a

GAO

United States General Accounting Office

Report to the Ranking Minority Member, 

Committee on Governmental Affairs,

U.S. Senate

August 2003 ENERGY MARKETS

Additional Actions 

Would Help Ensure 

That FERC’s Oversight 

and Enforcement 

Capability Is 

Comprehensive and 

Systematic

GAO-03-845
FERC has made strides in putting an energy market oversight and 

enforcement capability in place, but work remains to ensure that its 

efforts will be comprehensive and systematic. Since FERC declared 

OMOI functional in August 2002, the office has focused primarily on 

outlining its vision, mission, and primary functions; developing basic 

work processes; integrating its use of an array of tools to oversee the 

markets; and hiring staff with market experience. OMOI is also assessing 

its data needs and developing its working relationships with others, such 

as the industry’s market monitoring units. Nonetheless, the office still 

has work to do in the following two key areas: 

 

• Clearly defining its role. OMOI has not clearly defined its role and 

the activities that it will engage in to achieve its mission. For 

example, the office has not yet decided on the level of detail at which 

it will review electricity markets. This decision has substantial 

implications for the office’s data, technology, resource, and staff skill 

mix needs. 

• Developing formal processes and written procedures. OMOI’s 

processes are largely informal and ad hoc, and it has few written 

procedures to ensure that its efforts are coordinated, systematic, 

understood by its staff, and transparent to its stakeholders. 

Although OMOI has had some early accomplishments—such as a $20 

million civil penalty against a company for anticompetitive behavior—it 

is difficult to judge how effective the office will be until its role and major 

processes are clearly set out. 

FERC is also making progress toward addressing its considerable human 

capital management challenges, but additional actions could increase its 

likelihood of success. FERC’s success in these efforts is important because 

the extent to which it can carry out its mission in a changing environment 

depends on its ability to adjust its staff skills and abilities in a difficult 

context. For example, over half of its workforce will be eligible to retire by 

2007. In response, FERC has, among other things, expanded its use of 

certain personnel flexibilities, such as recruiting and retention bonuses, and 

is considering use of additional flexibilities. More importantly, FERC, in 

February 2003, developed a human capital plan. However, the plan does not 

contain some elements key to successful implementation, including (1) 

details on specific activities and resources needed to implement its human 

capital initiatives and (2) results-oriented measures that can be used to track 

the agency's progress in implementing the initiatives and evaluate their 

effectiveness. FERC also has not established time frames for many of its 

human capital initiatives. 

In June 2002, GAO reported that 

the Federal Energy Regulatory 

Commission (FERC) had not yet 

adequately revised its regulatory 

and oversight approach for the 

natural gas and electricity 

industries’ transition from 

regulated monopolies to 

competitive markets. GAO also 

concluded that FERC faced 

significant human capital 

challenges to transform its 

workforce to meet such changes. 

In responding to the report, FERC 

said that the new Office of Market 

Oversight and Investigations 

(OMOI) it was creating and human 

capital improvements under way 

would address these concerns. 

GAO was asked to report on 

FERC’s progress in (1) establishing 

an oversight and enforcement 

capability for competitive energy 

markets and (2) improving agencywide human capital management. 

GAO recommends that FERC 

• more clearly define OMOI’s role 

in overseeing competitive energy 

markets and develop formal 

processes and written 

procedures for the office’s key 

activities and 

• revise the agency’s human capital 

plan to (1) identify specific 

activities, resources, and time 

frames and (2) provide resultsoriented measures to track 

progress in implementing its 

initiatives and evaluate their 

effectiveness. 

FERC generally agreed with this 

report’s recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-03-845.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Jim Wells at 

(202) 512-3841 or wellsj@gao.gov. 

Highlights of GAO-03-845, a report to the 

Ranking Minority Member, Committee on 

Governmental Affairs, U.S. Senate 

August 2003 

ENERGY MARKETS

Additional Actions Would Help Ensure 

That FERC's Oversight and Enforcement 

Capability Is Comprehensive and 

Systematic 
Page i GAO-03-845 Energy Markets

Contents

Letter 1

Results in Brief 3

Background 4

FERC Has Made Progress, but Work Remains to Ensure That Its 

Oversight and Enforcement Capability Is Comprehensive and 

Systematic 9

FERC Is Taking Important Steps to Improve Its Human Capital 

Management 34

Conclusions 41

Recommendations for Executive Action 42

Agency Comments 43

Appendixes

Appendix I: Scope and Methodology 45

Appendix II: GAO Survey of Current FERC Employees in the Office of 

Market Oversight and Investigations 47

Appendix III: FERC’s Approach to Addressing Market Manipulation 

Schemes and Other Potentially Noncompetitive Actions 60

Appendix IV: Comments from the Federal Energy Regulatory 

Commission 67

Appendix V: GAO Contacts and Staff Acknowledgments 72

GAO Contacts 72

Staff Acknowledgments 72

Tables Table 1: OMOI’s Statements of Its Vision, Mission, and 

Functions 10

Table 2: OMOI’s Principal Oversight Reports or Products 19

Table 3: Percentage of OMOI Staff Indicating That Additional 

Training Would Help Them Better Oversee Energy Markets 

and Enforce Market Rules 33

Table 4: FERC’s Agencywide Human Resource Goals and 

Objectives 36

Table 5: FERC’s Approach to Addressing Market Manipulation 

Schemes and Other Potentially Noncompetitive Actions 60

Figures Figure 1: OMOI’s Organizational Chart and Position in FERC’s 

Organizational Structure 8

Figure 2: OMOI’s Staffing Levels 29
Contents

Page ii GAO-03-845 Energy Markets

Abbreviations

ERCOT Electric Reliability Council of Texas

FERC Federal Energy Regulatory Commission

ISO independent system operator

OMOI Office of Market Oversight and Investigations

PJM Pennsylvania, New Jersey, Maryland Interconnect

RTO regional transmission organization

Transco Transcontinental Gas Pipe Line Corporation

This is a work of the U.S. government and is not subject to copyright protection in the 

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other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-03-845 Energy Markets

United States General Accounting Office

Washington, D.C. 20548

A

August 15, 2003 Letr

The Honorable Joseph I. Lieberman

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

Dear Senator Lieberman:

The U.S. electricity and natural gas industries’ transition to competitive 

markets has not been smooth. Volatile prices, energy shortages, financial 

difficulties such as the bankruptcy of the Enron Corporation (the nation’s 

largest energy trading company before its financial problems), and 

accusations of price manipulation have raised questions about the 

transition to competitive markets and the federal government’s ability to 

regulate and oversee these new markets to protect market participants and 

consumers. The Federal Energy Regulatory Commission (FERC)—the 

federal agency primarily responsible for regulating and overseeing these 

industries—will play an important role in developing competitive 

wholesale markets and in protecting consumers against market abuses. 

In June 2002, we reported that FERC had not yet adequately revised its 

regulatory and oversight approach to respond to the transition to 

competitive energy markets.1

 We also pointed out that FERC faced 

significant human capital and organizational structure challenges as it 

transformed its workforce to effectively regulate and oversee these 

evolving markets. For example, we noted that the agency did not have 

enough staff with knowledge of competitive energy markets, and that its 

market oversight function was too dispersed across the agency. In addition, 

we noted that FERC was attempting to regulate and oversee the markets 

with outdated legal authorities that were mostly derived from laws enacted 

when the industries were composed of highly regulated monopolies. We 

made a number of recommendations to address these issues and improve 

the agency’s capability of overseeing competitive energy markets. FERC 

agreed with our conclusions and said that the report’s recommendations 

were consistent with the agency’s plans for its new Office of Market 

1

U.S. General Accounting Office, Energy Markets: Concerted Actions Needed by FERC to 

Confront Challenges That Impede Effective Oversight, GAO-02-656 (Washington, D.C.: June 

14, 2002).
Page 2 GAO-03-845 Energy Markets

Oversight and Investigations (OMOI) and human capital management 

improvements.

In response to concerns about its capability to oversee the evolving energy 

markets, FERC announced, in January 2002, that it was creating OMOI. In 

making the announcement, FERC stated that the new office would report 

directly to the Chairman of FERC, and its functions would include 

understanding energy markets and risk management issues, measuring 

market performance, investigating compliance violations, and analyzing 

market data. In April 2002, FERC hired the office’s director, who began to 

plan its operations and hire its staff. In August 2002, the FERC Chairman 

declared that OMOI, with about half of its planned personnel in place, was 

a formal, functioning office within the agency. This change in FERC’s 

approach to monitoring markets—requiring a reassessment and 

reprioritizing of how it does business—will not be easy. Experience in 

public and private organizations has shown that for an organization to 

successfully “transform” itself, it must often change its culture to be more 

results oriented, collaborative, and customer focused.2

 

In light of FERC’s stated commitment to and your interest in market 

oversight, you asked us to assess FERC’s progress in (1) establishing an 

oversight and enforcement capability for competitive energy markets and 

(2) improving agencywide human capital management. As agreed with your 

office, we focused our review of FERC’s market oversight and enforcement 

efforts on OMOI’s formation and operations. To respond to this request, we 

reviewed appropriate plans, studies, reports, and other documents, such as 

budget justifications, relating to OMOI’s activities and FERC’s human 

capital management initiatives. We also interviewed OMOI’s managers and 

FERC officials responsible for agencywide human capital management 

programs. In addition, we surveyed OMOI’s employees to obtain their views 

on the office’s effectiveness, morale, and work environment. About 87 

percent of the employees responded to our survey.3

 Furthermore, we 

contacted the heads of four units operating at the time of our review with 

responsibility for monitoring regional wholesale electricity markets under 

FERC’s guidance to obtain their views on OMOI’s progress in establishing 

2

See U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and 

Transformation: Lessons Learned for a Department of Homeland Security and Other 

Federal Agencies, GAO-03-293SP (Washington, D.C.: November 2002).

3

OMOI had 92 employees on March 28, 2003, when we made our survey available. Eighty of 

these employees responded to the survey. 
Page 3 GAO-03-845 Energy Markets

an oversight and enforcement capability for energy markets. We performed 

our review from October 2002 through June 2003 in accordance with 

generally accepted government auditing standards. (See app. I for a more 

detailed discussion of our scope and methodology and app. II for a copy of 

the OMOI employee survey with the quantitative results.)

Results in Brief OMOI has made strides in putting an energy market oversight and 

enforcement capability in place, but these efforts are largely in their 

formative stage, and work remains to ensure that they will be 

comprehensive and systematic. In its first year, OMOI has focused 

primarily on outlining its vision, mission, and primary functions; 

developing its basic work processes; integrating its use of an array of tools 

to oversee the markets; and hiring new staff with market experience or 

expertise. OMOI is continuing to hire staff, assess its information needs, 

and develop its working relationships with others, such as the electricity 

industry’s market monitoring units, that have related or overlapping 

responsibilities. Still, the office has work to do to clearly define its role and 

how it will achieve its mission. For example, OMOI has not yet decided on 

the level of detail at which it will review electricity markets, particularly 

the extent that it will rely on the market monitoring units to review daily 

market transactions for market manipulation and other anticompetitive 

behavior. This decision has substantial implications for the office’s data, 

technology, resource, and staff skill mix needs. Moreover, OMOI has not yet 

formalized its processes and procedures. At this point, its processes are 

largely informal and ad hoc, and it has few written procedures to ensure 

that its efforts are coordinated, systematic, and well understood by its staff 

and stakeholders. OMOI has had some early accomplishments, for 

example, a $20 million civil penalty against a company for anticompetitive 

behavior. However, it is difficult to judge how effective the office will be 

until its role and major processes are clearly set out. We are making 

recommendations to FERC aimed at more clearly defining OMOI’s role and 

instituting formal processes and written procedures. 

FERC is making progress toward addressing its considerable human 

capital management challenges. FERC’s success in human capital 

management is important because the extent to which the agency can 

effectively carry out its mission in a changing environment, such as the 

move to competitive energy markets, depends on its ability to adjust its 

staff skills and abilities in a difficult context. For example, over half of 

FERC’s workforce will be eligible to retire by 2007, with a loss of 

considerable institutional knowledge. In response, FERC is taking steps to 
Page 4 GAO-03-845 Energy Markets

help transform its workforce. For example, it has expanded its use of 

certain personnel flexibilities, such as a student loan repayment program 

and recruiting and retention bonuses, and is considering additional 

flexibilities that could improve its ability to recruit and retain needed 

expertise. More importantly, since we issued our June 2002 report, FERC 

has developed a human capital plan that is a promising first step toward 

strategically managing the agency's workforce. However, the plan does not 

contain some elements key to its successful implementation, including (1) 

details on specific activities and resources needed to implement the 

agency’s human capital initiatives4

 and (2) results-oriented measures that 

can be used to track the agency's progress in implementing its initiatives 

and evaluate their effectiveness. The agency also has not established time 

frames for many of its initiatives. We are recommending that FERC revise 

its plan to include these elements. 

We provided FERC with a draft of our report for review and comment. In 

its written comments, FERC generally agreed with our conclusions and 

recommendations. 

Background The natural gas and electricity industries perform three primary functions 

in delivering energy to consumers: (1) producing the basic energy 

commodity, (2) transporting the commodity through pipelines or over 

power lines, and (3) distributing the commodity to the final consumer. A 

range of federal, state, and local entities regulate different aspects of these 

functions. While generation siting, intrastate transportation, and retail sales 

are generally regulated by state or local entities, wholesale sales and 

interstate transportation generally fall under federal regulation, primarily 

by FERC.5

 Under federal law, FERC is responsible for ensuring that the 

terms, conditions, and rates for the interstate transportation of natural gas 

and electricity, certain sales for resale of natural gas, and wholesale sales of 

electricity in interstate commerce are “just and reasonable.” Other federal 

agencies also play an important role in regulating energy markets. For 

4

Human capital initiatives are the programs, policies, and processes that agencies use to 

build and manage their workforces.

5

FERC was established in 1977 as a successor to the Federal Power Commission and is an 

independent regulatory agency. It also regulates the interstate transmission of oil by 

pipeline; licenses and inspects private, municipal, and state hydroelectric projects; and 

approves site choices as well as decisions to abandon interstate pipelines and related 

facilities no longer in use. 
Page 5 GAO-03-845 Energy Markets

example, the Commodity Futures Trading Commission regulates 

commodity futures and options markets in the United States and protects 

market participants against manipulation, abusive trade practices, and 

fraud.

For nearly a century, the natural gas and electricity industries were 

regulated as natural monopolies and dominated by a relatively few, large 

public utilities that produced, transported, and sold natural gas and 

electricity to the ultimate users.6

 This monopoly structure controlled the 

entry, prices, and profits of industry participants. Under this regulatory 

framework, FERC established individual utilities’ terms, conditions, and 

rates for transportation and wholesale sale of natural gas and electricity in 

interstate commerce. To ensure that the rates these utilities charged were 

just and reasonable, FERC based the rates on the utilities’ cost to provide 

the service plus a fair return on investment, which is generally referred to 

as cost-of-service regulation. 

With technological, economic, and policy developments over the past twoto-three decades, these industries have undergone a transition—commonly 

known as “restructuring”—from this highly regulated environment to one 

that places greater reliance on competition to determine entry, prices, and 

profits. Natural gas was first to make the shift, facilitated by passage of the 

Natural Gas Policy Act of 1978 and subsequent FERC orders in 1985 and 

1992 that opened pipeline transportation to all on equal terms and required 

pipeline companies to completely separate or “unbundle” their 

transportation, storage, and sales services. As a result, natural gas became 

a commodity bought and sold separately from its transportation.

The electricity industry has experienced similar restructuring, starting 

about the same time but evolving more slowly than the natural gas industry. 

The Public Utility Regulatory Policies Act in 1978 introduced competition 

by requiring electric utilities to buy electricity produced by nonutility, 

electric power generators. Then in 1992, the Congress passed the Energy 

Policy Act, authorizing FERC to require utilities, on a case-by-case basis, to 

allow competitors to use their transmission lines for wholesale sales of 

electricity. In 1996, FERC ordered that electric transmission systems be 

opened to all qualified wholesale buyers and sellers of electric energy. 

6

A natural monopoly is a company that becomes the only supplier of a product or service 

because the nature of that product or service makes a single supplier more efficient than 

competing ones.
Page 6 GAO-03-845 Energy Markets

FERC also required utilities to “functionally unbundle” their generation and 

transmission businesses to prevent discriminatory practices, such as not 

allowing competitors equal access to transmission lines. One option FERC 

provided the utilities to help them achieve unbundling was to transfer 

management of their transmission lines to an independent system operator 

(ISO) that would manage the system without any special interests and for 

all users’ benefit. Since 1996, six ISOs have formed and are operating, each 

with its own set of operating rules.7 Of these, four ISOs—California; New 

England; New York; Pennsylvania, New Jersey, and Maryland Interconnect 

(PJM)—operate interstate wholesale electricity markets in which 

electricity suppliers and buyers submit bids to sell and buy power. 

