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Federal Energy Regulatory Commission Update. Presented at Edison Electric Institute Accounting Standards Committee Annual Meeting by Janice Garrison Nicholas Chief Accountant Federal Energy Regulatory Commission. Disclaimer.

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slide1

Federal Energy Regulatory Commission

Update

Presented at

Edison Electric Institute

Accounting Standards Committee Annual Meeting

by

Janice Garrison Nicholas

Chief Accountant

Federal Energy Regulatory Commission

disclaimer
Disclaimer

The views and comments presented are mine alone and do not represent, nor are they to be interpreted to represent the views, comments, or positions of the Federal Energy Regulatory Commission.

FERC

table of contents
Table of Contents
  • Organizational Changes
  • Chairman’s Priorities
  • Energy Policy Act of 2005
    • Repeal of PUHCA1935 & Enactment of PUHCA 2005
    • Anti-manipulation Proposed Rule
    • Enforcement Policy Statement
  • ISO/RTO Accounting & Reporting – Proposed Rule
  • FERC Quarterly Financial Reporting - Update
  • Contested Audit Matters – Proposed Rule
  • Interlocking Directorates Final Rule
  • Overview of Financial and Operational Audits

FERC

organizational update
Organizational Update
  • New FERC Chairman - Joseph Kelliher
  • Staff Changes:
    • Chief of Staff – Daniel Larcamp
    • Director, OMTR – Shelton Cannon
    • Director, OMOI – Susan Court
    • Chief Accountant – Janice Garrison Nicholas

FERC

chairman s priorities
Chairman’s Priorities
  • Reform the Commission’s transmission open access rules
  • Resolve California refund cases
  • Reform gas storage pricing to facilitate additional storage capacity
  • Review of RTO costs
  • Implement provisions of Energy Policy Act of 2005

FERC

energy policy act of 2005 epact 2005
Energy Policy Act of 2005 (EPAct 2005)
  • Signed into law August 8, 2005
  • Requires number of rulemakings
  • Repeals PUHCA of 1935
  • Establishes PUHCA of 2005
  • Gives FERC some accounting and recordkeeping authority over holding companies and associate companies
  • Gives FERC additional civil penalty authority

FERC

docket no rm05 32
Docket No. RM05-32
  • Proposed rules implementing the repeal of the PUHCA of 1935 and the enactment of the PUHCA of 2005.
  • NOPR issued September 16, 2005
  • Comment period expired
  • Broad range of comments received
  • Action required by December 8, 2005

FERC

additional epact 2005 actions
Additional EPAct 2005 Actions
  • Issued Anti-manipulation Proposed Rule (RM06-3-000, Issued 10/20/05):
    • Implements new anti-manipulation provisions of EPAct 2005 which prohibits any manipulative or deceptive practice.
    • Patterned after SEC’s Rule 10b-5
  • Policy Statement on Enforcement (PL06-1-000, Issued 10/20/05):
    • EPAct 2005 increased maximum penalty to $1 million/day per violation.
    • Provides guidance and more certainty about the enforcement process
    • Discusses the factors the Commission will consider in deciding on appropriate remedies, including the level of civil penalties to be assessed.

FERC

iso rto reporting cost accounting oversight and recovery practices
ISO/RTO Reporting, Cost Accounting, Oversight and Recovery Practices
  • Notice of Inquiry Issued September 16, 2004
  • RM04-12-000, Financial Reporting and Cost Accounting, Oversight and Recovery Practices for Regional Transmission Organizations and Independent System Operators
  • Received over 50 comments

FERC

rto accounting and reporting
RTO Accounting and Reporting
  • Uniform System of Accounts
    • Developed for vertically integrated business model
    • Used by all forms of business organizations
  • Revising: to better identify assets, costs incurred, and revenues earned for RTOs and other public utilities

FERC

rto accounting reporting
RTO Accounting & Reporting
  • RM04-12-000, Accounting and Reporting for Public Utilities Including RTOs
  • NOPR issued June 2, 2005
  • Comments filed August 26, 2005
  • Accounting only first step

