Federal Energy Regulatory Commission Update

1
Federal Energy Regulatory Commission Update
NARUC Staff Subcommittee on Accounting and
Finance Lexington, Kentucky

• Steven D. Hunt, CPA
• Office of Enforcement, Division of Financial
  Regulation
• Federal Energy Regulatory Commission

2
Disclaimer

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

3
AGENDA

• Commission Members
• Organizational Changes
• Accounting Guidance
• Forms and Data Initiatives
• Significant Enforcement Actions

4
Chairman Kelliher

• Named chairman of the Commission by President
  George W. Bush effective July 9, 2005, after
  having served as Commissioner since November 20,
  2003.
• As Chairman, Kelliher is chief executive of the
  agency. In that role, he directs management of
  the agencys 1,300 staff and its 260 million
  budget towards the pursuit of the agencys five
  core missions economic regulation, energy
  infrastructure, safety, reliability, and
  enforcement.
• Education Georgetown University, School of
  Foreign Service, B.S.F.S., 1983 American
  University Washington College of Law, J.D., Magna
  Cum Laude, 1994.

5
Commissioner Kelly

• Suedeen G. Kelly is a Commissioner at the Federal
  Energy Regulatory Commission, confirmed to a term
  that expires June 30, 2009.
• Previously she was a Professor of Law at the
  University of New Mexico School of Law, where she
  taught energy law, public utility regulation,
  administrative law and legislative process. She
  also worked with the law firm of Modrall,
  Sperling, Roehl, Harris Sisk in Albuquerque
  from 2000 through 2003.
• In 2000, Ms. Kelly served as counsel to the
  California Independent System Operator. In 1999,
  she worked as a Legislative Aide to U.S. Senator
  Jeff Bingaman.
• She received a B.A. With Distinction in Chemistry
  from the University of Rochester and a J.D. cum
  laude from Cornell Law School. She is admitted to
  the bars of New Mexico and the District of
  Columbia.

6
Commissioner Moeller

• Commissioner Philip D. Moeller was nominated by
  President Bush, and sworn into office on July 24,
  2006, by Chief Justice of the United States John
  Roberts, for a term expiring June 30, 2010.
• From 1997 through 2000, Mr. Moeller served as an
  energy policy advisor to U.S. Senator Slade
  Gorton (R-Washington) where he worked on
  electricity policy, electric system reliability,
  hydropower, energy efficiency, nuclear waste,
  energy and water appropriations and other energy
  legislation.
• Prior to joining Senator Gortons staff, he
  served as the Staff Coordinator for the
  Washington State Senate Committee on Energy,
  Utilities and Telecommunications, where he was
  responsible for a wide range of policy areas that
  included energy, telecommunications,
  conservation, water, and nuclear waste.
• Mr. Moeller received a B.A. in Political Science
  from Stanford University.

7
Commissioner Spitzer

• Marc Spitzer was nominated by President Bush to
  the Federal Energy Regulatory Commission and
  confirmed by the U.S. Senate for a term expiring
  June 30, 2011.
• Mr. Spitzer was elected in 2000 to the Arizona
  Corporation Commission (ACC) and in 2002 was
  elected ACC Chairman by his colleagues.
• As ACC Chairman, he focused on policies
  encouraging expansion of natural gas
  infrastructure, specifically distribution and
  storage creating a demand side management
  policy enhancing the ACCs renewables standard
  and advancing consumer privacy concerns in
  telecommunications. As ACC Chairman, he
  established a legacy of balancing competing
  interests, while ensuring Arizonans receive safe,
  economical and reliable utility services.
• After graduating from Dickinson College in
  Carlisle, Pennsylvania, he attended the
  University of Michigan School of Law.

