4 0
4. In general, with regard to oversight and enforcement of wholesale
electricity markets , overall, how effective or ineffective is OMOI in
doing the following: ( Check one in each row. )
Very Somewhat
Neither Somewhat
Very No effective
effective effective
ineffective ineffective
basis nor
to ineffective judge a. Monitoring wholesale electricity markets to
13% 43% 11% 16% 3% 15% determine whether prices are just and reasonable b.
Analyzing spikes in wholesale electricity prices
31 30 10 9 0 20 to determine their cause c. Responding appropriately to
the causes of
20 31 14 14 1 20 wholesale electricity price spikes d. Detecting market
power abuses in wholesale 11 36 14 20 3 16
electricity markets e. Correcting detected market power abuses in 14 23 15
18 9 23 wholesale electricity markets f. Identifying problems concerning
wholesale
21 34 13 20 1 11 electricity market structure and rules g. Remedying
problems concerning wholesale 15 23 20 14 10 19
electricity market structure and rules h. Resolving complaints and
disputes among 32 32 11 4 3 19 electricity market participants quickly and
fairly i. Enforcing violations of FERC' s requirements
19 32 10 11 4 24 relating to wholesale electricity markets Please enter
any other issue regarding the oversight and enforcement of wholesale
electricity markets that you feel should have been listed above concerning
OMOI' s level of effectiveness.
5. In general, with regard to oversight and enforcement of wholesale
natural gas markets , overall, how effective or ineffective is OMOI in
doing the following: ( Check one in each row. )
Very Somewhat
Neither Somewhat
Very No effective
effective effective
ineffective ineffective
basis nor
to ineffective judge a. Monitoring wholesale natural gas markets to
18% 40% 10% 11% 3% 19% determine whether prices are just and reasonable b.
Analyzing spikes in wholesale natural gas prices
33 35 5 9 1 18 to determine their cause c. Responding appropriately to the
causes of
24 31 13 11 3 19 wholesale natural gas price spikes d. Detecting market
power abuses in wholesale 10 35 15 14 1 25
natural gas markets e. Correcting detected market power abuses in 15 22 14
17 5 28 wholesale natural gas markets f. Identifying problems concerning
wholesale
23 33 13 10 3 20 natural gas market structure and rules g. Remedying
problems concerning natural gas
16 21 20 10 6 26 market structure and rules h. Resolving complaints and
disputes among
35 25 9 4 1 25 natural gas market participants quickly and fairly i.
Enforcing violations of FERC' s requirements
21 31 9 6 1 31 relating to wholesale natural gas markets Please enter any
other issue regarding the enforcement and oversight of wholesale natural
gas markets that you feel
should have been listed above concerning OMOI' s level of effectiveness.
6. Would you agree or disagree with the following statements as they
relate to management/ resources issues in OMOI? ( Check one in each row. )
Strongly Agree Neither
Disagree Strongly No agree
agree nor disagree
basis disagree
to judge a. Top OMOI management has established effective
13% 40% 13% 24% 4% 8% processes and procedures to oversee wholesale
electricity markets. b. Top OMOI management has established effective
10 41 18 16 6 9 processes and procedures to enforce wholesale
electricity market rules. c. Top OMOI management has established effective
11 41 10 18 4 16 processes and procedures to oversee wholesale
natural gas markets. d. Top OMOI management has established effective
10 36 18 11 6 19 processes and procedures to enforce wholesale
natural gas market rules. e. My immediate manager( s) provides clear and
34 34 13 16 4 0 concise direction. f. Top management has clearly defined
what role
18 39 11 23 9 0 OMOI is going to play in monitoring markets. g. Staffing
levels in OMOI are satisfactory. 3 19 25 34 15 5
h. The employee skill mix in OMOI is adequate. 9 36 18 26 9 3 i.
Information technology support and services are
15 38 27 17 4 0 satisfactory. j. OMOI maintains a strong focus on
achieving the
30 37 18 6 6 3 FERC' s mission. k. OMOI has set clear performance
expectations. 28 38 17 11 6 0
l. OMOI is able to retain quality employees. 9 26 23 16 16 10 Please enter
any other issues regarding management/ resources issues in OMOI you feel
should have been listed above.