In 1999, FERC issued an order encouraging all privately owned electric 

utilities to voluntarily place their transmission facilities under the control 

of a broader market entity called a regional transmission organization 

(RTO). As a result, ISOs created under a previous FERC order would be 

supplanted by larger RTOs, which would cover the entire nation. The 

rationale behind FERC’s approach to forming RTOs was that the nation’s 

transmission systems should be brought under regional control in order to 

eliminate the remaining discriminatory practices in use, better meet the 

increasing demands placed on the transmission system, improve 

management of system congestion and reliability, and achieve fully 

competitive wholesale power markets. FERC is in the process of trying to 

establish these organizations to cover the continental United States and has 

currently approved two RTOs—Midwest ISO and PJM.8

In approving the formation and operation of ISOs and RTOs, FERC requires 

these organizations to, among other things, establish market monitoring 

units. These units are to provide for objective monitoring of the markets 

operated by the ISO or RTO to identify market design flaws, market power 

7

These ISOs are the California ISO, ISO New England, Midwest ISO, PJM, New York ISO, and 

the Electricity Reliability Council of Texas (ERCOT) ISO. ERCOT established an ISO in 1996 

to satisfy the requirements of the Public Utility Commission of Texas for deregulating the 

wholesale electricity market in that state. FERC has limited jurisdiction over the ERCOT 

region because its market is essentially intrastate. FERC initially approved the Midwest ISO 

and PJM as ISOs and has since approved them to operate as regional transmission 

organizations.

8

As of December 2002, the Midwest ISO operated in all or parts of Illinois, Indiana, Iowa, 

Kentucky, Michigan, Minnesota, Missouri, Montana, North Dakota, Ohio, South Dakota, 

Virginia, Wisconsin, and Manitoba (Canada). PJM operates in Delaware, District of 

Columbia, New Jersey, Maryland, Ohio, Pennsylvania, Virginia, and West Virginia.
Page 7 GAO-03-845 Energy Markets

abuses, and opportunities for efficiency improvement. The market 

monitoring units of four ISOs or RTOs—California, New England, New 

York, and PJM—have been operating for several years under FERC’s 

approval. FERC has also approved a market monitoring unit for the 

Midwest ISO, but Midwest does not currently operate a centralized power 

market (it plans to do so by December 2003). FERC approves the units’ 

market monitoring plans and requires the units to periodically report on 

their monitoring activities. 

In July 2002, FERC issued a notice of proposed rulemaking to provide a 

standard market design for all electric transmission providers. FERC’s 

fundamental goal in this initiative is to create “seamless” wholesale 

electricity markets, nationwide, that allow sellers to transact easily across 

transmission boundaries and allow customers to receive the benefits of a 

lower cost and more reliable electricity supply. Accordingly, FERC’s 

standard market design proposal contains a wide range of rules to 

standardize the structure and operation of wholesale electricity markets 

and transmission services. Among other things, it (1) describes the rules for 

how a portion of the nation’s electricity will be exchanged in organized 

markets, (2) defines a new transmission service, and (3) establishes new 

market power mitigation and monitoring requirements. The proposal has 

been highly controversial. FERC estimates that the proposed standard 

market design rule has generated about 1,000 sets of formal comments 

reflecting concerns and reservations about the scope and details of the 

proposal. In April 2003, FERC issued a white paper explaining how it 

intends to change its proposal in response to the comments and concerns 

that had been raised. When the white paper was issued, FERC expected the 

final rule to be promulgated later in the year. However, in commenting on 

our draft report, FERC said that it is planning to hold technical conferences 

in different regions of the country this fall and has postponed the issuance 

of any final rule.

With the opening of pipelines and transmission lines, other energy 

producers and marketers began to compete with the traditional utilities to 

the point that a complex structure of formal and informal primary and 

secondary energy markets has evolved. As competition has increased, 

FERC has allowed more and more producers and marketers to sell their 

energy at prices determined in the marketplace. This evolution to 

competitive energy markets is requiring FERC to fundamentally change 

how it does business. With the shift to market-based prices for natural gas 

and electricity, FERC has concluded that its approach to ensuring just and 

reasonable prices has to change: from one of reviewing individual 
Page 8 GAO-03-845 Energy Markets

companies’ rate requests and supporting cost data to one of proactively 

monitoring energy markets to ensure that they are working well to produce 

competitive prices. FERC established OMOI to coordinate and bring about 

this shift in the agency’s energy market oversight efforts. Like the agency’s 

other major offices, OMOI reports directly to the Chairman of FERC (see 

fig. 1). 

Figure 1: OMOI’s Organizational Chart and Position in FERC’s Organizational Structure
Page 9 GAO-03-845 Energy Markets

OMOI has organized its staff into eight divisions, which are grouped into 

three main units: (1) Market Oversight and Assessment, (2) Investigations 

and Enforcement, and (3) Management and Communication (see shaded 

area of fig. 1). The Market Oversight and Assessment unit performs a 

variety of tasks related to monitoring energy markets, monitoring financial 

markets, researching new data sources, publishing reports on market 

surveillance, and assisting with ongoing investigations. The Investigations 

and Enforcement unit performs a variety of tasks related to investigating 

market abuse, conducting audits of entities under FERC’s jurisdiction, and 

manning the enforcement hotline. Finally, the Division of Management and 

Communication and the OMOI director’s office provide administrative and 

management support. 

OMOI’s budget request for fiscal year 2003 is about $13.5 million and 

provides funding for 110 staff years, which includes $500,000 in contracting 

services. For fiscal year 2004, FERC has requested a budget for OMOI of 

about $14.3 million and 110 staff years, which includes $1 million in 

contracting services. 

FERC Has Made 

Progress, but Work 

Remains to Ensure 

That Its Oversight and 

Enforcement 

Capability Is 

Comprehensive and 

Systematic 

With the formation of OMOI, FERC is making headway in establishing an 

oversight and enforcement capability for competitive energy markets. 

OMOI has taken a significant step forward in setting out its vision, mission, 

and primary functions as a framework for comprehensively overseeing the 

markets; developing its basic work processes; and beginning to use an 

array of tools to oversee the markets. The office also has almost completed 

its staffing to authorized levels. Nonetheless, these efforts are largely in 

their formative stage and OMOI continues to hire additional staff, improve 

its oversight tools, and adjust its processes and procedures. Additional 

actions to formalize the office’s work processes and procedures and to 

more clearly define its role would help ensure that its efforts to oversee 

energy markets are systematic and comprehensive. In addition, OMOI’s 

role largely determines its resource, information, technology, and staff skill 

mix needs. 
Page 10 GAO-03-845 Energy Markets

OMOI Is Planning a 

Comprehensive Approach 

to Overseeing Energy 

Markets, but Important 

Steps Have Not Been Taken 

to Clearly Define Its Role 

OMOI’s statements of its vision, mission, and functions set out the 

framework for a comprehensive market oversight and enforcement 

approach. According to the statements, OMOI plans to analyze and assess 

both market performance and market rules in the broader context of the 

markets’ overall efficiency and effectiveness and market behavior and 

compliance with rules at the individual market participant level. (See table 

1.) 

Table 1: OMOI’s Statements of Its Vision, Mission, and Functions

Source: FERC.

These statements were a starting point for planning and organizing OMOI’s 

activities and serve to provide a concise, if general, outline of the office’s 

planned oversight and enforcement approach. OMOI decided to begin 

operating under this broad framework and to work out more details as it 

became more organized and gained experience with the markets and 

available data and oversight tools. At this point, OMOI has not provided 

Vision Vigilant oversight and vigorous enforcement of proper market rules ensure 

dependable, affordable, competitive energy markets to benefit end use 

customers and other participants.

Mission Guide the evolution and operation of energy markets to ensure effective 

regulation and protect customers through understanding markets and their 

regulation, timely identification and remediation of market problems, and 

assured compliance with Commission rules and regulations.

Functions Assess market performance through

• analyzing market structures and proposing policies for improvement,

• acquiring and analyzing public and proprietary information data bases,

• conducting market research and developing market models and simulation,

• analyzing effects of current and proposed regulations, market rules, and 

policy options, and

• advising the Commission on the market effects of current and proposed 

policies.

Ensure conformance with Commission rules through

• verifying compliance with Commission rules and reporting requirements,

• investigating actions of market participants,

• facilitating resolution of disputes among market participants and regulated 

entities, and

• enforcing Commission rules that govern the markets.

Produce internal and extenal reports

• describing the state of energy markets,

• reviewing and analyzing market occurrences and trends,

• providing early warning of vulnerable market conditions, and

• making recommendations on the functioning and governance of energy 

markets.
Page 11 GAO-03-845 Energy Markets

additional details in writing on how it will carry out these functions to 

achieve its mission. 

However as OMOI moves forward, several issues have not been addressed 

that are important to the office’s credibility and to ensuring that it 

comprehensively carries out its planned approach. Recognizing that 

responsibility for making energy markets work well is shared with the 

industries (including the ISOs and RTOs and their market monitoring 

units), individual market participants, the states, other FERC offices, and 

other federal agencies, it is important that OMOI clearly define its role in 

achieving comprehensive oversight of the markets. This role and how 

OMOI will carry it out largely determines its resource, information, 

technology, and staff skill mix needs. 

First, OMOI has not directly and clearly connected its vision, mission, and 

functions to FERC’s statutory responsibilities for ensuring that wholesale 

natural gas and electricity prices are just and reasonable. Second, OMOI 

has not defined undue exercise of market power, although identifying and 

addressing the exercise of market power is one of the major aspects of 

market oversight, especially when the markets are in transition. Third, the 

statements do not explicitly recognize that an important function of the 

office will be to integrate its work with that of the industries’ market 

monitoring units, other agencies such as the Commodity Futures Trading 

Commission, and other parts of FERC, such as the Office of Markets, 

Tariffs, and Rates. Fourth, OMOI is still deciding at what level of detail it 

will review market transactions as it performs its oversight. Fifth, the office 

has not developed outcome or results-oriented performance measures that 

express what the office will be working to achieve and that can be used to 

assess its progress in carrying out its goals and objectives. 

FERC Has Not Clearly Defined 

Just and Reasonable Prices in a 

Competitive Marketplace

FERC is responsible for ensuring that certain sales for resale of natural gas 

and wholesale sales of electricity in interstate commerce are just and 

reasonable. With the move to competitive markets, these prices are 

generally determined in the marketplace rather than set by FERC. FERC 

has recognized that this change means that it needs a new approach to 

ensuring that prices are just and reasonable and has begun to provide some 

guidance on what just and reasonable means in the context of competitive 

markets, most recently in its proposed rule on standardizing electricity 

markets. Statements in the proposed rule indicate that just and reasonable 

prices are those produced by structurally competitive markets. However, 

the statements do not define what a structurally competitive market is. In 

addition, these statements concern the operations of market monitoring 
Page 12 GAO-03-845 Energy Markets

units rather than FERC’s own role and responsibilities. Furthermore, the 

proposed rule has been highly controversial and may be substantially 

delayed and/or modified. 

The heads of the market monitoring units told us they recognize the 

difficulty of defining just and reasonable prices. They also said that they 

believe FERC had made progress in doing so. However, they generally 

believed that FERC had not yet gone far enough. For example, the head of 

the California ISO’s monitoring unit told us that for FERC to define what it 

will consider just and reasonable prices in a competitive marketplace is 

critical to achieving the Federal Power Act’s goal. She stated that a clear 

standard for just and reasonable is also critical to performing monitoring 

and oversight functions, and, without such a standard, existing ISOs or 

RTOs cannot move forward and other geographical areas will have no 

confidence in ISOs or RTOs and will not wish to develop them. On the 

other hand, the heads of the ISO New England, PJM, and New York ISO 

monitoring units stated that FERC should not develop overly detailed or 

prescriptive definitions that would reduce needed flexibility. The heads of 

the PJM and ISO New England units said that FERC should instead develop 

a strong policy statement or paper defining the term at a general or 

theoretical level and leave it to the market monitoring units to 

operationalize or put it into practice. Similarly, the head of the New York 

ISO unit cautioned that, with overly prescriptive criteria, market 

participants can structure behavior to avoid specific rules, conditions, or 

definitions, while engaging in behavior that would not be deemed 

acceptable. He added that, in orders that it has issued in individual cases, 

FERC has established precedent that prices can be considered just and 

reasonable when they are the product of workably competitive markets, 

and determining whether a market is competitive requires some room for 

considering individual circumstances. 

FERC officials, including OMOI managers, told us that they recognize the 

importance of defining just and reasonable prices in a competitive energy 

marketplace but are finding it difficult to do. For example, the Senior 

Energy Policy Advisor to the Chairman of FERC told us that FERC has 

been trying to define the term for several years. The Director of OMOI said 

that OMOI has the operational responsibility to give guidance on just and 

reasonable rates, but agreed that an important consideration for the agency 

is the level of detail at which it needs to be defined. 

FERC Has Not Clearly Defined 

Market Power

In its proposed standard market design rulemaking, FERC provides some 

details on what it considers market power. In the proposed rule, FERC 
Page 13 GAO-03-845 Energy Markets

states that market power is the ability to raise price above the competitive 

level. The agency further states that identifying market power with 

precision is difficult, both because it is difficult to identify the competitive 

price (which should recover both fixed and variable costs over the long 

run) and because it can be difficult to isolate the impact of one entity on 

the competitive market. FERC adds that, in the proposed rule, it is 

incorporating the concept of when to intervene in the markets, rather than 

defining what constitutes market power. The market monitoring units 

would review market data, such as bidding patterns, to identify and 

intervene in market situations in which market power could be occurring. 

In its April 2003 white paper explaining the changes it planned to make in 

the final standard market design rule, FERC said that it would require the 

ISOs and RTOs to have clear and enforceable rules to define and police 

market manipulation and gaming strategies by market participants trying to 

unduly exercise their market power. The white paper also said that the 

ISOs and RTOs would be required to have a clear set of rules governing 

market participant conduct with the consequences for violations clearly 

spelled out. The white paper then provided areas of anticompetitive 

behaviors—such as physical and economic withholding of supplies—that, 

at a minimum, should be included. 

Again, the heads of the market monitoring units did not believe that FERC 

had yet gone far enough in defining market power. The head of the 

California ISO monitoring unit said that FERC needs to define what it will 

consider market power, and that the definition must be agreed on in order 

for FERC to perform its market development and oversight obligations. 

She added that inappropriate or anticompetitive behavior need not be 

defined through an exhaustive list of specific market behaviors but rather 

through a general set of characteristics. According to the heads of the 

market monitoring units of ISO New England and PJM RTO, FERC should 

develop a policy statement or paper on market power rather than a highly 

detailed definition. In contrast, the head of the NY ISO’s market monitoring 

unit stated that FERC needs to define what it will consider market power 

only in the context of specific market monitoring proposals. He told us that 

his market monitoring unit has been very successful in preventing market 

power by using very specific tests for market power abuse, enabling the 

unit to take appropriate action with minimal delay. He added that FERC 

should not adopt generic definitions that would restrict the ability of the 

New York ISO to implement the tests and market mitigation measures that 

have been approved for its use.
Page 14 GAO-03-845 Energy Markets

The Director of OMOI agreed that a clarifying definition of market power to 

communicate the parameters of acceptable market behavior is needed. He 

added that developing such a definition is complex, and his office has to be 

careful in deciding what constitutes market power abuse because there is a 

necessary element of judgment involved in determining what is and what is 

not abuse in individual cases that should not be eliminated with a 

definition. 

OMOI Has Not Explicitly Set Out 

How It Will Integrate Its Work 

with That of Others

An important OMOI function is to integrate its work with that of others 

inside and outside of FERC who also have a role in market oversight or 

who carry out related responsibilities. For example, FERC’s Office of 

Markets, Tariffs, and Rates has major responsibilities relating to building 

competitive energy markets and authorizing companies to participate in 

those markets. The office is currently leading FERC’s effort to establish a 

standard market design for wholesale electricity markets. Thus, it is 

important for the offices to work together so that OMOI can (1) better 

understand the markets that are being created and that OMOI is to oversee 

and (2) provide effective input from an oversight standpoint into 

structuring the markets. In addition, OMOI officials told us that they share 

oversight responsibility with other federal agencies—particularly the 

Commodity Futures Trading Commission—in areas where the financial and 

futures markets overlap or affect the physical natural gas and electricity 

markets. For example, OMOI officials stated that OMOI, along with the 

Commodity Futures Trading Commission and the Department of Justice, 

would be responsible for detecting the false reporting of natural gas prices 

or volumes to index publishers (see app. III). Moreover, as we discuss later 

in this report, OMOI is relying heavily on the market monitoring units to 

oversee electricity markets. 

OMOI has various initiatives under way to build its working relationship 

with these parties. However, because of the market monitoring units’ 

substantial role in its market oversight approach, OMOI has devoted 

considerable attention to improving its working relationship with these 

units, and its efforts with respect to other FERC offices and other federal 

agencies are in the early stages. For example, in responding to our survey, 

about 50 percent of OMOI managers and staff expressed dissatisfaction 

with communication with other FERC offices. (About 26 percent were 

satisfied, about 14 percent were as equally satisfied as dissatisfied, and 10 

percent had no basis to judge.) In providing more detailed responses, 

several OMOI staff indicated that they thought communication and 

cooperation between OMOI and FERC’s Office of Markets, Tariffs, and 

Rates was a problem. In addition, the head of a market monitoring unit told 
Page 15 GAO-03-845 Energy Markets

us that he has had to inform OMOI staff about the issuance of orders 

initiated in other FERC offices. 