8
Commissioner Wellinghoff

• Commissioner Jon Wellinghoff was nominated by
  President Bush, and sworn into office on July 31,
  2006, by U.S. Senator Harry Reid of Nevada.
  Recently re-appointed to a second term expiring
  June 30, 2013.
• Commissioner Wellinghoff is an energy law
  specialist with more than 30 years experience in
  the field. Before joining FERC, he was in private
  practice and focused exclusively on client
  matters related to renewable energy, energy
  efficiency and distributed generation.
• Served two terms as the State of Nevadas first
  Consumer Advocate for Customers of Public
  Utilities. While serving in that role,
  Commissioner Wellinghoff represented Nevadas
  utility consumers before the Public Utilities
  Commission of Nevada, the FERC, and in appeals
  before the Nevada Supreme Court. While Consumer
  Advocate, he authored the first comprehensive
  state utility integrated planning statute.
• Education Antioch School of Law, Washington,
  D.C., JD, 1975 Howard University, Washington,
  D.C., M.A.T., Mathematics, 1972 and University
  of Nevada, Reno, Nevada, BS, Mathematics, 1971.

9
AGENDA

• Commission Members
• Organizational Changes
• Accounting Guidance
• Forms and Data Initiatives
• Significant Enforcement Actions

10
Organizational Changes
11
Organizational Changes
12
AGENDA

• Commission Members
• Organizational Changes
• Accounting Guidance
• Forms and Data Initiatives
• Significant Enforcement Actions

13
Accounting Guidance Original Cost Principle

• PacifiCorp Merger
• Docket No. EC08-82-000
• Request for authorization for the disposition of
  jurisdictional facilities resulting from the
  merger of Chehalis Power Generation, LLC with and
  into PacifiCorp
• Chehalis Facility 520 MW generation facility,
  sells power at market-based rates, and granted
  exempt wholesale generator status

14
Accounting Guidance Original Cost Principle

• PacifiCorp Merger, continued
• Proposed accounting for acquisition
• Record Chehalis Facility at purchase price not
  depreciated original cost
• Support for proposed accounting
• Chehalis Facility was never included in
  cost-of-service rate base
• No binding Commission precedent stating a
  merchant generator making sales at market-based
  rates is devoted to utility service
• Cited delegated orders by the Chief Accountant

15
Accounting Guidance Original Cost Principle

• PacifiCorp Merger, continued
• Delegated orders by the Chief Accountant
• Accepted journal entries for filing recording the
  acquisition of a merchant generator where the
  applicant stated the generator was not previously
  devoted to public service
• Docket No. AC05-34-000, Issued April 6, 2005
• Ruled that merchant generators have been devoted
  to public service
• Docket No. AC06-161-000, Issued April 26, 2007
• Docket No. AC06-19-000, Issued February 2, 2007

16
Accounting Guidance Original Cost Principle

• PacifiCorp Merger, continued
• Commission Determination
• Chehalis Facility must be recorded at depreciated
  original cost
• Original Cost - Cost incurred by the 1st person
  who devoted the property to utility service
• Purpose for the original cost principle is to
  protect customers from an unjust and unreasonable
  increases to rate base
• Inclusion in cost-based rates, serving captive
  customers, or being subject to accounting
  regulations are not factors in determining
  whether a facility is devoted to public service

17
Accounting Guidance Original Cost Principle

• PacifiCorp Merger, continued
• Commission Determination
• Noted that prior delegated order of the Chief
  Accountant supporting PacifiCorps proposed
  accounting was an anomaly
• Puget Sound Energy, Inc., Docket No. AC05-34-000
  (April 6, 2005)
• Cited to a Commission order, prior to Puget
  Sound, stating that plant not included in the
  predecessor owners rate base, and on which it
  did not earn a return or recover depreciation, be
  recorded on the purchasers books at depreciated
  original cost

18
Accounting Guidance Original Cost Principle

• PacifiCorp Merger, continued
• Commission Determination
• Cited to several delegated orders, since Puget
  Sound, that determined that merchant generating
  facilities in the same circumstances as the
  Chehalis Facility have been devoted to public
  service
• Commission approved transaction July 17, 2008

