Federal Energy Regulatory Commission Update

1. Federal Energy Regulatory Commission Update Steven D. Hunt, CPA Office of Enforcement, Division of Financial Regulation Federal Energy Regulatory Commission NARUC Staff Subcommittee on Accounting and Finance Lexington, Kentucky

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 agency’s 1,300 staff and its $260 million budget towards the pursuit of the agency’s 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 Gorton’s 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 ACC’s 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 Nevada’s first Consumer Advocate for Customers of Public Utilities. While serving in that role, Commissioner Wellinghoff represented Nevada’s 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 PacifiCorp’s 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 owner’s rate base, and on which it did not earn a return or recover depreciation, be recorded on the purchaser’s 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 GuidanceCable 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 GuidanceCable 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 InitiativesForm 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 InitiativesForm 1 Final Rule Purpose of Form 1 Provide basic financial and operational information to allow the Commission, customers, and competitors to monitor a utility’s 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 InitiativesForm 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 J&R, 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 InitiativesForm 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 InitiativesForm 1 Final Rule Final Rule Filing Thresholds for Form 1 NOPR Eliminate filing requirement for utilities that are not subject to the Commission’s jurisdiction, but make sales that meet or exceed the threshold for meeting the Commission’s 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 InitiativesForm 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 InitiativesForm 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 InitiativesForm 1 Final Rule Final Rule “Increases to Threshold Reporting Levels NOPR Page 216 (Construction Work in Progress) – Report projects with balances > $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 R&D items to be listed to $50,000 Final Rule – Adopts proposed changes from the NOPR

30. Forms and Data InitiativesForm 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 Officer’s Salaries Reporting Transmission Line Data (Pages 422-425)

31. Forms and Data InitiativesForm 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 InitiativesForm 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 InitiativesForm 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 InitiativesForm 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 InitiativesForm 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 InitiativesForm 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 Commission’s 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. 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 Commission’s 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 Enforcement Actions Enforcement of Statutes, Regulations, and Orders

41. 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 Enforcement Actions Ex Parte Contacts and Separation of Functions

42. 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 staff’s recommendation Enforcement Actions Submissions to the Commission upon Staff Intention to Seek an Order to Show Cause

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 • (202) 502-6084 • steven.hunt@ferc.gov