The Director of OMOI told us that he understands these concerns about the 

office’s working relationship with other FERC offices. According to the 

Director, OMOI wanted to first get its “act together” before reaching out to 

the other offices. He added that OMOI has been working hard the past 

couple of months with FERC’s Office of Markets, Tariffs, and Rates and 

Office of the General Counsel to establish more formal connections. 

OMOI officials told us that they plan to coordinate their work with other 

federal agencies to better incorporate their knowledge and views about 

related market activities. For example, the Director of OMOI’s Division of 

Financial Market Assessment told us that he would like to develop a formal 

information-sharing arrangement with the Commodity Futures Trading 

Commission so that OMOI has better access to financial information. He 

said that while FERC has limited jurisdiction over financial markets, OMOI 

wants to monitor these markets because the financial marketplace affects 

the health of wholesale electricity and natural gas markets. According to 

OMOI officials, they have regularly scheduled meetings with the Federal 

Trade Commission and the Department of Justice to discuss overlapping 

issues, specifically focusing on antitrust and market manipulation 

practices.

As we previously reported, events such as the collapse of the Enron 

Corporation bring to light the importance of clarifying jurisdiction across 

the federal government as restructuring progresses. As we pointed out, 

effective coordination between FERC and the Commodity Futures Trading 

Commission is particularly important because of jurisdictional 

uncertainties regarding the oversight of on-line trading activities, such as 

those previously operated by Enron. In the same way, we also noted that in 

a Senate Governmental Affairs report and memorandum,9

 and other 

congressional hearings, both FERC and the Security and Exchange 

Commission have been questioned about their lack of diligence in 

following through on Enron’s activities—even though they had indications 

of improper conduct. The report commented that effective coordination 

9

Report of the Staff to the Senate Committee on Governmental Affairs, Financial Oversight 

of Enron: The SEC and Private-Sector Watchdogs, Oct. 8, 2002, and Majority Staff 

Memorandum to the Committee on Governmental Affairs, Subject: Committee Staff 

Investigation of the Federal Energy Regulatory Commission’s Oversight of Enron Corp., 

Nov. 12, 2002.
Page 16 GAO-03-845 Energy Markets

between agencies prevents companies from exploiting the lack of oversight 

in areas where neither agency may have taken full responsibility. 

OMOI Has Not Decided on the 

Level of Detail at Which It Will 

Review Market Transactions

According to OMOI, its primary functions are to assess market 

performance, ensure conformance with Commission rules, and produce 

internal and external reports on the results. This description of its 

functions is general and broad at this point. According to OMOI’s Deputy 

Director for Market Oversight and Assessment, as the office builds its 

capability, it must decide at what level of detail it should monitor the 

markets. This issue largely centers around whether OMOI should operate 

at a high level—that is, assess the markets’ overall performance and major 

outcomes, such as competitiveness, supply, and price, and leave the 

detailed monitoring to the market monitoring units—or “get down in the 

weeds” to review market transactional data as market monitoring units do 

for their individual markets. The Deputy Director anticipates that OMOI 

will operate somewhere in between these two levels. The level at which 

OMOI reviews the markets affects both the number and skill mix of the 

staff that OMOI needs. For example, the head of the New York ISO’s market 

monitoring unit told us that, by the end of 2003, his unit will have 30 staff, 

consisting of engineers, economists, business majors, analysts, and 

information technologists, to cover the New York market alone. He 

indicated that OMOI would need many more staff than this if it plans to 

review the markets at the same level of detail on a national basis. 

The responses to our survey and our discussions with OMOI staff indicate 

that opinions vary on this issue. In responding to our survey, 57 percent of 

OMOI’s managers and staff said that top management had clearly defined 

what role OMOI will play in monitoring markets, while about 32 percent 

disagreed. (The remaining 11 percent neither agreed nor disagreed.) 

Additional comments provided for our survey indicate that agreement has 

not been reached on how OMOI should carry out that role. Survey 

respondents expressed concerns that OMOI was not reviewing and 

analyzing market data in enough depth. For example, some OMOI staff said 

that OMOI should be continuously reviewing market data on a real-time 

basis to identify market power abuses. During our interviews, OMOI 

managers also expressed different opinions about the issue. For example, 

an OMOI division director told us that the office will examine similar data 

at a level similar to what the market monitoring units currently do, and that 

OMOI has most of the data it needs to do so. On the other hand, another 

division director told us said that he was not certain what the office’s vision 

for overseeing the markets will be, and that he was not sure if it has the 

information technology capability to perform detailed analysis of market 
Page 17 GAO-03-845 Energy Markets

transactions like the market monitoring units do. He also stated that OMOI 

would need to have staff who performed this work on a daily basis in order 

to become skilled at it, and that they could not gain this expertise on an ad 

hoc basis.

OMOI’s stakeholders have also expressed varying views. For example, the 

heads of the market monitoring units have generally suggested that OMOI 

leave the detailed monitoring of market transactions to them and focus on 

broader, national issues. On the other hand, others such as consumer 

groups have called for FERC to closely monitor the markets to prevent 

market abuse or violations by market participants. 

OMOI Has Not Yet Developed a 

Comprehensive Set of ResultsOriented Performance Measures

According to FERC’s Annual Performance Report for Fiscal Year 2001

(March 2002), the agency recognizes that accountability requires strong 

performance measures of the following two types:

• output measures that specify targets for the specific work items that the 

agency produces—such as orders, decisions, and environmental 

reviews—and for when it produces them, and

• results-oriented or outcome measures that specify the results that the 

agency is working to create in the larger world.

FERC has been developing output measures for many years for its strategic 

and annual performance plans but has established few outcome measures 

in the energy markets oversight area. The agency has stated that 

developing outcome measures is proving to be difficult but believes that it 

is possible. In our June 2002 report, we recommended that FERC develop 

such measures to assess how well it is doing in achieving its goals and 

objectives for overseeing competitive energy markets. 

Although FERC developed new performance measures for its market 

oversight goals and objectives for fiscal years 2003 and 2004, the new 

measures are generally not outcome-oriented and do not lend themselves 

to assessing OMOI’s effectiveness. For example, one key performance 

measure is to “track performance of natural gas and electric markets,” 

while another is to “assess performance of natural gas and electric 

markets.” The performance targets for these measures are to “issue market 

surveillance reports to the Commission twice each month” and “publish 

regular summer and winter seasonal market assessments, state of the 

market reports, and other reports as conditions warrant,” respectively. 

While it can be determined if OMOI issues these products, the products’ 
Page 18 GAO-03-845 Energy Markets

mere issuance does not indicate whether OMOI is achieving its goal of 

protecting customers and market participants through vigilant and fair 

oversight of energy markets. Although outcome measures most 

importantly allow the agency, the Congress, and other stakeholders to 

assess OMOI’s performance in carrying out its mission, establishing these 

measures also helps to more clearly communicate what the office is 

working to achieve.

OMOI Implemented 

Informal Processes and 

Procedures to Begin Its 

Work 

OMOI does not yet have formal processes and written procedures to direct 

its staff in their activities. Instead, it is using a series of key meetings and 

internal and external reports. According to OMOI managers, staff receive 

direction and guidance as they prepare for and participate in these 

meetings and help prepare these reports. 

The key meetings are of two types: (1) regularly scheduled meetings of 

OMOI managers and staff and (2) OMOI’s closed-door meetings with the 

FERC commissioners. The key regularly scheduled meetings have been 

weekly. However, according to the Director of OMOI, morning meetings to 

discuss plans for the day’s activities are also becoming important to the 

office’s operations. The predominant subject of the weekly meetings 

alternates from electricity markets one week to natural gas markets the 

next. At these meetings, which can last for several hours, OMOI managers 

and staff share the results of their market oversight activities and projects 

since the last meeting. Staff also use the weekly meetings to make a variety 

of decisions, including (1) whether the oversight staff should follow up on 

an issue with the appropriate market monitoring unit and/or begin 

collecting and analyzing their own data on the issue or (2) whether the 

enforcement staff should begin investigating a situation or should audit 

market participants’ compliance with certain FERC requirements. They 

also identify issues to be discussed in the closed-door meetings. At the 

closed-door meetings, OMOI discusses national and regional issues 

concerning electricity and natural gas markets—such as changes in prices 

and the adequacy of supply and infrastructure—with the commissioners. 

The commissioners are also informed of any complaints received, progress 

on significant enforcement investigations, and any new investigations.10 

10According to OMOI staff, FERC patterned its closed-door meetings after similar meetings 

held at the Commodity Futures Trading Commission. 
Page 19 GAO-03-845 Energy Markets

OMOI’s also prepares a series of market oversight reports or products on a 

daily to annual basis (see table 2). These reports are intended to (1) help 

OMOI staff and the FERC commissioners stay abreast of market 

developments and activities and (2) inform market participants and others 

of market performance issues and OMOI’s activities. OMOI managers also 

believe that the information needed for these reports helps inform the 

office’s staff as to the types of analyses that they need to perform and how 

their work is linked. 

Table 2: OMOI’s Principal Oversight Reports or Products

Source: GAO analysis of FERC information.

In our survey of OMOI managers and staff, we asked if the office had 

established effective processes to oversee natural gas and electricity 

markets. Just slightly over half—about 53 percent—said that the office had 

established effective processes to oversee the markets. About 28 percent 

did not believe that effective processes had been established for electricity, 

Type of report Timing/purpose/content

Daily Produced daily from news reports and publicly available energy market data to keep FERC 

commissioners and staff aware of current events in the electricity and natural gas markets. OMOI has 

been producing these reports almost from its formation. 

Biweekly market surveillance Generally produced every 2 to 3 weeks to brief the FERC commissioners on emerging and ongoing 

national and regional energy market issues—such as high prices and energy companies’ financial 

condition. The reports, which are in the form of briefing charts, also present information on OMOI’s 

major market monitoring and enforcement activities, including major cases and overall statistics on the 

number of investigations and complaints and inquiries received from market participants and others. 

OMOI has been producing these reports since June 2002. 

Seasonal assessment Produced as public documents twice a year—once during the summer cooling season and once 

during the winter heating season. These reports seek to identify issues important to electricity/natural 

gas customers and market participants and to signal the areas of greatest concern to FERC at the 

time. The reports are intended to (1) provide FERC with an early warning on market issues, (2) guide 

short-term oversight and investigation priorities, and (3) communicate priorities to market participants. 

The first of these reports by OMOI was issued in late January 2003 on natural gas markets. OMOI had 

initially intended to issue the report in November 2002 at the beginning of the winter heating season. 

The report was delayed as the agency deliberated on what type of information should be in the report 

and how it should be presented. On issuance, the energy trade press produced more than a dozen 

articles outlining the report’s major findings and conclusions as to the challenges facing the markets. 

The report also received some criticism in the press as providing little new information, especially on 

market conditions and performance at the end of 2002 and whether conditions had improved or 

worsened since 2001. 

Annual state of the markets To be produced annually and made available to the public. According to the Director of OMOI, the first 

such report by OMOI may be issued in September 2003. (FERC previously issued a state of the 

markets report in March 2000.) As currently planned, the reports are to give a comprehensive review 

of the year and provide measures for energy market performance. 
Page 20 GAO-03-845 Energy Markets

while 22 percent did not believe they had been established for natural gas. 

The remaining respondents said that they neither agreed nor disagreed that 

effective processes had been established or said that they had no basis to 

judge. In providing more detailed responses to our survey, several OMOI 

staff commented on the office’s processes and procedures. For example, 

one respondent stated that processes and procedures do not exist, and that 

most of what is done is ad hoc. Another said that the office needs adequate 

planning tools to be efficient and effective, while another stated that no 

operational market monitoring plan has been developed for electricity or 

natural gas and to the extent that any plans for the office’s operations have 

been developed, they are at a high level and not suitable for monitoring 

markets. According to OMOI’s Deputy Director for Market Oversight and 

Assessment, his divisions plan to establish a consistent process to monitor 

the electric, natural gas, and related financial markets, as well as both 

strong priority setting and management processes.

FERC officials, including OMOI managers, agreed that OMOI needs to 

formalize its processes. However, they said that they did not want to do so 

too quickly because OMOI is a new office and constantly learning. The 

Senior Energy Policy Advisor to the Chairman of FERC told us that 

formalizing OMOI’s processes is a matter of timing. She stated that she 

would not want the office to “lock down” its processes until it is sure that 

they are working well. 

OMOI Has a Variety of 

Oversight Tools and Is 

Working to Improve Them 

To carry out its oversight activities, OMOI’s major tools are its (1) Market 

Monitoring Center, (2) enforcement hotline, (3) investigations and 

operational audits, and (4) partnership with the market monitoring units. 

Although these tools potentially provide OMOI with the means to oversee 

the energy markets, they have some significant limitations in coverage and 

available data. For example, the Market Monitoring Center lacks important 

market information, and market monitoring units do not operate in most 

parts of the United States. OMOI is aware of and is working to address 

these limitations. Opportunities also exist to use these tools more 

systematically to improve their effectiveness. 

The Market Monitoring Center Is 

an Important Research Tool but 

Lacks Critical Data to 

Systematically Monitor the 

Markets 

Patterned after market operation centers of the ISOs and major energy 

trading companies, the center uses computers and various market 

reporting services and software packages to make large amounts of data on 

natural gas and electricity markets available in a useable format. For 

example, electricity market information includes prices on the spot market 

and for futures contracts, plant outage information, business news, and 
Page 21 GAO-03-845 Energy Markets

historical data for trend analysis. Natural gas market data includes spot and 

futures prices, market commentary, storage levels, imports and exports, 

and supply/demand statistics. In addition, several weather services are 

available to monitor changing conditions nationwide, as weather and 

climate affect energy supply and demand in both spot and futures markets. 

OMOI’s staff uses the Market Monitoring Center as a research tool in 

carrying out their assigned projects. During these projects, they often 

review the center’s wholesale price and other market information, such as 

the data on power plant outages and transmission constraints, for 

anomalies. These anomalies generally include large price increases or 

spikes or unexpected constraints in areas of the national grid of electric 

transmission lines or the natural gas pipeline network. For example, OMOI 

monitored a natural gas price spike in February 2003 and tracked its effects 

on the electricity market in the New York area. When anomalies are 

identified, OMOI staff investigate to determine the cause by calling the 

applicable market monitoring unit or using data in the center or otherwise 

available to FERC. Depending on the results of this examination, the 

results are presented to the commissioners and other agency managers as 

an early warning of market problems or OMOI initiates a preliminary 

investigation or operational audit. In some cases, OMOI staff has worked 

with ISO or RTO representatives to change market rules that led to the 

identified anomaly. OMOI may also become aware of a market anomaly or 

potential market problem through another source, such as a market 

monitoring unit, and use the center to collect additional data on it.

OMOI also uses a number of market performance measures or metrics to 

graphically capture market trends. OMOI is working to develop additional 

metrics and anticipates that, with a more comprehensive set of these 

metrics, it will be able to inform the FERC commissioners and 

stakeholders such as the Congress, market participants, and the financial 

markets as to how well the energy markets are working and give early 

warning of problems. 

While the center’s information is substantial, it is significantly limited in 

certain areas. For example, the center has limited up-to-the-minute 

information on electricity prices, fuel costs, and spot and futures contracts 

prices. It also has limited information on the operations of the electric 

system. Operations information, such as data on power plant outages and 

the availability of capacity on transmission lines, is important to detect and 

analyze changes in the markets and to identify potential anticompetitive 

behaviors.
Page 22 GAO-03-845 Energy Markets

In addition, the center does not have access to nonfederal information 

needed to assess reliability of the electric power grid and monitor overall 

electricity market performance. This information includes data system 

frequency (a measure of how well the system is balancing electricity 

demand and supply), power flows on key transmission lines, and 

transmission between parties. According to OMOI officials, market 

performance and electricity system reliability are mutually dependent, and 

such information would help them to determine whether market 

participants are behaving anticompetitively. The center also does not have 

access to a third party source for price or quantity information on most 

bilateral transactions of wholesale electricity, which are the major portion 

of market transactions. However, FERC has revised its filing requirements 

for utilities to require them to electronically file quarterly reports on their 

electric power sales, including information on prices and quantities. 

FERC is continuing to expand the information available in the center. It has 

added four information services since our June 2002 report. For example, 

Genscape measures power plant operations for selected power plants. In 

addition, OMOI is continuing to assess its energy market information 

needs. During fiscal year 2002, FERC completed studies to take stock of the 

agency’s current and future market information needs. As part of that 

effort, FERC formed teams to identify information that FERC currently 

collects and additional information that it might need to perform its duties 

related to restructured markets. According to OMOI officials, the office is 

using the information from these teams as a baseline to assess its overall 

market information needs.11

Although these data shortcomings significantly limit the Market Monitoring 

Center’s potential use for comprehensive and real-time monitoring of the 

markets, some OMOI staff knowledgeable about the center’s operations 

and use highlighted the potential to use the center more systematically. For 

example, a process is currently not in place to use the center to 

continuously monitor the markets, and written protocols have not been 

developed for what data are to be reviewed and what actions OMOI staff 

should take when certain market situations are noticed. Currently, OMOI 

staff use the center intermittently as they do research for their projects. 

According to an OMOI staff person, the center is not in use at times. 

