Electricity Restructuring
Action Needed to Address Emerging Gaps in Federal Information Collection Gao ID: GAO-03-586 June 30, 2003The ongoing transition (or restructuring) of electricity markets from regulated monopolies to competitive markets is one of the largest single industrial reorganizations in the history of the world. While information is becoming more critical for understanding how well restructuring is working, there are troubling indications that some market participants deliberately misreported information to manipulate prices. GAO was asked to describe (1) the electricity information collected, used, and shared by key federal agencies in meeting their primary responsibilities and (2) the effect of restructuring on these federal agencies' collection, use, and sharing of this information.
Federal agencies collect, use, and share a wide variety of electricity-related information to carry out their respective missions. Federal agencies have three principal sources of information: (1) routine formal data collection instruments sent to industry participants to report on operations and other industry-related activities, (2) third parties such as energy news services that package federally collected information as well as collect original information some of which reflects current market conditions, and (3) individual companies under investigation. Agencies use the information that they collect to carry out their respective missions--ranging from Federal Energy Regulatory Commission's (FERC) monitoring of electricity markets to Energy Information Administration's dissemination of information about the electricity sector and Environmental Protection Agency's pollution monitoring. Agencies share electricity-related information through a variety of means, such as using the Internet to distribute published reports and access their databases, interagency meetings, and other means. In addition, most federally collected information is made publicly available, although it is sometimes subject to delayed release or released in aggregated form in order to protect business-sensitive information. Restructuring has substantially changed the collection, use, and sharing of electricity information at some agencies and has exposed gaps in the federal government's collection of this information. Restructuring has affected FERC dramatically by changing how FERC performs its mission of assuring just and reasonable prices and by shifting its focus from periodic review of cost information to monitoring current market conditions. To monitor these conditions, FERC needs to access market information on wholesale transactions; however, no federal agency, including FERC, has access to complete and timely information on electricity markets and market participants, exposing gaps in key information. Such information gaps exist primarily because FERC is limited in its authority to collect information for full and effective market oversight and it lacks specific authority to collect current information which may lead to market participants challenging these collection activities. For example, FERC authority does not generally extend to non-jurisdictional entities such as the power marketing administrations, other non-utilities, and North American Electric Reliability Council. As long as these information gaps persist, FERC will be unable to oversee electricity markets in a comprehensive manner. Restructuring's effects on the sharing of electricity information, coupled with recent national security concerns, have highlighted the sensitive nature of some information that federal agencies collect or need. Because of the importance of having timely, reliable, and complete information, we are recommending that FERC take action to resolve its information gaps. As part of this action, we are recommending that FERC present its findings to the Congress because information-related issues--raised by restructuring--may require Congressional action to ultimately resolve.
RecommendationsOur 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: Team: Phone:GAO-03-586, Electricity Restructuring: Action Needed to Address Emerging Gaps in Federal Information Collection
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
June 2003:
Electricity Restructuring:
Action Needed to Address Emerging Gaps in Federal Information
Collection:
GAO-03-586:
GAO Highlights:
Highlights of GAO-03-586, a report to Congressional Requesters
Why GAO Did This Study:
The ongoing transition (or restructuring) of electricity markets from
regulated monopolies to competitive markets is one of the largest
single industrial reorganizations in the history of the world. While
information is becoming more critical for understanding how well
restructuring is working, there are troubling indications that some
market participants deliberately misreported information to manipulate
prices. GAO was asked to describe (1) the electricity information
collected, used, and shared by key federal agencies in meeting their
primary responsibilities and (2) the effect of restructuring on these
federal agencies‘ collection, use, and sharing of this information.
What GAO Found:
Federal agencies collect, use, and share a wide variety of electricity-
related information to carry out their respective missions. Federal
agencies have three principal sources of information: (1) routine
formal data collection instruments sent to industry participants to
report on operations and other industry-related activities, (2) third
parties such as energy news services that package federally collected
information as well as collect original information some of which
reflects current market conditions, and (3) individual companies under
investigation. Agencies use the information that they collect to carry
out their respective missions”ranging from Federal Energy Regulatory
Commission‘s (FERC) monitoring of electricity markets to Energy
Information Administration‘s dissemination of information about the
electricity sector and Environmental Protection Agency‘s pollution
monitoring. Agencies share electricity-related information through a
variety of means, such as using the Internet to distribute published
reports and access their databases, interagency meetings, and other
means. In addition, most federally collected information is made
ublicly available, although it is sometimes subject to delayed release
or released in aggregated form in order to protect business-sensitive
information.
Restructuring has substantially changed the collection, use, and
sharing of electricity information at some agencies and has exposed
gaps in the federal government‘s collection of this information.
Restructuring has affected FERC dramatically by changing how FERC
performs its mission of assuring just and reasonable prices and by
shifting its focus from periodic review of cost information to
monitoring current market conditions. To monitor these conditions,
FERC needs to access market information on wholesale transactions;
however, no federal agency, including FERC, has access to complete and
timely information on electricity markets and market participants,
exposing gaps in key information. Such information gaps exist
primarily because FERC is limited in its authority to collect
information for full and effective market oversight and it lacks
specific authority to collect current information which may lead to
market participants challenging these collection activities. For
example, FERC authority does not generally extend to non-
jurisdictional entities such as the power marketing administrations,
other non-utilities, and North American Electric Reliability Council.
As long as these information gaps persist, FERC will be unable to
oversee electricity markets in a comprehensive manner.
Restructuring‘s effects on the sharing of electricity information,
coupled with recent national security concerns, have highlighted the
sensitive nature of some information that federal agencies collect or
need. Because of the importance of having timely, reliable, and
complete information, we are recommending that FERC take action to
resolve its information gaps. As part of this action, we are
recommending that FERC present its findings to the Congress because
information-related issues”raised by restructuring”may require
Congressional action to ultimately resolve.
what GAO Recommends:
Effective oversight of evolving electricity markets requires the
acquisition of and access to timely, reliable, and complete
information, therefore, we recommend that the Chairman, FERC (1)
demonstrate what information it needs, (2) describe the limitations
resulting from not having this information, and (3) ask the Congress
for sufficient authority to meet its information collection needs and
responsibilities. FERC generally agreed with the conclusions,
specifically that its authority to collect information has not kept
pace with the changing electricity market, and added that it will have
the results from its information assessment at the end of the year.
Contents:
Letter:
Results in Brief:
Background:
Agencies Collect, Use, and Share Electricity-Related Information to
Meet Missions:
Restructuring Has Exposed Gaps in Agencies' Electricity Information and
Has Affected How This Information Is Shared:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Objectives, Scope, and Methodology:
Appendix I: Description of Data Collection Forms and Legislation
Authorizing Collections for FERC and EIA:
Appendix II: Third-Party Data Sources:
Appendix III: EIA Confidentiality Elements:
Appendix IV: Comments from the Federal Energy Regulatory Commission:
Appendix V: Comments from the Department of Energy:
Appendix VI: GAO Contact and Staff Acknowledgments:
Figure:
Figure 1: Major Federal Collectors of Electricity Information:
Abbreviations:
DOE: Department of Energy:
EIA: Energy Information Administration:
EPA: Environmental Protection Agency:
EPACT: Energy Policy Act:
FERC: Federal Energy Regulatory Commission:
FPA: Federal Power Act:
ISO: independent system operator:
NERC: North American Electric Reliability Council:
OMB: Office of Management and Budget:
OMOI: Office of Market Oversight and Investigation:
PUHCA: Public Utility Holding Company Act:
PURPA: Public Utility Regulatory Policies Act:
RTO: regional transmission organization:
RUS: Rural Utilities Service:
SEC: Securities and Exchange Commission:
United States General Accounting Office:
Washington, DC 20548:
June 30, 2003:
The Honorable Peter DeFazio
The Honorable Jay Inslee
The Honorable Adam Smith
House of Representatives:
Industry experts have described the ongoing transition (or
restructuring) of electricity markets from regulated monopolies to
competitive markets as one of the largest single industrial
reorganizations in the history of the world. Proponents of
restructuring expect it to lead to a range of benefits for consumers,
including lower prices and a wider array of retail electricity services
than had previously been available. However, opponents have raised
concerns about restructuring in light of recent events, such as the
extremely high electricity prices and market manipulation during the
electricity crisis in California in 2000 and 2001.
In this changing and uncertain environment, accurate information on
electricity trading and pricing is becoming more critical for not only
evaluating the potential benefits and risks of restructuring, but also
monitoring market performance and enforcing market rules. Information
on the cost of electricity, for example, is critical in determining
whether restructuring is achieving lower prices. Information on
existing and new generating plants is critical in determining whether
electricity supply will be sufficient to ensure reliable supplies. In
addition, information is critical to monitor emissions and comply with
air quality standards in the future. While information is becoming more
critical for understanding how well restructuring is working, there are
troubling indications that the quality of some information may be
suspect. For example, we recently reported[Footnote 1]
that participants at a Federal Energy Regulatory Commission (FERC)
conference raised concerns about the quality of price information due
to the low volume of trading activity in some markets and to some
market participants making inaccurate information available to
the public.
In response to the growing importance of electricity information and
concerns about its quality, you asked us to describe (1) the
electricity information collected, used, and shared by key federal
agencies in meeting their primary responsibilities and (2) the effect
of restructuring on these federal agencies' collection, use, and
sharing of this information. In addressing these objectives, we
primarily examined the information activities of FERC and the Energy
Information Administration (EIA) within the Department of Energy (DOE).
We focused on FERC because it bears the main responsibility for
monitoring electricity markets, is undergoing major organizational
changes caused by restructuring, and has faced significant challenges
in responding to restructuring, as we have described in previous
reports.[Footnote 2] We focused on EIA because it is the main U.S.
statistical agency with responsibility for providing data and analysis
covering the energy sector. In addition to FERC and EIA, we examined
electricity-related activities at the Office of Fossil Energy within
DOE, the Environmental Protection Agency (EPA), the Rural Utilities
Service (RUS) at the U.S. Department of Agriculture, the Securities and
Exchange Commission (SEC), the Department of Justice, the Federal Trade
Commission, and the Commodity Futures Trading Commission. Due to
limitations in the time frame for our review, we did not perform a
detailed evaluation of these agencies' missions to determine whether
information and data available to them was sufficient to meet
their responsibilities.
Results in Brief:
Federal agencies collect, use, and share a wide variety of electricity-
related information to carry out their respective missions. Federal
agencies have three principal sources of information: (1) routine
formal data collection instruments sent to industry participants to
report on operations and other industry-related activities, (2) third
parties such as energy news services that package federally collected
information as well as collect original information, some of which
reflects current market conditions, and (3) individual companies under
investigation. Agencies use the information that they collect to carry
out their respective missions--ranging from FERC's monitoring of
electricity markets to EIA's dissemination of information about the
electricity sector and EPA's pollution monitoring. Agencies share
electricity-related information through a variety of means, such as
using the Internet to distribute published reports and access their
databases, interagency meetings, and other means. For example, EIA
serves as a repository of historical industry information and makes it
accessible for other agencies to use through the Internet. In addition,
most federally collected information is made publicly available,
although it is sometimes subject to delayed release or released in
aggregated form in order to protect business-sensitive information.
Restructuring has substantially changed the collection, use, and
sharing of electricity information at some agencies and has exposed
gaps in the federal government's collection of this information.
Restructuring has most profoundly affected FERC by dramatically
changing how FERC performs its mission of ensuring fair and reasonable
prices and by shifting its focus from periodic reviews of cost
information to monitoring current market conditions. In order to
monitor current market conditions, FERC needs to access market
information on wholesale transactions; however, no federal agency,
including FERC, has access to complete and timely information on the
operations of electricity markets and market participants, exposing
gaps in key information. For example, complete and timely information
on the operation of electric generating plants is not generally
accessible to federal agencies, although this information is generally
deemed important to evaluate reliability of the electricity system as
well as to monitor the behavior of electricity generating companies.
