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FERC Update

National Association of Regulatory Utilities Commissioners Staff Subcommittee on Accounting and Finance. FERC Update. April 1, 2008 New Orleans, LA . FERC Update. Steven D. Hunt, CPA Division of Financial Regulation 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 April 1, 2008 New Orleans, LA

  2. FERC Update Steven D. Hunt, CPA Division of Financial Regulation 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.

  4. AGENDA • Commission Members • Organizational Changes • Form 2 Final Rule • Form 1 NOPR • Cross-Subsidization Restrictions on Affiliate Transactions • Blanket Authorization Under Section 203

  5. Chairman Kelliher • Nominated by President George W. Bush to a Republican seat on the Commission, and was sworn in on November 20, 2003, for his first term and on December 21, 2007 for his second term. • 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.

  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.

  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.

  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.

  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.

  10. AGENDA • Commission Members • Organizational Changes • Form 2 Final Rule • Form 1 NOPR • Cross-Subsidization Restrictions on Affiliate Transactions • Blanket Authorization Under Section 203

  11. Organizational Changes

  12. AGENDA • Commission Members • Organizational Changes • Form 2 Final Rule • Form 1 NOPR • Cross-Subsidization Restrictions on Affiliate Transactions • Blanket Authorization Under Section 203

  13. Form No. 2 Final Rule • 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 20, 2008 • Comments Due 45 days after published in Federal Register

  14. Form No. 2 Final Rule • Proposed Changes in NOPR: • 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

  15. Form No. 2 Final Rule • Purpose: • 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

  16. Form No. 2 Final Rule • Final Rule: • Acquisition & Disposition of Shipper-supplied Gas • Add Page 521 A & B to Forms 2, 2-A & 3-Q • Difference of gas received from shippers & gas consumed in pipeline operations, monthly • Disposition of excess gas & accounting given to disposition • Source of gas used to meet any deficiency & accounting basis of gas • Add Page 520 (Gas Account-Natural Gas) to Form 3-Q • Footnote to Page 520 – Gas purchased applicable to each gas pipeline expense account

  17. Form No. 2 Final Rule • Final Rule: • Other Gas Dispositions • Pages 300-301 (Gas Operating Revenues) – Expand detail to report sales amounts reported in Accounts 480-484 on individual lines • Page 308 (Other Gas Revenues (Account 495)) • Add to Form 2-A • Modify schedule to specify certain types of revenues • List environmental credits earned in a footnote

  18. Form No. 2 Final Rule • Final Rule: • Affiliate Transactions • Add Page 358 (Transactions with Associated (Affiliated) Companies) to Forms 2 & 2-A • Describe good or service transacted • Name of the associated company • FERC account charged or credited • Amount charged or credited • $250,000 cost threshold • Page 358 & Page 357 (Charges for Outside Professional and Other Consultative Services) • Report the total of all services < $250,000

  19. Form No. 2 Final Rule • Final Rule: • Incremental Pricing Policy • Add Page 217 (Non-Traditional Rate Treatment Afforded New Projects) to Forms 2 & 2-A • Name of facility • Docket Number • Rate treatment (e.g., incremental) • Amount of plant in service & accumulated depreciation • Amount of accumulated deferred income taxes • Amount of operating & maintenance expense • Amount of depreciation expense • Amount of incremental revenues and other expenses

  20. Form No. 2 Final Rule • Final Rule: • Discounted & Negotiated Rate Services • Add Page 313 (Discounted and Negotiated Rate Services) to Forms 2 & 2-A • Report revenues and volumes applicable to discounted and negotiated rate services provided during the reporting period • State Income Tax Expense • Amend Pages 262-263 (Taxes Accrued, Prepaid and Charged During Year, Distribution of Taxes Charged) • New column to report state & local income tax rates • Add schedule to Form 2-A

  21. Form No. 2 Final Rule • Final Rule: • Deferred Income Taxes • Add instruction to each deferred tax schedule requiring a summary of the type and amount of deferred income taxes reported in the beginning & end of year balances • Pages 234-235 (Accumulated Deferred Income Taxes) • Pages 274-275 (Accumulated Deferred Income Taxes-Other Property) • Pages 276-277 (Accumulated Deferred Income Taxes-Other)

