2015 Joint Accounting Conference The Good, the Bad, and the Ugly TVA Regulatory and Compliance Update May 15, 2015

Transcription

1 2015 Joint Accounting Conference The Good, the Bad, and the Ugly TVA Regulatory and Compliance Update May 15, 2015 Jennifer Brogdon Regulatory Assurance Jonathan Collins Distributor Compliance

2 Outline THE GOOD The Valley s Regulatory Model THE BAD TVA s LPC Regulatory and Compliance Efforts THE UGLY The Valley s Regulatory Challenges 2

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4 THE GOOD - The Valley s Regulatory Model While state regulatory authority rests on state law, TVA s regulatory authority rests on the federal TVA Act As regulators, the TVA Board protects electric ratepayers interest in receiving adequate electric service at rates as low as feasible Local Power Companies TVA Board rates as low as feasible 9 million ratepayers Member-elected or publicly-elected local boards 4

5 THE GOOD - Historical Perspective - David Lilienthal The responsibility for distribution supply, from the city gate to the electric refrigerator or the factory drill press, is solely theirs, subject only to broad policies that are part of a contract voluntarily entered into, which binds both the federal government and the local community. David Lilienthal, Father of Public Power, TVA - DEMOCRACY ON THE MARCH at (Harper 1944) TVA Chairman Lilienthal s vision of regulation with broad oversight by TVA. Underlined for emphasis The Valley Public Power regulatory model of balanced regulatory oversight is consistent with Lilienthal's ideas about Public Power and regulation. The balanced model consists of regulatory guidelines, or broad policies, with case by case but consistent enforcement that recognizes the uniqueness of each Power System and the role of Local Power Company Boards. TVA Restricted Information - Deliberative and Pre-Decisional Privileged 5

6 THE GOOD - Current Perspective - Sue Kelly, APPA As we take these challenges on, we should be guided,. by what is right for those we serve. By what will keep the lights on, the rates reasonable, and the environment protected. Kelly discussed the battles that public power is fighting today threats to the federal power system, wholesale market dysfunction, distributed generation, climate change, and grid security. Sue Kelly, President and CEO of American Public Power Association, 2014 APPA National Conference, June 16, 2014 Kelly at the 2014 APPA National Conference in Denver where nearly 1,200 public power professionals from across the U.S. gathered TVA Restricted Information - Deliberative and Pre-Decisional Privileged 6

7 THE GOOD - Key Areas of Regulatory Responsibility The 4R s Rates as low as feasible (non-profit) Restricted use of electric system dollars Ratepayers non-discrimination Rules and regulations Balancing customer relationships while keeping retail rates as low as feasible TVA Restricted Information - Deliberative and Pre-Decisional Privileged 7

8 THE BAD.

9 THE BAD - LPC Regulatory Efforts Service Practice Policies November 6, TVA Board approved a revised framework for LPC policies related to Deposits, Service Termination, Billing, and Information to Consumers or 92% LPC policies received to date - 33 policies - concurrence reached between TVA and LPC Pole Attachment Methodology and Regulation TVA requires each LPC to charge pole attachment fees to ensure full cost recovery so that no unfair burden is placed on the ratepayers TVA will collaborate with LPCs and TVPPA to determine consistent methodology Methodology should be fair, reasonable, publicly available, competitively neutral, and non-discriminatory 9

10 THE BAD - LPC Regulatory Efforts Capital Credits The wholesale power contract between TVA and LPCs does not allow the payment of capital credits Six Alabama LPCs in litigation, TVA is providing support as appropriate to LPCs and TVPPA GASB 68 Pension treatment for governmental entities effective FY 2015 On May 6, TVA provided FERC account guidelines for DARS reporting TVA recommends LPCs work with their external auditor for specific accounting guidance 10

11 THE BAD - LPC Regulatory Efforts Customer Concern Escalation Program TVA s current process is under refinement to ensure: - Alignment with TVA s regulatory authority scope - Consistency with similar complaint resolution processes performed by state-regulated public service commissions - The Valley s 9 million ratepayers have a transparent process for resolving complaints TVA is currently conducting research of other complaint processes, and we will work with LPCs and TVPPA s Regulatory Committee to implement any revisions Power Contract Provisions Intent: Non-discrimination, correct rates are charged, credits are applied correctly, separation of electric funds from other lines of business TVA is working with LPCs to resolve issues identified through rate & credit checks and joint cost studies Focus on the ratepayer and assurance for the LPC 11

