Need To Revise Eligibility Criterion for One Natural Gas Price Category and Eliminate Backlog in Refund Control Work

GAO conducted a follow-up review to assess the accuracy of natural gas well determinations for Natural Gas Policy Act incentive-priced categories to determine whether: (1) prices received by producers and ultimately paid by consumers are in agreement with the prices prescribed by the act; and (2) procedures are sufficient for making accurate pricing determinations.

Most of the wells that GAO reviewed were correctly categorized under the act and Federal Energy Regulatory Commission (FERC) implementing criteria. However, FERC criteria for certain natural gas stripper wells do not meet act requirements. FERC interpretations allow wells, which subsequently begin earning a higher return, to retain their qualification for this higher price category. The act allows only natural gas, which is not produced in conjunction with crude oil, to receive stripper prices because revenues from crude oil production would obviate the need for incentive prices for the low volume of natural gas produced. Consequently, consumers are charged higher prices for this natural gas. FERC has developed a huge backlog in its program to detect and require refunds of overcharges in various categories by natural gas producers because: (1) the staff is unable to keep current with cases received; and (2) a surge of cases was created by closing a loophole in regulations. Although FERC has taken some measures to expedite case processing, it has not been able to process fund reports and cases in a timely manner. This backlog and the associated processing time lag may allow overcharges to increase, and the eventual refunds may not reach the consumers who paid the charges. The backlog may also present difficulties in effecting an orderly completion of the compliance program when price controls end.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John W. Sprague Team: General Accounting Office: Resources, Community, and Economic Development Division Phone: (202) 512-7783