Such information gaps exist primarily because FERC is limited in its
authority to collect information for full and effective market
oversight and because it lacks specific authority to collect current
information that may lead to market participants challenging these
collection activities. As long as these information gaps persist, FERC
will be unable to oversee electricity markets in a comprehensive
manner.
Restructuring's effects on the sharing of electricity information,
coupled with recent national security concerns, have highlighted the
sensitive nature of some information that federal agencies collect or
need. For example, electricity generating plant owners consider
information regarding the operation of their plants to be commercially
sensitive and thus are reluctant to provide such information without
assurances that the information will remain confidential.
Because of the importance of having timely, reliable, and complete
information, we are recommending that FERC take action to resolve
its information gaps. As part of this action, we are recommending that
FERC present its findings to the Congress because information-related
issues--raised by restructuring--may require congressional action to
ultimately resolve. FERC generally agreed with the conclusions,
specifically that its authority to collect information has not kept
pace with the changing electricity market, and added that it will have
the results from its information assessment at the end of 2003.
Background:
The overall transition known as "restructuring" in the electricity
industry reflects a shift from a monopolistic to a more competitive
industry. The electric utility industry was considered one of the
nation's most regulated industries, with states regulating utilities'
retail or intrastate activities and the federal government regulating
utilities wholesale or interstate transactions. In the past,
electricity service providers enjoyed a natural monopoly, providing
electricity generated by their plants, transmitted over their power
lines, and distributed to their customers. Two key factors led that
monopolistic structure to move toward a more competitive marketplace.
First, new technologies reduced the cost and size of generating
electricity effectively. Currently, there is a preference for
small-scale production facilities that can be brought on-line more
quickly and cheaply with fewer regulatory impediments. Second, federal
changes were made in the industry's regulation. Specifically, the
enactment of the Public Utility Regulatory Policies Act (PURPA) of 1978
initiated the process for a transition or restructuring to a freer
electric power market by requiring utilities to buy electricity
produced by nonutility producers. Then in 1992, the Energy Policy Act
(EPACT) was enacted and removed several regulatory barriers to entry
into electricity generation and promoted further competition.
Restructuring is underway for wholesale markets, which involve the
sale of electricity for resale. It is also underway for some retail
sales to end users, which include residential, commercial, industrial,
and other consumers. Federally regulated wholesale power markets
already provide market-based prices. States, however, vary greatly in
their response to restructuring: some states have introduced
competition to the retail markets in their states, others have begun to
restructure but then delayed or suspended these efforts, and others
still have taken no steps to restructure their markets. As the industry
adapts to restructuring, many utilities are facing greater competition
from nonutilities and other new entities such as power marketers. The
introduction of competition has considerably expanded the number and
types of business arrangements involving generation and transmission of
electricity. In addition, proposals for new regulatory structures to
oversee the new industry are emerging.
FERC and EIA are the two leading entities for the collection, analysis,
and evaluation of electric power information. FERC collects information
to assure just and reasonable rates on the basis of costs. FERC also
collects and obtains information from other federal and nonfederal
sources to monitor and regulate competitive markets for wholesale
electricity to similarly determine if these prices are just and
reasonable. EIA is mandated to collect, assemble, evaluate, analyze,
and disseminate energy data and energy information for the Congress,
the federal government, the states, and the public.
The Federal Power Act (FPA) of 1935, PURPA, and EPACT drive
FERC's information collection activities. FPA authorizes FERC to
collect and record information to the extent it deems necessary and to
prescribe rules and regulations concerning accounts, records, and
memoranda. In general, FPA provides for federal oversight of interstate
transmission and wholesale sales by public utilities. Forty-three years
later, the Congress enacted PURPA in response to the unstable energy
climate of the late 1970s. PURPA authorizes FERC to collect information
on the basic cost and quality of fuels at electric generating plants.
FERC uses such data to conduct fuel reviews and rate investigations and
to track market changes and trends. In addition, PURPA requires public
utilities to report on electric energy shortages and contingency plans
to FERC and appropriate state agencies. In 1992, the Congress enacted
EPACT. EPACT created a new category of power sellers called exempt
wholesale generators that are not subject to regulation under the
Public Utility Holding Company Act (PUHCA), which governs how utilities
can be legally organized. These power sellers must apply to FERC for
PUHCA exemption.
Legislation created EIA and defined its information collection
activities. In 1974, the Congress enacted the Federal Energy
Administration Act that created the Federal Energy Administration. The
act mandated the Federal Energy Administration to collect, assemble,
evaluate, and analyze energy information for the federal government,
state governments, and the public and provided it with information
collection enforcement authority for gathering information from energy
producing and consuming firms. Two years later, the Energy Conservation
and Production Act established the Office of Energy Information and
Analysis, mandating it to operate a comprehensive National Energy
Information System; possess expertise in energy analysis and
forecasting; coordinate information activities with federal agencies;
promptly provide upon request any energy information to any duly
established committee of the Congress; and make periodic reports on the
energy situation and trend to the Congress. In 1977, by enacting the
Department of Energy Organization Act, the Congress established EIA as
the federal authority for energy information. This act gave EIA
independence to collect energy data and report energy information,
including all the provisions of its predecessor, and established an
annual survey to gather and report detailed energy industry financial
data. In 1992, EPACT required EIA to expand its data gathering and
analysis in several areas, including energy consumption, alternative-
fueled vehicles, greenhouse gas emissions, fossil fuel transportation
rates and distribution patterns, electricity production from renewable
energy sources, and foreign purchase and imports of uranium.
Federal agencies' information collection activities are subject to the
Paperwork Reduction Act. The purpose of the Paperwork Reduction
Act is to minimize the paperwork burden for all individuals and
entities that must report information to the federal government. The
Office of Management and Budget (OMB) oversees governmental initiatives
to reduce the paperwork burden and improve the management of
information resources. The Paperwork Reduction Act requires federal
agencies to submit their data collection tools to OMB for review. OMB
is also responsible for the implementation of the Government Paperwork
Elimination Act, which requires federal agencies, by October 21, 2003,
to allow individuals, or entities that interact with the agencies, the
option of submitting information to agencies electronically,
whenever practicable.
The North American Electric Reliability Council (NERC) is one of the
most important nonfederal entities that collect data from the
electricity industry. NERC, formed as a result of a devastating outage
in the northeast during November 1965, was established to promote the
reliability of the interconnected electric power system. NERC
membership is voluntary, consists of representatives from utilities
across North America, and provides a forum for the electric utility
industry to develop policies, standards, and guidelines designed to
ensure reliability. One of its key functions is to collect information
from its members, among other things, on power plant operations and
outages. NERC reports information in an aggregated format to protect
information its members consider sensitive.
Agencies Collect, Use, and Share Electricity-Related Information to
Meet Missions:
Federal agencies collect three types of electricity-related information
for widely varying purposes in accordance with their different
missions. Some agencies such as FERC, EIA, RUS, SEC, and EPA collect
information on an ongoing, regular basis, using forms or form-like
surveys. However, there is a time differential between the reporting
period, when the information is collected and when an agency reports
the information. As a result, the information usually does not reflect
current market conditions. Restructuring has led to a greater need for
a second type of information, focusing on current activities, for
purposes of monitoring by FERC in particular. Third-party sources, such
as Bloomberg's Professional Services, provide current and historical
information on regional electricity and gas markets, including spot and
future prices, market commentary, plant outage information, and energy
news. Investigations create a need for a third type of information,
when an agency such as the Department of Justice gathers information
mainly in conjunction with specific company criminal investigations. To
meet their missions, agencies collect a wide variety of electricity-
related information. FERC and EIA are the primary gatherers of such
information while other agencies, such as the Federal Trade Commission,
have gathered information only for occasional reports.
As shown in figure 1, FERC, DOE's EIA and Office of Fossil Energy,
RUS, and EPA specifically collect information related to generation,
transmission, and/or distribution functions of electric power. FERC,
EIA, and RUS collect information related to all three of these
functions. In addition, EIA collects end-user information such as
residential, commercial, and industrial usage. Additionally, DOE's
Office of Fossil Energy is the only office that collects information
related to electricity imports and exports. Finally, EPA collects
emissions information related to the generation of power. The following
graphic depicts federal agency information collections within
these functions.
Figure 1: Major Federal Collectors of Electricity Information:
[See PDF for image]
[End of figure]
FERC Collects Form-Based and Current Information to Oversee
Electricity Markets:
FERC, an independent regulatory agency, was established in 1977 as a
successor to the Federal Power Commission. In addition to regulating
and overseeing the interstate transmission and interstate wholesale
sales of natural gas and electricity, FERC 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. In responding to this mission, FERC stated
that it chooses regulatory approaches that foster competitive markets
whenever possible, assures access to reliable service at a reasonable
price, and gives full and fair consideration to environmental and
community impacts in assessing the public interest of energy projects.
Among its other duties, it reviews the rates set by the four federal
power marketing administrations.[Footnote 3] FERC does not have
legislative authority over electricity generation siting, construction
of transmission lines, intrastate transmission, or retail sales, all of
which fall under state or local jurisdiction. FERC also has no direct
authority over system reliability--that is, ensuring that consumers can
obtain electricity from the system, when, and in the amount, they want.
Furthermore, FERC's jurisdiction extends primarily to investor-owned
utilities. FERC generally does not have jurisdiction over federally
owned utilities, publicly owned utilities, or most cooperatively owned
utilities. In 2000, FERC created the Office of Markets, Tariffs, and
Rates, which was until recently responsible for regulating and
overseeing competitive energy markets. In 2002, FERC created the Office
of Market Oversight and Investigation (OMOI), which is still under
development, to actively monitor developing competitive
electricity markets.
FERC collects information from the electricity industry, among
other energy industries. According to a 2002 FERC memorandum regarding
current information collections, FERC has 19 information collection
activities that apply specifically to the electricity industry.
This information generally focuses on activities related to generation
and fuel, transmission, energy sales and purchases, consumption and
distribution, and financial information. In addition, it has three
other information collection activities that relate to all three energy
industries (electric, natural gas, and oil pipeline). These collection
activities generally focus on information needed to conduct financial
and compliance audits, preservation of records, and complaint
procedures. Various legislative authorities authorize FERC's
information collection activities and compliance is mandatory.
The Office of Markets, Tariffs, and Rates uses the information from
these collection activities to provide historical context and assist it
in regulating and overseeing the terms and conditions for energy
transactions regulated under the traditional cost-of-service basis, and
more recently, approval of electricity company mergers. Additionally,
other offices, such as the Office of Administrative Litigation, which
is responsible for litigating or resolving cases set for hearings, use
the information as the basis for hearings. Traditionally, FERC
primarily relied on standardized forms to routinely collect
information, authorized by the statute and/or regulation, from entities
within the electric sector. In the past, most of the information for
these forms was submitted on paper, but FERC is currently moving toward
electronic submissions for all of its information collection
activities. FERC also has established reporting requirements where
entities must make specific information available to it; however, these
requirements are reported using a mix of standardized forms or formats.
As with the forms, reporting requirements are submitted on paper and/or
electronically. (See app. I for a summary of FERC's forms.):
OMOI uses FERC's traditional information collection activities,
mentioned above, to provide historical context to assist in
understanding company activities and during investigations of specific
companies. However, in light of evolving electricity markets, OMOI also
subscribes to both commercial and proprietary information services to
access information related to current market activities. Such services
provide electricity market information such as prices on the spot
market and futures contracts, plant outage information, and historical
trend analysis. OMOI uses this information to oversee electricity
markets and ensure market participants are not manipulating these
markets. (See app. II for FERC's third-party sources of current
market information.):
DOE Organizations Use Forms to Gather a Variety of Electricity
Information for Analyses, Forecasts, Dissemination, and
Other Purposes:
Two organizations within DOE are primarily responsible for collecting
electricity-related information. These organizations, EIA and the
Office of Fossil Energy (Fossil Energy), rely on forms to collect an
enormous amount of information at regular intervals. EIA collects this
information for a wide variety of statistical analyses and may assume
responsibility for gathering the lesser amount of information for which
Fossil Energy has been responsible.