12 THE BAD - LPC Regulatory Efforts Broadband and Interdivision Loans To ensure compliance with the wholesale power contract provisions, LPCs should engage TVA when considering an investment in broadband Under limited circumstances, TVA and LPCs have entered into an interdivision loan agreement ensuring protection of electric system ratepayers Net Metering and Interconnection Standards Net metering arrangements are inconsistent with the wholesale power contract between TVA and LPCs which requires all power requirements be purchased from TVA TVA offers a dual metering program under which TVA purchases the entire output of an LPC customer s renewable generation A qualifying customer that self-generates may also choose to sell excess energy to TVA under the Dispersed Power Production Program 12

13 More BAD.

14 THE TVA BAD Distributor - Why Distributor Compliance Compliance? Functional Summary The Distributor Compliance Group was created in response to the TVA Board of Directors focus on evaluating TVA s regulatory policy. Our Purpose Conduct fair and reliable assessments of compliance with TVA s power contracts, while promoting an environment conducive to remediating compliance issues and preventing future occurrence. Our Approach Foster a transparent and collaborative relationship with each Local Power Company. Enhance each Local Power Company s level of compliance with TVA s power contract through assessments and collaboration. Promote compliance and demonstrate the highest levels of professionalism. TVA Restricted Information - Deliberative and Pre-Decisional Privileged 14

15 THE BAD - Regulatory Functions Compliance serves as a complementary assurance function to reinforce and support TVA s commitment to regulatory compliance. Regulatory Assurance Distributor Compliance Implement TVA s retail Regulatory Strategy Regulatory Arbitration Local Rate Adjustments Pro Forma Analysis Financial Health Monitoring Distributor Assurance Financial Reporting (DAR) Rate & Credit Checks Joint Cost Studies PILOT FERC Support Regulatory Action Follow Up Proactive Accounting and Regulatory Support Oversight of Distributor Compliance Program Ensure Assurance Programs Meet Quality Standards Compliance Assessments Promote Regulatory Awareness and LPC Self- Assurance Monitor Implementation of Regulatory Actions TVA Restricted Information - Deliberative and Pre-Decisional Privileged 15

16 THE BAD - Distributor Compliance Program Program exists to evaluate compliance with key provisions of the wholesale power contract: Billing Compliance Are retail customers billed according to TVA approved rates and wholesale power contract provisions? Nondiscrimination Do LPCs engage in nondiscriminatory operating practices for customers of the same rate class? Use of Revenue Are electric system revenues used for approved electric system purposes? TVA Restricted Information - Deliberative and Pre-Decisional Privileged 16

17 THE BAD - What has Changed? Compliance approach was modified to improve efficiency and effectiveness: Rate & Credit Check Leverage Model Proactive Coordination with Distributor Assurance Criteria Driven Prioritization vs. Cyclical Approach Expanded Coverage (e.g. rate classifications) More Tailored Approach The fundamental objectives and program scope remains the same. How the work is prioritized and executed has changed. TVA Restricted Information - Deliberative and Pre-Decisional Privileged 17

18 THE BAD - Compliance Program Scope Billing Compliance Wholesale Classification* Customer Rates* Retail Billing Calculation* Credit Verification* Retail Contracts * Rate Tiers Verification* Demand Meter* Residential Classification Non Discrimination Billing Adjustments and Miscellaneous Charges/Credits Bad Debt Write-offs Disconnects / Reconnects Penalty & Cutoff Exempt Aged Receivables Use of Revenue Capital Spending Approval Disbursements Approval Application of Joint Cost Methodology Separation of Accounting Records * Supported by current Rate & Credit Check TVA Restricted Information - Deliberative and Pre-Decisional Privileged 18

19 THE BAD - Revised Assessment Selection Process Criteria Driven Prioritization Quantitative Inputs Qualitative Considerations Prioritization Electric Sales Revenue Historical R&CC Scoring Interdivision Loan Amts. Bad Debt % of Revenue Electric Cust. A/R Aging Interdivision A/R Aging Financial Ratios (e.g. cash, NI, etc.) Last Compliance Review Aged Regulatory Actions Past Significant Regulatory Items Compliance Agreements Billing Conversions Other Lines of Service Changes in Key LPC Management Review analysis with internal stakeholders Consider other relevant information Internal concurrence Coordinate assessment scheduling with Customer Delivery and LPCs Review / update plan quarterly Currently, increased consideration is provided for LPCs yet to participate in compliance review. TVA Restricted Information - Deliberative and Pre-Decisional Privileged 1