11See our June 2003 report, Electricity Restructuring: Action Needed to Address Emerging 

Gaps in Federal Information Collection, GAO-03-586, for a more detailed discussion of the 

limitations in FERC’s electricity information and its authority to collect it.
Page 23 GAO-03-845 Energy Markets

OMOI Is Incorporating the 

Enforcement Hotline into Its 

Market Oversight Efforts

FERC’s primary purpose in creating the hotline was to provide a 

mechanism to informally receive complaints or inquiries from industry and 

the public so that the agency can deal with concerns more quickly and with 

fewer resources than would be required under FERC’s formal complaint 

process. Since the hotline’s creation in FERC’s Office of General Counsel in 

1987, the number of complaints and inquiries has increased substantially. 

For example, the hotline received 145 complaints and inquiries in fiscal 

year 1996, compared with 584 in fiscal year 2002. FERC’s goal has been to 

respond to and resolve the complaints and inquiries very quickly. For 

example, FERC set a goal in its fiscal year 2003 performance plan to 

resolve 80 percent of the complaints and inquiries within 1 week of the 

initial contact. When a complaint or inquiry is received (by telephone, 

letter, or E-mail), an attorney is assigned to investigate. The attorney 

contacts the other party, usually the same day, and attempts to resolve the 

issue. If the issue cannot be resolved through this informal process, the 

complainant can file a formal complaint or, if OMOI finds indications of a 

more egregious violation of rules or regulations, it can launch an 

investigation into the matter. 

With the hotline’s transfer to OMOI in August 2002, it has become an 

important market oversight tool by providing market participants the 

opportunity to anonymously and informally make complaints to OMOI 

about anticompetitive actions by other parties. According to the 

Enforcement Hotline Director, the hotline’s underlying philosophy is that of 

a neighborhood watch with participants patrolling their own markets. To 

this end, OMOI has encouraged market participants and the general public 

to call, e-mail, or write the hotline to complain or report market activities 

that may be an abuse of market power, an abuse of an affiliate relationship, 

a tariff violation, or another type of violation by an entity regulated by 

FERC. According to OMOI, hotline calls have included complaints about 

bidding anomalies, price spikes, inappropriate use of certain financial 

instruments, fluctuations in available capacity on electric transmission 

lines and natural gas pipelines, discrimination in interconnection to the 

electric grid, and improper market transactions between a company and an 

affiliate. Hotline complaints have led to or contributed to decisions to 

initiate several enforcement investigations. 

OMOI officials also told us that the hotline staff has been focusing more 

attention on tracking market-related calls to look for trends because OMOI 

is trying to use the hotline as a tool for identifying market issues early. For 

example, the officials said that the hotline received several calls from 

energy marketers who said that they could be driven out of business by 
Page 24 GAO-03-845 Energy Markets

stricter standards for creditworthiness. According to the officials, FERC 

had been reviewing creditworthiness issues on a case-by-case basis but, 

after the calls, decided to convene a technical conference in February 2003 

to begin to address these issues on a broader basis. 

OMOI Has Increased 

Investigative Activities, but Its 

Audits Do Not Systematically 

Review Compliance with Market 

Rules 

Led by attorneys in OMOI’s Enforcement Division, investigations are 

designed to collect and analyze information regarding specific concerns 

about whether a party has violated the energy-related laws, regulations, 

and/or market rules administered by FERC. OMOI may initiate an 

investigation as a result of an action such as a hotline complaint, a formal 

complaint, a referral from a market monitoring unit or another office 

within FERC, the findings of an audit, or routine market monitoring. In 

addition, the enforcement staff may begin an investigation based on its 

scanning or tracking of industry or market events through news or other 

accounts. OMOI’s Division of Operational Investigations is responsible for 

conducting audits to review compliance with FERC’s regulations such as 

those governing companies’ transactions or dealings with their affiliates to 

prevent discriminatory practices and reporting of market information. 

OMOI initiates operational audits for a variety of reasons, including 

providing input to policy deliberations, regulations development, and 

enforcement cases. 

FERC’s investigations and operational audits relating to energy markets 

have increased almost steadily each month since this responsibility was 

moved to OMOI. For example, on June 1, 2002—about a month before the 

enforcement staff was transferred to OMOI from FERC’s Office of the 

General Counsel—FERC was conducting 37 investigations and operational 

audits related to the electricity and natural gas industries and other areas 

such as hydroelectric projects. This number was 68 as of May 31, 2003. 

During this period, OMOI opened a total of 79 investigations and 

operational audits and closed 48. 

Of the investigations that OMOI closed, several resulted in entities paying 

refunds, civil penalties, or the costs of the investigations, as well as 

preparing compliance plans and taking other remediation actions. One 

highly visible example is the recently settled case against the 

Transcontinental Gas Pipe Line Corporation (Transco) for anticompetitive 

practices that included a civil penalty of $20 million—the largest civil 

penalty in FERC’s history. However, in other cases, no further action was 

taken—beyond working with the parties under investigation to bring them 

into compliance with the rules and regulations—because there is no civil 

penalty authority associated with the activities. The civil penalty imposed 
Page 25 GAO-03-845 Energy Markets

on Transco stemmed from the company’s violation of rules in one of the 

few areas in which FERC had the authority to impose such penalties. While 

FERC can order refunds of excessive rates, FERC generally lacks authority 

to impose appropriate penalties. No section of the Federal Power Act 

allows FERC to levy monetary penalties against market participants who 

charge unjust or unreasonable rates for electricity. Although the Natural 

Gas Policy Act of 1978 gave FERC some authority to levy civil penalties, 

this authority applies to a limited number of natural gas transactions in 

interstate commerce. Given this situation, legislation was recently 

introduced in the Congress that would give FERC additional penalty 

authority. On April 11, 2003, the House passed H.R. 6, which would expand 

FERC’s penalty authority under the Federal Power Act and increase the 

maximum civil penalty for certain violations from $10,000 to $1 million per 

violation per day. The bill is currently awaiting action by the Senate, which 

is considering similar legislation.

While investigations are almost always opened in response to specific 

complaints or concerns about a potential violation, operational audits 

provide the opportunity to review compliance with regulations and market 

rules on a broader basis. However, OMOI has limited resources devoted to 

these audits. At the end of June 2003, the Division of Operational 

Investigations was conducting audits of 16 entities under FERC’s 

jurisdiction—11 in the Pacific Northwest, 1 in the Midwest, 2 in the midAtlantic, and 2 in the Southwest—with respect to certain aspects of FERC’s 

regulations. According to the Director of the Division of Operational 

Investigations, most of the work by the division’s staff is in supporting 

ongoing enforcement investigations rather than performing audits. He said 

that his staff provides technical support to these investigations by 

reviewing regulations and accounting and trading issues. The Director said 

that he would like to develop, but has not yet developed, a strategy for 

systematically auditing compliance with FERC’s regulations and market 

rules on a cyclical basis. Absent this type of more comprehensive review, 

OMOI has to rely on the limited coverage provided by hotline calls and 

enforcement investigations. For example, hotline calls depend on 

individuals knowing about violations and being willing to report them to 

FERC. 

OMOI Is Working to Improve Its 

Partnership with the Market 

Monitoring Units, but the Units 

Do Not Cover Much of the 

United States

Recognizing that market monitoring units play a significant role in 

overseeing wholesale electric power markets, OMOI is devoting 

considerable attention to improving its working relationship with these 

units. However, FERC has not yet put in place a process to periodically 

assess the monitoring units’ effectiveness so that it will have assurances 
Page 26 GAO-03-845 Energy Markets

that they are effectively carrying out their responsibilities. Moreover, the 

partnership’s effectiveness in overseeing the nation’s electricity markets is 

limited because most of the United States is not covered by these units. 

FERC has described the role of the market monitoring units in various 

terms, including as the “first line of defense” against market problems, its 

“eyes and ears,” its “soldiers on the front line,” and as “practically an 

extension of, or a surrogate for, the Commission’s own market monitoring 

and investigative staff.” The significance of the monitoring units’ role is 

illustrated by OMOI’s response to our request for information on how the 

office’s market oversight approach will identify certain trading schemes, 

such as those used by the Enron Corporation in the California electricity 

market and other manipulations of the energy markets. In their response, 

OMOI officials said the monitoring units are responsible for detecting most 

of the schemes and manipulations in their respective electricity markets. 

(See app. III for OMOI’s response.) 

OMOI is taking a number of steps to improve communication and to better 

ensure that its staff and the market monitoring units work well together. 

For example, the office has assigned specific staff members as contact 

points for the ISOs/RTOs and their market monitoring units. Because many 

of the issues arising and enforcement cases being initiated concern 

California, OMOI has located two of its staff with the California ISO’s 

market monitoring unit. OMOI has also formalized the frequency and 

nature of communication between itself and the units, for example, by 

establishing a series of routine meetings and drafting guidelines on how the 

units will communicate certain market events to OMOI. Furthermore, 

OMOI is working with the market monitoring units to develop a joint 

OMOI-market monitoring unit mission statement and has taken steps to 

standardize the way the market monitoring units will report on their 

markets. For example, OMOI is working with the monitoring units to 

develop a set of standardized measures or metrics by January 2004. With 

standard metrics, FERC can compare and contrast the individual regional 

markets and better report on how markets are performing nationwide. 

According to the heads of the four market monitoring units, their 

communication with FERC has improved since the creation of OMOI. The 

head of one unit told us that the frequency and the detail of their 

discussions with OMOI were notable improvements, while another said 

that the improvement had been significant. The third market monitor told 

us that communication has improved considerably and the more frequent 

communication with OMOI has improved OMOI staff’s knowledge of their 
Page 27 GAO-03-845 Energy Markets

markets. According to the remaining market monitor, his ability to 

communicate with FERC was very poor before OMOI was formed, but 

since then the frequency and content of this communication has improved. 

He added that he hopes that OMOI’s enforcement staff is letting him know 

when it is conducting investigations relating to the markets that he 

monitors, but he does not know whether or not they are. 

In our June 2002 report, we recommended that FERC update its strategic 

plan to set out clear expectations for how the ISOs/RTOs will monitor 

energy markets and how FERC will evaluate their monitoring units’ 

effectiveness. While a key strategy in FERC’s current strategic plan is to 

integrate FERC’s market oversight activities with the work of the 

monitoring units, the plan does not yet set out clear expectations for these 

units or how FERC will ensure that they are effectively carrying out their 

market oversight role. OMOI’s Director of Management and 

Communication told us that performance expectations for the market 

monitoring units make sense, and that the office expects to begin the 

process to incorporate expectations into FERC’s fiscal years 2003-2008 

strategic plan that is scheduled to be issued in September 2003. 

The heads of the market monitoring units agreed that FERC needs 

assurances that their units are carrying out their monitoring functions 

effectively and suggested ways that the agency could obtain these 

assurances. For example, the head of the New York ISO’s market 

monitoring unit said that FERC should monitor market outcomes, maintain 

close contact with the individual units, and operate a hotline that market 

participants can use to register concerns about the units. Similarly, the 

head of the New England ISO’s monitoring unit said that OMOI should 

develop additional expertise for each market and, more importantly, should 

synthesize comments from stakeholders in each market regarding the 

units’ performance. 

While the market monitoring units are highly important to OMOI’s efforts to 

oversee electricity markets, the units’ coverage of the nation’s electricity 

markets is limited. The monitoring units of the PJM Interconnection RTO, 

ISO New England, and New York ISO cover the Northeastern markets, 

while the California ISO’s monitoring unit covers the markets in that state. 

The Electric Reliability Council of Texas, over which FERC has only 

limited jurisdiction because the market is essentially intrastate, also has a 

market monitoring unit that essentially covers Texas. FERC has also 

approved a market monitor for the Midwest ISO, which plans to operate a 

centralized power market by December 2003. In addition, FERC has efforts 
Page 28 GAO-03-845 Energy Markets

under way to expand the number and/or the market coverage of RTOs. At 

present, according to FERC, five other RTOs have been conditionally 

approved. However, it could be several years before these organizations are 

operating and have market monitoring units in place. 

According to the Director of OMOI, one of the office’s major challenges is 

how to monitor the markets in places where there is no market monitoring 

unit. He added that the office has limited access to market data without the 

existence of the formal markets provided by an ISO or RTO to generate the 

data and a market monitoring unit to make it available to them. OMOI 

officials told us that they are using calls to the enforcement hotline and 

audits as a way to provide some oversight in these areas. These efforts, 

however, do not replicate the extensive and detailed monitoring performed 

by the market monitoring units. 

OMOI Faces Challenges as 

It Completes Its Hiring

OMOI has almost completed its staffing to authorized levels, including the 

hiring of a substantial number of staff from outside FERC with energy 

market experience. The office also has trained staff to increase their 

knowledge about competitive energy markets, and has contracted to 

acquire additional market expertise. However, several key management 

positions have not been filled. In addition, OMOI staff raised several issues, 

including the adequacy of the office’s staffing levels, skills mix, the need for 

additional training, and morale. 

OMOI Has Almost Completed Its 

Staffing to Authorized Levels 

As of June 17, 2003, OMOI had a staff of 98 employees—12 less than the 110 

positions budgeted for fiscal year 2003. OMOI has staffed the office with a 

mix of reassigned FERC employees and outside hires (see fig. 2). OMOI’s 

director and two of three office directors are outside hires. During its first 4 

months, the office principally consisted of its top leadership and employees 

reassigned from other FERC offices, such as the Office of Markets, Tariffs, 

and Rates and the Office of General Counsel’s Market Oversight and 

Enforcement Division, that had some experience related to energy market 

oversight and investigation. These internal transfers continued until they 

reached a total of 61 employees in September 2002. Senior OMOI officials 

told us that transferring to OMOI was voluntary, but not everyone was 

selected. According to OMOI officials, approximately 180 FERC employees 

applied for OMOI. 
Page 29 GAO-03-845 Energy Markets

Figure 2: OMOI’s Staffing Levels

As of June 17, 2003, OMOI had hired 45 employees from outside FERC—5 

less than the 50 positions budgeted for fiscal year 2003. To recruit qualified 

individuals with industry experience, OMOI offered a number of 

recruitment bonuses. Because of the specialized skills required to monitor 

energy markets, OMOI has generally offered larger recruitment bonuses 

than other FERC offices—an average of $12,852 given to 10 individuals. 

According to OMOI officials, they are still receiving resumes from 

interested applicants and plan to continue their recruiting and hiring efforts 

over the next few months. 

OMOI officials told us that, in hiring potential applicants, they looked at the 

applicants’ experience in energy markets. In its fiscal year 2003 budget 

request, one of FERC’s performance targets for OMOI was the “hiring of 

staff with market expertise.” In the fiscal year 2004 budget request, FERC is 

revising the performance target to state that “30 percent of OMOI staff have 

energy market experience gained through direct activity in those markets.” 

According to OMOI officials, 29 of the office’s current employees (or 29.6 
Page 30 GAO-03-845 Energy Markets

percent) have energy market experience. More specifically, OMOI officials 

told us that 19 (or 19.4 percent) of the employees have worked for energyrelated companies and have direct experience with some aspect of energy 

markets. An additional 10 employees (or 10.3 percent) have worked as 

consultants, legal counsel, or other positions that demonstrated detailed 

understanding of market activities without active participation, according 

to the officials. OMOI said that they review the resumes of both internal 

transfers and outside hires to determine market experience. 

One reason that OMOI has not yet reached its authorized staffing level is 

that 13 of its employees have left to go to another FERC office, another 

federal agency, or to private industry. The majority of those leaving—10 of 

13—had originally transferred in from other FERC offices. According to 

OMOI officials, most of these employees moved to other FERC offices to 

take more senior positions. They said that because OMOI had to bring in a 

number of outside hires at a high grade (at the GS-15 level), opportunities 

for promotion within OMOI are very limited. Of the three outside hires that 

have left, two were interns with limited appointments. 

OMOI Is Using Training and 

Contracting to Increase Its 

Expertise

In addition to hiring staff with needed skills, OMOI has offered a variety of 

internal and external training programs. For example, OMOI has 

• instituted technical sessions on a biweekly basis during which OMOI 

staff informally share information and expertise with other staff, 

• invited industry experts for presentations on market issues, 

• invited representatives from market monitoring units to provide the 

versions of the training classes they offer their own staffs,

• visited market monitoring units at various RTOs to interact with them 

and learn about their markets and functions, 

• interacted with vital market participants such as credit rating agencies 

and generation and transmission operators to enhance their overall 

knowledge of the gas and electricity markets, and 

• identified leadership and managerial training as a critical need and plans 

to develop targeted training in these areas.

OMOI has also used contractors to obtain skills not available internally. For 

example, OMOI has hired, on a consulting basis, an energy trader formerly 
Page 31 GAO-03-845 Energy Markets

with the Enron Corporation. OMOI also has used contractors to assist them 

in a variety of other ways, including developing measurement metrics for 

the market monitoring units and studying power plant outages. In addition, 

OMOI used contractors to help develop its first seasonal market report. 

Furthermore, the office has contracted with knowledgeable vendors to 

provide employees with information on key aspects of energy markets. 

Since its inception in fiscal year 2002, OMOI has spent a total of about 

$501,000 on contract services. The office is requesting an increase in 

funding for these services from $500,000 for fiscal year 2003 to $1 million 

for fiscal year 2004. 