7. Would you agree or disagree with the following statements as they
relate to data/ knowledge requirements issues in OMOI? ( Check one in each
row. )
Strongly Agree Neither
Disagree Strongly No agree
agree nor disagree
basis disagree
to judge a. Staff understands what data are required to 13% 46% 19% 9% 4%
10%
effectively oversee wholesale electricity markets. b. Staff understands
what data are required to 13 44 20 9 3 11 effectively enforce wholesale
electricity market rules. c. Staff understands what data are required to
16 39 20 4 4 18
effectively oversee wholesale natural gas markets. d. Staff understands
what data are required to 14 41 20 4 3 19 effectively enforce wholesale
natural gas market rules. e. Staff has adequate access to data on
electricity
5 36 20 25 5 9 market performance. f. Staff has adequate access to data on
natural gas
6 33 20 23 5 14 market performance. g. Staff has adequate knowledge of, or
experience with
5 40 22 21 4 9 overseeing competitive electricity markets.
h. Staff has adequate knowledge of, or experience with 9 45 18 14 3 13
enforcing market rules in competitive electricity markets. i. Staff has
adequate knowledge of, or experience with
8 45 21 9 3 15 overseeing competitive natural gas markets. j. Staff has
adequate knowledge of, or experience with
11 46 17 5 3 19 enforcing market rules in competitive natural gas
markets. k. Staff understands the integration of gas and
19 48 18 10 0 5 electricity markets. l. Staff understands the relationship
between financial
14 42 25 14 0 5 markets and energy markets.
8. Would you agree or disagree with the following statements as they
relate to authority issues in FERC?
( Check one in each row. )
Strongly Agree Neither
Disagree Strongly No agree
agree nor disagree
basis disagree
to judge a. FERC should have authority to enforce reliability
35% 44% 11% 3% 0% 8% rules for electricity. b. FERC should have additional
authority to require
51 40 1 3 0 5 submission/ sharing of data from Independent System
Operators.
c. FERC should have additional authority to levy 69 23 3 0 0 6
penalties. d. FERC should have additional authority to collect 69 24 1 1 0
5 necessary data to oversee energy markets and
enforce market rules. Please enter any other issues regarding authority
issues in FERC you feel should have been listed above.
When answering the next question, please recall how we defined division
earlier in the survey: Division - Refers to a division within OMOI such as
the Division of Energy Market Oversight, Division of Management and
Communication, etc.
9. Thinking about your current division in OMOI, would you agree or
disagree with the following statements?
( Check one in each row. )
Strongly Agree Neither
Disagree Strongly No agree
agree nor disagree
basis disagree
to judge a. My division has clearly defined its goals and
24% 35% 19% 18% 4% 1% objectives. b. My division currently has adequate
staff to do its
1 26 25 36 6 5 work. c. The staff in my division have the skills needed to
do
15 54 15 8 3 5 their jobs well. Please enter any other issues regarding
your current division in OMOI you feel should have been listed above.
10. In your opinion, would additional training in the following subject
areas assist you in overseeing energy markets and enforcing market rules?
( Check one in each row. )
Additional Additional
I feel I' m Training in No basis training
training already
this area would to judge
would would
proficient in not be assist me assist me this area
applicable to greatly somewhat
the work I do a. Basic economic principles/ definitions 8% 27% 53% 6% 6%
b. Economic theory/ models 11 41 34 9 5 c. Regulatory theory/ process 11
33 43 8 5 d. Market functions 18 52 24 3 4 e. Market structures 22 49 23 3
4 f. Statistical software packages such as SAS or
10 38 15 32 5 SPSS g. Understanding how financial markets interact
34 42 15 6 3 with energy markets ( including trading,
hedging, derivatives, and financial instruments) In the space provided,
please enter any other training that you believe would assist you in
overseeing energy markets and enforcing market rules.
Morale and Work Environment
The objective of this section is to obtain your views on morale and the
general work environment in OMOI.
11. Overall, how would you characterize the current level of morale in
OMOI? ( Check one. )
6% Very high 43% Generally high 15% Neither high nor low 21% Generally low
10% Very low 5% No basis to judge
12. Specifically, how satisfied or dissatisfied are you with each of the
following communication issues as they relate to your current work
environment? ( Check one in each row. )
Very Somewhat
Equally Somewhat
Very No satisfied
satisfied satisfied
dissatisfied dissatisfied
basis as
to dissatisfied judge a. Communication between the Chairman and
14% 33% 15% 11% 8% 20% OMOI b. Communication between the Commissioners
9 25 18 13 9 27 ( not including the Chairman) and OMOI c. Communication
between OMOI' s top
31 21 9 14 18 8 management and my division d. Communication between
different divisions 23 26 15 18 13 6
within OMOI e. Communication with offices within FERC 3 23 14 28 22 10
other than my own f. Communication between management of
4 21 15 19 23 19 different offices within FERC g. Communication with other
federal agencies 9 29 21 11 5 25
h. Communication with state agencies 8 21 23 8 5 36 i. Communication with
Market Monitoring 20 33 15 5 4 24
Units 13. Specifically, how satisfied or dissatisfied are you with each of
the following cooperation issues as they relate to your current work
environment? ( Check one in each row. )
Very Somewhat
Equally Somewhat
Very No satisfied
satisfied satisfied
dissatisfied dissatisfied
basis as
to dissatisfied judge a. Cooperation between different divisions in
32% 28% 17% 14% 5% 5% OMOI b. Cooperation with offices within FERC other
5 22 27 27 10 10 than my own c. Cooperation between management of 4 18 21
29 14 15
different offices within FERC d. Cooperation with other federal agencies 8
30 23 13 1 26 e. Cooperation with state agencies 6 23 20 10 3 39 f.