EIA is the principal source of comprehensive energy information for
the Congress, the federal government, the states, and the public.
According to EIA' s strategic plan, its mission is to provide high
quality, policy-independent energy information to meet the requirements
of government, industry, and the public in a manner that promotes sound
policymaking, efficient markets, and public understanding. The plan
further states that EIA's sole purpose is to provide reliable and
unbiased energy information. To meet its goal of providing high-quality
energy information, the plan states that EIA will provide comprehensive
information (data, analyses, and forecasts) for all energy types
(including electricity), stages (production, conversion, distribution,
supply, consumption, and price) and impacts (technical, economic,
and environmental).
EIA currently uses about 75 different forms to collect information on
all aspects of energy, but only 9 of these forms focus on electricity.
(See app. I for a summary of these forms.) All EIA forms are mandatory,
with the exception of one part of one specific form as noted in the
appendix. Information is collected annually or monthly. For its monthly
surveys, EIA collects information from a sample of electricity
entities, while the full universe is surveyed annually. In commenting
specifically on its electric power information collection program, EIA
notes that its information can be categorized into four broad
information classes: physical systems, operational statistics,
financial statistics, and organizational information. Physical system
information provides the technical specifications for the generators,
boilers, pollution control equipment, and transmission lines that make
up the industry. Operational statistics provide the monthly and annual
details of how the physical plant is operated to satisfy customer
demand. Financial statistics consist of balance sheets, income
statements, and supporting account information to determine the cost of
producing electricity and providing related service. Organizational
information describes the basic characteristics of the entities that
comprise the electric power industry, including ownership and control,
affiliations, and identification and geographical information.
EIA and its customers use the information it collects for a variety of
purposes. These include monitoring of market trends in supply, demand,
and prices; analytical activities such as short-and long-term
forecasting; and inputs to special studies, such as responses to
congressional inquiries. EIA is also responsible for making sure its
data are available to the public in easily accessible and user-
friendly formats.
Among its other responsibilities, Fossil Energy is responsible for the
federal international electricity program, which consists of two
elements: (1) granting presidential permits for the construction and
operation of electric transmission lines that cross the U.S
international border and (2) authorizing exports of electric energy to
foreign countries. Fossil Energy collects information on electric power
imports and exports from both presidential permit and authorized export
holders. The mandatory information is used in an annual report that
summarizes the electricity trade between the United States and Mexico
or Canada during each calendar year. A Fossil Energy official told us
that EIA will eventually take over the responsibility of collecting
information on imports and exports of electricity.
EPA Uses a Form-Like Survey to Collect Information on Emissions for
Monitoring Air Quality:
EPA's mission requires it to collect electricity-related information
for regulatory purposes. In this regard, one of EPA's most important
initiatives is its Acid Rain Program implemented in 1995. The program
specifies that all existing utility units serving generators with an
output capacity of greater than 25 megawatts and all new utility units
must report their emissions. The emissions that must be reported
include sulfur dioxide, nitrogen oxide, and carbon dioxide. While not
an emission, the unit heat input (the caloric value of the fuel burned)
must also be reported. The program's overall goal is to achieve
significant environmental and public health benefits through reductions
in emissions of sulfur dioxide and nitrogen oxide, the primary causes
of acid rain. In most cases, utility units use a continuous emission
monitoring system. Units report hourly emissions information to EPA on
a quarterly basis. The information for the three types of emissions and
the unit heat input is then recorded in the Emissions Tracking System,
which serves as a repository of information on the utility industry. At
the end of each calendar year, EPA uses this information to compare the
tons of actual emissions reported with each company's authorized
emissions. If a company exceeds its limits, then it will be penalized
in accordance with the rules of the program. The tracking system is
EPA's primary, electricity-related database used for regulatory
purposes. It represents a significant commitment of personnel with
about 40 full-time-equivalent staff currently assigned to its
maintenance and use.
In addition to the three emissions included in the Emissions Tracking
System, EPA has focused particular attention on mercury emitted by
coal-fired electric utilities. An EPA report in February 1998[Footnote
4] identified mercury emissions from coal-fired plants as the toxic air
pollutant of greatest concern for public health from these sources.
This report and collected data were used to call for additional
monitoring of mercury emissions so that a regulatory control strategy
could be developed. Then, in November 1998, the agency announced its
decision to require coal-fired electricity generating plants to collect
and report such information for 1 year. The agency collected detailed
information on mercury during 1999. It obtained information on
(1) every coal-fired boiler in the United States, (2) mercury in
samples of coal used by boilers, and (3) actual mercury emissions
from the stacks of a randomly selected group of coal-fired boilers.
The information, which was used to estimate 1999 nationwide
and plant-by-plant mercury emissions from coal-fired boilers,
confirmed that coal-fired plants are the largest source of human-caused
mercury emission in the United States--about 43 tons of mercury each
year. Further, in December 2000, the agency announced its decision to
propose regulations to control mercury emissions from coal-and oil-
fired plants by December 2003.
EPA has also developed the Emissions and Generation Resource Integrated
Database, the first complete database of emissions and resource mix for
virtually every power plant and company that generates electricity in
the United States. The Emissions and Generation Resource Integrated
Database does not collect original information but assembles
information already collected by EPA's Emissions Tracking System,
EPA's 1999 mercury study, FERC, and several EIA forms.[Footnote 5]
Taking advantage of previously confidential information on nonutility
generators, the Emissions and Generation Resource Integrated Database
reports its information for all U.S. power plants, including nonutility
plants. The information, which encompasses more than 4,600 power plants
and nearly 2,000 generating companies, is used to provide plant-
specific analyses of emissions. It can also be aggregated at various
levels, for example, individual states and larger regions, to provide
more comprehensive analyses of issues relating to air quality.
RUS Uses Forms to Collect Information Relating to Its Loans:
RUS officials told us that RUS has a different responsibility from
other agencies that also collect information on electricity. RUS is a
lending agency whereas EIA is a statistical agency and FERC and EPA are
regulatory agencies. For this reason, according to these officials,
there are distinct differences in the nature of the information
collected. Because RUS is a lending agency, it seeks information
primarily to determine the financial status of the entities wanting
loans. As part of this effort, officials are interested in obtaining
information on the sale and purchase of electricity and especially in
determining whether their borrowers are buying and selling power from
each other.
RUS officials told us that it provided about $4 billion in loans during
2002 and has a total of about $34 billion in outstanding funds plus new
loans. Potential borrowers have to meet RUS's criteria as serving rural
consumers and also criteria for financial viability. In reviewing new
loan requests for generating plants, these officials use their database
to identify the need for and viability of each new plant. They analyze
the ability of the prospective borrower to function in competitive
markets. They told us that 45 percent or more of the electricity sold
by rural electricity cooperatives comes from outside sources and that,
almost without exception, they depend on transmission from outsiders.
Some loans to nonprofit cooperatives are for facilities that may become
part of a transmission system operated by an independent system
operator (ISO) or a regional transmission organization (RTO).[Footnote
6]
RUS uses two main forms to collect the relevant information. Both forms
state their purpose as being to review an applicant's financial
situation. These forms collect information about the financial
condition, assets, and operations of rural cooperatives.
SEC Uses Forms to Collect Information on Companies to
Protect Investors:
The SEC was established under the Securities Exchange Act of 1934 as an
independent, nonpartisan, quasi-judicial regulatory agency charged
with administering federal securities laws. SEC's mission is to protect
investors in securities markets that operate fairly and to ensure that
investors have access to all material information concerning publicly
traded securities. SEC also regulates firms engaged in the purchase or
sale of securities, people who provide investment advice, and
investment companies. To promote the disclosure of important
information, enforce securities laws, and protect investors, SEC
requires companies under its jurisdiction to file transactional,
periodic, and annual reports using standardized data collection forms.
SEC was charged with administering PUHCA, which defines a
holding company as any company that directly or indirectly owns,
controls, or holds with power to vote, 10 percent or more of the
outstanding voting securities of a public-utility company. Intrastate
holdings and holdings meeting certain corporate standards may be
exempted from the requirements of the act. Under the act, SEC regulates
public utility holding companies. As of October 31, 2002, there were
18 electricity-and-gas and 7 electricity-only, registered holding
companies. SEC collects information from exempted and registered public
utility holding companies through its general filing requirements and a
set of forms designed with the sole purpose of enforcing the act. The
registered holding companies engaged, through subsidiaries, in the
electric utility business are subject to more rigorous reviews for
transactions that might affect their financial and corporate structure.
The collection of information from such holding companies registered
under PUHCA ensures that SEC has comprehensive information on holding
companies conducting substantial activities in more than one state.
Other Agencies Have No Ongoing, Regular Collection of Electricity-
Related Information:
Other agencies, including the Department of Justice, the Federal Trade
Commission, and the Commodity Futures Trading Commission, do not
collect information on an ongoing, regular basis. Both the Department
of Justice and the Federal Trade Commission have responsibilities to
enforce antitrust laws, among others. According to an official in the
Department of Justice's Antitrust Division, the Division gathers
electricity-related information for an informal investigation that may
evolve into a case or a formal investigation associated with a specific
case. The impetus for these investigations may come from the trade
press and other news sources reviewed by the Department of Justice, a
complaining party (a customer or competitor, for example), a request by
FERC, or congressional inquiries. Referring to the informal type of
investigation, the official said that reviews of the trade press or
other news sources sometimes suggest a potential problem. If a trend
emerges, additional general information is gathered on the issue. This
may lead to a finding that there is no further ground for concern or to
the opening of a formal investigation. The official added that
companies are obligated to file information about transactions related
to mergers or acquisitions subject to premerger notification
requirements. If further information is needed to assess the effects of
the transaction on competition, the Department of Justice can make a
second request for more detailed information.
The Federal Trade Commission is also responsible for enforcing a
variety of federal antitrust and consumer protection laws and seeks to
ensure that the nation's markets function competitively. According to
testimony provided by one of the Federal Trade Commission
Commissioners, the application of federal antitrust laws can help in
this transition to competition by making sure that mergers do not
aggravate market power problems or shield incumbent companies from new
competition. A Federal Trade Commission assistant general counsel
stated, however, that the Federal Trade Commission's current
involvement with electricity markets is minimal and that it has no
ongoing information collection or standardized forms to obtain
information on electricity markets. He also noted that the agency's
activity was largely confined to two reports and some comments on other
federal and state agencies' proposed rulemakings. The first report
focused on features of competition in electricity markets that would
benefit consumers, and the second updated the first with a greater
focus on retail competition.[Footnote 7] In preparing the second
report, the Federal Trade Commission issued a notice seeking comments
and looked at 10 representative states for which information was
obtained from state Web sites and state regulatory commission
personnel. The second report identified "trouble spots" in developing
competitive markets and recommended steps for states to take in
addressing problems. It also identified the barriers for entry into
these markets by new suppliers and the conditions conducive for new
suppliers to enter into these markets, but it did not conclude that
such conditions by themselves would cause new suppliers to not enter
the market. With its reports completed, the Federal Trade Commission
has discontinued its information collection on electricity markets. In
addition, the Federal Trade Commission's role in reviewing mergers,
including those involving the electricity industry, has declined. The
assistant general counsel commented that the Federal Trade Commission
shares with the Department of Justice and FERC the responsibility for
reviewing information relating to mergers. According to the official,
the Federal Trade Commission's role in reviewing such information,
however, has decreased because the rate of mergers has
diminished recently.
The Commodity Futures Trading Commission, an independent agency created
by the Congress in 1974, regulates commodity futures and option markets
in the United States. The agency protects market participants against
manipulation, abusive trade practices, and fraud. Initially, agency
officials stated that the agency had essentially no role in collecting
information on electricity at present. An agency official said that,
for a period starting in 1996 and ending in 2000, the agency received
information on trading in electricity futures conducted through the New
York Mercantile Exchange, but this trading was discontinued because its
participants found that electricity futures failed to provide an
adequate "hedge" or protection against intermittent price volatility.
