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FERC Update

National Association of Regulatory Utilities Commissioners Staff Subcommittee on Accounting and Finance. FERC Update. October 9, 2007 Jackson Hole, Wyoming . FERC Update. Steven D. Hunt Regulatory Accounting Branch Office of Enforcement Washington, DC. Disclaimer.

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FERC Update

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  1. National Association of Regulatory Utilities Commissioners Staff Subcommittee on Accounting and Finance FERC Update October 9, 2007 Jackson Hole, Wyoming

  2. FERC Update Steven D. Hunt Regulatory Accounting Branch Office of Enforcement Washington, DC

  3. 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. NARUC 2007

  4. AGENDA • Commission Members • Organizational Changes • Accounting Guidance • Key Commission Actions • Forms and Data Initiatives • Court Decisions on Accounting • Significant Enforcement Actions NARUC 2007

  5. Chairman Kelliher • Nominated by President George W. Bush to a Republican seat on the Commission, and was sworn in on November 20, 2003. • He was designated Chairman of the Commission by President Bush, effective July 9, 2005. • Before becoming a Commissioner, Mr. Kelliher was Senior Policy Advisor to Secretary of Energy Spencer Abraham. In that capacity, he advised the Secretary on a wide range of energy policy matters. Mr. Kelliher helped develop the National Energy Policy. He had served as Senior Policy Advisor to the Secretary since the inauguration of President George W. Bush. • Education: Georgetown University, School of Foreign Service, B.S.F.S., 1983; American University Washington College of Law, J.D., Magna Cum Laude, 1994. NARUC 2007

  6. 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. NARUC 2007

  7. 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. Before becoming a Commissioner, Mr. Moeller headed the Washington, D.C., office of Alliant Energy Corporation, an electric and natural gas utility company based in Madison, Wisconsin. Prior to Alliant Energy, Mr. Moeller worked in the Washington office of Calpine Corporation. Mr. Moeller was born in Chicago, and grew up on a ranch near Spokane, Washington. He received a B.A. in Political Science from Stanford University. NARUC 2007

  8. 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 Chairman, he focused on policies encouraging expansion of natural gas infrastructure, specifically distribution and storage; creating a demand side management policy; enhancing the ACC’s renewables standard; and advancing consumer privacy concerns in telecommunications. As 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. NARUC 2007

  9. 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, for a term expiring June 30, 2008. Before coming to the Commission, Mr. Wellinghoff was a shareholder with a Nevada law firm. He has concentrated his practice in the fields of energy law and utility regulation for the past thirty years. • Mr. Wellinghoff was appointed by the Attorney General of Nevada to serve as the state's first Consumer Advocate for Customers of Public Utilities. While Consumer Advocate, He served two terms as Consumer Advocate, and personally participated in dozens of complex utility rate and regulatory matters on behalf of Nevada Consumers. • 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. NARUC 2007

  10. AGENDA • Commission Members • Organizational Changes • Accounting Guidance • Key Commission Actions • Forms and Data Initiatives • Court Decisions on Accounting • Significant Enforcement Actions NARUC 2007

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  13. AGENDA • Commission Members • Organizational Changes • Accounting Guidance • Key Commission Actions • Forms and Data Initiatives • Court Decisions on Accounting • Significant Enforcement Actions NARUC 2007

  14. Accounting Guidance • AI07-1-000 • Accounting and Reporting Guidance to Recognize the Funded Status of Defined Benefit Postretirement Plans • Issued March 29, 2007 • Effective with the 2007 FERC Form Nos. 1, 1-F, 2, 2-A, 6, and 60 due to be filed in 2008 (earlier implementation encouraged) NARUC 2007

  15. Accounting Guidance • AI07-1-000 • Provides for adoption of SFAS No. 158 for FERC reporting in the same manner as it is adopted for stockholder reporting • Provides the accounts in which to report asset/liability for over/underfunded employee postretirement benefit plans NARUC 2007

  16. Accounting Guidance • AI07-1-000 • Provides the requisite approval for use of accounts to record any adjustment to the opening balance of retained earnings required in connection with implementing SFAS No. 158. NARUC 2007

  17. Accounting Guidance • AI07-2-000 • Accounting and Financial Reporting for Uncertainty in Income Taxes • Issued May 25, 2007 • Effective with the 2007 FERC Form Nos. 1, 1-F, 2, 2-A, 6, and 60 due to be filed in 2008 (earlier implementation encouraged) NARUC 2007

  18. Accounting Guidance • AI07-2-000 • Provides for the implementation of FASB Interpretation No. 48 for FERC accounting and reporting, paying particular attention to the guidance provided in the interpretation • Provides the accounts in which to report penalties and interest on the underpayment of income tax NARUC 2007