Cooperation with Market Monitoring Units 21 25 13 6 4 31
14. Specifically, how satisfied or dissatisfied are you with each of the
following leadership/ change issues as they relate to your current work
environment? ( Check one in each row. )
Very Somewhat
Equally Somewhat
Very No satisfied
satisfied satisfied
dissatisfied dissatisfied
basis as
to dissatisfied judge a. Leadership provided by Commissioners and
13% 34% 20% 16% 9% 9% office directors at FERC b. Leadership/ supervision
that I directly receive
34 29 10 16 6 5 from my division in OMOI c. Organizational changes within
OMOI 13 20 18 18 9 24
d. Changes in my job duties as a result of 20 14 21 8 5 33
organizational changes 15. Specifically, how satisfied or dissatisfied are
you with each of the following resources/ rewards issues as they relate to
your current work environment? ( Check one in each row. )
Very Somewhat
Equally Somewhat
Very No satisfied
satisfied satisfied
dissatisfied dissatisfied
basis as
to dissatisfied judge a. Availability of resources ( i. e. , budget,
13% 36% 23% 15% 13% 1% technology, staff, etc. ) necessary to do my job
b. Availability of rewards for job performance 6 20 15 19 19 21
in OMOI In the space provided, please enter any other issues related to
your current work environment that you would like to mention.
16. Thinking about the issues covered in the previous few questions
concerning your current work environment, overall, how satisfied or
dissatisfied are you with the work environment in OMOI? ( Check one. )
20% Very satisfied 36% Generally satisfied 15% Equally satisfied as
dissatisfied 19% Generally dissatisfied 10% Very dissatisfied 0% No basis
to judge
17. 18. 19. 20. 1% 2% Do you plan to leave FERC through retirement or
resignation, within one of the following time periods?
( Check one. ) 3% Less than 1 year 6% 1 to less than 2 years 4% 2 to less
than 3 years 5% 3 to less than 5 years 35% I have no plans to leave FERC
within the next 5 years 45% Unsure at this time 3% No basis to judge
Creation of OMOI
The objective of this section is to obtain your views on the creation of
OMOI. Were you employed by FERC before the creation of OMOI in 2002? (
Check one. )
64% Yes
21. 22. 23. Comments
Here you are provided an opportunity to provide additional comments or
suggestions. If you have any additional comments relating to any of the
issues raised in this questionnaire, please enter them in the space
provided
If you have any additional suggestions not noted elsewhere on this
questionnaire about how FERC or OMOI can improve operations, please enter
them in the space provided. Final Survey Question - Be sure to answer this
when survey is complete.
If you have completed the questionnaire, please check the " Completed" box
below.
Please note: You must answer " Completed" for your answers to be included.
Clicking " Completed" is equivalent to " mailing" your questionnaire. It
lets us know that you are finished, and that you want us to use your
answers. It also lets us know not to send you any follow- up messages
reminding you to complete your questionnaire.
FERC*s Approach to Addressing Market Manipulation Schemes and Other
Potentially
Appendi x III
Noncompetitive Actions This appendix contains the Federal Energy
Regulatory Commission*s (FERC) response to our questions concerning how
the agency*s new market oversight approach will detect certain market
manipulation schemes, such as the ones used by the Enron Corporation, and
other potentially noncompetitive actions. (See table 5.) For each of these
schemes or types of actions, Office of Market Oversight and Investigations
(OMOI) officials provided the (1) FERC office or other organization
responsible for detecting it, (2) type of oversight used, and (3) type/
source of data used. We received this information from OMOI officials in
April 2003.
Table 5: FERC*s Approach to Addressing Market Manipulation Schemes and
Other Potentially Noncompetitive Actions Organization/ office responsible
for
Type of oversight Type/ source of data Type of action Description of
action
detecting action used to detect action used to detect action Electricity
markets Enron schemes
Scheduling A company owns transmission rights Not applicable for all
Review of detailed Schedule and bid data. fictitious load to
on a transmission path connecting two markets except the
market data. receive separate areas or *zones.* In a California ISO, a the
CAISO congestion schedule that it submits to the
market monitor is payments.
transmission provider, the company responsible for detecting.
artificially overschedules load in one (Enron*s *load zone and
underschedules load in the shift* scheme)
other zone. This fictitious schedule creates the appearance of congestion
on the transmission path. The company then reschedules its load by
*shifting* the overscheduled load to the
other zone, which appears to relieve the congestion, and is paid by the
transmission provider for doing so.
