18-06-02 Energy regulators are ill-equipped to deal with abuses in fast-moving electricity markets and need more authority to monitor transactions and levy fines, a congressional investigation finds. The Federal Energy Regulatory Commission, which oversees wholesale electricity trading, is hampered by antiquated rules and a shortage of staff knowledgeable about the complex competitive energy markets, the General Accounting Office concluded in a report.
Despite some improvements since the California power crisis of more than a year ago, the commission still lacks the expertise or the "enforcement bite" to adequately monitor and respond to the kinds of market manipulation that caused Western electricity prices to soar in 2000 and 2001.

The report, released by Democratic Sens. Joe Lieberman of Connecticut and Jean Carnahan of Missouri, said Congress should strongly consider giving FERC additional powers to keep tabs on electricity trading and to issue stronger civil penalties. Energy legislation recently passed by the Senate would expand the areas where FERC would be able to issue civil penalties, but it does not increase the size of penalties, which today amount to only $ 500 per violation in some cases. A House-passed bill contains no electricity provisions at all.
FERC Chairman Pat Wood, said he generally agreed with the conclusions reached by the congressional investigators that FERC "has not kept pace" with the rapidly moving energy markets. "We have not yet done all we can to oversee energy markets," Wood wrote in a letter, responding to the GAO. But he said that since assuming the chairmanship last September, the commission has taken a number of actions "to assure the energy markets are competitive, efficient and fair." While acknowledging some improvement, the GAO said to date, the commission "has not yet adequately revised its regulatory and oversight approach to respond to the transition to competitive energy markets."

Lieberman said market abuses and manipulation caused consumers inthe West "to pay billions of dollars more than they should have" for electricity and that FERC "is just now uncovering these abuses." The GAO findings suggest FERC "failed the consumers of California" a year ago and that "Americans are vulnerable to another energy crisis" because of market abuses, said Carnahan.
The congressional auditors said the commission's struggle to deal with energy traders has been severely hampered by a staff still learning how the markets work and a lack of technical expertise. "FERC's initiatives to monitor competitive markets have served more to help educate FERC's staff about the new markets than produce effective oversight," the GAO report said.

Furthermore, the commission "does not have authority to levy meaningful civil penalties" against violators when market abuses are discovered. "Without a meaningful range of penalties, FERC lacks adequate enforcement bite to deter anticompetitive behaviour and other violations of market rules," the GAO said.
Sen. Dianne Feinstein, D-California, said the GAO's findings make clear that FERC should continue the price caps on Western power markets, which are scheduled to expire in September. "It was FERC's inability and unwillingness to regulate the California energy market in the first place that led to the severe energy crisis," Feinstein said.

Western lawmakers sharply criticized FERC for failing to intervene aggressively as wholesale electricity prices soared in 2000 and early 2001. Until last summer, FERC refused to impose any significant price controls, contending price caps would impede energy production, worsening the supply problem.
Wholesale cost receded after FERC imposed a price cap last summer. Under the leadership of Wood, who joined the commission last August, FERC has moved more assertively to oversee the markets as it created a new market monitoring office. Amid recent revelations that wholesale power marketers such as Enron had, in fact, used schemes to manipulate Western energy markets, FERC has begun an industry wide investigation into energy traders' activities.