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GAO Report Finds Increased Confidence in Price Indices

The General Accountability Office (GAO), the research and investigative arm of the Congress, has issued a report finding that actions by the FERC, CFTC and the Congress have resulted in reforms to privately published natural gas price indices to the point that industry stakeholders "in general, are reasonably confident in the short-term prices now reported by trade publications and the improved quality of overall information."

The study, "Natural Gas and Electricity Markets: Federal Government Actions to Improve Private Price Indices and Stakeholder Reaction," was conducted at the request of Sen. Jeff Bingaman (D-NM) ranking minority member of the Senate Energy Committee. It found that industry stakeholders still had concerns about prices in long-term electricity markets. Because of these problems the electric market tends to rely on natural gas prices, which are not always the best measure of the power market.

The report noted that since 2003 the Federal Energy Regulatory Commission (FERC) has undertaken a number of steps to improve the availability and accuracy of price information in price indices, including setting voluntary standards and rules of conduct for publishers and price survey participants. It also has improved its ability to monitor price indices and enforce market rules, collaborating with the Commodity Futures Trading Commission.

Also, the new Energy Policy Act has given FERC new ammunition in the form of steeper penalties for attempted market manipulation. It also gives FERC the authority to collect additional transaction information if it believes it is necessary to ensure price transparency.

The GAO reviewed the actions taken and interviewed personnel at the agencies involved, along with industry stakeholders and representatives of trade associations, which resulted in a finding of improved confidence in the indexes. In the case of reported electricity prices, GAO found it could not expect improvements until the market itself matured.

The GAO report advised FERC, the Congress and others to continue to be vigilant in monitoring market behavior and published prices.

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