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. 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. 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. 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. 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. 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. 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. 2). It is difficult to judge the validity of the staff’s  concerns until OMOI has clearly defined its role. 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. Accordingly, we recommended that FERC develop a  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. Since our prior report, FERC has expanded its use of some existing human  capital flexibilities to improve its ability to recruit and retain employees. In addition, FERC has  expanded its use of recruitment and retention bonuses. 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. 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. 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. 1.
Why GAO Did This Study

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 agency-wide human capital management.

What GAO Found

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.