Scheduling A company artificially increases load
Not applicable for all Review of detailed Schedule and bid data.
fictitious load to
on a schedule it submits to the markets except the
market data. manipulate transmission provider to correspond California
ISO, b the CAISO electricity prices. with the amount of generation in its
market monitor is schedule. The company then
responsible for detecting. (Enron*s *fat boy*
generates electricity in real time that is scheme)
in excess of its actual load. As a result, the transmission provider pays
the company for excess generation at the market clearing price established
in the real- time electricity market.
(Continued From Previous Page)
Organization/ office responsible for Type of oversight
Type/ source of data Type of action Description of action
detecting action used to detect action used to detect action
Scheduling In a schedule that it submits to the Not applicable for all
Review of detailed Schedule and bid data. fictitious
transmission provider, a company markets except the
market data. generation to schedules the transmission of California ISO, c
the CAISO receive
electricity in the opposite direction of market monitor is
congestion congestion on a transmission path.
responsible for detecting. payments.
The company then collects payments from the transmission provider for
(Enron*s *death
appearing to relieve congestion. star* scheme)
However, the company does not actually put electricity on the grid or take
it off. Ancillary
A company commits to provide ISO/ RTO market Verification of physical
Supplier bidding and services sellback
ancillary services that it does not have monitoring units ability to
supply unit operational (i. e., selling *short*) to the day- ahead
reserves. d performance data. (Enron*s *get
market, with the intention of buying shorty* scheme)
back this capacity in the hour- ahead market at a lower price. This scheme
is also known as *paper trading,* in the sense that the trader does not
have physical resources to back up the trade.
Megawatt A company buys electricity from the
NA (This scheme exploited features of the California Market rules before
laundering
day- ahead market and exports it to a 6/ 20/ 2001, but most of those
features have been eliminated in recent market second company, which
receives a fee
rules.) e (Enron*s
from the first company. The electricity *ricochet*
is later resold back to the transmission scheme)
provider in the real- time market at a higher price.
Withholding
Withholding A company withholds electricity from
ISO/ RTO market 1. Reduce potential General monitoring: capacity the
market to create an artificial
monitoring units, OMOI with good market electric market price
(physical shortage of electricity, which increases
(Withholding is much more rules. and supply data.
withholding) real- time prices.
difficult to detect for non 2. General Specific investigations:
ISO markets.) monitoring of the
plant specific and health of electric industrywide outage markets.
data 3. Specific investigations:
review of historical outage data, on site audits, complaint
and hotline calls. f
(Continued From Previous Page)
Organization/ office responsible for Type of oversight
Type/ source of data Type of action Description of action
detecting action used to detect action used to detect action
Withholding A company submits an inflated bid for ISO/ RTO market 1.
Reduce potential
General monitoring: capacity providing electricity to the day- ahead
monitoring units, OMOI with good market electric market price
(economic market. The inflated bid creates the (Withholding is much more
rules.
and supply data. withholding)
perception of a shortage of electricity, difficult to detect for nonISO 2.
General Specific investigations:
which increases real time prices. markets.)
monitoring of the bid data, generator
health of electric production cost data
markets. (unit heat rate, fuel
3. Specific costs, start- up costs, investigations: O& M). review of bids
compared
expected bid thresholds, complaints and hotline calls. g
Discrimination
Discriminatory A privately owned utility sells power to
OMOI (Discrimination is Complaints, hotline EQR data, company pricing
practices an affiliated power marketer at prices
much more of a problem calls, analysis of
records lower than it sells to nonaffiliated
and more difficult to detect Electronic Quarterly buyers.
for non- ISO markets.) Reports (EQR) data, audits. h
Discriminatory A transmitting utility uses its control of
OMOI, OMTR Complaints, hotline OASIS data, company access practices
transmission facilities and system
(Discrimination is much calls, audits records operations to limit market
access of
more of a problem and competitors in capacity and energy more difficult to
detect for markets.
non- ISO markets.)
Other noncompetitive actions
Control of assets A company assigns control of OMOI, OMTR Complaints,
hotline Company records jurisdictional assets (e. g., a trading calls,
audits platform) to another company without
receiving prior FERC approval. Sleeve trading A company acts as a
middleman (or OMOI, OMTR, market Complaints, hotline Company records, EQR
*sleeve*) between two affiliates of a monitoring units calls, audits,
analysis data parent company in order to allow
of EQR data transactions to proceed that affiliates would be forbidden to
undertake directly.
