Energy Markets:

Additional Actions Would Help Ensure That FERC's Oversight and Enforcement Capability Is Comprehensive and Systematic

GAO-03-845: Published: Aug 15, 2003. Publicly Released: Aug 27, 2003.

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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.

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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FERC reports that it has fully implemented this recommendation. Specifically, the Office of Enforcement (formerly called the Office of Market Oversight and Investigation or OMOI) routinely documents its work processes with written documentation. Since the 2004 response, FERC has finished written processes for training and have added written processes for several other key activities, including: (1) Potential Areas of Concern (PACs). This shows how FERC identifies potentially troubling anomalies in market outcomes and how they determine what procedural path to use to follow up on such anomalies; (2) Electric Quarterly Report. This documents how FERC validates EQR submissions and performs recurring analyses; (3) Website. This documents how FERC maintains and updates the new Market Oversight website (part of the Commission's overall website); (4) Daily Meeting. This details how FERC prepares for, holds, and follows up on the Daily Oversight Meeting; (5) Work Planning Process. This details how it updates the priorities and resource assignments weekly.

    Recommendation: To help ensure that OMOI carries out its role systematically and effectively, the Chairman of FERC should direct OMOI to establish formal processes and written procedures for its key activities.

    Agency Affected: Federal Energy Regulatory Commission

  2. Status: Closed - Implemented

    Comments: On July 28, 2004, FERC reported that it had more clearly defined OMOI's role by delineating--in its strategic plan, business plan, and a FERC-wide priority list--how other FERC offices and other organizations, including the market monitoring units, share in and contribute to OMOI's mission and establishing expectations for how they will work together.

    Recommendation: To help ensure that FERC's oversight of competitive energy markets is comprehensive and resources are effectively directed, the Chairman of FERC should more clearly define OMOI's role in overseeing the nation's energy markets by delineating 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.

    Agency Affected: Federal Energy Regulatory Commission

  3. Status: Closed - Implemented

    Comments: On July 28, 2004, FERC reported that it had more clearly defined OMOI's role by explicitly establishing the level of detail at which OMOI will routinely review market transactions. Specifically, FERC stated that OMOI routinely reviews markets at several levels but that generally OMOI reviews aggregate data to find anomalous patterns that warrant further study, sometimes down to the transaction level. Examples of OMOI's market reviews include the "Market Surveillance Report" and "The State of the Markets Report."

    Recommendation: To help ensure that FERC's oversight of competitive energy markets is comprehensive and resources are effectively directed, the Chairman of FERC should more clearly define OMOI's role in overseeing the nation's energy markets by explicitly establishing the level of detail at which OMOI will routinely review market transactions to carry out its oversight activities.

    Agency Affected: Federal Energy Regulatory Commission

  4. Status: Closed - Implemented

    Comments: On July 28, 2004, FERC reported that it had more clearly defined OMOI's role in overseeing the nation's energy markets by describing OMOI's activities in FERC's strategic plan relative to carrying out FERC's statutory requirements to ensure just and reasonable prices and to prevent market manipulation. According to FERC, the strategic plan clearly lays out the nature and importance of protecting customers and market participants through vigilant and fair market oversight.

    Recommendation: To help ensure that FERC's oversight of competitive energy markets is comprehensive and resources are effectively directed, the Chairman of FERC should more clearly define OMOI's role in overseeing the nation's energy markets by explicitly describing OMOI's activities relative to carrying out the agency's statutory requirements to ensure just and reasonable prices and to preventing market manipulation.

    Agency Affected: Federal Energy Regulatory Commission

  5. Status: Closed - Implemented

    Comments: The fiscal year 2004 version of FERC's human capital plan includes individual action plans for each FERC office and for the Division of Human Resources Services. These action plans contain targeted human capital initiatives, ranked by priority, with success measures and target dates for completion. Human resources staff meet periodically with office representatives to review progress under these action plans.

    Recommendation: To strengthen FERC's human capital plan, the Chairman of FERC should 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 Affected: Federal Energy Regulatory Commission

 

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