19
Accounting Guidance Cable Rehabilitation Products

• Novinium, Inc.
• Docket No. AC08-143-000
• Request to capitalize the cost of installing
  injection rehabilitation products for underground
  residential distribution (URD) cable
• Novinium Products
• Extend the useful life of URD cable by at least
  20 years from the date of injection
• 20 year and 40 year money back warranty
• Increases the dielectric capacity and reliability
  of URD cable
• Includes enhancements to the CableCURE technology

20
Accounting Guidance Cable Rehabilitation Products

• Novinium, Inc., continued
• Chief Accountant approved accounting request
• Purpose to extend the useful life of segments of
  URD cables beyond their original estimated useful
  lives
• Minor item of property that did not previously
  exist and provided a substantial addition
• Electric Plant Instruction 10 (c)(1)
• Issued September 4, 2008

21
AGENDA

• Commission Members
• Organizational Changes
• Accounting Guidance
• Forms and Data Initiatives
• Significant Enforcement Actions

22
Forms and Data Initiatives Form 1 Final Rule

• Docket No. RM08-5-000
• Implements changes to FERC Form Nos. 1, 1-F, and
  3-Q
• Notice of Inquiry issued February 15, 2007
• NOPR Issued January 18, 2008
• Final Rule Issued September 18, 2008

23
Forms and Data Initiatives Form 1 Final Rule

• Purpose of Form 1
• Provide basic financial and operational
  information to allow the Commission, customers,
  and competitors to monitor a utilitys rates for
  jurisdictional services
• Provide information needed to perform a
  preliminary rate assessment and determine whether
  a complaint may be warranted

24
Forms and Data Initiatives Form 1 Final Rule

• Purpose of NOPR
• To improve the forms, reports, and statements to
  provide, in fuller detail, the information the
  Commission needs to carry out its
  responsibilities to ensure that rates are JR,
  and to provide others the information they need
  to assess the justness and reasonableness of
  electric rates
• Final Rule
• Effective Date - Calendar year 2009
• First report containing changes in this Final
  Rule will be in the Form 3-Q, due in May 2009

25
Forms and Data Initiatives Form 1 Final Rule

• Final Rule
• Formula Rates
• NOPR Form 1 filers should provide explanatory
  information when formula rate inputs differ from
  Form 1 reported amounts
• Final Rule Adopted proposed change
• Only pertains to formula rates for which no
  informational filings are required to be
  regularly submitted
• Explanation must be in a footnote on the same
  page, line, and column where the specific data is
  reported

26
Forms and Data Initiatives Form 1 Final Rule

• Final Rule
• Filing Thresholds for Form 1
• NOPR
• Eliminate filing requirement for utilities that
  are not subject to the Commissions jurisdiction,
  but make sales that meet or exceed the threshold
  for meeting the Commissions Forms 1 and 3-Q
  reporting requirements
• Requested comments on whether to revise
  definitions for major and nonmajor utilities
• Final Rule
• Eliminated filing requirement for
  non-jurisdictional entities
• No change to definition of major and nonmajor
  utilities

27
Forms and Data Initiatives Form 1 Final Rule

• Final Rule
• Affiliate Transactions
• NOPR - Add Page 429 (Transactions with Associated
  (Affiliated) Companies)
• Description of the good or service charged or
  credited
• Name of the associated company
• FERC account charged or credited
• Amount charged or credited
• Final Rule Add Page 429
• 250,000 threshold for reporting individual
  transactions
• All affiliate/associate company non-power goods
  services transactions

28
Forms and Data Initiatives Form 1 Final Rule

• Final Rule
• CPA Certification for a Non-Calendar Fiscal Year
• NOPR - Utility may file Form 1 (unaudited) each
  April and file a certified set of financial
  statements at end of fiscal year with CPA
  Certification
• Final Rule Adopts NOPR proposal
• Companies must request authority to file the
  independent accountant certification based on
  their fiscal year information
• Certification must be filed not later than 150
  days after the end of their fiscal year