Fraudulent An electric utility holding company
OMTR, i OMOI Complaints, hotline Company records ownership of a uses
fraudulent financial arrangements
calls, audits qualifying facility to own a qualifying facility, which is
exempt from certain state and federal regulations. The qualifying facility
then applies for recertification with FERC as
a qualifying facility.
(Continued From Previous Page)
Organization/ office responsible for Type of oversight
Type/ source of data Type of action Description of action
detecting action used to detect action used to detect action Gas markets
Withholding
Withholding A pipeline company withholds
OMOI When OMOI observes
Basis differential capacity
operationally available capacity from Pipeline customers unusual basis
observed from daily (physical
the market. This withholding of differentials, pipelines
reported prices withholding of capacity creates an artificial shortage are
contacted to published in the trade pipeline capacity)
of capacity, which increases basis ascertain flow levels press.
differential. This could lead to higher
vs. capacity and get an downstream prices or to reduced explanation for
why upstream prices.
capacity not offered. Withholding
A company owning natural gas in OMOI General monitoring of General gas
storage, capacity
storage elects to keep the gas in the health of gas gas market price and
(physical storage rather than withdraw it for sale.
markets supply data. withholding of
This withholding of capacity creates an storage artificial shortage of
gas, which withdrawals)
increases overall gas prices in the marketplace.
Withholding A producer elects to keep its gas in the
OMOI General monitoring of General gas market capacity
ground rather than offering it for sale. (FERC has no jurisdiction the
health of gas
price and supply data. (physical
This withholding of capacity creates an over gas production.) markets (If
OMOI withholding of
artificial shortage of gas, which determines that gas production)
increases overall gas prices in the withholding by marketplace. producers
is raising prices or threatening deliverability, we would
alert the FTC and DOJ.)
Other noncompetitive actions
Communicating A pipeline shares information about its OMOI
Monitor and audit Data requests and market
capacity with an affiliated marketer, Pipeline customers pipeline internal
interviews with information from
which is able to use the information to information controls. company
personnel. pipelines to
gain more advantageous positions in a Maintain contacts with marketing
marketplace than its competitors. market participants affiliates.
who may notice abnormalities.
Financial markets
Manipulating A company uses its dominant position CFTC, OMOI Compare
trading CFTC receives trading physical
within a market to manipulate prices in positions of players to position
data from marketplaces to
physical markets in order to affect assess whether a NYMEX. FERC can
affect prices in
associated financial markets. trader attempted to subpoena information.
financial
corner the market, or marketplaces.
took unusual physical or financial positions.
(Continued From Previous Page)
Organization/ office responsible for Type of oversight
Type/ source of data Type of action Description of action
detecting action used to detect action used to detect action
Providing false A company deliberately reports
CFTC, DOJ, OMOI Observe daily prices Published daily prices data about
prices
inaccurate natural gas prices to the for unusual patterns,
and filed reports. or volumes to reporting firms (i. e., private, request
trading Company records and index publishers.
commercial companies such as Platts transaction data to
EQR data. and Bloomberg that report electricity
compare to reports and natural gas prices) in order to made to reporting
manipulate the reported prices data.
firms. Audits, analysis of EQR data
Wash trading Wash trades are transactions that give CFTC, DOJ, OMOI
Observe daily prices
Published daily prices the appearance of sales and
(Wash trading of physical for unusual patterns,
and filed reports. purchases, but which are initiated gas may be wrong,
but it
request trading Company records and without the intent to make a bona fide
is not illegal.) transaction data to
EQR data. transaction and which generally do not
compare to reports result in any actual change in
made to reporting ownership or the trader*s market firms. Audits, analysis
position.
of EQR data Manipulating A company uses its electronic trading CFTC, DOJ,
OMOI Monitor trading
Interview trading trading platforms platform to obtain a competitive
platform structure and company employees, advantage and to distort
published controls. Audits.
market participants. market price indices for natural gas Company records.
and electricity. Source: FERC.
Note: We prefer to prevent or minimize the potential for noncompetitive
actions with good market structure, design, and rules. a The *Load Shift*
scheme was tailored to take advantage of flaws in the California market
design, particularly its congestion management system. That is, the scheme
depended on the development of
a day- ahead schedule for power purchases without determining whether that
day- ahead schedule was physically feasible. In real time, the California
ISO made payments to entities to relieve *virtual* congestion. This
created an incentive for a market participant to create congestion in the
day- ahead schedule so that the same entity would be paid to relieve that
congestion in real time.