FERC

rto accounting reporting1
RTO Accounting & Reporting

RTOs

  • Expanded reporting
  • New functional classification
  • Compare costs between RTOs

Traditional Public Utilities

  • Transparency in costs billed from RTOs and expanded reporting

FERC

rto accounting reporting2
RTO Accounting & Reporting

RTOs

  • New Asset Function
    • Computer hardware
    • Computer software
    • Structures and improvements

FERC

rto accounting reporting3
RTO Accounting & Reporting

RTOs

  • New Expense Function
    • Dispatching, System Control, Scheduling
    • Long Term Reliability Planning, Standards Development
    • Market Accounts
      • Day-Ahead and Real Time
      • Transmission Rights
      • Capacity
      • Monitoring and Facilitation
    • Maintenance Expense Accounts

FERC

rto accounting reporting4
RTO Accounting & Reporting

RTOs

  • Existing USofA can accommodate
    • Customer service costs
    • Officer salaries and expenses
    • Administrative and general salaries
    • Pension and benefits
    • Interest expense, property insurance, taxes

FERC

rto accounting reporting5
RTO Accounting & Reporting

Traditional Public Utilities

  • New Expense Accounts for RTO Billings
    • Dispatching, System Control, and Scheduling
    • Long Term Reliability Planning, and Standards Development
    • Market Monitoring and Compliance
  • Settlement Amounts

FERC

rm04 12 nopr comments
RM04-12 NOPR Comments
  • Received 25 comments
  • Proposal important first step
  • Support for the Commission’s goal: Sound and uniform accounting & reporting
  • Different views on how best to attain it
  • Scope too broad – Apply to only RTOs
  • Scope too narrow – need more info

FERC

rm04 12 nopr comments1
RM04-12 NOPR Comments

General:

  • Requests that the Commission provide clarity:
    • which accounts are to be filled out by whom
    • what amounts should be put in which accounts
  • Requests to modify effective date (1/1/2006)
  • Request the Commission accept ministerial changes to formula rates

FERC

rm04 12 nopr comments2
RM04-12 NOPR Comments

Specific:

  • Traditional utilities question need for new plant accounts for computer hardware, software and communication equipment used for transmission
  • Non-RTO public utilities disagreed with need for new expense accounts to capture separately the costs of load dispatching, scheduling, system planning and standards development rather using one account for all costs

FERC

rm04 12 nopr comments3
RM04-12 NOPR Comments

Specific:

  • Should require segregation of cost incurred by utilities to participate in RTO with breakdown between transmission and market/generator
  • Utilities supported netting power purchases and sales transacted through centralized RTO markets in Account 555/447. Clarify how – hourly/daily /monthly?
  • APPA - no netting

FERC

rm04 12 nopr comments4
RM04-12 NOPR Comments

Specific:

  • Require RTOs to record on their books the costs and revenues related to managed market services
  • Clarify how RTOs should account for costs and revenues related to non-tariff services

FERC

rm04 12 nopr comments5
RM04-12 NOPR Comments

Specific:

  • How do the proposed sub-accounts 561.6 and 561.7 impact a company’s ability to capitalize the costs?
  • Are these accounts necessary since the amounts are likely to be small since most of the costs are reimbursable?

FERC

rm04 12 nopr comments6
RM04-12 NOPR Comments

Specifics:

Transmission for Others Schedule

  • Is the schedule appropriate for capturing costs?
  • Do the utilities capture information in a way that provides for reporting?
  • Is this information duplicative to other reports the Commission receives?