OMOI Faces Several Additional 

Staffing Challenges

Although OMOI has made progress in hiring staff, OMOI continues to face 

challenges in filling some of its leadership and technical positions. As of 

June 17, 2003, OMOI had not permanently staffed three of OMOI’s seven 

division director positions. According to a senior OMOI official, finding 

qualified applicants for the division director positions has been particularly 

difficult because not many applicants have both technical skills and 

leadership experience coupled with a public-service mentality. For 

example, OMOI has advertised a “Division Director” position at the senior 

executive service level for the Division of Energy Market Oversight on 

several occasions, but FERC hiring officials did not find any applicants 

suitable to meet OMOI’s needs. The position has been relisted. OMOI’s 

difficulty in filling its leadership positions is particularly important because 

sustained, committed leadership is indispensable to successful 

organizational transformations. By its very nature, the transformation 

process entails fundamental change. Consistent leadership helps the 

process stay the course and helps ensure changes are thoroughly 

implemented and sustained over time. Senior OMOI officials also told us 

that OMOI continues to face challenges hiring people with certain skills 

such as engineers with market experience, people with technical skills for 

performing sophisticated analysis, and people with forensic auditing 

experience.

In addition, in responding to our survey, OMOI employees indicated a 

relatively high level of concern about the office’s staffing levels and skill 

mix. About 49 percent of OMOI employees did not believe that the office’s 

staffing levels were satisfactory. In comparison, 22 percent thought that the 

levels were satisfactory. The remaining 30 percent neither agreed nor 

disagreed that the staffing levels were satisfactory or stated that they had 

no basis to judge. In addition, while about 45 percent of the employees 

believed that the office’s skill mix was adequate, 35 percent did not. The 

remaining 21 percent neither agreed nor disagreed or had no basis to judge. 
Page 32 GAO-03-845 Energy Markets

In providing written comments for our survey, the employees often 

commented on staffing levels and skill mix. For example, one respondent 

wrote “the resources in the office are clearly inadequate to perform 

comprehensive oversight of industries as large as wholesale electricity and 

natural gas.” Another wrote “staffing levels are not sufficient to regularly, 

systematically evaluate all energy markets in the United States to look for 

aberrant behavior.” The written comments on skill mix varied. For 

example, some staff wrote that OMOI had too many employees with 

natural gas experience and too few with electricity experience. Others 

commented that the office had too few engineers, especially electrical 

engineers, or needed more investigations staff, economists, attorneys, or 

technical staff.

To some extent, these concerns about staffing levels and skill mix likely 

reflect the staff’s individual views about what this new office should do to 

oversee the markets, particularly the level of detail at which it should 

review market transactions. It is difficult to judge the validity of the staff’s 

concerns until OMOI has clearly defined its role. Of course, the FERC 

commissioners and the Congress would be involved in defining the role and 

committing the resources to carry it out. 

Many of OMOI’s employees also indicated that they would benefit from 

additional training. For example, in responding to our survey, over 70 

percent of OMOI employees expressed a need for more training in areas 

such as market functions, market structures, and the interaction of 

financial markets and energy markets. In addition, more than half of the 

staff indicated that additional training in economic theory and models 

would be useful. (See table 3.) 
Page 33 GAO-03-845 Energy Markets

Table 3: Percentage of OMOI Staff Indicating That Additional Training Would Help Them Better Oversee Energy Markets and 

Enforce Market Rules

Source: GAO survey of OMOI employees.

Furthermore, our survey of OMOI staff uncovered a potential issue 

regarding the office’s morale. In responding to the survey, about 49 percent 

of OMOI managers and staff characterized the office’s morale as generally 

high or very high, compared to about 31 percent that said morale was 

generally low or very low. (The remaining 20 percent characterized morale 

as neither high nor low or said they had no basis to judge.) However, there 

was a disparity of opinion between new hires and internal transfers. Among 

staff that had been with FERC for more than a year or before OMOI was 

established (internal transfers), about 40 percent said the office’s morale 

was low, slightly higher than the 38 percent that said it was high. In 

comparison, 14 percent of staff that had been with FERC for less than 1 

year (new hires) said the office’s morale was low, while 68 percent said it 

was high. Additionally, several internal transfers expressed concern that 

OMOI’s top managers do not value them as highly as those hired from 

outside FERC. In their written comments to our survey, several staff 

expressed their sense that a “double standard” exists in that (1) the work of 

the “new FERC” employees (outside hires) is valued by top managers more 

than that of the “old FERC” employees (transfers) and (2) the new FERC 

employees receive higher pay and more than their share of the bonuses and 

other rewards. Several employees also commented that there is not much 

promotion potential for internal transfers. Furthermore, several employees 

that left OMOI to go to other parts of FERC told us that they had left for a 

promotion, but the sense that they were not valued was also a factor in 

leaving. 

(Percentage)

Subject area

Additional training 

would assist me

Already proficient

in this area

Does not apply or

no basis to judge

How financial markets interact with energy markets (including 

trading, hedging, derivatives, and financial instruments) 76 15 9

Market structures 71 23 7

Market functions 70 24 7

Economic theory/models 52 34 14

Statistical software packages 48 15 37

Regulatory theory/process 44 43 13

Basic economic principles/definitions 35 53 12
Page 34 GAO-03-845 Energy Markets

FERC Is Taking 

Important Steps to 

Improve Its Human 

Capital Management

Since we issued our June 2002 report, FERC has developed a human capital 

plan that lays the foundation for the agency to strategically manage its 

workforce. As our previous work has found, strategic human capital 

planning must be the centerpiece of any serious change management 

initiative, yet a key challenge for many federal agencies is to strategically 

manage their human capital.12 Given that many federal agencies have not 

yet begun any comprehensive human capital planning, FERC’s human 

capital plan is commendable and a promising first step. Nonetheless, the 

plan is in the formative stages and lacks key elements. The plan does not 

yet fully (1) identify specific activities, resources, and time frames needed 

to implement the agency’s human capital initiatives and (2) provide results 

oriented or outcome measures to track the agency’s progress in 

implementing the plan’s initiatives and evaluate their effectiveness. By 

including these key elements in its human capital plan, FERC could better 

ensure that its workforce is able to effectively oversee and monitor energy 

markets. In addition to human capital planning, the agency is taking other 

steps to help transform its workforce, including assessing additional 

human capital flexibilities that could improve recruitment and retention 

efforts.

FERC’s Human Capital 

Management Plan Is an 

Important First Step but 

Lacks Key Elements 

In February 2003, the Chairman of FERC approved the agency’s first human 

capital management plan, a step forward in fostering a more strategic 

approach to human capital management. In our June 2002 report, we 

pointed out that FERC was one of many federal agencies that had not given 

adequate attention to human capital management. Specifically, we found 

that FERC had not conducted systematic strategic human capital planning 

to guide its efforts to recruit, develop, train, and retain the type of 

workforce that can effectively oversee competitive energy markets. 

Properly done, human capital planning provides managers with a strategic 

basis for making human resources decisions and allows agencies to 

systematically address issues driving workforce change, such as those 

affecting OMOI. One tool that agencies can use to improve their human 

capital management is a human capital plan that systematically identifies 

the workforce needed for the future and identifies strategies for shaping 

this workforce. Accordingly, we recommended that FERC develop a 

12U.S. General Accounting Office, High-Risk Series: Strategic Human Capital 

Management, GAO-03-120 (Washington, D.C.: January 2003).
Page 35 GAO-03-845 Energy Markets

comprehensive strategic human capital management plan to include the 

following:

• a skills assessment program that would identify gaps in skills currently 

held by the workforce that are necessary to carry out the agency’s 

evolving regulatory and oversight responsibilities;

• a recruitment and retention initiative, based on priorities for meeting 

future regulatory and oversight staffing needs, which addresses filling 

skill gaps in the current workforce;

• a training effort targeted at increasing staff knowledge in the areas of 

market functions and market structures so that FERC staff will be better 

prepared to regulate and oversee competitive energy markets; and

• a comprehensive succession plan for solving challenges posed by the 

large number of impending retirements within the agency, including 

reliable projections of the number of eligible staff who may actually 

retire. 

The plan, which covers a period of from 2 to 5 years, is essentially broken 

up into two major sections. The first section addresses issues facing the 

agency as a whole. For example, the plan’s first section describes FERC’s 

current human capital situation, including data on overall workforce 

demographics such as size and composition of the workforce, employee 

pay grade distribution, attrition rates, projected retirement eligibility, and 

retirement rates. The plan then uses these data to frame five broad 

workforce challenges and identifies five human resource goals and 19 

objectives to achieve these goals. (See table 4.) The plan’s second section 

provides information specific to each major FERC office. This section 

identifies each office’s specific human capital challenges based on their 

particular workforce demographics and current and future work 

requirements and includes a short-term hiring plan and longer-term human 

capital initiatives.
Page 36 GAO-03-845 Energy Markets

Table 4: FERC’s Agencywide Human Resource Goals and Objectives

Source: FERC.

The plan, to varying degrees, discusses the four major components that we 

previously recommended be included—skills assessment, recruitment and 

retention, training, and succession planning. Regarding skills assessment, 

the second section of the plan identifies for each office the current and 

future skills they need to achieve FERC’s strategic goals. Where gaps 

existed between current and future skill needs, the offices have developed 

human capital initiatives to close the gaps. According to a senior FERC 

human resource official, the plan will improve as this skills assessment 

Human resource goal Objectives

Goal 1: Attract and retain talented, diverse employees capable of 

maintaining excellence

• Institutionalize an agencywide workforce planning process

• Implement recruiting and retention strategies based on workforce 

planning results and office hiring plans

• Use the full range of hiring flexibilities to increase hiring speed and 

success

• Develop a demonstration project to increase hiring and retention 

success and improve accountability 

Goal 2: Provide development opportunities to expand individual 

and organizational capabilities

• Link employee development activities to strategic goals and plans

• Upgrade the effectiveness of office and central training programs

• Increase the capabilities of underperforming employees

• Institute rotational assignments to build skills and learn new 

business practices

Goal 3: Build leadership to inspire and draw the best from all 

employees

• Establish a leadership succession planning program

• Deliver a comprehensive training program for new and experienced 

managers

• Create feedback mechanisms and development plans to foster 

leadership development

• Increase support for managers handling human resources and 

employee development responsibilities

Goal 4: Foster a performance culture that rewards achievement • Ensure employees understand agency priorities and how to 

contribute

• Strengthen the connections among accomplishments, awards and 

performance feedback

• Develop options for addressing shortfalls in accountability and nonperformance

• Measure results and use the data to keep improving 

Goal 5: Create organizations with the ability to meet rapidly 

changing conditions

• Use flexible processes for acquiring specialized, limited-duration 

expertise

• Strengthen the role of subject matter experts in helping managers 

handle new program challenges

• Compile best practices and apply them to help organizations and 

teams at FERC successfully meet difficult workload challenges

• Share innovations and creative approaches across organizational 

lines
Page 37 GAO-03-845 Energy Markets

process improves. The official said that the FERC offices are still learning 

how to determine their skill needs and, as a result, when someone retires or 

otherwise leaves, FERC managers tend to seek a replacement with the 

same skills, rather than thinking about future skill needs. 

Concerning recruitment and retention, the plan establishes attracting and 

retaining talented, diverse employees capable of maintaining excellence as 

a human resource goal. To accomplish this goal, FERC identifies various 

objectives, including institutionalizing an agencywide workforce planning 

process and implementing recruiting and retention strategies based on the 

results of this workforce planning process and the offices’ hiring plans. 

Another of the objectives is to develop a demonstration project to increase 

hiring and retention success and improve accountability for hiring and 

retention decisions. FERC’s plan also identifies a number of initiatives to 

improve recruitment and retention. For example, FERC plans to implement 

an exit interview process to track and document why employees leave. 

According to the plan, the information gained from exit interviews will be 

used to support or modify agency personnel practices in order to improve 

employee retention. 

With respect to training, the plan establishes development opportunities to 

expand individual and organizational capabilities as a goal. An objective 

under this goal is to upgrade the effectiveness of the central and individual 

office training programs. The plan recognizes that FERC needs to 

implement a revamped energy markets curriculum to ensure that staff, 

such as those in OMOI, have current market-oriented skills and expertise. 

One of the next steps in the plan is that the human resources staff will 

coordinate the offices’ efforts to design and offer training for managers and 

to develop a markets-oriented curriculum to build organizational and staff 

capabilities. Human resources officials told us that FERC is already using 

an agencywide team to develop such a curriculum. According to senior 

human resources officials, the curriculum will likely be offered to all FERC 

offices to develop a common foundation across the agency. Although OMOI 

is the FERC office primarily responsible for monitoring competitive energy 

markets, FERC officials indicated that a number of offices in addition to 

OMOI are seeking markets training to do their jobs better. As FERC 

develops this new curriculum, the current central program has been 

temporarily suspended, and each office is responsible for providing 

informal training to its own staff. For example, OMOI has offered a variety 

of training to increase staff knowledge on competitive energy markets. 

According to a senior FERC official, the new agencywide training program 

should be implemented by the beginning of fiscal year 2004. 
Page 38 GAO-03-845 Energy Markets

FERC’s plan identifies succession planning as a challenge and points out 

that over half of FERC’s workforce will be eligible to retire by 2007. It also 

sets out the establishment of a leadership succession planning program as 

an objective under its building leadership goal. To address this challenge, 

many of FERC’s offices intend to develop their own succession planning 

strategies. For example, the section of the plan for the Office of Markets, 

Tariffs, and Rates states that because of its “graying” leadership ranks, the 

office must develop a succession plan for its key leadership positions. The 

section also states that because of its overall graying workforce, the office 

must develop a larger entry-level/career ladder pipeline to maintain 

adequate numbers of employees, both in total numbers and at the top level 

of career-ladder positions. The section of the plan for OMOI also addresses 

succession planning. In the plan, OMOI states that it will develop a 

succession plan to address the loss of leadership and skills due to 

retirements and the return of employees to the private sector. However, the 

human capital plan does not provide any additional information on how 

these succession plans will be developed, what resources are needed, how 

they will be implemented, and when they will be completed. Leading 

organizations use their succession planning initiatives not only to identify 

individual replacements for current leaders but also as a strategic tool to 

build current and future organizational capacity by identifying and 

developing the right people, with the right skills, at the right time for 

leadership, managerial, and other critical positions.13

FERC’s plan also addresses other related human capital issues. For 

example, it notes that the current performance management system may 

not be adequate to sustain and build the workforce needed for the future. 

As FERC takes steps to transform its workforce, performance management 

will be a critical element. Our previous work has found that instituting a 

results-oriented culture and creating a modern, credible, and effective 

performance management system can be strategic tools to drive change 

and achieve desired organizational results.14 Under the plan’s goal of 

fostering a performance culture that rewards achievement are four broad 

performance management objectives. For example, the plan indicates that 

the agency will strengthen connections among accomplishments, awards, 

13U.S. General Accounting Office, Human Capital: A Self-Assessment Checklist for Agency 

Leaders, GAO/OCG-00-14G (Washington, D.C.: September 2000).

14U.S. General Accounting Office, Results-Oriented Cultures: Creating a Clear Linkage 

Between Individual Performance and Organizational Success, GAO-03-488 (Washington, 

D.C.: March 2003). 
Page 39 GAO-03-845 Energy Markets

and performance feedback but does not yet provide details on how this will 

be done, what resources are needed, and when it will be completed. 

According to senior FERC officials, the agency’s current performance 

system does not meaningfully differentiate between high and low 

performers, and performance is not directly linked with annual pay 

increases. Instead of awarding pay increases based on annual performance 

appraisals, performance is rewarded through the use of bonuses 

throughout the year. As a result, employees are rewarded for specific 

events rather than their overall contribution to agency results. According to 

FERC officials, this system was put in place to avoid the problem of too 

many outstanding ratings. 

Given that FERC is one of only a small number of agencies that have begun 

efforts to address their human capital challenges by developing human 

capital plans, FERC’s efforts are commendable. However, work remains to 

be done to ensure FERC’s plan is successful. Varying senior FERC human 

resources officials described the plan as having a “ways to go” or as a “baby 

step.” As we previously discussed, the plan, at this point, provides limited 

information how the agency’s goals and objectives will be achieved. While 

the plan includes strategies, it generally does not yet identify specific 

activities, resources, and time frames. This type of information helps 

provide more clarity of direction and organizational commitment as the 

plan is being implemented. The plan also does not provide results-oriented 

performance measures to help FERC gauge its progress in achieving the 

plan’s goals and objectives. Our previous work has shown that highperforming organizations recognize the fundamental importance of 

developing and using indicators to measure both the outcomes of human 

capital strategies and how these outcomes have helped the organizations 

accomplish their missions and programmatic goals. For example, a human 

capital plan can include measures that indicate whether the agency 

executed its human capital initiatives—such as hiring, retention, training, 

or performance management strategies—as intended, whether it achieved 

the goals for these strategies, and how these initiatives helped improve 

programmatic results. Although FERC intends to review and update the 

plan on a quarterly basis and revise it annually, it may be difficult to review 

the plan’s progress in a meaningful way without this type of specificity. 
Page 40 GAO-03-845 Energy Markets

FERC Continues to Use a 

Wide Range of Human 

Capital Flexibilities, and Is 

Exploring Opportunities for 

Additional Flexibilities 

In our June 2002 report, we noted that although FERC had taken steps to 

acquire and develop the staff knowledge and skills it needed to effectively 

regulate and oversee energy markets, it had not fully explored all the 

human capital flexibilities that are available to federal agencies for 

responding to workforce challenges. All federal agencies, including FERC, 

have personnel flexibilities and tools available to them to help overcome 

workforce recruitment and retention issues. Many of these flexibilities and 

tools can be initiated by federal agencies on their own, while others require 

approval from the Office of Personnel Management, the Office of 

Management and Budget, or the Congress. In our prior report, we found 

that FERC was using a number of available flexibilities such as recruitment 

bonuses, retention allowances, tuition reimbursement, and alternative 

work schedules but had not requested other flexibilities that could help 

improve recruitment and retention. Accordingly, we recommended that 

FERC (1) identify the personnel tools, flexibilities, and strategies, other 

than those already in use by FERC, available to federal agencies to recruit 

and retain employees; (2) conduct an internal assessment of the 

effectiveness and applicability of these to FERC; and (3) develop an action 

plan to use the appropriate tools, flexibilities, and strategies to recruit and 

hire needed expertise. 

