federal energy regulatory commission update presented at edison electric institute accounting...

Federal Energy Regulatory CommissionUpdate

Presented at Edison Electric Institute

Accounting Standards Committee Annual Meeting

byJanice Garrison Nicholas

Chief AccountantFederal Energy Regulatory Commission

November 14, 2005 FERC2

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.


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


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


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


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


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


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.


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


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


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



RTOs Expanded reporting New functional classification Compare costs between RTOs

Traditional Public Utilities Transparency in costs billed from RTOs and expanded

reporting



RTOs New Asset Function

– Computer hardware– Computer software– Structures and improvements



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



RTOs Existing USofA can accommodate

– Customer service costs– Officer salaries and expenses– Administrative and general salaries– Pension and benefits– Interest expense, property insurance, taxes



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


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



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



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



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



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



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?



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?


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



Corporate Officer Certification Statement

– Internal accounting controls – Significant weaknesses– Significant changes to internal accounting

controls



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


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



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.



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.


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)



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



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



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



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.



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.



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


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



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



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 – Complaints– Hotline calls

[email protected] 1-888-889-8030



0%5%

10%15%20%25%30%35%40%45%

Hotline Calls by Industry (2002)

GasElectricHydroOilOther



0%5%

10%15%20%25%30%35%40%45%

Character of Hotline Calls (2002)

Market relatedLandowner (gas)ProcedureHydroOther


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.


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


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.


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


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


Questions?

Contact Information:

[email protected]

(202) 502-6602

federal energy regulatory commission update presented at edison electric institute accounting...

Documents

cost accounting

comments fercrto accounting

fercisorto reporting

fercenergy policy act

proposed rules

fercadditional epact

new functional classification

secs rule