FERC

quarterly financial reporting
Quarterly Financial Reporting
  • Established quarterly financial reports for jurisdictional utilities beginning with first quarter 2004
  • Compliance:
    • 207 of the 213 Major Utilities filed
    • 104 of the 115 gas pipelines filed
    • 129 of the 137 oil pipelines filed
  • Pending waiver requests

FERC

quarterly financial reporting1
Quarterly Financial Reporting
  • Corporate Officer Certification Statement
    • Internal accounting controls
    • Significant weaknesses
    • Significant changes to internal accounting controls

FERC

quarterly financial reporting2
Quarterly Financial Reporting
  • Certification Statement
    • Requests from EEI, INGAA, and AOPL to delay implementation and modify statement
    • Commission Order issued March 23, 2005 delayed implementing the Corporate Officer’s Certification for the FERC Annual Report Forms until further notice

FERC

disposition of contested audit matters
Disposition of Contested Audit Matters

NOPR: Procedures for Disposition of Contested Audit Matters

  • RM06-2-000 issued 10/20/2005
  • 21 day comment period / 7 day reply
  • Affects 18 CFR Parts 41, 158, 286 and 349

FERC

disposition of contested audit matters1
Disposition of Contested Audit Matters

Why Was The Change Proposed?

  • Existing regulations do not contain procedures for challenging audit findings and proposed remedies of audits conducted under the NGPA and the ICA.

FERC

disposition of contested audit matters2
Disposition of Contested Audit Matters

What It Does:

  • Proposes applying existing procedures for handling disagreed financial matters to all other types of audits, including operational audits
  • Invites comment on
    • whether the Commission should provide informal procedures before proceeding with formal procedures contained in the rule.
    • the relative merits of such processes and how they could function.

FERC

authorization to hold interlocking positions
Authorization to HoldInterlocking Positions

Final Rule: Commission Authorization to Hold Interlocking Positions:

  • Issued Sept 16, 2005
  • 70 FR 55717 (September 23, 2005)
  • Request for rehearing, motion for clarification, and request for stay of the final rule (Oct 17, 2005)

FERC

authorization to hold interlocking positions1
Authorization to HoldInterlocking Positions

What it Does:

  • Clarifies
    • that individuals seeking Commission authorization to hold interlocking positions must obtain authorization prior to holding that position
    • the term “holding”
  • Requires that an “informational report”
    • be filed prior to holding the interlocking position
    • include a statement that the individual has not yet assumed the duties or responsibilities for which the authorization is sought

FERC

authorization to hold interlocking positions2
Authorization to HoldInterlocking Positions

What it Does:

  • Automatic denial of all late-filed applications for authorization to hold interlocking positions
  • Individuals that are already authorized to hold interlocking positions, those individuals do not need to re-file under the new regulations to continue to hold their previously authorized interlocking positions (unless and until, of course, they seek to assume additional interlocking positions)
  • Absent Commission action within 60 days of a completed application to hold interlocking positions, an application will be deemed granted

FERC

authorization to hold interlocking positions3
Authorization to HoldInterlocking Positions

What it Does:

  • No longer grants waivers of the full requirements of Part 45 in orders granting market-based rate authority
    • Commission does not consider Part 45 to be a burdensome regulation
    • Commission sees no reason to treat officers and directors of market based entities any differently
    • Denied the request to permit individuals who are officers or directors of power marketers to file for automatic authorization under section 45.9 simply because such entities are power marketers
    • Individuals who are currently authorized to hold interlocking positions do not need to re-file under Part 45 unless they assume additional interlocking positions

FERC

authorization to hold interlocking positions4
Authorization to HoldInterlocking Positions

On October 17, 2005 Commission Received a Request for Rehearing, Motion for Clarification, and Request for Stay of Final Rule from:

  • Morgan Stanley Capital Group Inc.
  • Merrill Lynch Commodities, Inc.
  • Merrill Lynch Capital Services, Inc.

FERC

authorization to hold interlocking positions5
Authorization to HoldInterlocking Positions

The motion contends the Commission did not address requests to clarify or revise automatic authorization rules:

  • to apply in cases where the jurisdictional interlocking positions are between companies of the same ultimate parent company
  • to reflect the entry of affiliates of financial institutions into the wholesale power business, for whom the Final Rule creates significant yet unnecessary compliance burdens
  • so that section 45.9 applies to interlocks between power marketers or a power marketer and a merchant generator within the same corporate family.