Currently, however, PJM Interconnection, New York ISO, ISO- New England,
and ERCOT use a different congestion management system (i. e., locational
marginal pricing), together with a physically feasible and financially
binding day- ahead schedule that make the schemes infeasible. The use of a
locational congestion management system ensures that all transmission
constraints are considered in developing day- ahead schedules, and any
congestion is reflected in the prices for energy and transmission
services. Thus, there is no need for transmission providers (e. g., ISOs)
to make separate payments in real time to relieve congestion in the day-
ahead schedule, as there was in California.
Moreover, the day- ahead schedules under current ISO markets, except the
CAISO, are financially binding so that a marketer that changed its
schedule in real time would still be financially liable for its day- ahead
schedule. This eliminates opportunities and incentives for the *load
shift* scheme that relies on differences between day- ahead and real- time
prices.
Although the load shift scheme may not be directly applicable to the
current ISO markets, it has been recognized in certain ISO markets (e. g.,
PJM) that market participants might try to take advantage of virtual
bidding, which is allowed in some ISO markets, to create fictitious
congestion to collect Financial Transmission Right (FTR) revenue in a day-
ahead market. PJM currently has market rules and screening mechanisms in
place to deal with this type of manipulation. To the extent that remedying
this type of trading scheme in the current ISO markets involves detecting
the manipulative behavior and changing of market rules, collaborative work
among OMOI, OMTR, and regional MMUs may be required.
b The Enron- type *fat boy* trading scheme was premised on submitting
false scheduling information, artificially increasing load on a schedule
it submited to the Cal ISO in an attempt to take advantage of the fact
that the three California public utilities, especially PG& E, habitually
under- scheduled their load in the day- ahead market (Cal PX) in an effort
to minimize their procurements costs. Currently, however, the other ISO
markets (New York ISO, PJM, and ISO New England,) do not require load or
generation
to submit balanced day- ahead schedules. Therefore, such a scheme is not
viable in these markets. ISOs have scheduling requirements and entities
that do not follow them are subject to penalties under ISO tariffs. c The
*Death Star* scheme was tailored to take advantage of flaws in the
California market design,
particularly its congestion management system. That is, the scheme
depended on the development of a day- ahead schedule for power sales
without determining whether that day- ahead schedule was physically
feasible. In real time, the California ISO made payments to entities to
relieve *virtual* congestion. This created an incentive for a market
participant to create congestion in the day- ahead schedule so that the
same entity would be paid to relieve that congestion in real time. This is
not a viable scheme under current rules of operating markets.
Currently, however, PJM Interconnection, New York ISO, ISO- New England,
and ERCOT use a different congestion management system (i. e., locational
marginal pricing), together with a physically feasible and financially
binding day- ahead schedule that make the schemes infeasible. The use of a
locational congestion management system ensures that all transmission
constraints are considered in developing day- ahead schedules, and any
congestion is reflected in the prices for energy and transmission
services. Thus, there is no need to for transmission providers (e. g.,
ISOs) to make separate payments in real time to relieve congestion in the
day- ahead schedule, as there was in
California. Moreover, the day- ahead schedules under current ISO markets
are financially binding so that a marketer that changed its schedule in
real time would still be financially liable for its day- ahead schedule.
This eliminates opportunities and incentives for the *death star* scheme
that relies on differences between day- ahead and real- time prices.
Although the death star scheme may not be directly applicable to the
current ISO markets, however, it has been recognized in certain ISO
markets (e. g., PJM) that market participants might try to take advantage
of virtual bidding, which is allowed in current ISO markets, to create
fictitious congestion to
collect Financial Transmission Right (FTR) revenue in a day- ahead market.
PJM currently has market rules and screening mechanisms in place to deal
with this type of manipulation. To the extent that remedying this type of
trading scheme in the current ISO markets involves detecting the
manipulative behavior and changing of market rules, collaborative work
among OMOI, OMTR, and regional MMUs may be required. d This scheme
depended on Enron committing fraud by claiming to have capacity resources
when they did not. This may only be used in markets where participants may
financially trade ancillary services
(reserves) in both the day- ahead and real- time markets. In current ISO
markets, financial offers of ancillary service are not permitted. Only
physical providers of services may bid, and their performance is subject
to ISO/ RTO verification and oversight by the market monitoring unit. e
Prior to 6/ 20/ 2001, a generator in California could produce energy or a
marketer could buy energy,
ship it out of state, and cause it to be shipped back in- state in the
real- time market, in order to avoid a price cap on in- state electricity.
This situation is no longer relevant in California, due to the imposition
of a west- wide mitigation plan. Imposition of a bid cap eliminates the
difference in treatment of electricity supplies, depending on their source
and thus the profit- making opportunity associated with this scheme.