However, according to an agency official, the New York Mercantile
Exchange has since introduced several new electricity contracts, and
the Commodity Futures Trading Commission will obtain information on
these contracts. Such information will include, for example, contract
details on prices, trading volume (purchases and sales), and
descriptions of large trades.
Agencies Share Some of the Information They Collect:
Restructuring, which has led to increasingly complex market activities
with greater need for oversight, has highlighted the need for sharing
information. Agencies are increasingly using the Internet and a mix of
other methods to enhance their ability to share information with other
agencies and the public.
In the past, agencies provided paper copies of published reports
through their public reference rooms and upon request. However, since
the advent of the Internet, most federal agencies are using it to allow
access to publicly available documents. For example, EIA regularly
publishes reports providing electricity-related statistics and now uses
its Web site to allow easy access to current and past reports. FERC
also makes publicly available information accessible through its Web
site using its Federal Energy Regulatory Records and Information
System, which contains over 20 years of documents submitted to and
issued by FERC. Despite the increased use of the Internet, agencies
also maintain public reference rooms where paper copies of documents
are made available.
Although federal agencies make extensive amounts of information
available on their Internet Web pages, they share information using
a combination of other methods such as meetings, investigations,
conferences, and workshops. Specifically, a FERC official stated that
FERC currently holds quarterly meetings with the Federal Trade
Commission and the Department of Justice to discuss overlapping
issues, specifically focusing on antitrust and market manipulation
practices. The official added that FERC has met with EIA to coordinate
and share information on information collection issues. Another FERC
official stated that FERC does not have formal protocols to interact
with other agencies such as SEC, the Commodity Futures Trading
Commission, and the Federal Bureau of Investigations; however, FERC
also interacts with these agencies on an ad hoc basis to assist them
with their information needs and use "shared access letters" to request
information from other agencies' files. For example, FERC staff
coordinated closely with the Department of Justice, SEC, the Commodity
Futures Trading Commission, and the Department of Labor during their
investigation of Enron. Recently, FERC cosponsored a technical
conference with the Commodity Futures Trading Commission to discuss
energy market credit issues and potential solutions to problems and
their implementation. Some agencies, such as Justice and the Federal
Trade Commission, use formal approaches such as interagency agreements
and established protocols to coordinate their work and
share information.
Restructuring Has Exposed Gaps in Agencies' Electricity Information and
Has Affected How This Information Is Shared:
Of the eight federal agencies included in our review, we found that
restructuring has significantly affected FERC while other agencies
were affected to a lesser extent. To respond to competitive markets,
FERC has made important changes, for example, creating a new office
to actively monitor markets to ensure they are competitive. These
changes have affected its organizational structure and information
collection activities. However, FERC is limited in the information it
is allowed to collect, primarily because of limitations in its
authority. To diminish gaps in its information, FERC relies on
information from third-party sources, some of which is suspect.
Although less affected than FERC by restructuring, EIA has also made
some changes to its information collection activities. For example, it
has increased the number of entities it reports on and the amount of
information collected and changed how it uses this information.
Restructuring has affected other agencies' collection of electricity
information to a more limited extent but has raised other issues that
affect how they share information.
FERC's Changing Information Needs Have Affected Its Collection and Use
of Electricity Information, but Gaps Remain:
Over the past year, FERC has changed the way it performs market
oversight from one that reacts to electricity market events to one that
monitors markets on a day-to-day basis. This change has caused FERC to
reassess the information it needs to monitor these markets. During
2002, FERC created a new office to actively monitor competitive
electricity markets and undertook efforts to identify sources of market
information and better understand its own information needs.
Nonetheless, we found that FERC has gaps in the information it is
allowed to collect, primarily because of limitations in authority.
Consequently, FERC has increased its reliance on information from
third-party sources in order to supplement the information it collects.
However, this third-party information also has gaps, and we question
the reliability of some of this information, as have others.
Additionally, FERC plans to have RTOs and ISOs assist it by monitoring
and routinely collecting information on electricity markets, but the
formation of these organizations remains in question.
FERC Is Reorganizing and Assessing Its Information Needs:
In response to the evolving electricity markets, FERC realized that it
needed to reorganize and created OMOI in fiscal year 2002 to monitor
increasingly competitive electricity markets. OMOI's mission is to
guide the evolution and operation of energy markets to ensure effective
regulation and consumer protection through understanding markets and
their regulation, timely identification and remediation of market
problems, and compliance with FERC rules and regulations.
To carry out its monitoring mission, OMOI uses its Market Monitoring
Center that was patterned after market operation centers or rooms of
ISOs and major energy trading companies. The Market Monitoring Center
relies on computers and various software packages to make large amounts
of information on electricity available in a usable format. The center
uses both commercial and proprietary information services to access
current market activities. Electricity market information provided by
these services includes prices on the spot market and futures
contracts, plant outage, and historical information for trend analysis.
FERC also subscribes to another new service provider that offers
current information on the status and output of some generating units.
OMOI also uses the historical information from the traditional FERC
data collection activities to assist in its work. For example, during
investigations, FERC's forms for routine information collection provide
historical baseline information that may be critical in determining
possible market manipulations and/or unjustified prices. Appendix II
contains information on the commercial and proprietary information
services FERC uses and descriptions of the types of
information provided.
In fiscal year 2002, FERC completed studies to take stock of the
agency's current and future market information needs. As a part of this
effort, FERC formed teams that were to identify information that FERC
currently collects and additional information that it might need. The
study on current information needs identified 19 active information
collection and reporting requirements for the electric energy sector
and three that relate to all three energy sectors (electric, natural
gas, and oil pipeline). The study on future information needs
identified a core body of information FERC must know to adequately
understand how it might exercise its oversight authority and
information needs to accommodate a range of regulatory approaches. The
core body of information includes eight categories and the specific
data elements, descriptions, and potential sources of this information.
The categories are demand for electric power, supply, operations and
congestion management, market participants, transmission transactional
information, market design and rules, and traditional regulatory
functions. FERC's intention was to make the information catalogues a
"wish list" of every conceivable type of information FERC might ever
want or need.
According to OMOI, it is using the information from these two studies
as a baseline to assess FERC's overall market information needs. OMOI
hired an energy industry analyst to continue with the information
assessment project. The project's mission statement focuses on
information needs both in the near term and long term. The near-term
objective is to ensure FERC has the information most necessary to
perform its duties in restructured energy markets.
FERC Has Information Gaps Primarily because of Limitations
in Authority:
FERC's current information collection activities do not provide
sufficient information to fully monitor electricity markets. First, the
historical information FERC collects has deteriorated in quality, in
part, because of declines in power plant information reporting.
Specifically, FERC has found that some of the data fields that
companies are required to fill out are left blank in some cases. To
improve data quality, FERC officials stated that FERC recently improved
its error checking capability for one of its recently developed
electronic reports. In addition, some companies have aggregated sales
transactions data on the forms in a way that makes it impossible to
determine specific prices and quantities sold. Further, FERC's coverage
of power plant operational information has diminished because some
plants formerly owned by utilities are now owned by nonutilities that
are not required to report to FERC. Prior to restructuring, FERC
specifically used the information reported on power plant fuel costs
and quality as a factor to determine electricity rates. Under
restructuring, FERC uses power plant information to understand power
production and available capacity in specific markets, and to
understand what is normal or anomalous. According to FERC, power
outages could be used as strategies to reduce supply and thereby raise
market prices. In June 2002,[Footnote 8] we reported that California
power supplier behavior described in other studies we reviewed was
consistent with the exercise of market power, because the prices
charged did not reflect the marginal costs of generating additional
megawatt-hours of electricity. Rather, the behavior reflected an
ability to charge higher prices by waiting to commit the generation to
a time when buyers were willing to pay more.
Second, according to FERC and as we previously reported,[Footnote 9]
FERC generally has no jurisdiction over power sales by federally owned
entities, publicly owned utilities, and most cooperatively owned
utilities. These nonjurisdictional utilities own 27 percent of the U.S.
electric transmission system and are also smaller than investor-owned
utilities; however, they serve large areas of the country and provide
service in conjunction with about 25 percent of the nation's demand for
electricity. FERC officials note that they have little data and
information on these areas of the country. However, according to FERC
officials, information about the operations of these nonjurisdictional
entities is important to understand these entities' impact on
generation and transmission activities in a given market. For example,
the Tennessee Valley Authority operates a large power system and serves
many nonjurisdictional entities covering a large geographical area
across the southeastern United States located between several FERC
jurisdictional entities. According to FERC, the lack of detailed
information about the operations of the Tennessee Valley Authority
system limits its ability to assess the performance of the markets
surrounding this network. Similarly, FERC officials noted that they
also need information on electricity imports from neighboring
countries, particularly Canada, because they participate in and affect
prices of electricity in U.S. markets.
Third, according to FERC officials, they have limited up-to-the-minute
market information needed to monitor electricity markets. FERC does
not collect price information, for example, on up-to-the-minute
electricity prices, fuel costs, and spot and futures contract prices.
In June 2002,[Footnote 10] we reported that the Market Monitoring
Center did not include detailed information about energy prices on
"exempt" commercial markets, including the Intercontinental Exchange, a
"multilateral" electronic trader, which invites and matches buy and
sell orders for other customers. According to FERC, it now has access
to Intercontinental Exchange but no longer has access to other
Internet-based trading systems such as UBS Warburg and Dynegydirect,
both of which were "bilateral"[Footnote 11] electronic traders because
they have ceased operations. Such systems have and continue to provide
an important market for both physical energy (electricity and gas
products) as well as energy derivatives[Footnote 12] to be bought and
sold. In commenting on a draft of this report, FERC stated that because
its authority is ambiguous relative to the trade of electricity-based
derivatives, its ability to collect information on this part of the
market is limited. Additionally, FERC officials said that they have
limited operational information, such as power plant outages and
availability of capacity on transmission lines. Price and transaction
information, as well as operational information, is important in order
for FERC to be able to detect changes in the market, determine the
legitimacy of market outcomes, and if needed, take corrective action.
Finally, FERC officials told us that FERC cannot access other
nonfederal information it needs to assess reliability of the power grid
and monitor overall electricity market performance. Specifically, NERC
collects current electricity market information such as operations of
power plants, flows on key transmission lines, transmission between two
parties, and system frequency (that is, a measure of how well the
system is balancing electricity demand and supply and other reliability
information). FERC officials pointed out that because market
performance and electricity system reliability are mutually dependent,
such reliability information would help them to determine whether
market participants are behaving in an anticompetitive manner. While
NERC officials agreed that this information might be valuable to FERC
in determining whether power plant outages are justifiable, they stated
that NERC is prohibited from disseminating such information without
obtaining the companies' permission--which companies are reluctant to
grant due to the business-sensitive nature of the information. Further,
NERC officials told us that their database is deteriorating in quality
because companies are increasingly concerned about sharing detailed
information, for fear that competitors may gain an undue advantage. In
particular, many new market entrants to the electricity generating
industry have not joined NERC or provided NERC with information about
their plant operations. In commenting on a draft of this report, FERC
stated that language in proposed legislation creating FERC jurisdiction
over a designated electric reliability organization should assist in
addressing issues related to access to NERC information.
As we previously reported,[Footnote 13] FERC lacks authority to gather
all the information it needs from all segments of wholesale electricity
markets primarily because it derives much of its legislative authority
from mandates that were enacted over 75 years ago--when the industry
was structured as regulated monopolies and rates were based on the cost
of service. Further, we reported,[Footnote 14] FERC lacks regulatory
authority over all entities in wholesale electricity markets and is
therefore unable to gather all of the information it needs to
understand markets across the nation. Specifically, section 309 of the
Federal Power Act provides FERC with the authority to prescribe the
forms of all reports to be filed with it and the information to be
reported.[Footnote 15] This authority does not generally extend to
nonjurisdictional entities such as the power marketing administrations,
other nonutilities, and NERC. For example, FERC has identified problems
in getting data on individual power plant operations that it needs in
order to evaluate the functioning of the transmission system.
