Power Marketing Administrations:

Repayment of Power Costs Needs Closer Monitoring

AIMD-98-164: Published: Jun 30, 1998. Publicly Released: Jul 30, 1998.

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Pursuant to a congressional request, GAO reviewed the monitoring of the repayment of the power-related costs and debt of four of the Department of Energy's (DOE) power marketing administrations (PMA), focusing on determining whether: (1) DOE or the Department of the Treasury actively monitors the amount of debt to be repaid and the appropriateness of the annual payments; and (2) there is a potential for financial loss to the federal government as a result of any lack of such monitoring of the repayment.

GAO noted that: (1) current monitoring activities do not ensure that the federal government recovers the full cost of its power-related activities from the beneficiaries of federal power; (2) the full cost of the power-related activities includes all direct and indirect costs incurred by the federal government in producing, transmitting, and marketing federal power; (3) audits by external auditors and GAO's own work have identified various unrecovered power-related costs that resulted in financial loss; (4) progress toward resolving cost recovery issues has been slow or nonexistent; (5) unrecovered power-related costs relate to: (a) Civil Service Retirement System (CSRS) pensions and post-retirement health benefits; (b) life insurance benefits; (c) workers' compensation benefits; and (d) interest on some of the federal appropriations used to construct certain projects; (6) GAO estimated that the federal government's unrecovered costs for CSRS pensions and post-retirement health benefits were about $37 million for fiscal year (FY) 1996 and about $192 million for FY 1992 through FY 1996; (7) the full magnitude of the under-recovery of power-related costs is unknown; (8) until an effective monitoring system is implemented, the federal government will continue to be exposed to financial loss to the under-recovery of power-related costs; (9) the current activities for monitoring the repayment of power-related costs and debt are less extensive than those undertaken in prior years; (10) previously, DOE's Office of Power Marketing Coordination (OPMC) monitored repayment and reviewed rate proposals before they were sent to the Federal Energy Regulatory Commission (FERC) for review; however, DOE disbanded OPMC in 1984 and its monitoring duties generally were not assigned to another entity; (11) OPMC assessed whether appropriate costs were included in rates, but did not review the PMAs' power repayment studies in detail; (12) the scope of FERC's review of the three PMAs' rates was limited by the Secretary of Energy's 1983 revision to the delegation order under which FERC carries out that function; (13) the scope of FERC's review of Bonneville's rates was limited by the passage of the Pacific Northwest Electric Power Planning and Conservation Act; and (14) the review procedures previously performed by DOE's OPMC and FERC provided greater assurance that repayment amounts were accurate, complete, and timely.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Federal Energy Regulatory Commission should utilize this additional authority in its reviews of PMA rate proposals, including analysis and consideration of audit reports and the results of independent evaluations of the PMAs' power repayment studies.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: The PMAs now include their annual audit report along with other rate case materials that they submit to FERC for review. FERC cannot fully act on the remaining elements of this recommendation until DOE first revises its delegation order, and DOE has not done so. However, when and if DOE revises the order as recommended by GAO, FERC will utilize such authority to review PMA rate proposals.

    Recommendation: The Secretary of Energy should move quickly to enhance the department's oversight of the repayment of the PMAs' power-related costs and debt and thereby increase the likelihood that the federal government will receive all money due it in a timely manner. To provide this additional assurance, the Secretary of Energy should establish a process within DOE for tracking and resolving issues that affect the repayment of power-related costs and debt. Specifically, DOE should ensure that all four PMAs pass onto FERC the reports referred to above for its use in reviewing PMA rate proposals.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: The agency has indicated that PMAs now include their annual audit reports with the rate case materials they submit to FERC for review.

    Recommendation: The Secretary of Energy should move quickly to enhance the department's oversight of the repayment of the PMAs' power-related costs and debt and thereby increase the likelihood that the federal government will receive all money due it in a timely manner. To provide this additional assurance, the Secretary of Energy should establish a process within DOE for tracking and resolving issues that affect the repayment of power-related costs and debt. Specifically, DOE should review audit reports (Auditor's Reports, Reports on Compliance with Laws and Regulations, Reports on Internal Controls, and Management Letters) for all four PMAs and ensure the timely resolution of all identified management, cost recovery, and repayment issues.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: The agency has instituted reviews that focus on the cost recovery issues highlighted in GAO's work. GAO has confirmed that DOE's Power marketing Administrations have begun to recover postretirement benefit costs.