FERC

authorization to hold interlocking positions6
Authorization to HoldInterlocking Positions

The motion contends the Commission:

  • erred when it declined to adopt automatic authorization procedures for interlocking positions between power marketers in the absence of evidence demonstrating that such interlocks threaten the interests that Congress sought to protect when it enacted Section 305(b)
  • failed to justify its elimination of its long standing-standing precedent of granting blanket approvals to market-based rate utilities, subject to reporting obligations and the Commission’s review

FERC

overview of financial and operational audits
Overview of Financial and Operational Audits

Office of Market Oversight and Investigations

  • On August 12, 2002 OMOI became a formal, functioning office within the Commission
  • Two units
    • Market Oversight and Assessment
    • Investigations and Enforcement
      • Financial Audits (August 2004 )
      • Operational Audits
      • Enforcement

FERC

overview of financial and operational audits1
Overview of Financial and Operational Audits
  • Expanded Approach
    • Broader in scope and integrated
      • Tariffs, Standards of Conduct, OASIS
    • Capabilities from information technology
      • Utility & independent web sites to confirm data
      • Expanding email and voicemail search capability
    • Forensic auditing capability being developed

FERC

overview of financial and operational audits2
Overview of Financial and Operational Audits
  • Proactive approach
    • Conduct industry wide and targeted audits
      • Establish a presence
      • Identify anti-competitive behaviors and rules violations (tariffs, accounting, financial reporting, OASIS
  • Respond to

FERC

standards of conduct audits
Standards of Conduct Audits

Order 2004 et al. [18 C.F.R. Part 358 - Standards of Conduct for Transmission Providers (TPs)]:

  • Combined and amended the electric and gas Standards of Conduct and put into Part 358
  • Significant changes:
    • Broadened scope to cover relationships with Energy Affiliates.
    • Sought to ensure TPs can’t extend market power over transmission to other energy markets by giving their Energy Affiliates unduly preferential treatment.
    • Help to ensure TPs offer service to all customers, affiliated and non-affiliated, on a non-discriminatory basis.
  • Compliance Date – September 22, 2004
  • Phase I compliance reviews of posting requirements – completed 4th quarter of 2004.

FERC

standards of conduct audits1
Standards of Conduct Audits
  • Completed
    • PA05-3-000 Aquila Inc.
    • PA05-8-000 Kern River Gas Transmission
    • PA05-12-000 Dayton Power & Light Co.
  • Ongoing
    • PA05-2-000 Allegheny Power
    • PA05-4-000 Baltimore Gas & Electric
    • PA05-6-000 El Paso Natural Gas Co.
    • PA05-7-000 Florida Power & Light Co.
    • PA05-9-000 Louisville Gas & Electric
    • PA05-10-000 Southern California Edison

FERC

eqr interlocking directorates audits
EQR & Interlocking Directorates Audits

Ongoing Audits

  • FA05-1-000 DTE Energy Trading Inc.
  • FA05-2-000 Edison Mission Marketing and Trading, Inc.
  • FA05-3-000 Sempra Energy Trading Corp.
  • FA05-4-000 UBS AG (broader scope)
  • FA05-5-000 Consolidated Edison Energy Inc.

FERC

iso rto and independence audits
ISO/RTO and Independence Audits
  • Completed Financial Audits
    • FA04-13-000 MISO
    • FA04-14-000 California ISO
    • FA04-15-000 New York ISO
    • FA04-16-000 PJM
    • FA04-17-000 ISO New England
  • Ongoing Independence Audits
    • RT01-2-013 PJM
    • RT01-87-009 MISO

FERC

nuclear decommissioning audit
Nuclear Decommissioning Audit

FA04-37-000 Connecticut Yankee Atomic Power Company

  • Unique
    • Single asset company
    • Owners are customers
    • No longer operating but collecting costs pursuant to FERC tariff
  • FERC reporting and accounting

FERC

questions

Questions?

Contact Information:

[email protected]

(202) 502-6602

FERC

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