Information on nonjurisdictional entities is important because they
also participate in the same electricity markets as jurisdictional
entities and directly influence market activities, including prices.
Senior FERC officials told us that, in general, FERC's authority to
collect information from nonjurisdictional market participants is
predicated on developing a specific legal argument that the information
supports a specific investigation, rather than for more general
monitoring of market performance. Furthermore, regarding entities
within FERC's jurisdiction, FERC does not have specific authority to
collect up-to-the-minute detailed information on market activities.
While long-standing general authority may enable FERC to collect the
information it needs, the lack of specific authority for obtaining this
information may lead to challenges from market participants. In this
same vein, FERC officials added that FERC also faces challenges
related to the Paperwork Reduction Act in terms of the long lead time
and the level of effort necessary to obtain OMB's approval for
additional information collections.
Additionally, FERC's legislative framework does not allow it to levy
a meaningful range of penalties against companies that choose to
intentionally underreport or misreport required information. Although
the Federal Power Act allows FERC to levy criminal fines and civil
penalties against market participants, they are insufficient to
discourage underreporting or misreporting information. Thus, FERC's
traditional legislative authority may no longer be in sync with today's
developing competitive electricity markets. In competitive energy
markets, adequate and reliable information is important to FERC's
ability to fulfill its regulatory mandate and ensure the market
participants are not engaging in anticompetitive behavior. In
commenting on a draft of this report, FERC stated that market
transparency provisions in proposed legislation prohibits the filing of
false information and increases FERC's criminal penalty authority for
noncompliance.
FERC Increasingly Relies on Third-Party Information, but Gaps Remain
and Some Information Is Suspect:
FERC increasingly relies on third-party information to help offset its
limited authority to collect all of the information it needs to monitor
electricity markets. OMOI subscribes to several energy-related services
to increase its access to current markets and make key decisions
related to market performance. (See app. II for a complete listing and
description of information that third parties provide to FERC to assist
its monitoring of electricity markets.) While these third-party sources
fill some of FERC's information gaps, they do not have full or complete
coverage of the information FERC needs but lacks. For example, while
Genscape measures power plant operations for some power plants, it does
not have full coverage of the electricity system. Moreover, OMOI does
not have access to a third-party source for price or quantity
information on most bilateral transactions of wholesale electricity. In
addition, FERC and others have raised concerns about the quality of the
published price information these third parties provide. Specifically,
FERC reported that published prices are subject to manipulation and
cannot be independently validated. FERC surveyed reporting firms for
both natural gas and electricity and found that these firms lacked
formal verification or corroboration and sufficient internal controls
to ensure information reported to them was reliable. FERC also found
that these entities relied instead on traders or bid/ask prices
reported by traders and other market participants. As a result, FERC
reported that this lack of verification allowed an opportunity for
entities to deliberately misreport information in order to manipulate
prices and/or volumes in electricity.
In at least one recent instance, FERC used such third-party information
as a basis of a key decision regarding California's electricity market-
-the information, however, later turned out to be inaccurate.
Specifically, in 2002, FERC instructed an administrative law judge, who
was considering a request for refunds related to the western
electricity crisis, to use a methodology that relied on third-party
data for natural gas prices. The methodology, developed by FERC staff,
was intended to set a proxy for market prices that would have been
produced had the western market been competitive. The methodology
estimated the cost of producing electricity for key generators based on
operating cost, including fuel. Using this methodology, the judge
ordered refunds of about $1.8 billion to the state of California.
Subsequent to the order, FERC found, in August 2002, that the natural
gas prices underlying the methodology had been subject to erroneous
reporting and manipulation. In March 2003, FERC presented an
alternative methodology for determining refunds, which is expected to
substantially increase the previous award.
In commenting on a draft of this report, FERC stated that it is working
on options--based on staff recommendations and through a docket
proceeding--to improve third-party data. FERC added that market
transparency provisions in proposed legislation allow for establishing
an electronic system that provides information about prices in
electricity markets, in addition to the prohibition for filing false
information and increased criminal penalty authority noted in the
previous section.
FERC Plans to Use RTO/ISO Information, but RTO Formation
Remains Incomplete:
In addition to the third-party information, FERC plans to rely
extensively on RTOs and ISOs to assist in its monitoring efforts. FERC
plans to use the market monitors, created as part of ISOs, to perform
up-to-the-minute market monitoring activities and routinely collect
information on their electricity markets. FERC officials stated that
the market monitors have a better ability to understand and observe
market changes, can react more quickly to changing market conditions,
and can take stronger corrective action than FERC. In addition, as part
of the rules sanctioning these entities, FERC officials said they
expect to have access to all the data collected by the market monitors,
which FERC views as considerable. According to FERC, it currently
obtains timely information from some existing RTO and ISO monitors to
help support its market oversight processes. However, FERC officials
said that, relative to the Paperwork Reduction Act, they are not sure
whether the market monitors will be able to collect information on
FERC's behalf that FERC itself has not been authorized to collect. In
commenting on a draft of this report, FERC stated that it is mindful of
the potential burden imposed by additional information collections.
FERC added that it has been inventive in developing ways to monitor
markets, particularly restructured markets with RTOs and ISOs, using
data generated as an integral part of market operations.
Further, as we previously reported, several of the market monitors rely
on different methods to evaluate market power, there is a lack of
uniformity in what information is collected, how it is analyzed, and
what is reported, making potential cross-market comparisons difficult
at this time. More importantly, FERC's effort to expand the number and/
or market coverage of RTOs as well as standardize electricity market
rules has met with resistance from the Congress, state commissions, and
others. At present, according to FERC, two organizations have been
approved as RTOs while five others have been conditionally approved.
Overall, even if these additional RTOs are fully approved, FERC's
coverage will not extend to markets outside of its jurisdiction. Thus,
FERC's reliance on RTOs to help it diminish data gaps, particularly in
the next several years, will likely provide only limited help. In
commenting on a draft of this report, FERC believes that market
transparency provisions in proposed legislation will address issues
related to jurisdictional entities that do not participate in RTOs.
Restructuring Has Affected Other Agencies to a Lesser Extent:
Among the other agencies, EIA has been the most affected by
restructuring while the remaining agencies have been affected only
slightly. At EIA, restructuring has led to changes in the number of
entities from which EIA collects data, the volume of data collected on
electricity markets, and the way in which EIA uses the data to complete
its mission of examining the energy sector. EIA officials recognized
that restructuring could affect them and examined the potential
implications in two reports.[Footnote 16]
According to a senior EIA official, the first, and most important
effect of restructuring on EIA was its revision of its forms to require
the same information from utilities and nonutilities. Historically,
nonutilities were exempt from many of EIA's reporting requirements.
Adding these new entities has expanded EIA's database by about 2,000
new sources of information and has nearly doubled its database. The
second effect of restructuring on EIA is the increase in the volume of
information that it collects and provides because restructuring has
significantly expanded the role of wholesale markets in providing
electricity. For example, EIA now posts electricity prices for several
of the largest markets on its Web site and reports more detailed
information about the aggregate activities of these markets in
its publications. The third effect of restructuring on EIA is to
significantly alter the way that EIA examines energy sectors and
electricity in particular. In order to meet one of its missions of
examining and forecasting energy consumption and use, EIA has had to
revise its energy models to accommodate restructuring because of
changes in the way that electricity is supplied and distributed. For
example, in March 2003, EIA reported that it reviewed and revised how
it collects, estimates, and reports fuel use for facilities producing
electricity. According to EIA, the review addressed inconsistent
reporting of fuels for electric power by combined heat and power plants
and changes in the electric power marketplace that have been
inconsistently represented in various EIA survey forms and
publications. EIA regards these efforts as complex and substantial and
expects them to continue as the electricity sector evolves.
EIA also encountered problems such as maintaining the quality of
information. The Director of EIA's Electric Power Division said that
the Department of Energy's Secretary has made the quality of
information one of the department's top priorities. However,
maintaining this quality at EIA is a challenge because there has been a
substantial increase in the number of sources of information
(especially the nonutilities) resulting from restructuring while EIA
has also experienced substantial budget cuts. The Director estimated
that there has been a 50 percent increase in the overall volume of
data. In addition, the Director said that, while omission of
information by companies responding to EIA's data collection efforts is
not a common problem, in the past, some companies failed to answer a
question about the delivered fuel price on EIA's Form 423. The Director
added that the companies' decision not to disclose information about
fuel prices could have been attributed to the sensitive nature of this
particular item.
Restructuring has had little direct effect on SEC's overall information
collection activities. As such, according to SEC officials, the SEC
continues to carry out its oversight of securities laws and its
administration of PUHCA. However, the Congress is considering
repealing or modifying PUHCA because the emergence of nonutilities
reflects the fact that utilities are no longer the sole source of
electricity energy. FERC and SEC officials acknowledge that since
nonutilities are not covered by PUHCA, registered holding companies may
engage in nonutility activities that are not regulated by the act. SEC
has stated that it supports the repeal of PUHCA as long as repeal is
accomplished in a way that gives FERC and state regulators sufficient
authority to protect utility consumers.[Footnote 17] FERC has stated
that PUHCA, as it currently exists, may actually impede competitive
markets and appropriate competitive market structures.
Recent events such as the collapse of Enron Corporation have
accelerated reforms affecting SEC that aim at improving the quality and
reliability of financial information. SEC plays a vital role in
ensuring that meaningful and intelligible information is disclosed to
investors. Such disclosures are particularly important as corporate
structures of new and old electricity market participants continue to
change. The Sarbanes-Oxley Act of 2002 has established the legal
framework to address some of the concerns related to corporate
disclosure, accountability, and transparency.
Restructuring has not had significant effects on the collection of
electricity information by the other agencies included in our review.
Some agencies, such as the Federal Trade Commission and the Commodities
Futures Trading Commission, may become more involved in collecting
electricity information as competitive markets develop. For example,
the number of electricity entity mergers has slowed down, but should
these mergers increase, Justice may need to increase its information
collections for merger investigations accordingly. In addition, a
Commodities Futures Trading Commission official initially told us that
electricity futures trading had been discontinued because the market
participants found that electricity futures failed to provide an
adequate hedge against intermittent price volatility. However, since
our initial discussion, the New York Mercantile Exchange has introduced
several new electricity contracts, and the Commodities Futures Trading
Commission has reinstated its practice of collecting information on
these trades.
Despite the more limited impacts of electricity restructuring on many
of these agencies to date, some jurisdictional issues have been raised
about their respective roles in helping to oversee electricity markets
more generally. Events such as the collapse of Enron Corporation bring
to light the importance of clarifying jurisdiction across the federal
government as restructuring progresses. As noted in a recent Senate
Governmental Affairs report and memorandum,[Footnote 18] and other
congressional hearings, both FERC and SEC 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 between agencies prevents
companies from exploiting the lack of oversight in areas where neither
agency may have taken full responsibility--as Enron did with FERC and
SEC in the case of its investments in wind farms. Officials at both
FERC and SEC told us that they had performed their jobs and had no
reason to check with the other agency about Enron's actions. However,
Enron took advantage of jurisdictional gaps between the two agencies
that enabled it to earn tens of millions of dollars above what it would
have otherwise earned from its wind farms.
FERC and the Commodity Futures Trading Commission provide a
second example of problems resulting from jurisdictional
uncertainties. The Senate memorandum (noted previously) on FERC pointed
out that FERC did not initially determine whether it had jurisdiction
over on-line trading platforms such as Enron Online, although it was
FERC's expectation that these electronic trading platforms would become
a dominant way to trade both electricity and gas. Furthermore, this
memorandum concluded that both FERC and the Commodity Futures Trading
Commission had some regulatory responsibility for on-line trading.
Until Enron's collapse, however, the two agencies did not participate
in meaningful discussions to identify and coordinate their respective
roles. Effective coordination would have helped to clarify the
jurisdictional boundaries between FERC and the Commodity Futures
Trading Commission regarding energy trading activities and products,
including on-line trading, and to define the two agencies' respective
monitoring responsibilities in these developing markets. Both agencies
have recently taken steps to improve their coordination. Because these
jurisdictional issues remain unresolved, however, it is unclear whether
these problems are limited to a few examples or are potentially
more widespread.
