September 13, 20 04 FERC 1 Presented to the NARUC Subcommittee on Accounting and Finance St. Louis, Missouri September 13, 2004 Mark Klose Steven Hunt Regulatory Accounting Policy Office of Markets, Tariffs and Rates FERC Accounting and Financial Reporting Update
FERC Accounting and Financial Reporting Update. Presented to the NARUC Subcommittee on Accounting and Finance St. Louis, Missouri September 13, 2004 Mark Klose Steven Hunt Regulatory Accounting Policy Office of Markets, Tariffs and Rates. DISCLAIMER. - PowerPoint PPT Presentation
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September 13, 2004 FERC 1
Presented to the
NARUC Subcommittee on
Accounting and Finance
St. Louis, Missouri
September 13, 2004
Mark Klose
Steven Hunt
Regulatory Accounting Policy
Office of Markets, Tariffs and Rates
FERC Accounting and Financial Reporting Update
September 13, 2004 FERC 2
DISCLAIMER
The views and comments presented are mine alone and do not represent, nor are they to be interpreted to represent the views, comments, or positions of the Federal Energy Regulatory Commission.
September 13, 2004 FERC3
FERC Accounting Update
Recent Accounting and Financial Reporting Audit and Accounting Policy Reorganization Order 646, Quarterly Financial Reporting and
Revisions to the Annual Reports Order 634, Cash Management Rule Ongoing Accounting and Financial Reporting
– Accounting Letter Orders Major pipeline rehabilitation projects - Capitalize
September 13, 2004 FERC14
Pipeline Integrity Management Costs
Accounting Guidance may be needed– When to capitalize assessment costs
Uprate project to increase capacity Increased safety Increased useful life Re-occurring planned maintenance
September 13, 2004 FERC15
Accounting for Incentive Rate Plans
American Transmission Company (ER04-108-000)– Incentive Rate Plan
CWIP in rate base Expense pre-certification costs as incurred
– Commission Order Goal: Consistency and Comparability Capitalize pre-certification costs and AFUDC on the
CWIP in rate base Recognize economic effects of rate plan using
regulatory assets and liabilities
September 13, 2004 FERC16
Accounting for Incentive Rate Plans
American Transmission Company– Request for Clarification/Rehearing
Clarification Rehearing
– Accounting requirements does not comply with GAAP– Accounting significantly increases administrative costs
September 13, 2004 FERC17
Accounting for Incentive Rate Plans
American Transmission Company – Clarification was granted
Not required to use regulatory liabilities Required footnote disclosures
– Detail amounts not capitalized due to the changes– Provide a partial balance sheet
September 13, 2004 FERC18
FERC Accounting Update
Recent Accounting and Financial Reporting Audit and Accounting Policy Reorganization Order 646, Quarterly Financial Reporting and
Revisions to the Annual Reports Order 634, Cash Management Rule Ongoing Accounting and Financial Reporting
Projects Recent Accounting Guidance
September 13, 2004 FERC19
Audit and Accounting Policy Reorganization
Audit Division resides in OMOI (Office of Market Oversight and Investigations)
Janice Garrison-Nicholas, Director of Financial Audits
Regulatory Accounting Policy resides in OMTR (Office of Markets, Tariffs and Rates)
James Guest, Senior Regulatory Accounting Policy Advisor
September 13, 2004 FERC20
FERC Accounting Update
Recent Accounting and Financial Reporting Audit and Accounting Policy Reorganization Order 646, Quarterly Financial Reporting
and Revisions to the Annual Reports Order 634, Cash Management Rule Ongoing Accounting and Financial Reporting
Projects Recent Accounting Guidance
September 13, 2004 FERC21
ORDER 646
Why is ORDER 646 necessary?– Provides for more timely, relevant, and transparent financial
reporting– Aids in achieving Commission’s goal of vigilant oversight– Identifies and evaluating emerging trends, business
conditions, and financial issues– Assessing the economic consequences of transactions and
events on jurisdictional entities – Measuring the effects of regulatory initiatives– Evaluating the adequacy of existing traditional cost-based
rates
September 13, 2004 FERC22
ORDER 646
Establishes 2 new quarterly financial reports:– Form 3-Q, Quarterly Financial Report of Electric
Companies, Licensees, and Natural Gas Pipeline Companies
– Form 6-Q, Quarterly Financial Report of Oil Pipeline Companies
September 13, 2004 FERC23
ORDER 646
Quarterly Financial Reports:– A basic set of financial statements
Comparative balance sheet Statement of income and retained earnings Statement of Cash Flows Statement of accumulated comprehensive income and
hedging activities Notes to financial statements Important changes during the quarter
September 13, 2004 FERC24
ORDER 646
Supporting Schedules:– Summary of Utility Plant and Accumulated
Depreciation– Plant in Service by function– Production and other expenses– Customer Accounts, Service, Sales, A&G
Expenses– Other regulatory assets and regulatory liabilities
September 13, 2004 FERC25
ORDER 646
Electric Supporting Schedules– Transmission of Electricity for Others – Transmission of Electricity by Others– Monthly Peak Load and Energy Output– Monthly Transmission System Peak Load
September 13, 2004 FERC26
ORDER 646
Corporate Officer Certification for the Quarterly Financial Reports
I have examined this report and to the best of my knowledge, information, and belief all statements of material fact contained in this report are correct statements of the business affairs of the respondent and the financial statements, and other financial information contained in this report, conform in all material respects to the Uniform System of Accounts.
