FERC Should Improve the Natural Gas Well Determination Process

EMD-81-88: Published: Jul 30, 1981. Publicly Released: Jul 30, 1981.

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GAO reviewed the Federal Energy Regulatory Commission's (FERC) natural gas well determination process. The Natural Gas Policy Act (NGPA) established a series of maximum lawful prices for various categories of natural gas. These prices were intended by Congress to provide producers with an incentive to locate and develop new sources of natural gas and to continue production from marginal wells. The ceiling prices vary by category and escalate each month based on the annual inflation adjustment. To establish entitlement for ceiling prices under any of the incentive price categories, producers/operators must apply for well category determination, which are made on the basis of documentation evidencing that a well meets the qualification requirements defined in the law and in FERC regulations.

GAO found that, although FERC had established procedures for testing the accuracy of information used in making well determinations, the jurisdictional agencies reviewed have not established these procedures. These agencies' practices were weak, to varying degrees, in the verification of spud dates, well sites, well completion locations, and well production. There were also verification inconsistencies among the agencies. FERC field auditors did not review producer records when necessary to verify the accuracy of supporting evidence and resolve questions of eligibility. FERC desk audits all determinations received from the agencies to establish whether the supporting evidence is sufficient to demonstrate eligibility. FERC has a general policy to review all determinations of eligibility for sufficiency of evidence and for incentive prices provided in NGPA. Both the agencies and FERC check to see whether all required substantiating evidence was submitted with applications and whether such evidence demonstrates compliance with eligibility requirements. GAO believes that FERC could, at this time, adequately discharge its responsibility for monitoring all agencies' determinations by limiting its review to a statistical sample. GAO believes that the FERC objective to establish whether or not agency determinations are supported by substantial evidence can be effectively accomplished by statistically sampling the determinations.

Recommendations for Executive Action

  1. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Chairman of FERC should discontinue desk auditing all determinations for sufficiency of evidence and direct the NGPA Compliance Division to (1) monitor the adequacy of agency procedures based on reviewing a statistically valid sample of determinations for both sufficiency and accuracy of evidence, and (2) consolidate the reviews for sufficiency and accuracy of evidence in one branch.

    Agency Affected: Federal Energy Regulatory Commission

  2. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Chairman of FERC should direct the NGPA Compliance Division to (1) give guidance to the jurisdictional agencies for use in implementing validation procedures, and (2) coordinate its overall compliance activities with the jurisdictional agencies and review producer records when they are the only source of supporting evidence.

    Agency Affected: Federal Energy Regulatory Commission


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