Changes in Industry Caused by Restructuring and National Security
Concerns Have Affected How Information Is Shared:
Restructuring has made the issue of confidentiality concerning
electricity information more prominent. On the one hand, the need to
access key information now is greater in evaluating the benefits and
risks of restructuring. On the other hand, the sensitivity of this
information, according to the companies asked to provide it, is also
greater because of fears that other companies could use it to seek
competitive advantages. This dilemma has led to controversy about the
electricity information that is to be made publicly available and
shared with other federal agencies. Both EIA and FERC have procedures
regarding restrictions on access to information and have modified these
procedures, as appropriate. For example, EIA faced considerable protest
for its proposal to restrict access to the information that it collects
but updated its procedures to resolve some of the concerns raised. By
contrast, public disclosure laws and confidentiality pledges to protect
information also affect information sharing and collection of other key
information at both federal and nonfederal levels. For example, NERC's
information collected from the electricity industry remains
unavailable to FERC and other federal agencies because of its
sensitivity. In addition, the quality of the information being
submitted to NERC has declined as companies have become increasingly
concerned about providing it. In addition to the confidentiality
issues, the events of September 11, 2001, have heightened national
security concerns about protecting the nation's energy.
EIA Has Taken Steps to Resolve Confidentiality Issues:
In 2001, EIA faced a major controversy over confidentiality of
electricity information, which it was able to resolve. The controversy
pitted certain companies that feared potential competitive harm from
the release of sensitive information, against agency and public
interest in maintaining access to electricity data. Federal agencies
and a private sector group provided extensive comments on EIA's
proposal to broaden the information it considered confidential. EPA,
for example, objected to EIA's proposed confidential treatment of fuel
consumption, fuel quality, fuel type, thermal output, and retail sales.
EPA officials noted that EPA makes extensive use of these data elements
in monitoring emissions. In general, it maintained that EIA's proposal
went far beyond what was reasonably necessary to protect competitors
from the release of sensitive data. The American Public Power
Association, which represents the nation's 2,000 nonprofit, publicly
owned electric utilities, described itself as "deeply troubled" by
EIA's proposal. It stated that EIA had provided no evidence that the
public availability of specific data items would harm the filing
companies and no evidence on how EIA balanced the public's need for
information against any potential harm to these companies. By contrast,
the Edison Electric Institute, which represents shareholder-owned
electric companies, cited potential harm to companies, for example,
information in the hands of a competitor that could allow the
competitor unfairly to undercut another company's bid strategy.
In response to these disagreements over confidentiality, EIA issued a
policy statement that made two general changes to its procedures.
First, it reported that some data elements that were not considered
confidential in the past would now be treated as confidential. Second,
it reported that some data collected from unregulated companies that
were formerly treated as confidential would now be made publicly
available. Discussing the eventual resolution of the controversy, the
Director of EIA's Electric Power Division told us that EIA adopted two
strategies to achieve this balance. These strategies involve
(1) requiring essentially the same information from all companies,
including utilities and nonutilities, and (2) identifying appropriate
time frames for retaining and releasing sensitive data. The details of
the data remaining confidential are presented in appendix III.
FERC and Other Nonfederal Sources of Information Face Challenges that
Affect Both Information Collection and Sharing:
FERC recognizes the need of utilities to compete in the electric market
and understands their desire to keep confidential some of the
information it collects through its forms. However, FERC's policy
requires respondents who request confidentiality to show that potential
harm outweighs the need for public access to the information. According
to FERC, the courts have, through a considerable body of case law,
clearly stated that the company bears the obligation, in this case the
electric utility, to prove release of information would cause harm.
FERC officials told us that Freedom of Information Act requirements
raise concerns among utilities about FERC's ability to protect
commercially sensitive information. The act requires FERC to disclose
information to the public unless specific exemption categories are met,
which FERC officials told us, is often difficult to do. According to
FERC officials, while FERC may be willing to share exempted information
with state regulatory bodies, states have similar public disclosure
laws that do not always guarantee their ability to protect this
information. FERC officials added that RTOs will also face similar
challenges in sharing commercially sensitive information. While RTOs
could benefit by sharing information about entrants from other markets
who are interested in entering their own markets, protecting the
confidentiality of this information will be an issue. In commenting on
a draft of this report, FERC stated that proposed legislative language
provides a clear confidentiality standard, exempting "from disclosure
information FERC determines would, if disclosed, be detrimental to the
operation of an effective market or jeopardize system security."
Finally, FERC also faces challenges creating ways to obtain and share
information from Canada and Mexico, since they also affect U.S.
electricity markets.
NERC is hesitant to share information with FERC that its members
feel would cause them competitive harm if released in the public
domain. According to a NERC official, companies are increasingly
reluctant to provide commercially sensitive information, causing a
decline in information quality. Therefore, NERC has pledged not to
divulge information on a company-specific basis and will release it
only in aggregate form in hopes of getting the information it needs.
NERC collects current electric market information such as flows on key
transmission lines, transmission between two parties, and system
frequency (an indicator of how well the system is balanced) that
FERC is interested in obtaining from NERC, but, according to both
FERC and NERC officials, confidentiality pledges inhibit this sharing
this information.
National Security Concerns Affect Information Sharing:
Since September 11, 2001, the federal government has taken steps to
protect the nation's critical infrastructures, including the energy
infrastructure. FERC has taken steps to remove information it considers
to be critical to protecting the nation's power grid from the public
domain. Specifically, it has removed information such as oversized maps
that detail the specifications of existing and proposed energy
facilities that were once publicly available from its Internet site,
public reference rooms, and databases. For example, FERC removed the
information its collects from the Form 715, Annual Transmission
Planning and Evaluation Report, from the public domain. Additionally,
EIA removed power plant latitude and longitude information from the
public domain. While steps have been taken to better protect
information, federal officials at both FERC and EPA raised concerns
about the increasing difficulty of accessing information on power plant
locations and related data.
Conclusions:
Given FERC's predominant role in overseeing evolving electricity
markets, FERC needs information on a regular basis regarding
reliability, supply and demand, transmission, purchase and sale of
electricity commodities, and market participants--much of the needed
information has not previously been collected. Consequently, FERC is
currently missing some of these key pieces of information or is relying
on third parties such as energy news services for related information
to assist in meeting its market monitoring and oversight
responsibilities. Without access to this key information, FERC will not
be able to fully understand the performance of specific electricity
markets across the country. In addition, FERC will be less prepared to
identify potential market manipulation that may affect competitive
markets. FERC's existing authority is not adequate to collect all the
information it needs, resulting in these gaps of key information.
Moreover, legislation does not allow FERC to levy meaningful criminal
fines and civil penalties against market participants to ensure that
companies report accurate and reliable information, further diminishing
its ability to identify potential market manipulation. For these
reasons, the Congress may need to make decisions regarding the scope of
information collection at FERC and other agencies.
Recommendations for Executive Action:
Given that effective oversight of evolving electricity markets requires
the acquisition of and access to timely, reliable, and complete
information, we recommend that the Chairman, FERC (1) demonstrate what
information FERC needs, (2) describe the limitations resulting from not
having this information, and (3) ask the Congress for sufficient
authority to meet its information collection needs and
responsibilities. Additionally, we recommend that FERC consider the
cost and potential reporting burden associated with additional
information collection, since market participants will incur
additional costs and burden hours, and where possible, explore creative
ways to obtain information.
Agency Comments:
We provided a draft of this report to FERC and DOE for their review
and comment. In its written comments, FERC generally agreed with the
report's conclusions, specifically that its authority to collect
information has not kept pace with the changing electricity market and
that its ability to penalize noncompliance is severely limited.
Regarding our recommendation that FERC take action to resolve its
information gaps, FERC commented that it is in the process of
conducting an internal information assessment and the results will be
provided at the end of 2003. This assessment should provide a first
step toward implementing our recommendations. However, in a related
point, FERC also noted that whatever information gaps exist with
electricity supply, much greater deficiencies exist on the demand side
of the market, which is largely beyond its jurisdiction but also
important to understanding the entire market.
FERC also noted that it must be mindful of the potential burden
imposed by additional information collections, and it has been
inventive in developing ways to monitor markets, particularly those
operating under its restructuring rules. FERC also provided several
small corrections to the draft report language and added other
clarifications that we incorporated into the draft where appropriate.
The complete text of FERC's comments is included in appendix IV.
In its written comments, DOE agreed that the report generally
characterizes the current state of electricity data collection and
dissemination at EIA accurately and that it provides a balanced set of
recommendations on improving the timeliness of data dissemination in
the electricity industry's restructured environment. DOE also
commented about our characterization of EIA's mission and how EIA's
information is used, as well as provided further clarification on the
coverage of EIA and RUS information collections and EIA's resolution of
data quality issues on its Form 423. We incorporated EIA's suggested
information in these areas along with previously provided technical
corrections into the draft where appropriate. The complete text of
DOE's written comments is included in appendix V.
Objectives, Scope, and Methodology:
To determine what electricity information is collected, used, and
shared by key federal agencies in meeting their primary
responsibilities, we first identified federal agencies using specific
forms and form-like surveys for collecting electricity information.
These agencies included FERC, EIA and Fossil Energy within DOE, RUS,
SEC, and EPA. We obtained these forms and form-like surveys and
analyzed their contents, as summarized in appendix I. We also
identified third-party sources of information used by federal agencies.
These included the 13 companies identified in appendix II. We analyzed
this third-party information through a review of Web-based materials
and interviewed officials at Genscape, Edison Electric Institute, and
NERC. We also identified federal agencies that collect, or have
collected, electricity information for investigations and interviewed
officials at these agencies that included the Department of Justice,
the Federal Trade Commission, and the Commodity Futures Trading
Commission. For all federal agencies included in our review, we
obtained information on their missions by examining mission statements
on their Web sites. To understand how federal agencies use and share
electricity information, we interviewed federal officials at the
federal agencies mentioned above.
To determine the effect of restructuring on federal agencies'
collection, use, and sharing of this information, we focused primarily
on FERC because it bears the main responsibility for monitoring
electricity markets, is undergoing major organizational changes caused
by restructuring, and has shown serious deficiencies in responding to
restructuring. Within FERC, we met with officials from OMOI and from
its Office of Markets, Tariffs, and Rates. To understand the gaps in
FERC's electricity information resulting from restructuring, we
interviewed officials at FERC and NERC, reviewed information from
third-party sources, and identified federal authority contributing to
these gaps. Although restructuring has affected other federal agencies
to a lesser extent, we identified the relevant effects, if any, in
these other agencies by interviewing officials and reviewing pertinent
documents. Among these other agencies, EIA has been the most affected
by restructuring. We examined specific impacts at EIA that included
increases in the number of entities from which EIA collects data and
the volume of information collected. We also examined jurisdictional
issues posed about FERC and SEC, and FERC and the Commodity Futures
Trading Commission. To understand how restructuring has affected the
way in which federal agencies share this information, we examined
concerns about confidentiality, particularly as they related to EIA's
development of its current confidentiality policy and FERC's lack of
access to NERC information because of NERC's concerns about the
potential sensitivity of the information. In addressing the second
objective, we also relied on a broad range of our previously issued
reports on electricity restructuring and FERC's oversight of
electricity rates.
We conducted our work from June 2002 to May 2003 in accordance with
generally accepted government auditing standards.
As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report until
14 days after the date of this letter. At that time, we will send
copies to appropriate congressional committees, the Chairman of the
Federal Energy Regulatory Commission, the Secretary of the Department
of Energy, the Administrator of the Environmental Protection Agency,
the Secretary of the Department of Agriculture, the Chairman of the
Securities and Exchange Commission, the Attorney General of the United
States, the Chairman of the Federal Trade Commission, the Chairman of
the Commodity Futures Trading Commission, the Director of the Office of
Management and Budget, and other interested parties. We will make
copies available to others on request. We will also 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 VI.