    Recommendation: The Secretary of Energy should move quickly to enhance the department's oversight of the repayment of the PMAs' power-related costs and debt and thereby increase the likelihood that the federal government will receive all money due it in a timely manner. To provide this additional assurance, the Secretary of Energy should establish a process within DOE for tracking and resolving issues that affect the repayment of power-related costs and debt. Specifically, DOE should review the three PMAs' (Southeastern, Southwestern, and Western) rate proposals before they are sent to FERC. For all four PMAs (Bonneville, Southeastern, Southwestern, and Western), the Secretary should review the reports summarizing the results of the independent, outside evaluations of the power repayment studies, for purposes of identifying any issues that require follow-up and resolution with the PMAs.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: The agency has instituted reviews that focus on the cost recovery issues highlighted in GAO's work. GAO has confirmed that DOE's Power marketing Administrations have begun to recover postretirement benefit costs.

    Recommendation: The Secretary of Energy should move quickly to enhance the department's oversight of the repayment of the PMAs' power-related costs and debt and thereby increase the likelihood that the federal government will receive all money due it in a timely manner. To provide this additional assurance, the Secretary of Energy should incorporate and maintain updated cost recovery guidance in DOE Order RA 6120.2 that ensures full recovery of power-related costs, including the full costs of CSRS pension and post-retirement health benefits, life insurance, and workers' compensation benefits for all PMA employees as well as operating agency employees involved in power-related activities either full-time or part-time, directly or indirectly.

    Agency Affected: Department of Energy

    Status: Closed - Not Implemented

    Comments: The agency indicates that the current Order with the new DOE CG Opinion is sufficient to satisfy the objective of the recommendation.

    Recommendation: The Secretary of Energy should move quickly to enhance the department's oversight of the repayment of the PMAs' power-related costs and debt and thereby increase the likelihood that the federal government will receive all money due it in a timely manner. To provide this additional assurance, the Secretary of Energy should include the full costs of CSRS pension and post-retirement health benefits, life insurance, and workers' compensation benefits in the PMAs' rates. The costs should include not only those for PMA employees, but also those for operating agency employees involved in power-related activities either full-time or part-time, directly or indirectly. Amounts pertaining to operating agency personnel should be obtained from the operating agencies or, if necessary, estimated by DOE in cooperation with the appropriate operating agency.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: The agency reports that the recommended costs are now being included in PMA rate studies. Confirmation of the proper handling of those costs has been obtained from two PMAs and is currently in process concerning the other two PMAs.

    Recommendation: The Secretary of Energy should move quickly to enhance the department's oversight of the repayment of the PMAs' power-related costs and debt and thereby increase the likelihood that the federal government will receive all money due it in a timely manner. To provide this additional assurance, the Secretary of Energy should require independent, outside reviews by qualified parties of the power repayment studies prepared by the PMAs to increase assurance that all power-related costs are included in rates. These reviews should assess: (1) the appropriateness of the assumptions and methodologies used in the power repayment studies; (2) whether all power-related costs are included; and (3) whether appropriate interest rates are used by the PMAs and operating agencies to calculate interest to be charged on completed projects or capitalized for projects being constructed. The results of the reviews should be summarized in written reports. These independent reviews should initially be done for each power repayment study the next time it is updated. Thereafter, the frequency of the reviews should be based on the results of prior review(s) and assessments of the risk of financial loss to the federal government. The independent review costs, as valid power-related costs, should be included in power rates.

    Agency Affected: Department of Energy

    Status: Closed - Not Implemented

    Comments: The agency indicates that current oversight reviews are sufficient and plans no further action.

    Recommendation: The Secretary of Energy should move quickly to enhance the department's oversight of the repayment of the PMAs' power-related costs and debt and thereby increase the likelihood that the federal government will receive all money due it in a timely manner. To provide this additional assurance, the Secretary of Energy should revise Delegation Order 0204-108 to give FERC more authority to review and challenge the rate proposals of the three PMAs. Specifically, the Secretary of Energy should: (1) clarify that the arbitrary and capricious standard does not preclude FERC from rejecting a rate proposal that it finds to be inconsistent with cost recovery guidance contained in DOE Order RA 6120.2; (2) allow FERC to go beyond the three specific standards of review specified in the order, as necessary; and (3) allow FERC to modify a rate proposal rather than merely accept or reject it.

    Agency Affected: Federal Energy Regulatory Commission

    Status: Closed - Not Implemented

    Comments: The agency indicates that the current Order provides sufficient authority to reject rate proposals that do not fully recover costs and that a change to the Order concerning FERC oversight of power rates would be redundant with FERC's existing authority and inconsistent with FERC's treatment of other utilities. The agency has concluded that a change in FERC oversight of PMA transmission rates is warranted in order to promote competition under the relevant provisions of the Federal Power Act and that FERC should be given authority to modify those rates, not merely accept or remand them. The agency has included that change as part of their electricity restructuring legislation submitted to Congress this Spring. GAO continues to believe that the Secretary of Energy should move quickly to grant FERC authority to modify all PMA rate proposals because that would increase FERC's flexibility compared to their current, limited "approve or reject in entirety" authority and will increase the likelihood that the federal government will recover all appropriate costs.

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