  19. Accounting Guidance • AI07-2-000 • Provides the requisite approval for use of accounts to record any adjustment to the opening balance of retained earnings required in connection with implementing FIN 48. NARUC 2007

  20. AGENDA • Commission Members • Organizational Changes • Accounting Guidance • Key Commission Actions • Forms and Data Initiatives • Court Decisions on Accounting • Significant Enforcement Actions NARUC 2007

  21. Key Commission Actions • Transparency Provisions of Section 23 of the NGA; Transparency Provisions of the FPA • NOPR; Docket Nos. RM07-10; AD06-11 • Issued April 19, 2007; Technical Conference held July 24, 2007 • Daily requirement for intrastate pipelines to post the capacities and volumes of natural gas flowing through their major receipt and delivery points and mainline segments • Annual requirement for certain buyers and sellers of natural gas to report the numbers and volumes of relevant transactions for the previous calendar year NARUC 2007

  22. Key Commission Actions • Proposed Policy Statement • Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity • Docket Nos. PL07-2-000, Issued July 19, 2007 • Modification to the current policy regarding the composition of proxy groups to allow master limited partnerships to be included in the group NARUC 2007

  23. Key Commission Actions • Promoting Transmission Investment through Pricing Reform (Order No. 679) • Docket No. RM06-4-000, Issued July 20, 2006 • EPAct 2005 directed FERC to develop incentive-based rate treatments for transmission of electric energy in interstate commerce • Added Section 219 to the Federal Power Act • Facilities must either ensure reliability or reduce the cost of delivered power by reducing transmission congestion NARUC 2007

  24. Key Commission Actions • Order No. 679 adopted: • Incentive rates of return on equity for new investment by public utilities (traditional & stand-alone) • Including 100 percent of CWIP in rate base • Expensing pre-operations costs • Full recovery of prudently incurred costs of abandoned facilities • Use of hypothetical capital structures • Accumulated deferred income taxes NARUC 2007

  25. Key Commission Actions • Order No. 679 adopted (cont’d): • Acquisition premiums for Transco formation • Use of accelerated depreciation • Deferred cost recovery for utilities with retail rate freezes • Higher rate of return on equity for utilities that join and/or continue to be members of transmission organizations • Annual reporting requirement (FERC-730) for utilities receiving incentive rate treatment; actual and projected data on transmission investment NARUC 2007

  26. Key Commission Actions • Order No. 679 and Accounting • CWIP in rate base & Pre-commercial costs • Conflicts with the Uniform System of Accounts • Concerns with comparability and consistency • Ensure no double recovery • Solution #1 – Capitalize consistent with USofA and offset amounts with a regulatory liability • Solution 2# - Provide disclosures in the Notes to the Financial Statements • Expense pre-commercial costs in Account 566, Miscellaneous Transmission Expense NARUC 2007

  27. Key Commission Actions • Orders on rate incentive proposals: • AEP Service Corp, EL06-50-000, issued July 20, 2006 • Allegheny Energy, Monongahela Power, Potomac Edison & West Penn Power, EL06-54-000, issued July 20, 2006 • Trans-Allegheny Interstate Line Company, ERO7-562-000, Issued May 31, 2007 NARUC 2007

  28. Key Commission Actions • Orders on rate incentive proposals: • Duquesne Light Company, EL06-109-000 & ER06-1549-000, Issued February 6, 2007 • Commonwealth Edison Company and Commonwealth Edison Company of Indiana, EL07-41-000 & ER07-583-000, Issued June 5, 2007 • The United Illuminating Company, ER07-653-000, Issued May 22, 2007 NARUC 2007

  29. Key Commission Actions • Orders on rate incentive proposals: • Baltimore Gas and Electric Company, ER07-576-000, Issued July 24, 2007 • Routine/Non-routine • Pending rate incentive proposals: • Southern California Edison, EL07-62-000, Filed May 5, 2007 NARUC 2007

  30. AGENDA • Commission Members • Organizational Changes • Accounting Guidance • Key Commission Actions • Forms and Data Initiatives • Court Decisions on Accounting • Significant Enforcement Actions NARUC 2007

  31. Forms and Data Initiatives • Notice of Inquiry (NOI) • Assessment of Information Requirements for FERC Financial Forms, Docket No. RM07-9-000 • Covers FERC Forms 1, 1-F, 2, 2-A, 3-Q, 6, and 6-Q • Issued February 15, 2007 NARUC 2007

  32. Forms and Data Initiatives • Notice of Inquiry (NOI) (cont.) • Office of Enforcement (OE) staff held 5 informal sessions with various entities to reexamine the information in the FERC Forms 1 and 2 and determine whether these forms should be modified to improve their usefulness. The entities included: • Filers • FERC Offices • Trade Organizations • State Public Utility Commissions • Federal Agencies • Financial/ Information Reporting Entities NARUC 2007

