Transcript FERC Accounting and Financial Reporting Update Presented to the NARUC Subcommittee on

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
September 13, 2004
FERC
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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
FERC
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FERC Accounting Update
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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
FERC
Recent Accounting and Financial
Reporting
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Purchase Accounting
Pipeline Integrity Management Costs
Accounting for Incentive Rate Plans
September 13, 2004
FERC
Purchase Accounting
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Current Guidance
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Generally follow GAAP
AC03-50-000
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Amount allocated to plant over depreciated original cost
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Cost of the acquired company over the sum of amounts
allocated to all identifiable assets and liabilities
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Account 114
Account 186
September 13, 2004
FERC
Purchase Accounting
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Purchase Price Allocation (AC03-33-000)
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Commission approved deferral and recovery of a $59
million adjustment
Purchase price paid included an incentive amount - $59
million
Proposed to record the incentive amount as a regulatory
asset
Commission denied the proposal
 The incentive amount was recorded in Account 114
 Not a regulatory asset
September 13, 2004
FERC
Purchase Accounting
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Deferred Income Taxes
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A jurisdictional company and its two jurisdictional
subsidiaries were purchased
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A tax election was made under Section 338 of the IRC
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Treated as a sale of assets for tax purposes
– Pre-acquisition ADIT are eliminated
– Tax basis equals purchase price
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September 13, 2004
FERC
Purchase Accounting
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Purchasing Company pushed down purchase price to the
Jurisdictional Company
Jurisdictional Company
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Tax basis = purchase price
FERC basis = depreciated original cost + acquisition adjustment
SEC basis = purchase price
Sub1 & Sub2
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Tax basis = purchase price
FERC basis = depreciated original cost
SEC basis = purchase price
Purchasing Company
Purchase Price
Jurisdictional Company
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Sub1
September 13, 2004
Sub2
FERC
Purchase Accounting
For FERC Reporting
For SEC Reporting
Parent Company
Parent Company
Purchase Price
Company A
Sub1
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Sub2
September 13, 2004
Company A
Sub1
Sub2
FERC
Purchase Price
Purchase Accounting
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Sub1 and Sub2 proposed to debit Account
190 for the difference between the FERC and
tax basis in plant assets
No future tax effects attributable to the basis
difference
Matter under study
September 13, 2004
FERC
Pipeline Integrity Management Costs
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Office of Pipeline Safety - Pipeline Safety:
Pipeline Integrity Management in High
Consequence Areas, 49 CFR 192
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Effective December 15, 2003
Establishes minimum requirements for pipeline
operators to perform ongoing assessments of
their system
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Hydrostatic testing
Smart pigging
September 13, 2004
FERC
Pipeline Integrity Management Costs
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Operating Expense Instructions No. 2
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Item 2 - Inspecting, testing and reporting on the
condition of plant to determine the need for
repairs or replacements
Item 3 – Work performed specifically for the
purpose of preventing failure, restoring serviceability, or maintaining life of plant
September 13, 2004
FERC
Pipeline Integrity Management Costs
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Diverse accounting interpretations
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Accounting Release No. AR-8
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Accounting Letter Orders
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Planned Maintenance – Maintenance Expense
Retest to increase capacity – Capitalize
Major pipeline rehabilitation projects - Capitalize
September 13, 2004
FERC
Pipeline Integrity Management Costs
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Accounting Guidance may be needed
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When to capitalize assessment costs
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Uprate project to increase capacity
Increased safety
Increased useful life
Re-occurring planned maintenance
September 13, 2004
FERC
Accounting for Incentive Rate Plans
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American Transmission Company (ER04-108-000)
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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
FERC
Accounting for Incentive Rate Plans
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American Transmission Company
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Request for Clarification/Rehearing
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Clarification
Rehearing
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Accounting requirements does not comply with GAAP
– Accounting significantly increases administrative costs
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September 13, 2004
FERC
Accounting for Incentive Rate Plans
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American Transmission Company
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Clarification was granted
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Not required to use regulatory liabilities
Required footnote disclosures
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Detail amounts not capitalized due to the changes
– Provide a partial balance sheet
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September 13, 2004
FERC
FERC Accounting Update
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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
FERC
Audit and Accounting Policy
Reorganization
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Audit Division resides in OMOI (Office of
Market Oversight and Investigations)
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Regulatory Accounting Policy resides in
OMTR (Office of Markets, Tariffs and Rates)
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Janice Garrison-Nicholas, Director of Financial Audits
James Guest, Senior Regulatory Accounting Policy
Advisor
September 13, 2004
FERC
FERC Accounting Update
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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
FERC
ORDER 646
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Why is ORDER 646 necessary?
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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
FERC
ORDER 646
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Establishes 2 new quarterly financial reports:
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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
FERC
ORDER 646
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Quarterly Financial Reports:
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A basic set of financial statements
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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
FERC
ORDER 646
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Supporting Schedules:
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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
FERC
ORDER 646
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Electric Supporting Schedules
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Transmission of Electricity for Others
Transmission of Electricity by Others
Monthly Peak Load and Energy Output
Monthly Transmission System Peak Load
September 13, 2004
FERC
ORDER 646
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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.
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September 13, 2004
FERC
ORDER 646
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Quarterly Filing Major Electric and
Dates for 2004
Major Natural Gas
Filers
Non-Major
Electric and NonMajor 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
FERC
ORDER 646
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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
FERC
ORDER 646
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Annual Filing Dates
for Calendar Year
Ending
Proposed in
NOPR
Final Order
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December 31, 2004
March 1, 2005
April 25, 2005
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Subsequent years
March 1
April 18,
September 13, 2004
FERC
ORDER 646
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Waiver/Exemption Requests from Electric
Cooperatives
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Small size and limited resources as basis for
waiver
September 13, 2004
FERC
FERC Accounting Update
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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
FERC
Cash Management Practices
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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
FERC
FERC Accounting Update
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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
FERC
Ongoing Accounting and
Financial Reporting Projects
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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
FERC
ISO/RTO Accounting and Reporting
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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
FERC
ISO/RTO Accounting and Reporting
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Areas for further review and consideration for
ISO/RTO entities
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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
FERC
ISO/RTO Accounting and Reporting
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Areas for further review and consideration for
jurisdictional entities that participate in
ISO/RTOs
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Are the individual account descriptions and
instructions sufficient?
What additional detailed information should be
collected or disclosed?
September 13, 2004
FERC
ISO/RTO Accounting and Reporting
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Areas for further review and consideration for
jurisdictional entities that participate in
ISO/RTOs
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Does the USofA and existing financial reporting
provide regulators with adequate information to
ensure that costs are not being double
recovered?
September 13, 2004
FERC
ISO/RTO Accounting and Reporting
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From a cost management perspective, how
best to oversee costs that ISO/RTO incur
such as software development?
September 13, 2004
FERC
ISO/RTO Accounting and Reporting
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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
FERC
Ongoing Initiatives
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Non-Legal Obligation Issues
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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
FERC
Ongoing Initiatives
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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
FERC
FERC Accounting Update
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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
FERC
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
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September 13, 2004
FERC
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
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September 13, 2004
FERC
Questions?
Contacts:
[email protected]
(202) 502-8283
[email protected]
(202) 502-6084
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September 13, 2004
FERC