Megawatt laundering is not relevant within or between Northeastern ISO or
RTO markets, as supplies are not subject to different price caps in these
locations. This problem can be avoided in the future through greater
consistency of market power mitigation rules across regions. The movement
of energy to market locations is a good thing in functional markets as
such market arbitrage can enhance market
efficiency. f We have a three- part strategy for addressing physical
withholding. First, good market rules can help
reduce the potential for physical withholding, as long as the rules do not
undermine competition. In establishing rules, it is important to provide
clear guidance on what constitutes physical withholding. Examples of rules
in place in some ISO markets include: resource adequacy, special contracts
for generators in load pockets, market mitigation procedures, and *must
offer* provisions.
Second, outside load pockets, physical withholding is a concern only when
supply is tight. By monitoring supply and demand conditions in electricity
markets, OMOI can watch for conditions where physical withholding is most
likely to occur. Third, when these *tight* market conditions occur, market
monitoring units and OMOI can review outage data. The market monitoring
units are responsible for monitoring for physical withholding in the
organized markets. The comparison of quantities bid to historical offer
thresholds is a first step in order to help determine if withholding
conduct is occurring. Actual output may be compared to thresholds for
output and for deratings. The thresholds are generally based upon "normal"
levels of output for individual units. When a unit is derated or has an
unscheduled outage, physical inspections or audits may be used to ensure
that the outage is legitimate.
Outside the organized markets, OMOI is the entity responsible for
monitoring for physical withholding of electric supply. Given the number
of potential market players, detecting this type of physical withholding
depends on complaints and hotline calls. g We have a three- part strategy
for addressing economic withholding. First, good market rules can help
reduce the potential for economic withholding, as long as the rules do not
undermine competition. In establishing rules, it is important to provide
clear guidance on what constitutes economic withholding. Examples of rules
in place in some ISO markets include: resource adequacy, special contracts
for generators in load pockets, and market mitigation.
Second, outside load pockets, economic withholding is a concern only when
supply is tight. By monitoring supply and demand conditions in electricity
markets, OMOI can watch for conditions where economic withholding is most
likely to occur. Third, when these market conditions occur, market
monitoring units and OMOI can review bid and generator production cost
data. The market monitoring units are the entities responsible for
monitoring
for economic withholding within the ISOs and RTOs. They do so by comparing
the offer information to thresholds for anticipated offer behavior
(expected bids given historical norms, often adjusted for fuel prices). If
the entities exceed the thresholds for offers, the ISO or RTO may then see
if the withholding has affected the market prices.
Outside the RTOs and ISOs, it would be very difficult to determine when
economic withholding occurred, rather than simply scarcity pricing for a
scarce resource. Economic withholding may be associated with withholding
of transmission capacity to keep the buyer from reaching other market
alternatives. OMOI is responsible for monitoring for such withholding, and
uses the complaint and hotline processes to determine when it is
occurring. h This is defined to be a situation in which a privately owned
utility sells power to an affiliated power
marketer at lower prices than it sells to other nonaffiliated buyers. This
situation pertains to bilateral markets, because in organized RTO and ISO
markets, the seller does not choose either the party to which it sells,
nor can it differentiate across buyers. In the bilateral markets, the
seller has an incentive to provide power at a discount to an affiliate
when the seller can charge other sellers more through regulated rates.
OMOI is the organization responsible for monitoring for discriminatory
pricing. Until now, we have been monitoring primarily by reviewing
complaints which have been filed with the Commission and responding to
hotline calls. With the Electric Quarterly Report data now organized in a
data base, OMOI staff can analyze the information to check for differences
between affiliated and non- affiliated transactions. Additionally, OMOI
will be auditing transactions to check for evidence of affiliate abuse. i
The Office of Markets, Tariffs, and Rates (OMTR) reviews notices of self-
certification of qualifying
status or applications for Commission certification of qualifying facility
status, which are subject to the ownership criteria of 18 C. F. R. 292.206
among other requirements.
Comments from the Federal Energy
Appendi x IV Regulatory Commission
Appendi x V
GAO Contacts and Staff Acknowledgments GAO Contacts Jim Wells (202) 512-
3841 Dan Haas (202) 512- 9828 Staff
In addition to the individuals named above, Adam Hoffman, Jason Holliday,
Acknowledgments
and Raymond Smith made key contributions to this report. Important
contributions were also made by Stuart Kaufman, Ellen Rubin, and Barbara
Timmerman.