Since our prior report, FERC has expanded its use of some existing human 

capital flexibilities to improve its ability to recruit and retain employees. 

One example is FERC’s student loan repayment program. As one of the first 

federal agencies to employ this flexibility, FERC has used a total of 

$331,499 to help 41 employees repay their student loans. Participants in the 

program commit to staying at FERC for a minimum of 3 years. According to 

FERC officials, this program has been particularly successful in retaining 

attorneys, who often have high student loan debt. In addition, FERC has 

expanded its use of recruitment and retention bonuses. For example, FERC 

offered 10 retention bonuses in 2002 compared with 2 in 2001. FERC has 

also given 75 recruitment bonuses of around $3,000 to $4,000 each to 

attract qualified employees. As noted earlier, OMOI has typically offered 

larger recruitment bonuses than other FERC offices because of the 

specialized skills required to effectively monitor competitive energy 

markets.

In addition, according to FERC’s human resources manager, the agency’s 

senior human resources officials have identified additional human capital 

flexibilities that could prove useful in attracting and retaining quality 

employees and have assessed their applicability to FERC. However, the 

Chairman of FERC has not yet decided which, if any, of these additional 
Page 41 GAO-03-845 Energy Markets

flexibilities FERC will seek approval for from the Office of Personnel 

Management, the Office of Management and Budget, or the Congress. As 

part of their assessment, FERC officials examined the flexibilities in use at 

agencies including the Internal Revenue Service, the Federal Aviation 

Administration, the Securities and Exchange Commission, and the 

Transportation Security Agency to identify lessons learned and strategies 

for acquiring additional flexibilities. Senior FERC human resources 

officials said that they may look to acquire many of the same flexibilities 

currently available to the Securities and Exchange Commission, a similar 

regulatory agency. However, these officials also noted that FERC may have 

more difficulty obtaining approval for the additional flexibilities because of 

its relatively low attrition rate, an average of 7 percent since 1995. In 

contrast, the Security and Exchange Commission, which has a turnover 

rate of around 30 percent, uses compensation-based programs, such as 

special pay rates, more actively than other government agencies.

Conclusions OMOI has made a credible start toward establishing an oversight and 

enforcement capability for competitive energy markets. Significantly, the 

office recognizes that additional efforts are needed and has under way or is 

planning a number of initiatives, including expanding its activities, further 

identifying its information needs, and improving its working relationships 

with the market monitoring units. While these initiatives are important to 

OMOI’s success, the activities that the office needs to engage in, the 

information and other resources it needs to carry out these activities, and 

the working relationships it needs to establish with others depend on the 

role that it has defined for itself to achieve its mission. At this point, OMOI’s 

role lacks clarity in several respects. For example, OMOI has not explicitly 

and directly related its role and activities to the agency’s responsibility for 

ensuring just and reasonable prices nor decided at what level of detail it 

will review the markets. In addition, OMOI has not clearly defined market 

power, although market power is a major oversight concern and an issue 

that OMOI has to make sure is adequately addressed. Moreover, OMOI has 

not explicitly defined how it will work with others inside and outside of 

FERC that either share energy market oversight responsibilities or have 

related responsibilities. 

OMOI is a new office with unique and broad responsibilities for overseeing 

the nation’s energy markets. As such, its first months have been a learning 

experience as it hired its staff and began to carry out its activities. Thus, we 

do not disagree with the office’s decision to begin its work with few formal 

processes and written procedures as it, in effect, was developing and 
Page 42 GAO-03-845 Energy Markets

testing them. However, after almost a year, OMOI has added more staff, and 

its oversight activities are becoming more complex. Establishing formal 

processes and developing written procedures are important to help ensure 

that they are systematic, understood, and implemented effectively. Formal 

processes and written procedures also help provide assurances to OMOI’s 

stakeholders that the office has fully thought through and is systematically 

monitoring today’s energy markets. 

Although FERC’s recently completed human capital plan begins to lay the 

foundation for the agency to strategically manage its human capital, it does 

not yet contain key elements that could increase the likelihood that the 

plan will be effective. It generally does not identify specific activities, 

resources, and milestones to implement the human capital objectives. It 

also does not contain results oriented performance measures that can help 

FERC measure progress toward achieving these objectives. Setting out 

specific activities, resources, and milestones provide a clearer road map for 

achieving the plan’s objectives and more clearly defines the organizational 

commitment needed for the plan’s implementation. Moreover, without 

results oriented measures, FERC will be unable to determine whether its 

initiatives are leading to better outcomes and achieving the desired effects, 

such as whether its workforce is better able to meet the challenges posed 

by competitive energy markets. 

Recommendations for 

Executive Action

To help ensure that FERC’s oversight of competitive energy markets is 

comprehensive and resources are effectively directed, we recommend that 

the Chairman of FERC more clearly define OMOI’s role in overseeing the 

nation’s energy markets by taking the following actions: 

• Explicitly describe OMOI’s activities relative to carrying out the agency’s 

statutory requirements to ensure just and reasonable prices and to 

preventing market manipulation.

• Explicitly establish the level of detail at which OMOI will routinely 

review market transactions to carry out its oversight activities. 

• Delineate how other FERC offices and other organizations, including 

the market monitoring units and other federal agencies, share in and 

contribute to OMOI’s mission and establish expectations for how they 

will work together. 
Page 43 GAO-03-845 Energy Markets

To help ensure that OMOI carries out its role systematically and effectively, 

we recommend that the Chairman of FERC direct OMOI to establish formal 

processes and written procedures for its key activities. 

To strengthen FERC’s human capital plan, we recommend that the 

Chairman of FERC revise the agency’s plan to (1) identify specific 

activities, resources, and time frames to implement the human capital 

initiatives and (2) provide results-oriented measures to track the agency’s 

progress in implementing the initiatives and evaluate their effectiveness. 

Agency Comments We provided FERC with a draft of this report for review and comment. In 

his written comments, the Chairman of FERC generally agreed with the 

report’s conclusions and recommendations. Specifically, the Chairman 

stated that the report offers valuable advice for additional improvement 

and accomplishment and that, in general, he agrees with the report on the 

steps that are needed next to more clearly define the role of market 

monitoring and expand the agency’s human capital initiative. The Chairman 

further stated that he agrees that it is now time to formalize and document 

many of OMOI’s processes. The complete text of FERC’s comments on our 

draft report is presented in appendix IV. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to other appropriate 

congressional committees; the Chairman, FERC; the Director, Office of 

Management and Budget; and other interested parties. We also will make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov.
Page 44 GAO-03-845 Energy Markets

If you or your staff have any questions about this report, please contact me 

at (202) 512-3841. Key contributors to this report are listed in appendix V.

Sincerely yours,

Jim Wells

Director, Natural Resources

and Environment
Page 45 GAO-03-845 Energy Markets

Appendix I

Scope and Methodology AAppenednxidexiIs

To determine FERC’s progress in establishing an oversight and 

enforcement capability for competitive energy markets, we focused our 

review on the formation and operation of OMOI. We reviewed pertinent 

FERC documents, including annual reports, budget requests, strategic and 

annual performance plans, reports, speeches, and congressional testimony 

by the FERC Chairman, commissioners, and other officials relating to 

energy market oversight. We also reviewed OMOI documents, including 

OMOI divisions’ strategic plans, market oversight reports, enforcement 

reports, and information related to OMOI’s staffing levels and budget. In 

addition, we interviewed OMOI managers at the division head level and 

above, including the director and deputy directors of the office. We also 

obtained the views of the heads of the four market monitoring units that 

were operating at the time of our review on OMOI’s progress in establishing 

a market oversight and enforcement capability at the national level. 

Furthermore, we drew on our prior work in the areas of electricity and 

natural gas markets. 

In addition to our document review and interviews, we conducted a survey 

of OMOI staff, up to and including those at the director and deputy director 

level. The survey was conducted using a self-administered electronic 

questionnaire posted on the World Wide Web. We sent E-mail notifications 

to 92 OMOI staff beginning on March 24, 2003. We then sent each employee 

who was surveyed a unique password by e-mail to ensure that only 

members of the target population could participate in our survey. We 

closed the survey on April 11, 2003, having received a total of 80 responses, 

for an overall response rate of 87 percent. A copy of this survey with the 

quantitative results can be found in appendix II.

While our survey results are generalizable to the current OMOI population 

as described above, the practical difficulties of conducting surveys may 

introduce errors into the results. Although we administered our survey to 

all known members of the population of OMOI employees, and thus our 

results are not subject to sampling error, nonresponse to the entire survey 

or individual questions can introduce a similar type of variability or bias 

into our results—to the extent that those not responding differ from those 

who do respond in how they would have answered our survey questions. 

We took steps in the design, data collection, and analysis phases of our 

survey to minimize population coverage, measurement, and dataprocessing errors, such as checking our population list against known 

totals of employees, pretesting and expert review of questionnaire 

questions, and follow-up with those not immediately responding.
Appendix I

Scope and Methodology

Page 46 GAO-03-845 Energy Markets

To determine FERC’s progress in improving agencywide human capital 

management, we reviewed pertinent FERC documents, including the 

agency’s human capital plan and information related to the agency’s 

training, human capital flexibilities, and performance management 

programs. In addition, we interviewed senior human resources officials at 

FERC, including FERC’s Executive Director. We conducted our work 

between October 2002 and June 2003 in accordance with generally 

accepted government auditing standards.
Page 47 GAO-03-845 Energy Markets

Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations ApendxiI

This appendix contains the questions and responses from our survey of 

Federal Energy Regulatory Commission (FERC) employees in the Office of 

Market Oversight and Investigations. Responses are expressed as a 

percentage of those responding to the survey. 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 48 GAO-03-845 Energy Markets

United States General Accounting Office 

Survey of FERC Office of Market Oversight 

and Investigations Employees

Introduction

The U.S. General Accounting Office (GAO), an independent agency of Congress, is conducting a follow-up review of 

management issues at the Federal Energy Regulatory Commission (FERC). As part of our study, we are soliciting the 

views of the FERC staff in the Office of Market Oversight and Investigations to obtain their opinions about a variety of 

topics relating to the work of the FERC. 

Most of the questions in this survey can be answered by checking boxes or filling in blanks. Space has been provided at 

the end of the survey for any additional comments. The survey should take about 20 minutes to complete. 

GAO will take steps to prevent the disclosure of individually identified data from this survey. Only GAO staff assigned 

to this study can access and view your responses. No one at the FERC will see your individual responses. 

The username and password associated with the survey is included only to allow you to access the survey and enter your 

responses, and to aid us in our follow-up efforts. Survey results will be reported in summary form. If individual 

answers are discussed in our report, no information will be included that could be used to identify individual 

respondents.

If you have any questions or are experiencing difficulties responding to the questionnaire, please contact Adam 

Hoffman at (202) 512-6667 or hoffmana@gao.gov or Jason Holliday at (202) 512-4582 or 

hollidayj@gao.gov.

Your participation is very important and we urge you to complete this survey. We cannot provide meaningful 

information to the Congress on these issues without your frank and honest answers. 

Thank you for your time and assistance. 

________________________________________________________________________________________ 

Please refer to the following definitions when completing this survey: 

Office - Refers to the Office of Market Oversight and Investigations (OMOI) 

Division - Refers to a division within OMOI such as the Division of Energy Market Oversight, Division of 

 Management and Communication, etc. 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 49 GAO-03-845 Energy Markets

Background Information 

The objective of this section is to obtain general information about your current position with FERC. 

1. How long have you been employed by FERC, including its predecessor, the Federal Power Commission? 

(Check one.) 

19% Less than 6 months 

16% 6 to 11 months 

15% 1 to 5 years 

6% 6 to 10 years 

24% 11 to 20 years 

20% More than 20 years 

0% No basis to judge 

2. Which of the following generally describes your current area of work? (Check one.)

8% Accountant/Auditor/Examiner 

13% Economist (Industry, Financial, etc.) 

3% Engineer (Electrical, Mechanical, Petroleum, etc.) 

38% Energy Industry Analyst 

11% Other Analyst (Financial, Budget, Operations Research, Program Management, etc.) 

0% Information Technology Specialist 

23% Attorney 

6% None of the above 

If you checked "None of the above", please enter your current area of work in the space provided. 

Organizational Effectiveness 

The objective of this section is to obtain information about OMOI's effectiveness in meeting its mission goals and 

objectives.

3. In general, how clear or unclear to you are each of the following? (Check one in each row.) 

 Very 

clear

Somewhat 

clear

Somewhat 

unclear 

Very 

unclear 

No basis 

to judge 

a. FERC's overall mission/goals and objectives 60% 38% 3% 0% 0% 

b. OMOI's goals and objectives 44 35 18 4 0 

c. Your division's goals and objectives 47 25 18 9 1 

d. Your current duties and responsibilities 48 33 16 4 0 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 50 GAO-03-845 Energy Markets

4. In general, with regard to oversight and enforcement of wholesale electricity markets, overall, how effective

or ineffective is OMOI in doing the following: (Check one in each row.) 

 Very 

effective

Somewhat 

effective

Neither 

effective

nor 

ineffective 

Somewhat 

ineffective 

Very 

ineffective

No 

basis

to 

judge 

a. Monitoring wholesale electricity markets to 

determine whether prices are just and reasonable 

13% 43% 11% 16% 3% 15% 

b. Analyzing spikes in wholesale electricity prices 

to determine their cause 

31 30 10 9 0 20 

c. Responding appropriately to the causes of 

wholesale electricity price spikes 

20 31 14 14 1 20 

d. Detecting market power abuses in wholesale 

electricity markets 

11 36 14 20 3 16 

e. Correcting detected market power abuses in 

wholesale electricity markets 

14 23 15 18 9 23 

f. Identifying problems concerning wholesale 

electricity market structure and rules 

21 34 13 20 1 11 

g. Remedying problems concerning wholesale 

electricity market structure and rules 

15 23 20 14 10 19 

h. Resolving complaints and disputes among 

electricity market participants quickly and fairly 

32 32 11 4 3 19 

i. Enforcing violations of FERC's requirements 

relating to wholesale electricity markets 

19 32 10 11 4 24 

Please enter any other issue regarding the oversight and enforcement of wholesale electricity markets that 

you feel should have been listed above concerning OMOI's level of effectiveness. 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 51 GAO-03-845 Energy Markets

5. In general, with regard to oversight and enforcement of wholesale natural gas markets, overall, how effective

or ineffective is OMOI in doing the following: (Check one in each row.) 

 Very 

effective

Somewhat 

effective

Neither 

effective

nor 

ineffective 

Somewhat 

ineffective 

Very 

ineffective

No 

basis

to 

judge 

a. Monitoring wholesale natural gas markets to 

determine whether prices are just and reasonable 

18% 40% 10% 11% 3% 19% 

b. Analyzing spikes in wholesale natural gas prices 

to determine their cause 

33 35 5 9 1 18 

c. Responding appropriately to the causes of 

wholesale natural gas price spikes 

24 31 13 11 3 19 

d. Detecting market power abuses in wholesale 

natural gas markets 

10 35 15 14 1 25 

e. Correcting detected market power abuses in 

wholesale natural gas markets 

15 22 14 17 5 28 

f. Identifying problems concerning wholesale 

natural gas market structure and rules 

23 33 13 10 3 20 

g. Remedying problems concerning natural gas 

market structure and rules 

16 21 20 10 6 26 

h. Resolving complaints and disputes among 

natural gas market participants quickly and fairly 

35 25 9 4 1 25 

i. Enforcing violations of FERC's requirements 

relating to wholesale natural gas markets 

21 31 9 6 1 31 

Please enter any other issue regarding the enforcement and oversight of wholesale natural gas markets that you feel 

should have been listed above concerning OMOI's level of effectiveness. 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 52 GAO-03-845 Energy Markets

6. Would you agree or disagree with the following statements as they relate to management/resources issues 

in OMOI? (Check one in each row.)

Strongly 

agree

Agree Neither 

agree nor 

disagree

Disagree Strongly 

disagree

No 

basis

to 

judge 

a. Top OMOI management has established effective 

processes and procedures to oversee wholesale 

electricity markets. 

