Federal Energy Regulatory Commission Update

1
Federal Energy Regulatory Commission Update

• Janice Garrison Nicholas
• Chief Accountant and Director, Division of
  Financial Regulation
• Federal Energy Regulatory Commission

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
Discussion Topics

• Organizational Changes at FERC
• Repeal PUHCA 1935 Enactment PUHCA 2005
• PUHCA 2005 - Proposed Accounting, Reporting and
  Records Requirements Service Companies and
  Holding Companies (PUHCA II)
• New RTO/ISO Accounting and Reporting Rules
• Other key Commission actions

4
Organizational Changes

• April 17, established new Office of Enforcement
  (formerly Office of Market Oversight and
  Investigations)
• Mostly the same functions
• Name changed because of increase in the agencys
  enforcement authority under EPAct 2005
• Reorganized along functional responsibilities of
  the office

5
FERCs Office of Enforcement
6
Energy Policy Act of 2005 (EPAct 2005)

• Public Law 109-58 signed into law August 8, 2005
• Affects FPA, PURPA, PUHCA, NGA, NGPA
• Imposes deadlines for mandatory rulemakings,
  reports, studies, and MOUs (8 RMs, 9 reports, 7
  discretionary RMs or generic actions, 6
  required consultations)
• Mandatory action deadlines 60 days to 18 months
• Repeals PUHCA 1935/enacts PUHCA 2005
• Gives FERC additional civil penalty authority

7
PUHCA 2005

• Primarily a books and records access statute
• Retains definitions of PUHCA 1935
• Provides FERC and state access to books and
  records of holding companies and their members
• Upon request, FERC can determine appropriate cost
  allocations for non-power goods and services
  provided by an associate company to public
  utility members

8
Repeal PUHCA 1935 Enact PUHCA 2005

• Repeal of the Public Utility Holding Company Act
  of 1935 and Enactment of the Public Utility
  Holding Company Act of 2005, Docket No.
  RM05-32-000, Order Nos. 667 and 667-A, rehg
  pending
• FERCs implementation recognized clear intent of
  Congress
• Limited filing requirements to those needed to
  protect against inappropriate cross-subsidization
  and provided for exemptions and waivers for
  persons or transactions

9
Repeal PUHCA 1935 Enact PUHCA 2005 (Contd)

• Did not affect FERCs primary means of protecting
  customers of jurisdictional companies that are
  members of holding company systems FPA NGA
• Gave holding companies until 1/1/07 to comply
  with new FERC record retention requirements
• Did not re-create PUHCA 1935 distinction between
  exempt and registered holding companies
• Gave centralized service companies until 1/1/07
  to comply with new FERC record retention and
  accounting rules

10
Repeal PUHCA 1935 Enact PUHCA 2005 (Contd)

• Adopted a streamlined process to exempt certain
  persons and classes of transactions from the
  books and records regulations
• Other exemptions and waivers will be considered
  on a case-by case basis
• Committed to hold a technical conference within
  one year on implementation issues
• Directed a separate rulemaking (PUHCA II) to
  address how FERCs accounting and record
  retention rules can be modified to integrate SEC
  requirements with rule issued prior to 1/1/07

11
Repeal PUHCA 1935 Enact PUHCA 2005 (Contd)

• Cost allocation agreements
• FERC did not require filing of cost allocation
  agreements
• Traditional centralized service companies
• Can continue to use SECs at-cost standard for
  pricing non-power goods and services
• Presumption that at cost standard is reasonable
• Persons may file complaints if at cost pricing
  results in costs above market
• Special purpose service companies continue to
  apply FERC market standard

12
Repeal PUHCA 1935 Enact PUHCA 2005 (Contd)

• Entities can continue to rely on SEC orders
• Adopted new information requirements
• FERC Form 60, annual report of centralized
  service companies
• FERC 61, all other service companies annually
  submit narrative statement of functions
• FERC 65, notification of holding company status
• FERC 65-A, request for exemption from PUHCA 2005
  regulations
• FERC 65-B, request for waiver of PUHCA 2005
  regulations

13
NOPR PUHCA II

• Financial Accounting, Reporting and Records
  Retention Requirements under the Public Utility
  Holding Company Act of 2005, Docket No.
  RM06-11-000
• NOPR issued 4/24/06 with comments due 6/15/06
• Proposed effective date 1/1/07
• NOPR directs staff to hold a technical conference
  on proposed rules scheduled for July 11

14
NOPR PUHCA II (Contd)

• Uniform System of Accounts for centralized
  service companies (new Part 367)
• Records Retention requirements for holding
  companies and service companies (new Part 368)
• Revises Form 60 and changes filing date to April
  18 (new Part 369)
• Proposes electronic filing of Form 60 (new Part
  369)

15
NOPR PUHCA II (Contd)

• NOPR guided by three overarching objectives. New
  requirements should
• Mirror existing FERC rules for public utilities
  and natural gas companies
• Allow for consolidation of service company
  financial information with that of associate
  companies
• Reflect unique aspects of service company
  operations

16
NOPR PUHCA II (Contd)

• NOPR notes the appearance of a regulatory gap in
  FERC jurisdiction over service companies that
  only have associate natural gas companies
• NOPR seeks comments on
• Whether there is a regulatory gap?
• If so, is there a need to address the gap?
• If so, how should FERC address the gap under the
  NGA?

