FERC Filings
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION re: REGULATION OF CASH MANAGEMENT PRACTICES
BODY
EPSA understands the Commission’s desire to protect ratepayers of FERC regulated entities from any misuse of the cash management account by the parent company. The Commission is correct in pursuing protections for the customers of FERC regulated utilities.
EPSA is concerned about the potential for the Cash Management NOPR to indirectly impact its members. It is important to note the different structures used by competitive generating and marketing companies making sales for resale of electricity in interstate commerce. Many of the companies are not structured as corporate entities with credit ratings separate from their unregulated parents. Additionally, entities with market-based rate authority, many of whom are EPSA members, have heretofore been exempt from the Commission’s Uniform System of Accounts, as well as other accounting and reporting requirements, and thus under current regulations, would not be subject to the proposed Cash Management Rule. However, the Accounting and Reporting of Financial Instruments NOPR in Docket No. RM02-3-000 (Accounting NOPR) issued on December 20, 2001 questioned whether the Commission should continue the exemptions for independent and affiliated entities with market-based rates. While the Cash Management NOPR appears to apply solely to jurisdictional utilities, if the Accounting NOPR were to become a rule requiring competitive market-based rate entities to report Uniform System of Accounts data, these companies would be inadvertently subjected to the proposed Cash Management Rule. EPSA hereby files the following comments.
I. EPSA’s Prior Response to the Proposed Accounting and Reporting Requirements
The Commission’s pending decision on the Accounting NOPR regarding whether or not market-based rate entities would be required to file, similar to other FERC jurisdictional entities, would also impact which entities would be subjected to the Cash Management NOPR. Consequently, it is proper for EPSA to reassert its concerns regarding the Accounting NOPR.
EPSA supports accurate accounting and extending the benefits of the competitive wholesale electric industry to ultimate customers. The Commission’s core statutory mandate is ensuring that rates, terms and conditions for interstate sales and transportation of electricity are just and reasonable, and are not unduly discriminatory. The focus on regulated rate-base and cost of service inherent in the Uniform System of Accounts and the Form No. 1 is not relevant to entities that charge just and reasonable rates based on the value of their product in the marketplace, as determined by the interactions of buyers and sellers. For these entities, costs must follow market price – whereby an entity may go out of business if costs exceed market prices. This is vastly different than regulated monopolies that operate pursuant to tariffs with authorized rates of return – where prices or rates for services follow costs. Accordingly, the Commission has routinely granted waivers of such accounting and reporting requirements to competitive marketers and generators. The same rationale exists today for granting waivers of its accounting and reporting regulations for marketers and generators with market-based rate authority. EPSA recommended that the Commission continue to grant the waiver in its comments on the proposed Accounting and Reporting of Financial Instruments Rule.
EPSA’s members exist in many different forms and types of entities. Some do not have credit ratings separate from their unregulated parents. Indeed, it would not be unusual for a power marketer or a merchant generation plant to rely upon the guarantee of its creditworthy parent as the primary source of security for its transactions. In such instances, with respect to the parties who are regulated as marketers or merchants and do not have the ability to pass through costs as in cost-of-service rate-making, this additional regulation has no added benefit to the public interest.
Imposition of the Uniform System of Accounts and the requirement that a power marketer or merchant generator and their parent companies have investment grade credit ratings would be burdensome and would not be related to the behaviors that the Commission is trying to prevent. The fact that the Commission has granted a waiver of the accounting regulations for power marketers and generators with market-based rate authority does not alleviate our concerns as loss of the waiver would impose the Uniform System of Accounts and bring with it the investment grade rating requirements.
EPSA’s response to the Accounting NOPR provided several reasons why the reporting requirements of jurisdictional utilities should not be extended to companies currently granted a waiver. First, the comments asserted that the Accounting NOPR did not articulate reasons for considering rescinding past waivers or imposing new accounting or reporting requirements on entities with market-based rates and therefore the Commission should not change precedent. Second, the Accounting NOPR did not address the fact that, if required to file all the information in Form No. 1, the disclosure of confidential cost information would harm the competitive positions of market participants. Third, such disclosure could cause major changes to the accounting systems of jurisdictional entities with market-based rates. The Commission should refrain from imposing costly regulatory burdens upon the wholesale sector absent a showing of offsetting benefits. EPSA feels there are no benefits to be derived from imposing these requirements upon competitive generators and marketers. Finally, EPSA asserted that the Commission should not duplicate the efforts of the Securities and Exchange Commission (SEC) by including entities with market-based rates in the Final Rule.
EPSA feels that all of these considerations are still relevant, and that it is not appropriate Commission policy to extend the reporting requirements to entities with market-based rate authority, which are currently granted a waiver. EPSA makes this assertion even more strongly if it means extending the requirements of the Cash Management NOPR to merchant power producers and marketers. Competitive power suppliers’ cash management agreements and account information is not relevant to the Commission’s charge of monitoring the cost-based rate influencing data that it collects from jurisdictional utilities.
The Commission should also consider the impact of the NOPR on existing and future financing arrangements of generators and marketers. The Commission appears to be equating the reporting requirements of market based companies with cost-based companies. The previously raised issues in the Accounting NOPR and now the Cash Management NOPR raise needless questions for generators and marketers with their creditors when perceptions are at an all time low. The Commission needs to consider the unnecessary regulatory risk raised by the NOPR versus the infrastructure financing it potentially jeopardizes.
II. The Cash Management NOPR’s Nexus with the Accounting NOPR
EPSA recognizes that the Commission does not contemplate in the Cash Management NOPR extending the NOPR’s requirements to market-based rate entities. However, since the Commission raised the issue of extending the reporting requirements to market-based entities in the Accounting NOPR, EPSA feels the need to reassert its objections in this response to the Cash Management NOPR. Since the cash management rules apply to those entities that are not exempt from the requirements of the Commission’s Uniform System of Accounts, EPSA would find any change in that exemption objectionable. Consequently, the Commission should not subject market-based entities to the reporting requirements of the Uniform System of Accounts and in turn other rules such as those contemplated in the Cash Management NOPR.