NARUC Staff Subcommittee on Accounting and Finance Conference

Transcription

1 NARUC Staff Subcommittee on Accounting and Finance Conference FERC Update Steven D. Hunt, CPA, CGMA Deputy Chief Accountant Nkosi Brooks, CPA, CFE Senior Auditor Office of Enforcement Division of Audits and Accounting Fall 2016

2 Disclaimer The views expressed in this presentation are those of the presenter and do not necessarily reflect the views of the Federal Energy Regulatory Commission (FERC), its Chairman, or any individual Commissioner. 2

3 Chairman Norman C. Bay Cheryl A. LaFleur Tony Clark Colette D. Honorable FERC Commissioners 3

4 4

5 FERC Strategic Plan Ensure rates, terms, and conditions of jurisdictional energy services are just, reasonable, and not unduly discriminatory or preferential Establish effective rules and policy Increase compliance with FERC rules; detect and deter market manipulation Promote the development of safe, reliable, secure, and efficient infrastructure that serves the public interest 5

6 Division of Audits and Accounting Administers FERC s audit and accounting programs with the goal exercising appropriate oversight Electric, natural gas, and oil industries Ensure compliance, transparency, and accountability Financial & Non-financial risk-based audits Provides accounting support for all FERC orders, policy statements, rulemakings, and other activities Inter-office coordination Participates in projects with FASB, SEC, and IASB that may effect the Commission s rules/policies and jurisdictional entities 6

7 Division of Audits and Accounting DAA Leadership Bryan Craig, Director and Chief Accountant Timothy Smith, Deputy Director Steven Hunt, Deputy Chief Accountant Stephen Flanagan, Senior Economist Nkosi Brooks, Senior Auditor Branch Managers: Gerald Williams Brian Harrington Christopher Handy Sylvia Anderson Nicholas Coughlin Composition of Staff Auditors/Accountants Energy Industry Analysts/Economists An Engineer An Attorney 7

8 Hold Harmless Commitments in FPA Section 203 Proceedings 8

9 Past Hold Harmless Commitments Prior hold harmless commitments provided that applicants may not seek to recover in rates any transaction-related costs except to the extent that such costs are exceeded by demonstrated transaction-related savings. Including internal labor Typically a five year hold harmless period Acquisition premiums, including goodwill, are not considered a transaction-related cost and must be pursued for recovery through a FPA section 205 filing 9

10 Proposed Policy Statement on Hold Harmless Commitments Proposed Clarifications to the scope and definition of the costs that should be subject to hold harmless commitments Requirements for internal controls and procedures to track costs subject to hold harmless commitments Clarification that time limited hold harmless commitments would no longer be acceptable Received nine comments Docket No. PL , 150 FERC 61,031 10

11 Final Policy Statement on Hold-Harmless Commitments Clarifies several aspects of hold harmless commitments offered by applicants to mitigate adverse rate impacts from certain transactions under section 203 of the FPA Clarifies the scope and definition of the costs that should be subject to hold harmless commitments Requires internal controls and procedures for tracking costs subject to hold harmless commitments Clarifies that time limited hold harmless commitments remain acceptable Docket No. PL , 155 FERC 61,189 (2016) 11

12 Recent Order No Actions 12

13 Order No. 888 in 1996 Transmission Timeline Creates pro forma Open Access Transmission Tariff. Requires public utilities to provide open access to their transmission their at standard rates, terms and conditions. Must unbundle generation and transmission charges. Must take service themselves under their own Open Access Transmission Tariffs. Order No. 890 in 2007 Requires coordinated, open and transparent local transmission planning processes (among other things) Order No in

14 Order No Requirements 1. Regional Planning Requirements 2. Public Policy Requirements 3. Non-incumbent Developer Requirements 4. Cost Allocation Requirements 5. Interregional Coordination Requirements 14

15 1. Regional Planning Requirements Public utility transmission providers participate in a regional transmission planning process that produces a regional transmission plan. Need to have a well-defined region Process must satisfy principles established in Order No. 890 Coordination, Openness, Transparency, Information Exchange, Comparability, Dispute Resolution, and Economic Planning 15

16 Order No Transmission Planning Regions 16

17 2. Public Policy Requirements Establish procedures to identify and evaluate transmission needs driven by Public Policy Requirements (PPRs) established by local, state or federal laws or regulations. Post an explanation of which PPRs will and will not be evaluated for potential solutions in the local and regional transmission planning processes Requires opportunities for stakeholder participation in transmission planning process 17

18 3. Non-incumbent Developer Requirements Eliminate provisions establishing a federal right of first refusal, with certain exceptions there may not be a federally established monopoly over the development of a new transmission facility selected in a regional transmission plan for the purposes of cost allocation. Develop a regional process for transmission project submission, evaluation and selection Must include: 1. Qualification Criteria 2. Information Requirements; and 3. Evaluation Procedures 18

19 4. Cost Allocation Requirements There must be a method for allocating the costs of new transmission facilities selected in the regional transmission plan for purposes of cost allocation. Each region must develop a method, or set of methods, for regional cost allocation, but not how costs are paid to developers or recovered from end-use customers: Cost allocation = the beneficiaries that are responsible for costs Cost recovery = how the beneficiaries pass through the cost they have been allocated The cost allocation method must satisfy six cost allocation principle 19