17
Final Rule RTO/ISO Transactions

• Accounting and Reporting for Public Utilities
  Including RTOs, Docket No. RM04-12-000, Order
  Nos. 668 and 668-A, rehg pending
• New rule adopted to provide greater transparency
  and uniformity regarding costs incurred by public
  utilities, including RTOs and ISOs
• Expect improvements in cost recovery practices
• Order No. 668 effective 4/1/06
• Made corresponding changes to annual report forms
  (Forms 1 and 1-F) and quarterly report Form 3-Q

18
Final Rule RTO/ISO Transactions (Contd)

• Changes adopted in the final rule
• New regional transmission and market operation
  asset function
• New RTO revenue accounts 457.1 and 457.2
• New regional market expense function and accounts
  
• Expanded Account 561 to make it more transparent
  for reliability, scheduling system control

19
Final Rule RTO/ISO Transactions (Contd)

• New Account 561.5 for costs incurred by RTOs
  performing long-term system planning standards
  development
• New Accounts 561.6 561.7 for transmission and
  generator study costs
• Three new accounts for RTO billings (561.4, 561.8
  and 575.7)
• New account for transmission revenues (456.1)
• Requires netting of RTO energy market transactions

20
Other Key Commission Actions

• Final Rule, Transactions Subject to FPA Section
  203, Docket No. RM05-34-000, Order Nos. 669 and
  669-A, rehg pending
• Final Rule implements amended FPA section 203
• Increased threshold for FPA 203 transactions to
  10 million
• Extended the scope of FPA 203 to transfers of
  generation facilities and certain holding company
  transactions in excess of 10 million
• Limits FERC review of a public utilitys
  acquisition of securities of another public
  utility to transactions in excess of 10 million

21
Other Key Commission Actions (Contd)

• Requires FERC to examine cross-subsidization and
  pledges or encumbrances of utility assets
• Requires FERC to expeditiously consider FPA 203
  filings
• Granted blanket authorization for certain types
  of transactions, including foreign utility
  acquisitions by holding companies, intra-holding
  company system financing and cash management
  agreements, internal corporate reorganizations
  and certain investments in transmitting utilities
  and electric utility companies

22
Other Key Commission Actions (Contd)

• Adopted market value as the appropriate measure
  of value for transfers of physical facilities
  (transmission and generation facilities)
• Where transactions involve FPA 203 and non-FPA
  203 facilities and no separate valuations of the
  physical assets were performed, companies should
  use original cost undepreciated
• Transactions between affiliates measured on
  original cost undepreciated

23
Other Key Commission Actions (Contd)

• FERC will rebuttably presume that market value
  for wholesale contracts between non-affiliates is
  the transaction price
• FERC will value jurisdictional contracts between
  affiliates based on nominal revenues over
  remaining contract life
• Securities transactions between non-affiliates
  will be based on transaction price
• Securities transactions between affiliates will
  be valued on market price if widely traded
  otherwise use a three part method to determine
  value

24
Other Key Commission Actions (Contd)

• For holding company mergers and acquisitions
  between non-affiliates, market value will be
  transaction price or consideration paid
• For mergers and acquisitions involving
  affiliates, FERC will use the book cost of all of
  a companys assets to measure the value

25
Other Key Commission Actions (Contd)

• Set forth applicants obligation to demonstrate
  that a proposed FPA 203 transaction does not
  result in cross-subsidization or a non-utility
  associate company or the pledge or encumbrance of
  utility assets for the benefit of the associate
  company
• Provided for expeditious consideration of
  completed applications
• Technical conference on PUHCA 2005 implementation
  will also consider issues from this proceeding

26
Other Key Commission Actions (Contd)

• NOPR, Preventing Undue Discrimination and
  Preference in Transmission Service, Docket Nos.
  RM05-25-000 and RM05-17-000
• NOPR issued 5/19/06 comments due 60 days after
  publication in the Federal Register
• Proposed changes to OATT rules adopted in Order
  Nos. 888 and 889.
• FERC seeks to increase transparency while
  addressing ambiguities in original pro forma
  tariff

27
Other Key Commission Actions (Contd)

• NOPR, Market-Based Rates for Wholesale Sales of
  Electric Energy, Capacity and Ancillary Services
  by Public Utilities, Docket No. RM04-7-000
• NOPR issued 5/19/06 comments due 60 days after
  publication in Federal Register with reply
  comments due 30 days later.
• Proposed reforms to FERCs four-prong market
  power test

28
Other Key Commission Actions (Contd)

• Final Rule, Procedures for Disposition of
  Contested Audit Matters, Order Nos. 675 675-A,
  Docket No. RM06-2-000
• Expands procedural rights of persons subject to
  audits under the FPA, NGA, NGPA and ICA to all
  types of audits (does not apply to reliability
  audits)
• Spells out process for cases where an audit
  person contests an audit finding, the proposed
  remedy or both

29
Other Key Commission Actions (Contd)

• NOPR, Promoting Transmission Investment through
  Pricing Reform, Docket No. RM06-4-000
• NOPR issued 11/18/06
• EPAct 2005 directed FERC to develop
  incentive-based rate treatments for transmission
  of electric energy in interstate commerce
• NOPR designed to implement those incentives,
  provide regulatory certainty and support expanded
  and improved transmission infrastructure while
  ensuing just and reasonable transmission rates

30
Questions?

• Contact Information janice.garrisonnicholas_at_ferc
  .gov
• [phone]