Natural Gas Prices:

FERC Should Improve Its Initial Review of Pipelines' Natural Gas Costs

RCED-86-12: Published: Nov 4, 1985. Publicly Released: Dec 4, 1985.

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Pursuant to a congressional request, GAO examined how the Federal Energy Regulatory Commission (FERC) reviews natural gas pipeline companies' requests to change their rates to reflect changes in their natural gas costs, focusing on whether: (1) the filings submitted were complete and consistent; and (2) FERC analysts appropriately reviewed the filings before they went into effect.

GAO found that a number of filings that it reviewed were allowed to go into effect, even though: (1) some filings did not provide required information on natural gas purchase contract dates; (2) FERC did not require filing companies to specify natural gas pricing categories; and (3) the filing formats were inconsistent, which could hamper the ability of FERC and others to analyze and compare filings. GAO noted that FERC has improved its method of ensuring that rate filings are complete and consistent. GAO also found that FERC: (1) analysts did not apply consistent criteria and techniques in analyzing rate filings; (2) has not designed guidelines for analysts on acceptable fluctuations between rate filings or on how to sample items for review; and (3) does not require analysts to document the scope of their reviews or the criteria and techniques used. GAO believes that the analysis process is important because: (1) rate increases that are subsequently found to be unjustified result in economic consequences for companies and consumers that are not easily reversed; (2) the filings involve substantial sums of money; (3) rate changes may be in effect for long periods of time before they are approved; and (4) FERC needs adequate assurance that filings are justified.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: FERC established standardized criteria and guidelines for initial review of filings. FERC stated that it will use standard sampling procedures where they can be used in conjunction with existing procedures.

    Recommendation: The Chairman, FERC, should have the Director of the Office of Pipeline and Producer Regulation develop: (1) criteria and guidelines for the review of filings, including, where applicable, a standard sampling method for selecting items for review; and (2) procedures for adequately documenting the analysts' review process.

    Agency Affected: Federal Energy Regulatory Commission


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