29
Forms and Data Initiatives Form 1 Final Rule

• Final Rule
• Increases to Threshold Reporting Levels
• NOPR
• Page 216 (Construction Work in Progress) Report
  projects with balances gt 1 million
• Pages 232, 233, 269 278 (Other Regulatory
  Assets, Misc. Deferred Debits, Other Deferred
  Credits Other Regulatory Liabilities) Raise
  the balance limit for grouping items to 100,000
• Page 352 253 (Research Development) Raise
  the cost of RD items to be listed to 50,000
• Final Rule Adopts proposed changes from the NOPR

30
Forms and Data Initiatives Form 1 Final Rule

• Final Rule
• Other Revenues (Pages 300-301)
• NOPR - Revenues not otherwise specified on Pages
  328-300 must be provided in a footnote to Page
  300
• Final Rule Adopts proposal from NOPR
• Miscellaneous Issues
• Retaining Form 3-Q
• Confidentiality Concerns
• Executive Officers Salaries
• Reporting Transmission Line Data (Pages 422-425)

31
Forms and Data Initiatives Form 2 Rehearing Order

• Docket No. RM07-9-000, Order No. 710
• Revisions to Forms, Statements, and Reporting
  Requirements for Natural Gas Pipelines
• NOPR Issued September 20, 2007
• Final Rule Issued March 21, 2008
• Effective Date January 1, 2008
• First quarter 2009 Form 3-Q
• Calendar year 2008 Form 2 and 2-A

32
Forms and Data Initiatives Form 2 Rehearing Order

• Purpose of Rulemaking
• To expand update the forms to reflect current
  market and cost information relevant to pipelines
  and their customers
• To provide, in greater detail, information the
  Commission needs to carry out its regulatory
  responsibilities
• To provide pipeline customers the information
  they need to assess the justness and
  reasonableness of pipeline rates

33
Forms and Data Initiatives Form 2 Rehearing Order

• Final Rule
• Requires additional information on costs and
  revenues related to the disposition of
  shipper-supplied gas, affiliate transactions,
  discounted and negotiated rate services, and
  deferred income taxes and state tax issues
• Eliminated the FERC Form No. 11

34
Forms and Data Initiatives Form 2 Rehearing Order

• Request for Rehearing and Clarification
• Other Gas Revenues (Page 308)
• Final Rule Revised Page 308 to provide more
  detail regarding revenues recorded in Account 495
  (Other Gas Revenues) and eliminated a 250,000
  threshold
• Rehearing Request Reinstate the 250,000
  minimum threshold contained in the instructions
  to Page 308 prior the revisions of the form
• Determination Rehearing request granted

35
Forms and Data Initiatives Form 2 Rehearing Order

• Request for Rehearing and Clarification
• Shipper-Supplied Gas
• Final Rule Added two new schedules to require
  detailed information regarding the acquisition
  and disposition of shipper-supplied gas
• Declined to adopt additional informational
  requirements related to shipper-supplied gas
  proposed by commenters to the NOPR
• New schedules should be broken down by function
  and include, by function, fuel that has been
  waived, discounted, or reduced as part of a
  negotiated rate
• Rehearing Request Adopt additional requirements
• Determination Rehearing request denied

36
Forms and Data Initiatives Form 2 Rehearing Order

• Request for Rehearing and Clarification
• Reinstatement of Periodic Rate Filing Requirement
• Final Rule Declined a request to reinstate a
  periodic rate-refiling requirement
• Rehearing Request Final Rule did not address
  its proposal to reinstate periodic rate filings
  as a condition to issuance of a blanket
  certificate for open access transportation
  service under Part 284
• Determination Rehearing request denied
• Commission may not compromise the limits of
  section 5 of the NGA on the Commissions power to
  revise rates

37
AGENDA

• Commission Members
• Organizational Changes
• Accounting Guidance
• Forms and Data Initiatives
• Significant Enforcement Actions

