These operators included pipeline companies, local distribution companies, and independent marketers. However, FERC added that it could use its authority to regulate the rates charged by interstate pipeline companies for gathering, transportation, and other services to regulate a gathering affiliate if the affiliate and its parent pipeline company act together in a collusive and anticompetitive manner. This policy has generally been accepted by pipeline companies, local distribution companies, and end-users. Since the early 1990s, several interstate pipeline companies have created affiliates to provide their gathering services. In contrast to other segments of the industry, producers generally believe that it is too early to determine the effects of FERC’s new policy. None of the industry representatives we interviewed expressed concern over FERC’s use of market-based rates in areas where the storage market is competitive. According to a FERC official, storage customers expressed no objections in the six cases in which FERC has approved market-based rates. FERC officials believe that it is too early in the development of hubs to determine what, if any, regulatory role the Commission should play or what rates it should approve. The structure and workings of market hubs are still evolving. DOE and FERC Have Established a Working Group

To carry out the goals of its Domestic Natural Gas and Oil Initiative, DOE established a working group with FERC intended to facilitate discussions between the two agencies and allow a better understanding of the goals and objectives of each other’s programs and policies. In addition, the Chairman asked us to review the Department of Energy’s (DOE) plans to intervene in energy-related regulatory proceedings in the states and the extent to which DOE plans to interact with FERC in carrying out such interventions.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed how producers, pipeline companies, and end-users view the regulatory changes affecting the collection, storage, and marketing of natural gas, focusing on the: (1) Department of Energy's (DOE) plans to intervene in energy-related regulatory proceedings; and (2) extent to which DOE plans to interact with the Federal Energy Regulatory Commission (FERC) in such interventions.

What GAO Found

GAO found that: (1) FERC will use its authority over pipeline companies to regulate an affiliate if the parent company and the affiliate act together in a collusive manner; (2) interstate pipeline companies, local distribution companies, and end-users find the new FERC policy acceptable, while producers believe that it is too early to determine the effectiveness of the new policy; (3) FERC has determined that competition is sufficient to allow storage operators to charge market-based rates; (4) no segment of the industry has objected to the use of market-based rates in locations where the storage market is competitive; (5) while FERC sets the rates for the services that interstate pipeline companies provide, FERC has agreed to allow some pipeline companies to vary their rates to compete better; (6) according to FERC officials and industry analysts, market hubs are still in the early stages of development, and it is still too early to determine what, if any, regulatory role FERC will have; (7) DOE plans to intervene or participate in energy-related regulatory proceedings when it believes its participation can result in a more comprehensive assessment of energy policy options; and (8) although FERC does not coordinate its regulatory activities with DOE, the two agencies have established a working group to ensure that their staffs interact and are aware of the goals and objectives of each other's programs and policies.