September 13, 2004 FERC27
ORDER 646
Quarterly Filing Dates for 2004
Major Electric and Major Natural Gas Filers
Non-Major Electric and Non-Major Natural Gas
1/1/04-3/31/04 August 23, 2004 September 3, 2004
4/1/04-6/30/04 September 23, 2004 October 7, 2004
7/1/04-9/30/04 December 9, 2004 December 23, 2004
September 13, 2004 FERC28
ORDER 646
Quarterly Filing Dates for 2004
Oil Pipelines
1/1/04-3/31/04 October 21, 2004
4/1/04-6/30/04 October 29, 2004
7/1/04-9/30/04 December 23, 2004
September 13, 2004 FERC29
ORDER 646
Annual Filing Dates for Calendar Year Ending
Proposed in NOPR
Final Order
1 December 31, 2004 March 1, 2005 April 25, 2005
2 Subsequent years March 1 April 18,
September 13, 2004 FERC30
ORDER 646
Waiver/Exemption Requests from Electric Cooperatives– Small size and limited resources as basis for
waiver
September 13, 2004 FERC31
FERC Accounting Update
Recent Accounting and Financial Reporting Audit and Accounting Policy Reorganization Order 646, Quarterly Financial Reporting and
Revisions to the Annual Reports Order 634, Cash Management Rule Ongoing Accounting and Financial Reporting
Projects Recent Accounting Guidance
September 13, 2004 FERC32
Cash Management Practices
Interim Order 634 issued July 8, 2003 Final Rule Order 634-A issued October 23, 2003 Filing requirement of Cash Management Agreements
and all revisions Equity falls below 30%-description of any significant
events that caused such a reduction and plans to increase equity
Exempted electric cooperatives from 30% equity requirement
September 13, 2004 FERC33
FERC Accounting Update
Recent Accounting and Financial Reporting Audit and Accounting Policy Reorganization Order 646, Quarterly Financial Reporting and
Revisions to the Annual Reports Order 634, Cash Management Rule Ongoing Accounting and Financial
Reporting Projects Recent Accounting Guidance
September 13, 2004 FERC34
Ongoing Accounting and Financial Reporting Projects
ISO/RTO Accounting and Reporting Accounting Guidance for Non-Legal
Obligations Business Combinations and Intangible
Assets (SFAS 141 and SFAS 142) Asset Impairments (SFAS 144) General Review and Update of the Uniform
System of Accounts
September 13, 2004 FERC35
ISO/RTO Accounting and Reporting
Whether changes are needed to USofA to provide greater transparency of transactions and events affecting these entities and their members?
What other changes may be necessary to be monitor the activities of ISO/RTOs?
September 13, 2004 FERC36
ISO/RTO Accounting and Reporting
Areas for further review and consideration for ISO/RTO entities– New functional accounts?– New accounting format?– New financial reporting format?– Transactions and events that require additional
accounting and financial reporting guidance?– Sufficient detail to users of the data?
September 13, 2004 FERC37
ISO/RTO Accounting and Reporting
Areas for further review and consideration for jurisdictional entities that participate in ISO/RTOs– Are the individual account descriptions and
instructions sufficient?– What additional detailed information should be
collected or disclosed?
September 13, 2004 FERC38
ISO/RTO Accounting and Reporting
Areas for further review and consideration for jurisdictional entities that participate in ISO/RTOs– Does the USofA and existing financial reporting
provide regulators with adequate information to ensure that costs are not being double recovered?
September 13, 2004 FERC39
ISO/RTO Accounting and Reporting
From a cost management perspective, how best to oversee costs that ISO/RTO incur such as software development?
September 13, 2004 FERC40
ISO/RTO Accounting and Reporting
September 8, 2004 Sunshine Act Notice Commission Agenda Item E-6 RM04-12-000, Financial Reporting and Cost
Accounting, Oversight and Recovery Practices for Regional Transmission Organizations and Independent System Operators
September 13, 2004 FERC41
Ongoing Initiatives
Non-Legal Obligation Issues– Considered a component of depreciation under FERC rules– FERC Final Rule on ARO declined to modify existing rules
for this item– SEC requiring cost of removal to be reclassified from
accumulated depreciation to either income or regulatory liability
– Current staff view is to continue with existing FERC rules
September 13, 2004 FERC42
Ongoing Initiatives
Business Combinations and Intangible Assets (SFAS 141 and SFAS 142)
Asset Impairments (SFAS 144) General Review and Update of the Uniform
System of Accounts
September 13, 2004 FERC43
FERC Accounting Update
Recent Accounting and Financial Reporting Audit and Accounting Policy Reorganization Order 646, Quarterly Financial Reporting and
Revisions to the Annual Reports Order 634, Cash Management Rule Ongoing Accounting and Financial Reporting
Projects Recent Accounting Guidance
September 13, 2004 FERC44
Recent Accounting Guidance
Minimum Pension Liability Guidance Letter– Issued by Chief Accountant on March 29, 2004– Responded to request for guidance as to whether
companies that determined pension allowance in rates based on SFAS 87 could record a regulatory asset equal to the minimum pension liability
– Letter states regulatory asset should be recorded in this circumstance provided that it is probable that a pension allowance to be included in rates will continue to be determined under SFAS 87
September 13, 2004 FERC45
Recent Accounting Guidance
Minimum Pension Liability Guidance Letter– Did not address implication of SFAS 88– SFAS 88 deals with settlements and curtailments
of defined benefit pension plans– Some believe that probability test can not be met
for recognition of a regulatory asset for minimum pension liability unless an order from a regulator exists stating that it would allow rate recovery of a curtailment loss if such an event were to occur in the future