Jim Wells
Director, Natural Resources and Environment:
Signed by Jim Wells:
[End of section]
Appendix I: Description of Data Collection Forms and Legislation
Authorizing Collections for FERC and EIA:
[See PDF for image]
Source: GAO analysis of FERC's and EIA's survey forms.
[A] If the information requested in FERC's forms is not reported, the
criminal penalties are as follows: --16 U.S.C. 825o(a) statutory
violations up to a $5,000 fine or imprisonment of not more than --
2 years --16 U.S.C. 825o(b) rules violations not to exceed $500 per day
during the time the offense occurs.
[B] The timely submission of these forms by those required to report is
mandatory under section 13(b) of the Federal Energy Administration Act
(FEAA) (Public Law 93-275), as amended. Failure to respond may result
in a penalty of not more than $2,750 per day for each civil violation
or a fine of not more than $5,000 per day for each criminal violation.
The government may bring a civil action to prohibit reporting
violations, which may result in a temporary restraining order or a
preliminary or permanent injunction without bond. In such civil action,
the court may also issue mandatory injunctions commanding any person to
comply with these reporting requirements.
[C] According to EIA's Electric Power Annual 2001 report, beginning
with data collected from the year 2000, the Forms EIA 860A and 860B are
obsolete. The infrastructure data collected on those forms are now
collected on the Form EIA-860 and the monthly and annual versions of
the Form EIA-906.
[D] EIA 906 superseded Forms EIA-900--Monthly Nonutility Power Plant
Report--and EIA-759--Monthly Power Plant Report.
[End of table]
[End of section]
Appendix II: Third-Party Data Sources:
Data Source: FriedWire; Description: FriedWire is an energy information
provider, specializing in Web-based data collection and integration.
Its Traffic Report is a real-time visual monitoring system covering
electric power grid operations in North America. Its Powersurge is a
real-time monitoring system for Northeastern and Canadian electric
power markets. Its WestDesk provides similar information for western
electric power markets. Its Analyst Edge is an on-line energy database
created to support the needs of energy market analysts. Its Data Feed
Service and Energy Data Warehouse provide updates of energy market
information and historical information.
Data Source: Genscape; Description: Genscape provides current
information related to generation and transmission of some fossil and
nuclear power plants in the United States. Genscape guarantees accuracy
of 90 percent or better based on its direct, physical monitoring of
power plant outputs.
Data Source: Electric Power Research Institute; Description: Electric
Power Research Institute has developed an on-line, Web-based display of
power market transactions and includes information on schedules and
congestion. The data are useful for transmission planning.
Data Source: Bloomberg; Description: Bloomberg's PowerLines is a trade
press publication providing electricity news. Bloomberg's Professional
Services provides current and historical data on regional electricity
and gas markets, including spot and future prices, market commentary,
plant outage information, and energy news.
Data Source: NERC; Description: NERC provides real-time information on
transmission constraints in the northeast. Its Flow Impacts Study Tool
provides information about the real-time flow and expected flow for the
next 36 hours for specific transactions.
Data Source: Open Access Technology International; Description: Open
Access Technology International provides information on electricity
transmission useful for scheduling and meeting electricity deliveries.
Data Source: EarthSat; Description: EarthSat provides weather forecasts
and historical weather data for selected cities.
Data Source: Energy Argus; Description: Energy Argus provides news
concerning electricity and gas operations and prices.
Data Source: InterContinental Exchange; Description: InterContinental
Exchange provides information on over-the-counter energy
transactions.
Data Source: PowerWorld Corporation; Description: PowerWorld
Corporation's Simulator is an interactive package designed to simulate
high voltage power system operation. It gives an analyst a
comprehensive look at issues surrounding electrical power flows in a
transmission grid.
Data Source: Resource Data International Data Resources via Platt's:
Description:
Data Source: (1) PowerDat; Description: (1) Historical data related to
electric industry.
Data Source: (2) GasDat; Description: (2) Historical data related to
gas industry.
Data Source: (3) NewGen; Description: (3) Database consists of new
proposed generation.
Data Source: (4) PowerMap; Description: (4) Tool to generate maps,
including transmission lines, gas pipelines, and generation.
Data Source: Platt's; Description: Through publications such as
Megawatt Daily and Gas Daily, Platt's provides daily energy news
related to electric and gas issues.
Data Source: Cambridge Energy Research Associates; ; Description:
Cambridge Energy Research Associates provides various services related
to regional electric, gas, and transmission issues. These include, for
example, its North American Electric Power Advisory Service, which
focuses on the future of the power sector and the forces affecting the
market, prices, and emerging trends and technology. Other services
include its North American Natural Gas Advisory Service, its Electric
Transmission Advisory Service, and its Western North America Energy
Advisory Service.
Source: GAO analysis of information provided through third-party data
sources' Web sites and FERC.
[End of table]
[End of section]
Appendix III: EIA Confidentiality Elements:
Elements: Costs of fuel for unregulated plants; Forms affected: * EIA-
423--costs of coal, natural gas, and petroleum at an unregulated power
plant.
Elements: Tested heat rates; Forms affected: * EIA-411--tested heat
rate under full load; * EIA-860--tested heat rate under full load.
Elements: Fuel inventory--stocks; Forms affected: * EIA-906--end-of-
month coal and petroleum stocks.
Elements: Plant costs and expenses for unregulated plants; Forms
affected: * EIA-412--generator plant cost and expenses for unregulated
plants.
Elements: Monthly electricity sales information reported for energy-
only service; Forms affected: * EIA-826--monthly electric sales,
revenue, and number of customers reported for energy-only service.
Elements: Latitude and longitude; Forms affected: * EIA-411--latitude
and longitude; * EIA-767--latitude and longitude; * EIA-860--latitude
and longitude.
Source: EIA.
Note: Other elements collected in the electric power surveys are not
treated as confidential.
[End of table]
[End of section]
Appendix IV: Comments from the Federal Energy Regulatory Commission:
FEDERAL ENERGY REGULATORY COMMISSION WASHINGTON, DC 20426:
June 12, 2003:
OFFICE OF THE CHAIRMAN:
Mr. Jim Wells:
Director, Natural Resources and Environment
United States General Accounting Office
Room 2T23:
441 G Street, NW Washington, DC 20548:
Dear Mr. Wells:
Thank you for your letter of May 22, 2003, enclosing your draft report,
Electricity Restructuring: Action Needed to Address Emerging Gaps in
Federal Information Collection. I congratulate you on your effort and
appreciate the opportunity to comment on this report.
In general, I agree with GAO's conclusions, namely that FERC's
authority to collect information has not kept pace with the changing
electricity market and that our ability to penalize non-compliance is
severely limited.
Regarding the recommendations that FERC "(1) demonstrate what
information FERC needs, (2) describe the limitations resulting from not
having this information, and (3) ask the Congress for sufficient
authority to meet its
information collection needs and responsibilities" (p. 32), we are in
the process of conducting an internal Information Assessment, which
will provide results by the end of 2003.
The report's recommendations continue, "Additionally, we recommend that
FERC consider the cost and potential reporting burden associated with
additional information collection, since market participants will incur
additional costs and burden hours, and where possible explore creative
ways to obtain information" (p. 32).1 agree that, within the context of
identifying additional data collection needs, we must carefully measure
the costs against the benefits derived from improved access to that
information. FERC is mindful of the potential burden imposed by
additional information collections, and we have been inventive in
developing ways to monitor markets-particularly those operating under
our restructuring rules-using data generated as an integral part of
market operations.
There are three small factual errors in the draft report to which I
would like to bring your attention:
1. "FERC has no jurisdiction over power sales by ... new market
participants such as exempt wholesale generators" (p. 21). Most new
market participants, including exempt wholesale generators, are subject
to FERC jurisdiction, and must be authorized to sell power in
jurisdictional markets as "public utilities." They are also subject to
many of our information collection requirements.
2. "FERC now has access to [the Intercontinental Exchange] but
continues not to have access to other Internet-based trading systems
such as UBS Warburg and Dynegydirect, both of which are `bilateral'
electronic traders" (p. 22). FERC did have access to UBS Warburg's
ubswenergy.com (formerly EnronOnline) and Dynegydirect, but both have
ceased operations. UBS Warburg suspended ubswenergy.com on December 10,
2002, for the firm to move its trading operations to Connecticut; it
has not begun operating again. Dynegydirect closed its online service
as of June 19, 2002. With the collapse of Enron, the "bilateral" model
for trading platforms, where the operator of the platform acts as
counterparty to all trades, has largely been discredited.
3. "[T]rading in electricity futures conducted through the New York
Mercantile Exchange ... was discontinued because its participants found
that electricity futures failed to provide an adequate `hedge' or
protection
against intermittent price volatility" (p. 16). NYMEX has reinstated
its futures contract for the Pennsylvania/New Jersey/Maryland hub.
There are a few other points to which I would like to add
clarification. Specifically:
1. FERC's rules for restructured electric markets (i.e., RTOs/ISOs),
where instituted, create conditions where considerable information is
available to perform the oversight function. While FERC is monitoring
electric markets to the extent possible, enactment of the market
transparency provisions in legislation currently before Congress (S.B.
14 and H.R. 6) would resolve many of the particularly problematic
issues noted in the report relative to jurisdictional entities that do
not participate in RTOs.
2. FERC's rules for restructured electric markets, where instituted,
create independent Market Monitoring Units (MMUs) that provide detailed
market-specific oversight and support FERC's own oversight processes
through data analysis, distillation, and close coordination with FERC
staff.
3. FERC's rules for restructured electric markets, where instituted,
create an environment requiring public access to large quantities of
specific market data involving pricing, load and congestion. With all
that information available to the market, third parties must compete on
the quality and reliability of the data services they perform rather
than on development of the data itself. For example, because all
parties have equal access to prices in NYISO's day-ahead market, third
parties compete to re-package that data with the market disciplining
the quality of their offerings.
4. The report notes, "FERC and others have raised concerns about the
quality of the published price information" provided by third parties
and notes our concerns about the lack of independent verifications and
the potential for manipulation (p. 24). As a result of our
investigation into manipulation of Western markets (Docket No. PA02-2),
we received several recommendations from FERC Staff regarding actions
we can take to improve the quality of price indices. We are currently
considering our options through a docketed proceeding (Docket No. AD03-
7) where we have received the active participation of the energy
industry. Moreover, the market transparency rules in S.B. 14 and H.R. 6
provide for the FERC to issue rules establishing an electronic system
that provides information about prices in electric markets and
prohibits the filing of false information. The bill also adds to FERC's
ability to penalize non-compliance.
5. The availability of energy derivatives (such as futures, swaps and
options) affects the motivation of participants in competitive energy
markets. Whatever FERC's access to information regarding physical
trades is, ambiguity and limitations in our jurisdiction over
electricity-based financial products retards our ability to oversee
electric markets.
6. In the restructured electric market, FERC has weighed the interest
and the ability of customers to perform oversight on their own against
the benefits of protecting market innovation with confidentiality for
commercially sensitive information. Language in S.B. 14 and H.R. 6
provides useful standards for us to apply regarding the confidentiality
of market-critical data.
7. As the report's information summary shows, whatever the information
gaps are associated with electricity supply, much greater deficiencies
exist on the demand side of the market. While retail energy efficiency,
demand
response, and distributed generation are largely beyond the
jurisdiction of the FERC, there is a clear national need to have high
quality information about energy use and efficiency because they affect
wholesale and retail energy market health and security.
I elaborate further on these seven points below.
FERC has used its existing authority to create market rules that
provide readily accessible flows of information that enable effective
market oversight. In Order 889, all public utilities that own, control
or operate facilities used in the
transmission of electric energy in interstate commerce were required to
create or participate in an Open Access Same-Time Information System
(OASIS) that provides existing and potential transmission customers the
same access to transmission information. In Order 2000 and subsequent
orders regarding RTOs, FERC defined a market environment that
inherently entails broad dissemination of market information. Where
participants in the electric industry have agreed to be subject to
those rules in order to operate in a restructured, competitive electric
market, significant information is readily available to perform
oversight. Where FERC's market rules are not in place, that information
is not available.
