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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.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Energy 1. 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.
Closed - Not Implemented
The agency indicates that current oversight reviews are sufficient and plans no further action.
Department of Energy 2. 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.
Closed - Implemented
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.
Department of Energy 3. 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.
Closed - Not Implemented
The agency indicates that the current Order with the new DOE CG Opinion is sufficient to satisfy the objective of the recommendation.
Department of Energy 4. 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.
Closed - Implemented
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.
Department of Energy 5. 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.
Closed - Implemented
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.
Department of Energy 6. 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.
Closed - Implemented
The agency has indicated that PMAs now include their annual audit reports with the rate case materials they submit to FERC for review.
Federal Energy Regulatory Commission 7. 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.
Closed - Implemented
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.
Department of Energy 8. 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.
Closed - Not Implemented
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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