38
Enforcement Actions Obtaining Guidance on
Regulatory Requirements

• Interpretive Order Modifying No-Action Letter
  Process and Reviewing Other Mechanisms for
  Obtaining Guidance
• Docket No. PL08-2-000, Issued May 15, 2008
• Expansion of No-Action Letter Process
• Mechanism for Obtaining Commission and Staff
  Guidance
• Petition for Declaratory Order
• No-Action Letter Process
• General Counsel Option Letters

39
Enforcement Actions Obtaining Guidance on
Regulatory Requirements

• Interpretive Order, continued
• Mechanism for Obtaining Commission and Staff
  Guidance, continued
• Accounting Interpretations
• Enforcement Hotline
• Meetings, Commpliance Help Desk Inquiries, and
  Other Informal Contacts
• Guidance on the Application of Regulations and
  Orders

40
Enforcement Actions Enforcement of Statutes,
Regulations, and Orders

• Revised Policy Statement on Enforcement
• Docket No. PL08-3-000, Issued May 15, 2008
• Builds on 2005 enforcement policy statement by
  providing further guidance on factors the
  Commission considers in its enforcement decisions
• Provides a detailed picture of the Commissions
  investigative process (open, closed, with or w/o
  sanctions)
• Provides the factors that are considered in
  determining whether, and how much of, a penalty
  is appropriate
• Annual statistical report of investigations and
  audits for the proceeding year

41
Enforcement Actions Ex Parte Contacts and
Separation of Functions

• Notice of Proposed Rule Making
• Docket No. RM08-8-000, Issued May 15, 2008
• Clarify rules governing ex parte contacts and
  separation of functions as they apply to
  proceedings arising out of investigations
  initiated under Part 1b of the Commissions
  regulations
• Clarify regulations governing intervention to
  specify intervention is not permitted as a matter
  of right in proceedings arising from Part 1b
  investigations

42
Enforcement Actions Submissions to the
Commission upon Staff Intention to Seek an Order
to Show Cause

• Final Rule, Order No. 711
• Docket No. RM08-10-000, Issued May 15, 2008
• In the event Commission staff intends to
  recommend to the Commission that it initiate a
  proceeding under 18 CFR 385 against the subject
  of an investigation being conducted under the
  provisions of 18 CFR Part 1b, or to recommend
  that the Commission make the subject of an
  investigation a defendant in a civil action to be
  brought by the Commission, the subject of that
  investigation shall have the right to be so
  informed and provide the Commission with written
  non-public response to staffs recommendation

43
Reliability Violation Severity Levels North
American Electric Reliability Corporation

• Docket No. RR08-4-000, Issued June 19, 2008
• Commission completed a penalty-setting matrix for
  violations of mandatory electric reliability
  standards
• Approved Violation Severity Level assignments
  filed by NERC for the 83 Commission-approved
  Reliability Standards
• Violation Severity Levels will be used by NERC
  and the Regional Entities in the determination of
  a penalty for an individual violation of a
  requirement of a Reliability Standard
• Established guidelines for evaluating the
  validity of Violation Severity Level assignments

44
Recent FERC Orders of Interest

• Order No. 712, Promotion of a More Efficient
  Capacity Release Market
• Docket No. RM08-1-000 ,Issued June 19, 2008
• Order No. 890-B, Preventing Undue Discrimination
  and Preference in Transmission Service
• Docket Nos. RM05-17-003 and RM05-25-003, Issued
  June 23, 2008

45
Recent FERC Orders of Interest

• Order No. 707-A, Cross-Subsidization Restrictions
  on Affiliate Transactions
• Docket No. RM07-15-001, Issued July 17, 2008
• Order No. 708-B, Blanket Authorization under FPA
  Section 203
• Docket No. RM07-21-001, Issued July 17, 2008
• Order No. 714, Electronic Tariff Filings
• Docket No. RM01-5-000, Issued September 19, 2008

46
Where to Find More Information
47
Where to Find More Information
48
Compliance and Clarification Filings
49
Thank you for your attention!

• Steven D. Hunt
• Federal Energy Regulatory Commission
• 888 First Street, NE
• Washington, DC 20426
• [phone]
• steven.hunt_at_ferc.gov