(360280)
Report to the Ranking Minority Member, Committee on Governmental Affairs,
U. S. Senate
August 2003 ENERGY MARKETS Additional Actions Would Help Ensure That
FERC*s Oversight and Enforcement Capability Is Comprehensive and
Systematic
GAO- 03- 845
a
GAO United States General Accounting Office
FERC has made strides in putting an energy market oversight and
enforcement capability in place, but work remains to ensure that its
efforts will be comprehensive and systematic. Since FERC declared OMOI
functional in August 2002, the office has focused primarily on outlining
its vision, mission, and primary functions; developing basic work
processes; integrating its use of an array of tools to oversee the
markets; and hiring staff with market experience. OMOI is also assessing
its data needs and developing its working relationships with others, such
as the industry*s market monitoring units. Nonetheless, the office still
has work to do in the following two key areas:
Clearly defining its role. OMOI has not clearly defined its role and the
activities that it will engage in to achieve its mission. For example, the
office has not yet decided on the level of detail at which it will review
electricity markets. This decision has substantial implications for the
office*s data, technology, resource, and staff skill mix needs.
Developing formal processes and written procedures. OMOI*s processes are
largely informal and ad hoc, and it has few written procedures to ensure
that its efforts are coordinated, systematic, understood by its staff, and
transparent to its stakeholders.
Although OMOI has had some early accomplishments* such as a $20 million
civil penalty against a company for anticompetitive behavior* it is
difficult to judge how effective the office will be until its role and
major processes are clearly set out.
FERC is also making progress toward addressing its considerable human
capital management challenges, but additional actions could increase its
likelihood of success. FERC*s success in these efforts is important
because
the extent to which it can carry out its mission in a changing environment
depends on its ability to adjust its staff skills and abilities in a
difficult context. For example, over half of its workforce will be
eligible to retire by 2007. In response, FERC has, among other things,
expanded its use of certain personnel flexibilities, such as recruiting
and retention bonuses, and is considering use of additional flexibilities.
More importantly, FERC, in February 2003, developed a human capital plan.
However, the plan does not contain some elements key to successful
implementation, including (1) details on specific activities and resources
needed to implement its human capital initiatives and (2) results-
oriented measures that can be used to track the agency's progress in
implementing the initiatives and evaluate their effectiveness. FERC also
has not established time frames for many of its human capital initiatives.
In June 2002, GAO reported that the Federal Energy Regulatory Commission
(FERC) had not yet adequately revised its regulatory and oversight
approach for the
natural gas and electricity industries* transition from regulated
monopolies to competitive markets. GAO also concluded that FERC faced
significant human capital challenges to transform its workforce to meet
such changes.
In responding to the report, FERC said that the new Office of Market
Oversight and Investigations
(OMOI) it was creating and human capital improvements under way would
address these concerns. GAO was asked to report on FERC*s progress in (1)
establishing an oversight and enforcement
capability for competitive energy markets and (2) improving agencywide
human capital management. GAO recommends that FERC more clearly define
OMOI*s role in overseeing competitive energy markets and develop formal
processes and written
procedures for the office*s key activities and revise the agency*s human
capital plan to (1) identify specific
activities, resources, and time frames and (2) provide resultsoriented
measures to track progress in implementing its initiatives and evaluate
their effectiveness. FERC generally agreed with this
report*s recommendations.
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 845. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Jim Wells at (202) 512- 3841 or wellsj@ gao. gov.
Highlights of GAO- 03- 845, a report to the
Ranking Minority Member, Committee on Governmental Affairs, U. S. Senate
August 2003
ENERGY MARKETS
Additional Actions Would Help Ensure That FERC's Oversight and Enforcement
Capability Is Comprehensive and Systematic
Page i GAO- 03- 845 Energy Markets
Contents
Page ii GAO- 03- 845 Energy Markets
Page 1 GAO- 03- 845 Energy Markets United States General Accounting Office
Washington, D. C. 20548
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Appendix I
Appendix I Scope and Methodology
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Appendix II
Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix II GAO Survey of Current FERC Employees in the Office of Market
Oversight and Investigations
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Appendix III
Appendix III FERC*s Approach to Addressing Market Manipulation Schemes and
Other Potentially Noncompetitive Actions
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Appendix III FERC*s Approach to Addressing Market Manipulation Schemes and
Other Potentially Noncompetitive Actions
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Appendix III FERC*s Approach to Addressing Market Manipulation Schemes and
Other Potentially Noncompetitive Actions
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Appendix III FERC*s Approach to Addressing Market Manipulation Schemes and
Other Potentially Noncompetitive Actions
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Appendix III FERC*s Approach to Addressing Market Manipulation Schemes and
Other Potentially Noncompetitive Actions
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Appendix III FERC*s Approach to Addressing Market Manipulation Schemes and
Other Potentially Noncompetitive Actions
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Appendix IV
Appendix IV Comments from the Federal Energy Regulatory Commission Page 68
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Appendix IV Comments from the Federal Energy Regulatory Commission Page 69
GAO- 03- 845 Energy Markets
Appendix IV Comments from the Federal Energy Regulatory Commission Page 70
GAO- 03- 845 Energy Markets
Appendix IV Comments from the Federal Energy Regulatory Commission Page 71
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Appendix V
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