GAO Probe Sought into FERC Oversight of CA Markets

Sens. Joe Lieberman (D-CT) and Jean Carnahan (D-MO) have called on the General Accounting Office (GAO) to investigate whether FERC is carrying out its duty to ensure "reasonable" rates for the sale of wholesale power and the transportation of natural gas in the ailing California energy market.

Federal law requires the Commission to enforce "just and reasonable" prices for electricity and guard against price manipulation by gas pipelines in interstate markets, "but there is mounting evidence that FERC may not have fulfilled this role in the California situation," the senators wrote in an April 12 letter to the GAO, the investigative arm of Congress. Even FERC Commissioner William Massey has conceded that the Commission's actions "to date have been insufficient" in the California energy markets, they said.

"[W]e are extremely troubled that California's Independent System Operator (ISO) recently asserted that suppliers of electricity in California have allegedly been charging many times more than what it actually costs to generate electricity, an overcharge amounting to $6.8 billion according to the operator," the lawmakers noted.

Leiberman and Carnahan also said they were concerned about allegations by the California Public Utilities Commission (CPUC) that El Paso Natural Gas has manipulated transportation to a point where "[gas] prices in California over the last year have been up to five times the national average." Given that natural gas is increasingly being used to fuel power generation plants, "any manipulation of that commodity can have severe consequences" for California and other states, the lawmakers noted. FERC currently is investigating the issue of whether El Paso engaged in improper or possibly illegal practices to drive up gas prices at the California border, having set it for a trial-type hearing (see NGI, April 2).

With respect to the electric market, Leiberman and Carnahan asked the GAO to specifically look into whether FERC: 1) has fulfilled its mandate to ensure "just and reasonable" rates, and is "adequately monitoring and appropriately regulating" power supply, demand and pricing in California, other western states, and in the Central Midwest and Northeast; 2) has sufficient resources to carry out its oversight obligations in a "timely and effective" manner; 3) needs additional authority to carry out its mission of ensuring "just and reasonable" prices; and 4) requires help from another agency or independent organization to oversee the "voluminous" amount of transactions in the deregulated wholesale marketplace. They also requested that GAO examine whether "greater transparency" in wholesale power prices would help to guard against market abuses.

On the natural gas front, the lawmakers called on the GAO to explore whether: 1) FERC has fully met its responsibilities to adequately regulate interstate pipelines; 2) FERC has a continuing role to play in ensuring equal access to the limited amount of space on natural gas pipelines, and should that role be "enhanced or clarified;" and 3) price manipulation is occurring on pipelines in other parts of the country, where "pipeline capacity is similarly limited."

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