Legislation currently before Congress (S.B. 14 and H.R. 6) addresses
the issues that limit our ability to require the availability of
minimum levels of publicly available market information from
jurisdictional entities not participating in an RTO. S.B. 14 in
particular requires FERC to establish "an electronic information system
to provide the Commission and the public with access to such
information as necessary or appropriate to facilitate price
transparency and participation in markets subject to the Commission's
jurisdiction." FERC supports the enactment of the provisions.
A key component of our market rules is the creation of Market
Monitoring Units (MMUs). MMUs were created to provide independent,
ongoing, focused, real-time oversight of the open, functioning and
competitive markets. The MMUs have real-time access to minute details
of market operations. As such, they augment the oversight capabilities
of FERC staff. In the course of ongoing market operations, FERC and
MMUs are working together to ensure open fair competition. In the event
of a market anomaly, FERC oversight staff and the affected MMU are in
early and frequent contact. Where FERC's market rules are not in place,
similar independent oversight is not possible and does not exist.
As indicated in the report, there is "a lack of uniformity in what
information is collected, how it is analyzed, and what is reported,
making potential cross market comparisons difficult at this time." FERC
and the MMUs have been working since December 2002 to create standard
market metrics that will allow comparison across RTOs. This effort is
expected to provide a set of descriptive metrics this fall and
additional normative metrics this winter.
FERC has used its existing authority to create market rules that, in
practice, necessitate that certain minimum levels of information are
disclosed publicly. Several third party vendors collect that
information, distill and re-package it.
Because the data are accessible to all, competition raises the quality
and reliability of the third-party services.
In the cases cited in the report such as published market indices for
bilateral trades, it is market information developed outside FERC's
market rules for which coverage and/or quality is suspect. This does
not mean that FERC must collect the data ourselves, but rather, that
where we set the parameters for information availability, data tends to
be more reliable.
Looking at energy price indices in general (i.e., for both gas and
electricity), FERC Staff's "Final Report on Price Manipulation in
Western Markets: Fact-Finding Investigation of Potential Manipulation
of Electric and Natural Gas Prices" (Docket No. PA02-2, March 2003)
provides concrete recommendations setting minimum standards for price
indices. As noted above, we have an ongoing proceeding on market price
formation with many similar issues and many of the same parties (AD03-
7), and we have held one technical conference with the active
participation of industry and have scheduled another. Several
innovative solutions have been proposed.
Specifically, S.B. 14 instructs the FERC to "issue rules establishing
an electronic information system... [that provides] information about
the availability and market price of wholesale electric energy and
transmission services" (S.B. 14 at § 1171) and prohibits parties
"willfully and knowingly to report any information relating to the
price of electricity sold at wholesale" S.B. 14 at § 1172). H.R. 6
contains comparable language. Additionally, FERC's ability to impose
criminal fines would be increased significantly under the legislation.
We are optimistic that this legislation in conjunction with our efforts
on this issue will allow us to move toward greater integrity in energy
pricing data.
Regarding the specific case of access to NERC data for monitoring
purposes, language in S.B. 14 and H.R. 6 creating FERC jurisdiction
over a designated Electric Reliability Organization should assist in
addressing the issues regarding information access.
FERC's authority is, at best, ambiguous relative to the trade of
electricity-based derivatives. Our ability to collect information in
this part of the market is, therefore, limited. Market participants
should not be deterred from entering into agreements that limit their
price risk in the volatile electric market. FERC, nonetheless, needs to
be able to identify whether particular hedges are being used to the
benefit of customers and when they are a component of a plan to
manipulate the market. As the report notes, FERC and the Commodity
Futures Trading Commission "have recently taken steps to improve ...
coordination" (p. 29), but the lack of clear jurisdiction over the
trade of energy derivatives, both on and off
exchanges, limits our ability to collect information that allows us to
oversee the whole market.
In considering data submitted to FERC, we must balance customers'
interests against market efficacy in matters of confidentiality.
Traditionally, FERC has given special consideration to the customers'
side of the scale favoring broad disclosure of information. S.B. 14
provides a clear confidentiality standard, exempting "from disclosure
information [FERC] determines would, if disclosed, be detrimental to
the operation of an effective market or jeopardize system security."
Similar language is in H.R. 6. FERC supports this standard as being
consistent with competitive energy markets.
Beyond FERC's jurisdiction, I would like to note the imbalance in
information availability between the supply and demand sides of the
market. Looking at Appendix A in the report, one notices the dearth of
national data collections concerning electricity demand. Particularly
in the areas of energy efficiency, demand response, and distributed
generation, policy makers must have access to richer and clearer
information for better decision-making about competitive energy
markets, energy adequacy, and national energy security. FERC cannot
collect these data due to jurisdictional considerations, but the
resulting information is critical to understanding the entire market.
We appreciated the opportunity to work with your staff in reviewing the
information requirements in restructured electricity markets. Thank you
again for the opportunity to comment on your report.
Best regards,
Pat Wood, III Chairman:
Signed by Pat Wood, III:
[End of section]
Appendix V: Comments from the Department of Energy:
Department of Energy Washington, DC 20585:
JUN 11 2003:
Jim Wells:
Director, Natural Resources and Environment General Accounting Office:
441 G Street NW Washington, DC 20548:
Dear Mr. Wells:
The Energy Information Administration (EIA) appreciates the opportunity
to comment on the General Accounting Office (GAO) draft report
"Electricity Restructuring: Action Needed to Address Emerging Gaps in
Federal Information Collection," Report No. GAO-03-586. We agree that
the report generally characterizes the current state of electricity
data collection and dissemination at EIA accurately, and that it
provides a balanced set of recommendations on improving the timeliness
of data dissemination in the electricity industry's restructured
environment. We have previously provided you with a set of informal
comments, including those dealing with minor issues of fact about our
surveys. This letter reiterates our major comments concerning the
draft.
* The discussion of EIA's mission on page 10 differs from that in our
Strategic Plan (see http://www.eia.doe.gov/neic/aboutEIA/
strategy.htm). As stated there, our mission is to be "a leader in
providing high quality, policy-independent energy information to meet
the requirements of Government, industry, and the public in a manner
that promotes sound policymaking, efficient markets, and public
understanding." Although our analyses and forecasts often include an
assessment of energy adequacy as well as other issues,.we believe that
our Strategic Plan provides the best and most accurate description of
our mission.
The discussion of EIA's use of its information on page 11 is somewhat
narrow. Although we have in the past evaluated many of the issues
discussed in the paragraph, a more general statement of EIA's use of
the data is as follows: "EIA and its customers use the information it
collects for a variety of purposes. These include monitoring of market
trends in supply, demand, and prices; analytical activities such as
short-and long-term forecasting; and inputs to special studies, such as
responses to Congressional inquiries. EIA is also responsible for
making sure its data are available to the public in easily accessible
and user-friendly formats.":
* The discussion of information "gaps" on page 20 should acknowledge
that some gaps are being filled by other agencies. For example, the
FERC Form 1 goes only to Investor Owned Utilities (IOUs). However, the
Rural Utility Service collects
some similar data for cooperatives, as does the EIA for public power
producers and some other entities through the EIA-412 survey. The FERC
423 covers fuel cost and quality for IOUs; the EIA-423 covers other
entities. These activities are worth noting in the report.
* The discussion of the quality of EIA's data on page 27 states that
some companies have chosen not to submit information on delivered fuel
prices on their EIA-423 submissions. Although this has been a problem,
EIA has made a successful effort recently to greatly reduce the number
of non-respondents. This is a mandatory form, and respondents are not
free to choose which elements of the data they will or will not report.
We suggest including mention of this successful effort in the report.
Overall, we believe this report makes a significant contribution to
public understanding of the challenges that electricity restructuring
has generated for data collection and dissemination. Again, thank you
for the opportunity to comment.
Sincerely,
Guy F. Caruso
Administrator
Energy Information Administration:
Signed by Guy F. Caruso:
cc: H. Gruenspecht, EI-1 S. Sitzer, EI-50:
R. Schnapp, EI-53 D. Pritchett, EI-20 D. Williams, ME-1.1:
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Dan Haas (202) 512-9828:
Acknowledgments:
In addition to the individual named above, Angelia Kelly, Dennis
Carroll, Jose Martinez-Fabre, Jon Ludwigson, Jonathan McMurray, Frank
Rusco, and Barbara Timmerman made key contributions to this report.
FOOTNOTES
[1] U.S. General Accounting Office, Lessons Learned From Electricity
Restructuring: Transition to Competitive Markets Underway, but Full
Benefits Will Take Time and Effort to Achieve, GAO-03-271 (Washington,
D.C.: Dec. 17, 2002).
[2] 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) and Lessons Learned From
Electricity Restructuring: Transition to Competitive Markets Underway,
but Full Benefits Will Take Time and Effort to Achieve, GAO-03-271
(Washington, D.C.: Dec. 17, 2002).
[3] The Bonneville Power Administration, the Western Area Power
Administration, the Southwestern Power Administration, and the
Southeastern Power Administration.
[4] EPA, Study of Hazardous Air Pollutant Emissions from Electric
Utility Steam Generating Units--Final Report to Congress, EPA-453/R-98-
004, February 1998.
[5] EIA Survey Forms 767, 860, 861, and 906 are included in appendix I.
[6] An ISO is an entity encouraged by FERC to manage the transmission
system as the electric industry in the United States restructures. An
ISO is to control the power system or grid without special interest,
and is to own no generation, transmission, or load. FERC Order 888,
which was issued in 1996, encouraged utilities to form ISOs to which
they could transfer operating control (but not ownership) of their
transmission facilities. FERC Order 2000, issued in 1999, encouraged
transmission utilities to join the larger RTOs that would cover the
entire nation and supplant ISOs.
[7] Federal Trade Commission, "Competition and Consumer Protection
Perspectives on Electric Power Regulatory Reform" (Washington, D.C.:
July 2000) and "Competition and Consumer Protection Perspectives on
Electric Power Regulatory Reform: Focus on Retail Competition"
(Washington, D.C.: Sept. 2001).
[8] U.S. General Accounting Office, Restructured Electricity Markets:
California Market Design Enabled Exercise of Market Power, GAO-02-828
(Washington, D.C.: June 21, 2002).
[9] GAO-02-656 and GAO-03-271.
[10] GAO-02-656.
[11] Bilateral energy trades involve two parties (for example, a
generator and a supplier) entering into a contract to deliver
electricity at an agreed time in the future.
[12] Derivatives are financial products--for example, options, futures,
and other contracts--the value of which are derived from underlying
instruments, such as company stocks, electricity and natural gas
commodities, or other financial instruments.
[13] GAO-02-656.
[14] GAO-02-656 and GAO-03-271.
[15] §16 U.S.C. 825h. FERC also has authority in sections 311 (§16
U.S.C. 825j) and 304 (§16 U.S.C. 825c) of the Federal Power Act and
section 133 (§16 U.S.C. 2643) of PURPA.
[16] EIA's two reports were (1) "Effects of Electric Power Industry
Restructuring on EIA Data Collection," March 1997 and (2) "Electric
Power Restructuring--A Focus Group Summary: Implications for Data
Collection, Analysis, and Reporting on the Electric Power Industry by
the Energy Information Administration." No date was given for the
second report, which was based on a series of eight focus groups
between July and October 1997.
[17] Issac C. Hunt, Jr., Former Commissioner, SEC, Testimony
Concerning: S. 1766 and Repeal of the Public Utility Holding Company
Act of 1935, before the Senate Committee on Energy and Natural
Resources, 107th Congress, February 6, 2002.
[18] Report of the Staff to the Senate Committee on Governmental
Affairs, Financial Oversight of Enron: The SEC and Private-Sector
Watchdogs, October 8, 2002, and a Majority Staff Memorandum to the
Committee on Governmental Affairs, Subject: Committee Staff
Investigation of the Federal Regulatory Commission's Oversight of Enron
Corp., November 12, 2002.
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