FERC Audit Update

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FERC Audit Update

Presented to the NARUC Subcommittee
on Accounting and Finance Salt Lake City, Utah
September 19, 2005 Mark Klose Division of
Financial Audits Office of Market Oversight and
Investigations
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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.

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FERC Audit Update

• Overview of Financial and Operational Audits
• Standards of Conduct Audits
• Electric Perspective
• Transmission Service Audits
• EQR and Interlocking Directorate Audits
• ISO/RTO and Independence Audits
• Credit Balances Reported in Expense Accounts
  Audits
• Nuclear Decommissioning Audit
• Natural Gas Pipeline Perspective
• Form No. 2 Audits
• Index of Customers Audits

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Overview of Financial and Operational Audits

• Office of Market Oversight and Investigations
• On August 12, 2002 OMOI became a formal,
  functioning office within the Commission
• Two units
• Market Oversight and Assessment
• Investigations and Enforcement
• Financial Audits (August 2004 )
• Operational Audits
• Enforcement

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Overview of Financial and Operational Audits

• OMOI Director, William Hederman [phone]
• Investigations Enforcement
• Deputy Director, Robert Pease [phone]
• Division of Financial Audits
• Director, Janice Nicholas [phone]
• Division of Operational Audits
• Director, Bryan Craig [phone]
• Division of Enforcement
• Director, Lee Ann Watson [phone]

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Overview of Financial and Operational Audits

• Expanded Approach
• Broader in scope and integrated
• Tariffs, Standards of Conduct, OASIS
• Capabilities from information technology
• Utility independent web sites to confirm data
• Expanding email and voicemail search capability
• Forensic auditing capability being developed

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Overview of Financial and Operational Audits

• Proactive approach
• Conduct industry wide and targeted audits
• Establish a presence
• Identify anti-competitive behaviors and rules
  violations (tariffs, accounting, financial
  reporting, OASIS
• Respond to
• Complaints
• Hotline calls
• hotline_at_ferc.gov
• 1-888-889-8030

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Overview of Financial and Operational Audits
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Overview of Financial and Operational Audits
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Standards of Conduct Audits

• Part 358 - Standards of Conduct for Transmission
  Providers
• Behavior Rules
• Functional separation
• Information access same for affiliates and
  non-affiliates
• Regulated entity can not favor a Marketing or
  Energy Affiliate

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Standards of Conduct Audits

• Completed
• PA05-3-000 Aquila Inc.
• PA05-8-000 Kern River Gas Transmission
• Ongoing
• PA05-2-000 Allegheny Power
• PA05-4-000 Baltimore Gas Electric
• PA05-6-000 El Paso Natural Gas Co.
• PA05-7-000 Florida Power Light Co.
• PA05-9-000 Louisville Gas Electric
• PA05-10-000 Southern California Edison
• PA05-12-000 Dayton Power Light Co.

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Transmission Service Audits

• PA04-11-000 Arizona Public Service Company
• (Commission Order issued 12/16/2004)
• Findings
• Failed to arrange for necessary transmission
  service when making off-system sales
• Incorrectly treated the Phoenix Valley 230-KV
  system as a single node
• Did not post all transmission outages and
  transmission curtailments on OASIS
• Did not make timely filings subsequent to
  emergency situation
• Incorrectly identified the Transmission
  Providers wholesale merchant function or
  affiliate on transmission service requests

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Transmission Service Audits

• PA04-11-000 Arizona Public Service Company
  (Commission Order issued 12/16/2004)
• Corrective action included
• 1.25 million payment to low energy assistance
  programs in Arizona
• 2.75 million upgrade to a 230-KV transmission
  system
• May not recover any of these amounts in rates
• File a plan addressing the operational faults
  cited by the Commission and file quarterly
  progress reports until all corrective actions are
  completed.

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Transmission Service Audits

• PA04-13-000 Tucson Electric Power Company (Order
  issued 12/16/2004)
• Findings included
• When acting as wholesale power merchant,
  obtaining point to point transmission service
  that was not posted on TEPs system and made
  available to other wholesale merchants.
• TEP allowed control area personnel to interact
  with employees engaged in wholesale merchant
  function.
• Corrective action included
• Refund any revenue generated in excess of its
  variable operation and maintenance costs.
• Establish procedures to ensure all required OASIS
  posting are made on a timely basis, transmission
  information is given to all transmission
  customers.

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EQR Interlocking Directorates Audits

• Ongoing Audits
• FA05-1-000 DTE Energy Trading Inc.
• FA05-2-000 Edison Mission Marketing and
  Trading, Inc.
• FA05-3-000 Sempra Energy Trading Corp.
• FA05-5-000 Consolidated Edison Energy Inc.

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ISO/RTO and Independence Audits

• Completed Financial Audits
• FA04-13-000 MISO
• FA04-14-000 California ISO
• FA04-15-000 New York ISO
• FA04-16-000 PJM
• FA04-17-000 ISO New England
• Ongoing Independence Audits
• RT01-2-013 PJM
• RT01-87-009 MISO

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Credit Balances Reported in Expense Accounts
Audits

• FA04-20-000 Virginia Electric Power Co.
• FA04-21-000 Duke Energy Power Co.
• FA04-22-000 Public Service Company of Colorado
• FA04-23-000 Consumers Energy Company
• FA04-24-000 Niagara Mohawk Power Corp.
• FA04-25-000 Alabama Power Corp.
• FA04-26-000 PECO Energy Corp.
• FA04-27-000 Carolina Power Light Co
• FA04-30-000 Northern States Power Co. (Minnesota)
  
• FA04-31-000 PPL Electric Utilities Corp.
• FA04-32-000 Baltimore Gas Electric Co
• FA04-33-000 Connecticut Light Power Company

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Nuclear Decommissioning Audit

• FA04-37-000 Connecticut Yankee Atomic
  Power Company
• Unique
• Single asset company
• Owners are customers
• No longer operating but collecting costs pursuant
  to FERC tariff
• FERC reporting and accounting ?

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Form 2 Audits

• Objective was to determine compliance with
  Commissions accounting and reporting rules
• Companies
• FA04-38-000 Natural Gas Pipeline Co. of
  America
• FA04-39-000 ANR Pipeline Company
• FA04-40-000 Texas Transmission L.P.
• FA04-41-000 Dominion Transmission, Inc.

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Form 2 Audits

• Audit findings included
• Improper accounting for insurance proceeds
• EPA penalty recorded in A/C 925, Injuries and
  Damages
• Delay in placing CWIP into plant in service
• Transmission operation expenses misclassified as
  administrative and general costs
• Deferred matter
• 30 Million in pipeline assessment costs

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Index of Customers Audits
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Questions?

• Contacts
• Mark.Klose_at_ferc.gov
• [phone]