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

RCED-83-3: Published: Aug 18, 1983. Publicly Released: Aug 18, 1983.

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

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

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: FERC continues to disagree with this recommendation. GAO believes that it is still valid, but the benefits obtained and dim prospects of obtaining a change do not warrant further GAO work.

    Recommendation: FERC should revise the Natural Gas Policy Act regulations to prohibit continued stripper status for wells with subsequent oil production exceeding its sliding-scale criterion.

    Agency Affected: Federal Energy Regulatory Commission

  2. Status: Closed - Implemented

    Comments: According to cognizant FERC officials, recent initiatives, including procedural improvements, have resulted in a significant drop in the refund backlog from 10,000 on September 30, 1986, to about 6,000 on September 30, 1987. This drop was even greater thatn expected and FERC now estimates that the backlog will be completely under control by September 30, 1988.

    Recommendation: FERC should take timely and aggressive action to identify the actual size and type of backlog work and the procedural or staffing problems causing the backlog in the refund control program, and use this information to eliminate the backlog of refund reports and cases and keep case-load processing current through the end of Natural Gas Policy Act price controls.

    Agency Affected: Federal Energy Regulatory Commission


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