20 THE BAD - Where are we going? Leverage Technology Increased collaboration with billing software providers Explore ESS exception based reporting Enhanced trending for proactive communication Program Scope (FY16 and beyond) Enhanced focus of new regulatory priorities (e.g. deposits, pole attachments, capital credit allocation, etc.) Further tailored approach for follow up compliance reviews TVA Restricted Information - Deliberative and Pre-Decisional Privileged 20

21 THE BAD - YTD Summary of Opportunities % 79 reviews (R&CC and Compliance Assessments) 290 Opportunities Identified 146 Opportunities Addressed (50%) Rates & Billing Schedule LS Classifications Credit Eligibility Retail Contracts Demand Meter 30 10% Billing Nondiscrimination Use of Revenue Reporting Termination Policy Shared Cost Allocation Penalty Exemptions Capital Spending Aged Receivables G/L Separation Bad Debt Disbursement of ES Funds Adjustments 5 2% 29% Reporting Timeliness Tax Equivalents ESS Uploads TVA Restricted Information - Deliberative and Pre-Decisional Privileged 21

22 THE BAD - Recurring Opportunities - Billing Area Observations Opportunities Classification Misclassified GSA customers Validate system configurations (if not on CSA, SEDC, or NISC) Validation process at setup Adjustment process for identified misclassifications Retail Contracts Missing contracts for 1 MW / 50kW customers Contract demand mismatch in system Periodically review billing demand for eligible accounts and confirm existence of retail contract Validate contract demand in billing system Rates / Credits Manufacturing rates Ensure manufacturing certifications exist / SIC code on file Lighting Outdated Schedule LS Facilities charges not updated Reconcile billing system rates and fixture types to current Schedule LS Validate facility charges annually based on current plant records TVA Restricted Information - Deliberative and Pre-Decisional Privileged 22

23 THE BAD - Recurring Opportunities - Nondiscrimination Area Observations Opportunities Aged A/R A/R aging reviewed infrequently Regularly review A/R aging for signs of breakdown in disconnect and billing processes Disconnects Disconnect policies inconsistently applied Align polices with revised TVA SPP framework Consider secondary oversight to address potential separation of duties concerns Ensure support exists for extensions granted (e.g. medical hardship or extreme weather) Adjustments Adjustments using incorrect rates kw & kwh not adjusted concurrent with $ adjustments Educate staff on procedures to ensure adjustments are applied using rates in effect for the adjustment period and energy / demand data is updated, as applicable Consider periodic review of $ adjustments without corresponding energy /demand updates TVA Restricted Information - Deliberative and Pre-Decisional Privileged 23

24 THE BAD - Recurring Opportunities UoR / Reporting Area of Focus Observations Opportunities Cost Allocation Outdated cost allocation methodology Inconsistent application of TVA approved joint allocation methods Proactive coordination with TVA to review / update joint cost allocation methods Ensure shared costs are consistently allocated as prescribed by TVA approved allocation methods Reporting Timeliness Data not submitted timely Ensure required data submissions (e.g. DAR, ESS XML, External Audit report, etc.) are consistently submitted on time Proactive notification to TVA when timing delays are expected When in doubt, reach out! TVA Restricted Information - Deliberative and Pre-Decisional Privileged 24

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26 THE UGLY The Valley s Regulatory Challenges The Valley faces many challenges and challengers: Service Practice Policies Implementation of the framework and consistent policies are intended to limit challenges by state legislators and other state entities Pole Attachment Methodology and Regulation Stage legislative bodies and state regulatory agencies periodically asked to intervene and TVA s regulatory oversight of pole attachments has been questioned Capital Credits Eight Alabama LPCs in litigation plaintiffs allege that the cooperatives have violated state law by failing to annual refund excess revenue Net Metering and Interconnection Standards Mississippi Public Service Commission (PSC) issued an order April 8 on proposed rules on net metering and interconnections standards TVA is evaluating the PSC s docket and will coordinate TVA s response to the proposed rule with the Electric Power Associations of Mississippi and Mississippi LPCs 26

27 Key Messages Section 10 of the TVA Act provides exclusive authority to the TVA Board for regulation of local power company resale rate actions to keep rates as low as feasible The TVA Board directs management on how to carry out TVA s regulatory responsibilities Balanced and proactive regulatory oversight supports customer relationships and recognizes local control Consistent execution of TVA s regulatory role helps protect the valley business model For the GOOD of the Valley 27

28 Questions?

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