  33. Forms and Data Initiatives • Notice of Inquiry (NOI) (cont.) • Not all participants in the informal review had an opportunity to submit written comments or to respond to comments submitted by other parties • NOI gave those entities, and all other interested persons, the opportunity to comment formally with the Commission on any of the issues raised therein NARUC 2007

  34. Forms and Data Initiatives • Notice of Inquiry (NOI) (cont.) • Form 2 & 2-A Comments • 35 Comments, 15 Reply Comments • Pipeline customers and state commissions support revisions to the forms • Pipeline companies opposed changes that require filing additional information NARUC 2007

  35. Forms and Data Initiatives • NOPR – Revisions to Forms, Statements and Reporting Requirements for Gas Companies • Docket No. RM07-9-000, Issued September 20, 2007 • Better reflect current market and cost information the Commission needs to carry out its regulatory responsibilities • Better facilitate the form users’ ability to make a meaningful assessment of a pipeline’s cost of service and current rates NARUC 2007

  36. Forms and Data Initiatives • NOPR – Revisions to Forms, Statements and Reporting Requirements for Gas Companies • Proposed Changes: • Additional revenue information • Additional information to identify costs associated with affiliated transactions • Additional information on incremental facilities and discounted and negotiated rates • Eliminate FERC Form No. 11 • Extend the filing date of CPA Certification Statement to May 18 NARUC 2007

  37. Forms and Data Initiatives • NOPR – Revisions to Forms, Statements and Reporting Requirements for Gas Companies • Proposed Effective Date – January 1, 2008 • First quarter 2009 Form 3-Q • Calendar year 2008 Form 2 and 2-A • Comments Due – 45 days after publication in Federal Register NARUC 2007

  38. Forms and Data Initiatives • Show Cause Order • Compliance with Financial Forms Filing Requirements, Docket No. IN07-7-000, et al. • Order covered FERC Forms 1, 1-F, 2, 2-A, 3-Q, 6, and 6-Q going back to 2005 reporting year • Order required each listed company to respond in 30 days from the date of the Order NARUC 2007

  39. Forms and Data Initiatives • Show Cause Order (cont.) • Follows staff review of compliance with Commission financial reporting requirements • Initially identified 144 filers who were out of compliance • Contacted each filer and was able to bring everyone into compliance NARUC 2007

  40. AGENDA • Commission Members • Organizational Changes • Accounting Guidance • Key Commission Actions • Forms and Data Initiatives • Court Decisions on Accounting • Significant Enforcement Actions NARUC 2007

  41. Court Decisions • Pipeline Integrity Management Programs • DC Circuit Court of Appeals • Decision No. 05-1426 decided July 24, 2007 • Upheld Commission orders NARUC 2007

  42. Court Decisions • Policy Statement on Income Tax Allowances for Regulated Entities • DC Circuit Court of Appeals • Decision No. 04-1102 decided May 29, 2007 • Decision No. 05-1382 decided May 29, 2007 • Upheld Commission policy statement NARUC 2007

  43. Policy Statement on Income Tax Allowances for Regulated Entities • Entities owning public utility assets would get tax allowance on the income from the assets • provided actual or potential income tax liability on that public utility income • Taxpaying entities are permitted an income tax allowance on the income imputed • provided actual or potential income tax liability on that income NARUC 2007

  44. Policy Statement on Income Tax Allowances for Regulated Entities • What happens if the partners or members do not have such an actual or potential income tax obligation? • the amount of any income tax allowance will be reduced accordingly to reflect the weighted income tax liability of the entity’s partners or members NARUC 2007

  45. AGENDA • Commission Members • Organizational Changes • Accounting Guidance • Key Commission Actions • Forms and Data Initiatives • Court Decisions on Accounting • Significant Enforcement Actions NARUC 2007

  46. Enforcement Actions • The Commission for the first time used its new anti-manipulation authority under EPAct 2005 • Preliminary findings of market manipulation involving traders’ unlawful actions in natural gas markets • Show cause orders: IN07-26-000, IN06-3-002 • Issued July 26, 2007 NARUC 2007

  47. Enforcement Actions • The Commission cooperated with the CFTC in the two investigations under the MOU • Recommended penalties • Amaranth LLC - $200M – Amaranth; $32M traders; $59M disgorgement of unjust profits • ETP, LP - $97.5M – ETP; $69.9M disgorgement of unjust profits NARUC 2007

  48. Where to Find More Information NARUC 2007

  49. Where to Find More Information NARUC 2007

  50. Compliance and Clarification Filings NARUC 2007

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