13% 40% 13% 24% 4% 8% 

b. Top OMOI management has established effective 

processes and procedures to enforce wholesale 

electricity market rules. 

10 41 18 16 6 9 

c. Top OMOI management has established effective 

processes and procedures to oversee wholesale 

natural gas markets. 

11 41 10 18 4 16 

d. Top OMOI management has established effective 

processes and procedures to enforce wholesale 

natural gas market rules. 

10 36 18 11 6 19 

e. My immediate manager(s) provides clear and 

concise direction. 

34 34 13 16 4 0 

f. Top management has clearly defined what role 

OMOI is going to play in monitoring markets. 

18 39 11 23 9 0 

g. Staffing levels in OMOI are satisfactory. 3 19 25 34 15 5 

h. The employee skill mix in OMOI is adequate. 9 36 18 26 9 3 

i. Information technology support and services are 

satisfactory. 

15 38 27 17 4 0 

j. OMOI maintains a strong focus on achieving the 

FERC's mission. 

30 37 18 6 6 3 

k. OMOI has set clear performance expectations. 28 38 17 11 6 0 

l. OMOI is able to retain quality employees. 9 26 23 16 16 10 

Please enter any other issues regarding management/resources issues in OMOI you feel should have been listed above. 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 53 GAO-03-845 Energy Markets

7. Would you agree or disagree with the following statements as they relate to data/knowledge requirements issues 

in OMOI? (Check one in each row.)

Strongly 

agree

Agree Neither 

agree nor 

disagree

Disagree Strongly 

disagree

No 

basis

to 

judge 

a. Staff understands what data are required to 

effectively oversee wholesale electricity markets. 

13% 46% 19% 9% 4% 10% 

b. Staff understands what data are required to 

effectively enforce wholesale electricity market 

rules.

13 44 20 9 3 11 

c. Staff understands what data are required to 

effectively oversee wholesale natural gas markets. 

16 39 20 4 4 18 

d. Staff understands what data are required to 

effectively enforce wholesale natural gas market 

rules.

14 41 20 4 3 19 

e. Staff has adequate access to data on electricity

market performance. 

5 36 20 25 5 9 

f. Staff has adequate access to data on natural gas

market performance. 

6 33 20 23 5 14 

g. Staff has adequate knowledge of, or experience with 

overseeing competitive electricity markets. 

5 40 22 21 4 9 

h. Staff has adequate knowledge of, or experience with 

enforcing market rules in competitive electricity

markets. 

9 45 18 14 3 13 

i. Staff has adequate knowledge of, or experience with 

overseeing competitive natural gas markets. 

8 45 21 9 3 15 

j. Staff has adequate knowledge of, or experience with 

enforcing market rules in competitive natural gas

markets. 

11 46 17 5 3 19 

k. Staff understands the integration of gas and 

electricity markets. 

19 48 18 10 0 5 

l. Staff understands the relationship between financial 

markets and energy markets. 

14 42 25 14 0 5 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 54 GAO-03-845 Energy Markets

8. Would you agree or disagree with the following statements as they relate to authority issues in FERC? 

(Check one in each row.) 

Strongly 

agree

Agree Neither 

agree nor 

disagree

Disagree Strongly 

disagree

No 

basis

to 

judge 

a. FERC should have authority to enforce reliability 

rules for electricity. 

35% 44% 11% 3% 0% 8% 

b. FERC should have additional authority to require 

submission/sharing of data from Independent 

System Operators. 

51 40 1 3 0 5 

c. FERC should have additional authority to levy 

penalties. 

69 23 3 0 0 6 

d. FERC should have additional authority to collect 

necessary data to oversee energy markets and 

enforce market rules. 

69 24 1 1 0 5 

Please enter any other issues regarding authority issues in FERC you feel should have been listed above. 

When answering the next question, please recall how we defined division earlier in the survey: 

Division - Refers to a division within OMOI such as the Division of Energy Market Oversight, Division of 

 Management and Communication, etc. 

9. Thinking about your current division in OMOI, would you agree or disagree with the following statements? 

(Check one in each row.)

Strongly 

agree

Agree Neither 

agree nor 

disagree

Disagree Strongly 

disagree

No 

basis

to 

judge 

a. My division has clearly defined its goals and 

objectives. 

24% 35% 19% 18% 4% 1% 

b. My division currently has adequate staff to do its 

work. 

1 26 25 36 6 5 

c. The staff in my division have the skills needed to do 

their jobs well. 

15 54 15 8 3 5 

Please enter any other issues regarding your current division in OMOI you feel should have been listed above.
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 55 GAO-03-845 Energy Markets

10. In your opinion, would additional training in the following subject areas assist you in overseeing 

energy markets and enforcing market rules? (Check one in each row.) 

Additional 

training 

would 

assist me 

greatly 

Additional 

training 

would 

assist me 

somewhat 

I feel I'm 

already

proficient in 

this area 

Training in 

this area would 

not be 

applicable to 

the work I do 

No basis 

to judge 

a. Basic economic principles/definitions 8% 27% 53% 6% 6% 

b. Economic theory/models 11 41 34 9 5 

c. Regulatory theory/process 11 33 43 8 5 

d. Market functions 18 52 24 3 4 

e. Market structures 22 49 23 3 4 

f. Statistical software packages such as SAS or 

SPSS

10 38 15 32 5 

g. Understanding how financial markets interact 

with energy markets (including trading, 

hedging, derivatives, and financial instruments) 

34 42 15 6 3 

In the space provided, please enter any other training that you believe would assist you in overseeing energy markets and 

enforcing market rules. 

Morale and Work Environment 

The objective of this section is to obtain your views on morale and the general work environment in OMOI. 

11. Overall, how would you characterize the current level of morale in OMOI? (Check one.) 

6% Very high 

43% Generally high 

15% Neither high nor low 

21% Generally low 

10% Very low 

5% No basis to judge 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 56 GAO-03-845 Energy Markets

12. Specifically, how satisfied or dissatisfied are you with each of the following communication issues as they relate 

to your current work environment? (Check one in each row.)

 Very 

satisfied 

Somewhat 

satisfied 

Equally 

satisfied 

as

dissatisfied

Somewhat 

dissatisfied

Very 

dissatisfied

No 

basis

to 

judge 

a. Communication between the Chairman and 

OMOI 

14% 33% 15% 11% 8% 20% 

b. Communication between the Commissioners 

(not including the Chairman) and OMOI 

9 25 18 13 9 27 

c. Communication between OMOI's top 

management and my division 

31 21 9 14 18 8 

d. Communication between different divisions 

within OMOI 

23 26 15 18 13 6 

e. Communication with offices within FERC 

other than my own 

3 23 14 28 22 10 

f. Communication between management of 

different offices within FERC 

4 21 15 19 23 19 

g. Communication with other federal agencies 9 29 21 11 5 25 

h. Communication with state agencies 8 21 23 8 5 36 

i. Communication with Market Monitoring 

Units 

20 33 15 5 4 24 

13. Specifically, how satisfied or dissatisfied are you with each of the following cooperation issues as they relate 

to your current work environment? (Check one in each row.)

 Very 

satisfied 

Somewhat 

satisfied 

Equally 

satisfied 

as

dissatisfied

Somewhat 

dissatisfied

Very 

dissatisfied

No 

basis

to 

judge 

a. Cooperation between different divisions in 

OMOI 

32% 28% 17% 14% 5% 5% 

b. Cooperation with offices within FERC other 

than my own 

5 22 27 27 10 10 

c. Cooperation between management of 

different offices within FERC 

4 18 21 29 14 15 

d. Cooperation with other federal agencies 8 30 23 13 1 26 

e. Cooperation with state agencies 6 23 20 10 3 39 

f. Cooperation with Market Monitoring Units 21 25 13 6 4 31 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 57 GAO-03-845 Energy Markets

14. Specifically, how satisfied or dissatisfied are you with each of the following leadership/change issues as they 

relate to your current work environment? (Check one in each row.)

 Very 

satisfied 

Somewhat 

satisfied 

Equally 

satisfied 

as

dissatisfied

Somewhat 

dissatisfied

Very 

dissatisfied

No 

basis

to 

judge 

a. Leadership provided by Commissioners and 

office directors at FERC 

13% 34% 20% 16% 9% 9% 

b. Leadership/supervision that I directly receive 

from my division in OMOI 

34 29 10 16 6 5 

c. Organizational changes within OMOI 13 20 18 18 9 24 

d. Changes in my job duties as a result of 

organizational changes 

20 14 21 8 5 33 

15. Specifically, how satisfied or dissatisfied are you with each of the following resources/rewards issues as they 

relate to your current work environment? (Check one in each row.)

 Very 

satisfied 

Somewhat 

satisfied 

Equally 

satisfied 

as

dissatisfied

Somewhat 

dissatisfied

Very 

dissatisfied

No 

basis

to 

judge 

a. Availability of resources (i.e., budget, 

technology, staff, etc.) necessary to do my 

job 

13% 36% 23% 15% 13% 1% 

b. Availability of rewards for job performance 

in OMOI 

6 20 15 19 19 21 

In the space provided, please enter any other issues related to your current work environment that you would 

like to mention. 

16. Thinking about the issues covered in the previous few questions concerning your current work environment, 

 overall, how satisfied or dissatisfied are you with the work environment in OMOI? (Check one.) 

20% Very satisfied 

36% Generally satisfied 

15% Equally satisfied as dissatisfied 

19% Generally dissatisfied 

10% Very dissatisfied 

0% No basis to judge 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 58 GAO-03-845 Energy Markets

17. Do you plan to leave FERC through retirement or resignation, within one of the following time periods? 

(Check one.) 

3% Less than 1 year 

6% 1 to less than 2 years 

4% 2 to less than 3 years 

5% 3 to less than 5 years 

35% I have no plans to leave FERC within the next 5 years 

45% Unsure at this time 

3% No basis to judge 

Creation of OMOI 

The objective of this section is to obtain your views on the creation of OMOI. 

18. Were you employed by FERC before the creation of OMOI in 2002? (Check one.)

64% Yes  (Continue with question 19.)

35% No  (Skip to question 21.)

1% No basis to judge  (Skip to question 21.)

19. To what extent, if at all, do you believe that the creation of OMOI improved FERC's ability to oversee 

energy markets overall and enforce market rules in energy markets? (Check one in each row.)

To a very 

great

extent

To a 

great

extent

To a 

moderate 

extent

To some 

or little 

extent

To no 

extent

No 

basis

to 

judge 

a. Creation of OMOI improved FERC's ability to oversee 

energy markets overall 

22% 32% 14% 16% 6% 10% 

b. Creation of OMOI improved FERC's ability to enforce 

market rules in energy markets 

12 33 20 12 10 12 

20. In your opinion, to what extent, if at all, has your work focus changed as a result of the creation of OMOI? 

(Check one.) 

24% Changed to a very great extent 

20% Changed to a great extent 

26% Changed to a moderate extent 

16% Changed to little or some extent 

12% Has not changed at all 

2% No basis to judge 

If your work has changed at all as a result of the creation of OMOI, please describe the changes in the space provided. 
Appendix II

GAO Survey of Current FERC Employees in 

the Office of Market Oversight and 

Investigations

Page 59 GAO-03-845 Energy Markets

Comments

Here you are provided an opportunity to provide additional comments or suggestions. 

21. If you have any additional comments relating to any of the issues raised in this questionnaire, please enter them 

in the space provided 

22. If you have any additional suggestions not noted elsewhere on this questionnaire about how FERC or OMOI can 

 improve operations, please enter them in the space provided. 

Final Survey Question - Be sure to answer this when survey is complete. 

23. If you have completed the questionnaire, please check the "Completed" box below. 

 Please note: You must answer "Completed" for your answers to be included.

Clicking "Completed" is equivalent to "mailing" your questionnaire. It lets us know that you are finished, and that 

you want us to use your answers. It also lets us know not to send you any follow-up messages reminding you 

to complete your questionnaire. 

 Completed 

 Not completed 

Thank you for your cooperation. 
Page 60 GAO-03-845 Energy Markets

Appendix III

FERC’s Approach to Addressing Market 

Manipulation Schemes and Other Potentially 

Noncompetitive Actions ApendxiI

This appendix contains the Federal Energy Regulatory Commission’s 

(FERC) response to our questions concerning how the agency’s new 

market oversight approach will detect certain market manipulation 

schemes, such as the ones used by the Enron Corporation, and other 

potentially noncompetitive actions. (See table 5.) For each of these 

schemes or types of actions, Office of Market Oversight and Investigations 

(OMOI) officials provided the (1) FERC office or other organization 

responsible for detecting it, (2) type of oversight used, and (3) type/source 

of data used. We received this information from OMOI officials in April 

2003.

Table 5: FERC’s Approach to Addressing Market Manipulation Schemes and Other Potentially Noncompetitive Actions

Type of action Description of action

Organization/office 

responsible for 

detecting action

Type of oversight 

used to detect action

Type/source of data 

used to detect action 

Electricity markets

Enron schemes

Scheduling 

fictitious load to 

receive 

congestion 

payments.

(Enron’s “load 

shift” scheme)

A company owns transmission rights 

on a transmission path connecting two 

separate areas or “zones.” In a 

schedule that it submits to the 

transmission provider, the company 

artificially overschedules load in one 

zone and underschedules load in the 

other zone. This fictitious schedule 

creates the appearance of congestion 

on the transmission path. The 

company then reschedules its load by 

“shifting” the overscheduled load to the 

other zone, which appears to relieve 

the congestion, and is paid by the 

transmission provider for doing so.

Not applicable for all 

markets except the 

California ISO,a

 the CAISO 

market monitor is 

responsible for detecting.

Review of detailed 

market data.

Schedule and bid data.

Scheduling 

fictitious load to 

manipulate 

electricity prices.

(Enron’s “fat boy” 

scheme)

A company artificially increases load 

on a schedule it submits to the 

transmission provider to correspond 

with the amount of generation in its 

schedule. The company then 

generates electricity in real time that is 

in excess of its actual load. As a result, 

the transmission provider pays the 

company for excess generation at the 

market clearing price established in 

the real-time electricity market.

Not applicable for all 

markets except the 

California ISO,b

 the CAISO 

market monitor is 

responsible for detecting.

Review of detailed 

market data.

Schedule and bid data.
Appendix III

FERC’s Approach to Addressing Market 

Manipulation Schemes and Other Potentially 

Noncompetitive Actions

Page 61 GAO-03-845 Energy Markets

Scheduling 

fictitious 

generation to 

receive 

congestion 

payments.

(Enron’s “death 

star” scheme)

In a schedule that it submits to the 

transmission provider, a company 

schedules the transmission of 

electricity in the opposite direction of 

congestion on a transmission path. 

The company then collects payments 

from the transmission provider for 

appearing to relieve congestion. 

However, the company does not 

actually put electricity on the grid or 

take it off. 

Not applicable for all 

markets except the 

California ISO,c the CAISO 

market monitor is 

responsible for detecting.

Review of detailed 

market data.

Schedule and bid data.

Ancillary 

services sellback

(Enron’s “get 

shorty” scheme)

A company commits to provide 

ancillary services that it does not have 

(i.e., selling “short”) to the day-ahead 

market, with the intention of buying 

back this capacity in the hour-ahead 

market at a lower price. This scheme is 

also known as “paper trading,” in the 

sense that the trader does not have 

physical resources to back up the 

trade.

ISO/RTO market 

monitoring units 

Verification of physical 

ability to supply 

reserves.d

Supplier bidding and 

unit operational 

performance data.

Megawatt 

laundering

(Enron’s 

“ricochet” 

scheme)

A company buys electricity from the 

day-ahead market and exports it to a 

second company, which receives a fee 

from the first company. The electricity 

is later resold back to the transmission 

provider in the real-time market at a 

higher price.

NA (This scheme exploited features of the California Market rules before 

6/20/2001, but most of those features have been eliminated in recent market 

rules.)e

Withholding

Withholding 

capacity 

(physical 

withholding)

A company withholds electricity from 

the market to create an artificial 

shortage of electricity, which increases 

real-time prices.

ISO/RTO market 

monitoring units, OMOI 

(Withholding is much more 

difficult to detect for nonISO markets.)

1. Reduce potential 

with good market 

rules.

2. General 

monitoring of the 

health of electric 

markets.

3. Specific 

investigations: 

review of 

historical outage 

data, on site 

audits, complaint 

and hotline calls.f

General monitoring: 

electric market price 

and supply data.

Specific investigations:

plant specific and 

industrywide outage 

data

(Continued From Previous Page)

Type of action Description of action

Organization/office 

responsible for 

detecting action

Type of oversight 

used to detect action

Type/source of data 

used to detect action 
Appendix III

FERC’s Approach to Addressing Market 

Manipulation Schemes and Other Potentially 

Noncompetitive Actions

Page 62 GAO-03-845 Energy Markets

Withholding 

capacity 

(economic 

withholding)

A company submits an inflated bid for 

providing electricity to the day-ahead 

market. The inflated bid creates the 

perception of a shortage of electricity, 

which increases real time prices.

ISO/RTO market 

monitoring units, OMOI 

(Withholding is much more 

difficult to detect for nonISO markets.)

1. Reduce potential 

with good market 

rules.