  22. Form No. 2 Final Rule • Final Rule: • Regulatory Assets and Liabilities • Page 232 (Other Regulatory Assets) & Page 274 (Other Regulatory Liabilities) • Add footnote citation for each regulatory asset & liability to identify regulatory approval • New column to identify amounts written-off during period as non-recoverable or non-refundable • Employee Pensions and Benefits • Amend instructions to Page 122.1 – Disclose the amount of cost recognized in the filer’s financial statements for each plan and the basis for determining the filer’s share of the total plan costs • Add Page 352 (Employee Pensions and Benefits) to Forms 2 & 2-A

  23. Form No. 2 Final Rule • Final Rule: • Capital Structure & Rate of Return • Page 218a • Amend instructions to require the name of the entity whose capital structure is reported in a footnote • When reporting common equity at line 5, column d • Indicate if the ROR was approved in a rate case • Indicate if the ROR was calculated in a black-box settlement • Indicate if the ROR was an actual three-year average

  24. Form No. 2 Final Rule • Final Rule: • Costs & Revenues (Trackers & Surcharges) • Summary of the revenues and expenses associated with tracked costs in the footnotes to the financial statements • Form No. 11 • Eliminated • Replaced with new schedule in the Form No. 2 & 2-A • “Monthly Quantity & Revenue Data by Rate Schedule”

  25. Form No. 2 Final Rule • Final Rule: • CPA Certification Statement • Filing date extended to May 18 • Non-Filing Status Notification • Requests for extension of time • Pipeline must show good cause • Effective Date – January 1, 2008 • First quarter 2009 Form 3-Q • Calendar year 2008 Form 2 and 2-A

  26. AGENDA • Commission Members • Organizational Changes • Form 2 Final Rule • Form 1 NOPR • Cross-Subsidization Restrictions on Affiliate Transactions • Blanket Authorization Under Section 203

  27. Form No. 1 NOPR • Docket No. RM08-5-000 • Proposes changes to FERC Form Nos. 1, 1-F, and 3-Q • Notice of Inquiry issued February 15, 2007 • NOPR Issued January 18, 2008 • Comments Due March 14, 2008

  28. Form No. 1 NOPR • 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

  29. Form No. 1 NOPR • 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.

  30. Form No. 1 NOPR • Proposed Conclusions: • Demand Response Data • Should not be collected in Form No. 1 • Formula Rates • If inputs to a formula rate deviate from Form No. 1, filer must explain in a footnote • Defining “major” & “nonmajor” utilities • Request specific suggestions

  31. Form No. 1 NOPR • Proposed Conclusions: • Waiver for utilities who are not public utilities under Part II of the FPA • Morenci Water & Electric Co., 121 FERC ¶ 61,024 (2007) • Non-Calendar Fiscal Year • Utility may file Form 1 (unaudited) each April and file a second Form 1 (audited) at end of fiscal year with CPA Certification

  32. Form No. 1 NOPR • Proposed Conclusions: • Affiliated Transactions • 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 • Other Revenues – Page 300 • Revenues not otherwise specified on Pages 328-300 must be provided in a footnote to Page 300

  33. Form No. 1 NOPR • Proposed Conclusions: • Higher Threshold Levels • 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

  34. Form No. 1 NOPR • Proposed Conclusions: • Higher Threshold Levels • Page 352 & 253 (Research & Development) – Raise the cost of R&D items to be listed to $50,000 • Notification of Non-Filing Status • Utility currently required to file Form No. 1 or 1-F that determines it is no longer required to file must notify the Commission of change in filing status • Extension of Time Requests • Must show good cause

  35. Form No. 1 NOPR • Proposed Conclusions: • Technical Corrections • Proposed effective date: • Form 3-Q – First calendar quarter of 2009 • Form 1 and 1-F – April 2010 for calendar year 2009

  36. AGENDA • Commission Members • Organizational Changes • Form 2 Final Rule • Form 1 NOPR • Cross-Subsidization Restrictions on Affiliate Transactions • Blanket Authorization Under Section 203

  37. Cross-Subsidization Restrictions on Affiliate Transactions • Docket No. RM07-15-000; Order No. 707 • Cross-Subsidization Restrictions on Affiliate Transactions • NOPR Issued July 20, 2007 • Final Rule Issued February 21, 2008 • Amends 18 C.F.R. Part 35

  38. Cross-Subsidization Restrictions on Affiliate Transactions • Purpose: • To provide certainty to public utilities and customers with respect to the pricing standard that must be applied to certain affiliate transactions. • Scope: • Franchised public utilities that have captive customers or that own or provide transmission service over jurisdictional transmission facilities.