20 Six Cost Allocation Principles 1. Costs allocated must be at least roughly commensurate with estimated benefits 2. Those that receive no benefit must not be involuntarily allocated costs 3. If a benefit-cost ratio is used, it may not exceed Must allocate costs solely within region unless another region voluntarily agrees to a portion of the costs 5. Cost allocation method and data requirements must be transparent 6. May choose different cost allocation method for each category of transmission projects 20

21 Interregional Cost Allocation A common method, or set of methods, for allocating costs of regional transmission facilities. The cost allocation method must satisfy six cost allocation principles To be eligible for interregional cost allocation, each facility must be selected in each regional plan Different interregional facilities may have different cost allocation methodologies 21

22 5. Interregional Coordination Requirements Develop procedures for sharing information Implement procedures and describe the methods by which neighboring regions will identify and jointly evaluate transmission facilities that are proposed to be in both regions Exchange planning data and information between neighboring transmission regions Maintain a website or list for the communication of information 22

23 FERC s Next Steps FERC held technical conference on June 27-28, 2016 to discuss certain issues related to the competitive development transmission process. There were five panel style discussions where the Commissioners engaged in dialogue with industry participants and other regulators on some of the challenges with implementing Order No The topics for the five panels were: Cost Containment Provisions in Competitive Transmission Development Processes Commission Consideration of Rates that Contain Cost Containment Provisions and Result from Competitive Transmission Development Processes Transmission Incentives and Competitive Transmission Development Processes Interregional Transmission Coordination Issues Regional Transmission Planning and Other Transmission Development Issues 23

24 FERC s Next Steps Competitive Transmission Development Rates (Docket No. AD ) In response to the technical conference, the Commission issued 25 post-technical conference questions giving the participants the choice to comment on whichever questions they choose. Comments to the Post Tech Conference are due to the Commission by October 3,

25 Other Audit and Accounting Matters 25

26 FERC Audit Compliance Issues Formula Rates Consolidation vs. Equity Method Income Tax Prepayments/Overpayments Improper Capitalization Asset Retirement Obligations Below-the-Line Costs Goodwill & Merger Costs Depreciation Rates 26

27 Audit Issuances of Interest Formula Rate Audit Reports Duke Energy PA PPL Corporation FA Ameren Illinois FA and AC , et al Duquesne Light Company FA Public Service Company of Colorado PA Natural Gas Audit Reports Columbia Gas Transmission FA Southern Natural Gas Company FA Natural Gas Pipeline Co. of America PA

28 ITC Midwest proceedings Bonus Depreciation FERC found that ITC Midwest s decision to opt out of using bonus depreciation for calculation of its federal income tax expense was imprudent. ITC Midwest challenged the Commission s authority to negate the statutory right of a taxpayer to opt out of taking bonus depreciation by declaring such an election imprudent. ITC also argued that by simulating the impacts of the foregone bonus depreciation amounts in its rates, it would violate the normalization rules of the IRS ITC Midwest LLC, 154 FERC 61,188 (order denying rehearing 155 FERC 61,247) and Midcontinent Independent System Operator, Inc., 154 FERC 61,187 (order denying rehearing (155 FERC 61,248) 28

29 Hydropower Licensee Requirements under Part 1 of the FPA Part 1 of the FPA Hydropower licensees must maintain records that may be used in determining the actual legitimate original cost of and net investment in a licensed project Order No. 816 clarified the following: Waiver of the USofA for a licensee with MBR authority does not waive Part 1 of the FPA Part 1 of the FPA may be satisfied by following General Instruction No. 16 of the USofA 29

30 Accounting Matters Changes in U.S. GAAP does not automatically change FERC s financial accounting and reporting rules and regulations ASU , Leases (Topic 842) Proposed ASU - Pensions and Other Postretirement Benefit Plans (Topic 715) ASU , Debt Issuance Costs (Subtopic ) ASU , Extraordinary and Unusual Items (Subtopic ) 30

31 Compliance Guidance Toolkit Commission Declaratory Order General Counsel Opinion Letter Accounting Interpretations Compliance Help Desk Enforcement Hotline Accounting Inquiries: (202) ; Informal meetings and discussions with staff 31

32 Compliance Guidance FERC Policy Statement on Enforcement, 113 FERC 61,068 (2005) Informal Staff Advice on Regulatory Requirements, 113 FERC 61,174 (2005), modified 117 FERC 61,069 (2006), No-Action Letter Process Revised Policy Statement on Enforcement, 123 FERC 61,156 (2008) Obtain Guidance on Regulatory Compliance, 123 FERC 61,157 (2008) (Interpretative Order Modifying No-Action Letter Process and Reviewing Other Mechanisms for Obtaining Guidance) Policy Statement on Compliance, 125 FERC 61,058 (2008) Policy Statement on Penalty Guidelines, 130 FERC 61,220 (2010), Revised Policy Statement on Penalty Guidelines, 132 FERC 61,216 (2010). 32

33 Other Relevant Information Accounting matters Audit reports and related letter and Commission orders Audits docketed with the FA and PA designations Audit process Reports on Enforcement ( ) Docket No. AD

34 Questions? Steven D. Hunt, CPA, CGMA (202) Nkosi Brooks, CPA, CFE (202)