Federal Energy Regulatory Commission Needs To Act on the Construction-Work-In-Progress Issue

EMD-81-123: Published: Sep 23, 1981. Publicly Released: Sep 23, 1981.

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GAO reviewed the overall financial environment under which the utility industry is presently operating.

The financial indicators of the electric utility industry have deteriorated due to high inflation, high interest rates, accelerating construction costs, decline in demand, and a less than adequate rate of return. This has led to uncertainty about the industry's ability to attract investment capital needed to complete ongoing and planned construction programs. GAO sees the real issues as being whether companies need rate relief to maintain financial integrity and whether construction programs which depend on such relief are needed to meet future electric energy demands. There are differing views on the extent of these problems and how they should be solved. Industry and the financial community have proposed immediate rate relief options; some States believe more can be done through improved load forecasting, conservation, load management, and use of alternative sources. Some companies have adopted many of these methods to alleviate their financial burdens.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chairman of the Federal Energy Regulatory Commission should pursue, with the Department of Energy, the customizing of the Energy Information Administration model to use in analyzing construction work in progress requests.

    Agency Affected: Federal Energy Regulatory Commission

  2. Status: Closed - Not Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chairman of the Federal Energy Regulatory Commission should develop a generic rulemaking for construction-work-in-progress which better defines financial hardship criteria that can be applied to a utility seeking regulatory rate relief. This criteria should address how to take into consideration on a case-by-case basis a utility's current generation mix, such as: (1) how dependent a company is on oil and gas; (2) an analysis of a utility's demand forecast to verify that capacity expansion is, in fact, necessary; and (3) an analysis of whether the utility is following least-cost supply options.

    Agency Affected: Federal Energy Regulatory Commission

 

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