2. General 

monitoring of the 

health of electric 

markets.

3. Specific 

investigations: 

review of bids 

compared 

expected bid 

thresholds, 

complaints and 

hotline calls. g

General monitoring: 

electric market price 

and supply data.

Specific investigations:

bid data, generator 

production cost data 

(unit heat rate, fuel 

costs, start-up costs, 

O&M).

Discrimination

Discriminatory 

pricing practices

A privately owned utility sells power to 

an affiliated power marketer at prices 

lower than it sells to nonaffiliated 

buyers.

OMOI (Discrimination is 

much more of a problem 

and more difficult to detect 

for non-ISO markets.)

Complaints, hotline 

calls, analysis of 

Electronic Quarterly 

Reports (EQR) data, 

audits.h

EQR data, company 

records

Discriminatory 

access practices

A transmitting utility uses its control of 

transmission facilities and system 

operations to limit market access of 

competitors in capacity and energy 

markets.

OMOI, OMTR 

(Discrimination is much 

more of a problem and 

more difficult to detect for 

non-ISO markets.)

Complaints, hotline 

calls, audits

OASIS data, company 

records

Other noncompetitive actions

Control of assets A company assigns control of 

jurisdictional assets (e.g., a trading 

platform) to another company without 

receiving prior FERC approval.

OMOI, OMTR Complaints, hotline 

calls, audits

Company records

Sleeve trading A company acts as a middleman (or 

“sleeve”) between two affiliates of a 

parent company in order to allow 

transactions to proceed that affiliates 

would be forbidden to undertake 

directly.

OMOI, OMTR, market 

monitoring units

Complaints, hotline 

calls, audits, analysis 

of EQR data

Company records, EQR 

data

Fraudulent 

ownership of a 

qualifying facility

An electric utility holding company 

uses fraudulent financial arrangements 

to own a qualifying facility, which is 

exempt from certain state and federal 

regulations. The qualifying facility then 

applies for recertification with FERC as 

a qualifying facility.

OMTR,i OMOI Complaints, hotline 

calls, audits

Company records

(Continued From Previous Page)

Type of action Description of action

Organization/office 

responsible for 

detecting action

Type of oversight 

used to detect action

Type/source of data 

used to detect action 
Appendix III

FERC’s Approach to Addressing Market 

Manipulation Schemes and Other Potentially 

Noncompetitive Actions

Page 63 GAO-03-845 Energy Markets

Gas markets

Withholding

Withholding 

capacity 

(physical 

withholding of 

pipeline capacity)

A pipeline company withholds 

operationally available capacity from 

the market. This withholding of 

capacity creates an artificial shortage 

of capacity, which increases basis 

differential. This could lead to higher 

downstream prices or to reduced 

upstream prices.

OMOI

Pipeline customers

When OMOI observes 

unusual basis 

differentials, pipelines 

are contacted to 

ascertain flow levels 

vs. capacity and get an 

explanation for why 

capacity not offered.

Basis differential 

observed from daily 

reported prices 

published in the trade 

press.

Withholding 

capacity 

(physical 

withholding of 

storage 

withdrawals)

A company owning natural gas in 

storage elects to keep the gas in 

storage rather than withdraw it for sale. 

This withholding of capacity creates an 

artificial shortage of gas, which 

increases overall gas prices in the 

marketplace.

OMOI General monitoring of 

the health of gas 

markets

General gas storage, 

gas market price and 

supply data.

Withholding 

capacity 

(physical 

withholding of 

gas production)

A producer elects to keep its gas in the 

ground rather than offering it for sale. 

This withholding of capacity creates an 

artificial shortage of gas, which 

increases overall gas prices in the 

marketplace.

OMOI 

(FERC has no jurisdiction 

over gas production.)

General monitoring of 

the health of gas 

markets (If OMOI 

determines that 

withholding by 

producers is raising 

prices or threatening 

deliverability, we would 

alert the FTC and 

DOJ.)

General gas market 

price and supply data.

Other noncompetitive actions

Communicating 

market 

information from 

pipelines to 

marketing 

affiliates.

A pipeline shares information about its 

capacity with an affiliated marketer, 

which is able to use the information to 

gain more advantageous positions in a 

marketplace than its competitors.

OMOI

Pipeline customers

Monitor and audit 

pipeline internal 

information controls. 

Maintain contacts with 

market participants 

who may notice 

abnormalities.

Data requests and 

interviews with 

company personnel.

Financial markets

Manipulating 

physical 

marketplaces to 

affect prices in 

financial 

marketplaces.

A company uses its dominant position 

within a market to manipulate prices in 

physical markets in order to affect 

associated financial markets.

CFTC, OMOI Compare trading 

positions of players to 

assess whether a 

trader attempted to 

corner the market, or 

took unusual physical 

or financial positions.

CFTC receives trading 

position data from 

NYMEX. FERC can 

subpoena information.

(Continued From Previous Page)

Type of action Description of action

Organization/office 

responsible for 

detecting action

Type of oversight 

used to detect action

Type/source of data 

used to detect action 
Appendix III

FERC’s Approach to Addressing Market 

Manipulation Schemes and Other Potentially 

Noncompetitive Actions

Page 64 GAO-03-845 Energy Markets

Source: FERC.

Note: We prefer to prevent or minimize the potential for noncompetitive actions with good market 

structure, design, and rules.

a

The “Load Shift” scheme was tailored to take advantage of flaws in the California market design, 

particularly its congestion management system. That is, the scheme depended on the development of 

a day-ahead schedule for power purchases without determining whether that day-ahead schedule was 

physically feasible. In real time, the California ISO made payments to entities to relieve “virtual” 

congestion. This created an incentive for a market participant to create congestion in the day-ahead 

schedule so that the same entity would be paid to relieve that congestion in real time.

Currently, however, PJM Interconnection, New York ISO, ISO-New England, and ERCOT use a 

different congestion management system (i.e., locational marginal pricing), together with a physically 

feasible and financially binding day-ahead schedule that make the schemes infeasible. The use of a 

locational congestion management system ensures that all transmission constraints are considered in 

developing day-ahead schedules, and any congestion is reflected in the prices for energy and 

transmission services. Thus, there is no need for transmission providers (e.g., ISOs) to make separate 

payments in real time to relieve congestion in the day-ahead schedule, as there was in California. 

Moreover, the day-ahead schedules under current ISO markets, except the CAISO, are financially 

binding so that a marketer that changed its schedule in real time would still be financially liable for its 

day-ahead schedule. This eliminates opportunities and incentives for the “load shift” scheme that relies 

on differences between day-ahead and real-time prices. 

Although the load shift scheme may not be directly applicable to the current ISO markets, it has been 

recognized in certain ISO markets (e.g., PJM) that market participants might try to take advantage of 

virtual bidding, which is allowed in some ISO markets, to create fictitious congestion to collect 

Financial Transmission Right (FTR) revenue in a day-ahead market. PJM currently has market rules 

and screening mechanisms in place to deal with this type of manipulation. To the extent that remedying 

this type of trading scheme in the current ISO markets involves detecting the manipulative behavior 

and changing of market rules, collaborative work among OMOI, OMTR, and regional MMUs may be 

required.

Providing false 

data about prices 

or volumes to 

index publishers.

A company deliberately reports 

inaccurate natural gas prices to the 

reporting firms (i.e., private, 

commercial companies such as Platts 

and Bloomberg that report electricity 

and natural gas prices) in order to 

manipulate the reported prices data.

CFTC, DOJ, OMOI Observe daily prices 

for unusual patterns, 

request trading 

transaction data to 

compare to reports 

made to reporting 

firms. Audits, analysis 

of EQR data

Published daily prices 

and filed reports. 

Company records and 

EQR data.

Wash trading Wash trades are transactions that give 

the appearance of sales and 

purchases, but which are initiated 

without the intent to make a bona fide 

transaction and which generally do not 

result in any actual change in 

ownership or the trader’s market 

position.

CFTC, DOJ, OMOI

(Wash trading of physical 

gas may be wrong, but it 

is not illegal.)

Observe daily prices 

for unusual patterns, 

request trading 

transaction data to 

compare to reports 

made to reporting 

firms. Audits, analysis 

of EQR data

Published daily prices 

and filed reports. 

Company records and 

EQR data.

Manipulating 

trading platforms

A company uses its electronic trading 

platform to obtain a competitive 

advantage and to distort published 

market price indices for natural gas 

and electricity.

CFTC, DOJ, OMOI Monitor trading 

platform structure and 

controls. Audits.

Interview trading 

company employees, 

market participants. 

Company records.

(Continued From Previous Page)

Type of action Description of action

Organization/office 

responsible for 

detecting action

Type of oversight 

used to detect action

Type/source of data 

used to detect action 
Appendix III

FERC’s Approach to Addressing Market 

Manipulation Schemes and Other Potentially 

Noncompetitive Actions

Page 65 GAO-03-845 Energy Markets

b

The Enron-type “fat boy” trading scheme was premised on submitting false scheduling information, 

artificially increasing load on a schedule it submited to the Cal ISO in an attempt to take advantage of 

the fact that the three California public utilities, especially PG&E, habitually under-scheduled their load 

in the day-ahead market (Cal PX) in an effort to minimize their procurements costs. Currently, however, 

the other ISO markets (New York ISO, PJM, and ISO New England,) do not require load or generation 

to submit balanced day-ahead schedules. Therefore, such a scheme is not viable in these markets. 

ISOs have scheduling requirements and entities that do not follow them are subject to penalties under 

ISO tariffs.

c

The “Death Star” scheme was tailored to take advantage of flaws in the California market design, 

particularly its congestion management system. That is, the scheme depended on the development of 

a day-ahead schedule for power sales without determining whether that day-ahead schedule was 

physically feasible. In real time, the California ISO made payments to entities to relieve “virtual” 

congestion. This created an incentive for a market participant to create congestion in the day-ahead 

schedule so that the same entity would be paid to relieve that congestion in real time. This is not a 

viable scheme under current rules of operating markets.

Currently, however, PJM Interconnection, New York ISO, ISO-New England, and ERCOT use a 

different congestion management system (i.e., locational marginal pricing), together with a physically 

feasible and financially binding day-ahead schedule that make the schemes infeasible. The use of a 

locational congestion management system ensures that all transmission constraints are considered in 

developing day-ahead schedules, and any congestion is reflected in the prices for energy and 

transmission services. Thus, there is no need to for transmission providers (e.g., ISOs) to make 

separate payments in real time to relieve congestion in the day-ahead schedule, as there was in 

California. 

Moreover, the day-ahead schedules under current ISO markets are financially binding so that a 

marketer that changed its schedule in real time would still be financially liable for its day-ahead 

schedule. This eliminates opportunities and incentives for the “death star” scheme that relies on 

differences between day-ahead and real-time prices. 

Although the death star scheme may not be directly applicable to the current ISO markets, however, it 

has been recognized in certain ISO markets (e.g., PJM) that market participants might try to take 

advantage of virtual bidding, which is allowed in current ISO markets, to create fictitious congestion to 

collect Financial Transmission Right (FTR) revenue in a day-ahead market. PJM currently has market 

rules and screening mechanisms in place to deal with this type of manipulation. To the extent that 

remedying this type of trading scheme in the current ISO markets involves detecting the manipulative 

behavior and changing of market rules, collaborative work among OMOI, OMTR, and regional MMUs 

may be required.

d

This scheme depended on Enron committing fraud by claiming to have capacity resources when they 

did not. This may only be used in markets where participants may financially trade ancillary services 

(reserves) in both the day-ahead and real-time markets. In current ISO markets, financial offers of 

ancillary service are not permitted. Only physical providers of services may bid, and their performance 

is subject to ISO/RTO verification and oversight by the market monitoring unit. 

e

Prior to 6/20/2001, a generator in California could produce energy or a marketer could buy energy, 

ship it out of state, and cause it to be shipped back in-state in the real-time market, in order to avoid a 

price cap on in-state electricity. This situation is no longer relevant in California, due to the imposition 

of a west-wide mitigation plan. Imposition of a bid cap eliminates the difference in treatment of 

electricity supplies, depending on their source and thus the profit-making opportunity associated with 

this scheme.

Megawatt laundering is not relevant within or between Northeastern ISO or RTO markets, as supplies 

are not subject to different price caps in these locations. This problem can be avoided in the future 

through greater consistency of market power mitigation rules across regions. The movement of energy 

to market locations is a good thing in functional markets as such market arbitrage can enhance market 

efficiency.

f

We have a three-part strategy for addressing physical withholding. First, good market rules can help 

reduce the potential for physical withholding, as long as the rules do not undermine competition. In 

establishing rules, it is important to provide clear guidance on what constitutes physical withholding. 

Examples of rules in place in some ISO markets include: resource adequacy, special contracts for 

generators in load pockets, market mitigation procedures, and “must offer” provisions.
Appendix III

FERC’s Approach to Addressing Market 

Manipulation Schemes and Other Potentially 

Noncompetitive Actions

Page 66 GAO-03-845 Energy Markets

Second, outside load pockets, physical withholding is a concern only when supply is tight. By 

monitoring supply and demand conditions in electricity markets, OMOI can watch for conditions where 

physical withholding is most likely to occur. 

Third, when these “tight” market conditions occur, market monitoring units and OMOI can review 

outage data. The market monitoring units are responsible for monitoring for physical withholding in the 

organized markets. The comparison of quantities bid to historical offer thresholds is a first step in order 

to help determine if withholding conduct is occurring. Actual output may be compared to thresholds for 

output and for deratings. The thresholds are generally based upon "normal" levels of output for 

individual units. When a unit is derated or has an unscheduled outage, physical inspections or audits 

may be used to ensure that the outage is legitimate.

Outside the organized markets, OMOI is the entity responsible for monitoring for physical withholding 

of electric supply. Given the number of potential market players, detecting this type of physical 

withholding depends on complaints and hotline calls.

g

We have a three-part strategy for addressing economic withholding. First, good market rules can help 

reduce the potential for economic withholding, as long as the rules do not undermine competition. In 

establishing rules, it is important to provide clear guidance on what constitutes economic withholding. 

Examples of rules in place in some ISO markets include: resource adequacy, special contracts for 

generators in load pockets, and market mitigation.

Second, outside load pockets, economic withholding is a concern only when supply is tight. By 

monitoring supply and demand conditions in electricity markets, OMOI can watch for conditions where 

economic withholding is most likely to occur. 

Third, when these market conditions occur, market monitoring units and OMOI can review bid and 

generator production cost data. The market monitoring units are the entities responsible for monitoring 

for economic withholding within the ISOs and RTOs. They do so by comparing the offer information to 

thresholds for anticipated offer behavior (expected bids given historical norms, often adjusted for fuel 

prices). If the entities exceed the thresholds for offers, the ISO or RTO may then see if the withholding 

has affected the market prices.

Outside the RTOs and ISOs, it would be very difficult to determine when economic withholding 

occurred, rather than simply scarcity pricing for a scarce resource. Economic withholding may be 

associated with withholding of transmission capacity to keep the buyer from reaching other market 

alternatives. OMOI is responsible for monitoring for such withholding, and uses the complaint and 

hotline processes to determine when it is occurring.

h

This is defined to be a situation in which a privately owned utility sells power to an affiliated power 

marketer at lower prices than it sells to other nonaffiliated buyers. This situation pertains to bilateral 

markets, because in organized RTO and ISO markets, the seller does not choose either the party to 

which it sells, nor can it differentiate across buyers. In the bilateral markets, the seller has an incentive 

to provide power at a discount to an affiliate when the seller can charge other sellers more through 

regulated rates.

OMOI is the organization responsible for monitoring for discriminatory pricing. Until now, we have been 

monitoring primarily by reviewing complaints which have been filed with the Commission and 

responding to hotline calls. With the Electric Quarterly Report data now organized in a data base, 

OMOI staff can analyze the information to check for differences between affiliated and non-affiliated 

transactions. Additionally, OMOI will be auditing transactions to check for evidence of affiliate abuse.

i

The Office of Markets, Tariffs, and Rates (OMTR) reviews notices of self-certification of qualifying 

status or applications for Commission certification of qualifying facility status, which are subject to the 

ownership criteria of 18 C.F.R. 292.206 among other requirements.
Page 67 GAO-03-845 Energy Markets

Appendix IV

Comments from the Federal Energy 

Regulatory Commission ApendxiIV
Appendix IV

Comments from the Federal Energy 

Regulatory Commission

Page 68 GAO-03-845 Energy Markets
Appendix IV

Comments from the Federal Energy 

Regulatory Commission

Page 69 GAO-03-845 Energy Markets
Appendix IV

Comments from the Federal Energy 

Regulatory Commission

Page 70 GAO-03-845 Energy Markets
Appendix IV

Comments from the Federal Energy 

Regulatory Commission

Page 71 GAO-03-845 Energy Markets
Page 72 GAO-03-845 Energy Markets

Appendix V

GAO Contacts and Staff Acknowledgments ApendxiV

GAO Contacts Jim Wells (202) 512-3841

Dan Haas (202) 512-9828

Staff 

Acknowledgments

In addition to the individuals named above, Adam Hoffman, Jason Holliday, 

and Raymond Smith made key contributions to this report. Important 

contributions were also made by Stuart Kaufman, Ellen Rubin, and Barbara 

Timmerman.

(360280)
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