  39. Cross-Subsidization Restrictions on Affiliate Transactions • Requirements: • Commission approval of all wholesale sales between a franchised public utility with captive customers and a market-regulated power sales affiliate • Franchised public utility with captive customers must provide non-power goods and services to a market-regulated power sales affiliate or a non-utility affiliate at a price that is the higher of cost or market price

  40. Cross-Subsidization Restrictions on Affiliate Transactions • Requirements: • Franchised public utility with captive customers cannot purchase non-power goods or services from a market-regulated power sales affiliate or a non-utility affiliate at a price above market price, unless • Franchised public utility with captive customers receive non-power goods and services from a centralized service company at cost.

  41. Cross-Subsidization Restrictions on Affiliate Transactions • Effective: • March 31, 2008 • Applies to any contracts, agreements or arrangements entered into on or after the effective date

  42. AGENDA • Commission Members • Organizational Changes • Form 2 Final Rule • Form 1 NOPR • Cross-Subsidization Restrictions on Affiliate Transactions • Blanket Authorization Under Section 203

  43. Blanket Authorization Under Section 203 • Docket No. RM07-21-000; Order No. 708 • NOPR Issued July 20, 2007 • Final Rule Issued February 21, 2008 • Amends 18 C.F.R. Part 33 • Adds five blanket authorizations under Section 203(a)(1)

  44. Blanket Authorization Under Section 203 Purpose: • To facilitate investment in the electric utility industry • To ensure public utility customers are adequately protected from any adverse effects of changes in control • To ensure that transactions qualifying under the section 203(a)(2) blanket authorization would not have to seek approval under section 203(a)(1)

  45. Blanket Authorization Under Section 203 • Blanket Authorization NOPR • Proposes pre-authorization for a public utility to dispose of less than 10% of its voting securities to a public utility holding company • Holding company and any associate companies MUST own less than 10% (in aggregate) of the outstanding voting interest of that public utility • Final Rule • Adopts Blanket Authorization NOPR • Provides 4 additional blanket authorizations

  46. Blanket Authorization Under Section 203 • Final Rule: • Provides blanket authorization for a public utility to transfer its outstanding voting securities to any holding company granted a blanket authorization under section 203(a)(2) in: • 18 C.F.R. 33.1(c)(8) • 18 C.F.R. 33.1(c)(9) • 18 C.F.R. 33.1(c)(10)

  47. Blanket Authorization Under Section 203 • Final Rule: • § 33.1(c)(8) - Grants a blanket authorization under section 203(a)(2) to a person that is a holding company solely with respect to one or more exempt wholesale generators (EWGs), foreign utility companies (FUCOs), or qualifying facilities (QFs) to acquire the securities of additional EWGs, FUCOs, or QFs • 10% in aggregate limitation

  48. Blanket Authorization Under Section 203 • Final Rule: • §33.1(c)(9) – Grants a conditional blanket authorization under section 203(a)(2) to a holding company, or a subsidiary of that company, that is regulated by the Board of Governors of the Federal Reserve Bank or by the Office of the Comptroller of the Currency, under the Bank Holding Company Act of 1956 as amended by the Gramm-Leach-Bliley Act of 1999

  49. Blanket Authorization Under Section 203 • Final Rule: • §33.1(c)(10) – Grants a limited blanket authorization under section 203(a)(2) to a holding company, or a subsidiary of that company, for the acquisition of securities of a public utility or a holding company that includes a public utility for purposes of underwriting activities or hedging transactions

  50. Blanket Authorization Under Section 203 • Final Rule: • Provides blanket authorization for the acquisition or disposition of a jurisdictional contract where: • Neither the acquirer nor transferor has captive customers or owns or provides transmission service over jurisdiction transmission facilities • The contract does not convey control over the operation of a generation or transmission facility • The parties to the transaction are neither affiliates nor associate companies, • The acquirer is a public utility

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