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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.
November 14, 2005 FERC3
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
November 14, 2005 FERC4
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
November 14, 2005 FERC5
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
November 14, 2005 FERC6
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
November 14, 2005 FERC7
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
November 14, 2005 FERC8
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.
November 14, 2005 FERC9
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
November 14, 2005 FERC10
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
November 14, 2005 FERC11
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
November 14, 2005 FERC12
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
November 14, 2005 FERC13
RTO Accounting & Reporting
RTOs New Asset Function
– Computer hardware– Computer software– Structures and improvements
November 14, 2005 FERC14
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
November 14, 2005 FERC15
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
November 14, 2005 FERC16
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
November 14, 2005 FERC17
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
November 14, 2005 FERC18
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
November 14, 2005 FERC19
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
November 14, 2005 FERC20
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
November 14, 2005 FERC21
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
November 14, 2005 FERC22
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?
November 14, 2005 FERC23
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?
November 14, 2005 FERC24
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
November 14, 2005 FERC25
Quarterly Financial Reporting
Corporate Officer Certification Statement
– Internal accounting controls – Significant weaknesses– Significant changes to internal accounting
controls
November 14, 2005 FERC26
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
November 14, 2005 FERC27
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
November 14, 2005 FERC28
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.
November 14, 2005 FERC29
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.
November 14, 2005 FERC30
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)
November 14, 2005 FERC31
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
November 14, 2005 FERC32
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
November 14, 2005 FERC33
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
November 14, 2005 FERC34
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.
November 14, 2005 FERC35
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.
November 14, 2005 FERC36
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
November 14, 2005 FERC37
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
November 14, 2005 FERC38
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
November 14, 2005 FERC39
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 – Complaints– Hotline calls
[email protected] 1-888-889-8030
November 14, 2005 FERC40
Overview of Financial and Operational Audits
0%5%
10%15%20%25%30%35%40%45%
Hotline Calls by Industry (2002)
GasElectricHydroOilOther
November 14, 2005 FERC41
Overview of Financial and Operational Audits
0%5%
10%15%20%25%30%35%40%45%
Character of Hotline Calls (2002)
Market relatedLandowner (gas)ProcedureHydroOther
November 14, 2005 FERC42
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.
November 14, 2005 FERC43
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
November 14, 2005 FERC44
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.
November 14, 2005 FERC45
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
November 14, 2005 FERC46
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