Tuesday, March 25, 2008

Government Accountability Office Reports on Federal Utility Oversight

The Government Accountability Office (GAO) issued a report on the Federal Energy Regulatory Commission’s (FERC) regulation of mergers since the enactment of the Energy Policy Act of 2005. This act reduced restrictions on the types of companies that could hold and interest in electric and natural gas utilities.

The major concern of the report is prevention of cross-subsidization. Large interstate holding companies may have interests in utilities, services to utilities and other businesses. The holding company may provided common services (like legal and administrative services) to the businesses the own. In cross-subsidizing, a holding company would disproportionately charge these costs to the utilities, overcharging them an leading to higher utility rates, and using that to subsidizes its other businesses.

GAO suggests that FERC does not adequately consider the risk of cross-subsidization in its review of mergers and subsequent oversight. FERC has responded that it has the rules in place and expertise to enforce the requirements of the law.

The report includes an overview of the history of federal energy regulation. It is worth skimming the report for that. You can view the full report here.

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