Introduction
On June 29, the Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 898, a last rule that revises FERC’s Uniform System of Accounts (USofA) by including purposeful element in regards to the accounting therapy of sure renewable and storage applied sciences, and creating new accounts for renewable power credit (RECs) (now termed Environmental Credits), in addition to sure {hardware}, software program, and communication tools (Final Rule). [1] FERC additionally amended the related FERC kinds to accommodate these modifications. The Final Rule will grow to be efficient January 1, 2025.
FERC’s newest effort to revise the USofA, which has not been considerably modified since 2013, [2] is to account for fast modifications in expertise and useful resource combine within the U.S. power trade over latest many years. [3] According to FERC, the reforms adopted within the Final Rule will present uniformity, consistency, and transparency in accounting and reporting for investments in renewable and storage applied sciences, and help the Commission in fulfilling its duties beneath the Federal Power Act (FPA) to make sure that charges stay simply and cheap. [4] The Final Rule follows a Notice of Proposed Rulemaking (NOPR), [5] which itself follows a Notice of Inquiry (NOI) [6] and a separate petition for rulemaking. [7]
As FERC defined within the NOPR and NOI, the USofA doesn’t have manufacturing accounts designated particularly for photo voltaic, wind, or different renewable producing belongings, thus public utilities as a substitute report non-hydro renewable producing belongings within the “Other Production” accounts. [8] Accordingly, FERC concluded that “the USofA have to be modified to make clear how public utilities ought to account for non-hydro renewable producing belongings, to keep away from inconsistencies in accounting and reporting, and to facilitate the ratemaking course of.” [9]
Creation of New Subfunctions and Accounts for Non-Hydro Renewables
In the Final Rule, the Commission adopts new Production Plant subfunctions and associated accounts beneath the USofA for non-hydro renewable mills. [10] The three subfunctions embrace Solar Production, Wind Production, and Other Renewable Production. [11] Within these subfunctions, the Commission contains the next 5 accounts, that are related to current accounts in different Production Plant subfunctions: Land and Land Rights; [12] Structures and Improvements; [13] Other Accessory Electrical Equipment; [14] Miscellaneous Power Plant Equipment; [15] and Asset Retirements Costs. [16] The Commission is retaining the “Other Production” subfunction to protect flexibility for technological change. [17]
Additionally, the Commission adopts three accounts for the brand new Solar Production and Wind Production subfunctions which can be distinctive to renewable applied sciences extra usually. These embrace accounts for Collector Systems; [18] Generation Step-up Transformers (GSU); [19] and Inverters. [20] The Final Rule clarifies {that a} collector system “extends up to, however doesn’t embrace, the substation prior to interconnection to the grid” and explicitly doesn’t embrace value of interconnection tools reminiscent of transformers. [21] The Final Rule additional clarifies that the account for GSUs is designated for GSUs that step up voltage to assist collector programs and shouldn’t be used for GSUs that step up voltage to transmission. [22] This is as a result of the previous doesn’t join to the transmission or distribution system whereas the latter does and is extra appropriately recorded with substations in accounts for Station Equipment. [23]
Further, the Commission adopts new accounts for every subfunction which can be distinctive to that subfunction extra particularly. For Solar Production, the Commission adopts an account for Solar Panels. [24] For Wind Production, the Commission has separated the reporting of generators, in addition to towers and fixtures. [25] For Other Renewable Production, the Commission provides accounts for Fuel Holders, Boilers, and Generators. [26]
The Commission additionally adopts streamlined Operations and Maintenance (O&M) accounts for the three new Production Plant subfunctions plus a miscellaneous expense account “to home bills that don’t clearly fall inside different specified accounts.” [27] The Commission clarified that prices recorded right here relate to the Plant Production Accounts. [28]
Finally, the Commission defined that accounting for tidal and wave assets must be positioned beneath the Other Renewable subfunction. [29] The Commission declined to create new accounts for the accounting of hydrogen. [30] Instead, the Commission directed that hydrogen could be accounted for both as a gas or an power storage medium beneath current accounts, as most appropriately aligns with the accounting directions for such accounts. [31]
Creation of Energy Storage Function and Accounts
The Final Rule adopted, with revisions, the NOPR’s proposal to set up a separate USofA purposeful class for Energy Storage. [32] According to FERC, the aim of making this purposeful class is to cut back record-keeping, depreciation, and retirement burden, and the chance for reporting error. [33] The Final Rule additionally creates Energy Storage operate plant accounts for pc {hardware}, software program, and communication tools. [34]
The Final Rule eliminated the NOPR’s proposed directions to subpart C of Account 387.3 and the related reporting on pages 414-16 of the FERC Form No. 1. [35] The Final Rule additionally consolidated the record of O&M accounts that the NOPR created for power storage due to the comparative operational simplicity of storage programs. [36] However, the Final Rule added a miscellaneous upkeep account. [37]
Additionally, the Final Rule rejected the NOPR’s proposal to transfer the prices of pumped storage plant, that are at present recorded inside the Hydraulic Production subfunction, to the brand new power storage operate. [38] The Final Rule famous that due to the character of those belongings, pumped storage belongings match higher in current hydroelectric manufacturing accounts. [39]
Accounting Treatment for Renewable Energy Credits (RECs)
The Commission adopted its proposal within the NOPR to undertake new accounting and reporting therapy of RECs, with some modifications. [40] First, the Commission renamed the proposed REC accounts to “Environmental Credits,” to make clear that these accounts are for all sorts of environmental credit, together with zero emissions credit and different allowances. [41] Entities may additionally designate subaccounts or different codes for various kinds of environmental credit distinctive to their operations. [42] Next, the Commission adopted the NOPR’s proposed modifications to General Instruction No. 21. [43] These modifications embrace retitling the instruction from “Allowances” to “Allowances and Environmental Credits,” eradicating the reference to the Clean Air Act in Part A, modifying the instruction to reference the brand new accounts adopted within the Final Rule, and modifying Parts A and C to refer to historic value, [44] in addition to different minor modifications to right typographical errors, amongst others. [45]
The Commission additionally adopted the NOPR’s proposal to deal with Environmental Credits (previously RECs) as stock and clarified that Commission accounting and reporting laws trump conflicting laws by different accounting authorities. [46] The Commission defined that Environmental Credits are sometimes utilized in a interval apart from that by which they’re acquired and thus function for utilities as an inventoriable asset. [47] The Commission additionally agreed with commenters that Environmental Credits are usually not usually the product of steam era, and subsequently their bills extra appropriately belong within the Other Power Supply bills subfunction. [48] The Commission famous that, whereas its accounting and reporting laws would prevail if in battle with one other accounting authority’s Environmental Credit therapy, utilities may “report regulatory belongings or liabilities to report any variations between accounting and ratemaking therapy, or preserve separate data to accommodate the accounting therapy required by the completely different regulatory our bodies.” [49]
The Commission agreed with commenters that expired RECs must be recorded in a brand new account, titled Losses from Disposition of Environmental Credits, and that that losses on speculative RECs buying and selling must be recorded in Account 426.5 (Other Deductions). [50] Finally, with respect to stock valuation, the Commission famous its desire for weighted common value however that if particular state regulation or tariff provisions require utilities to use a special stock methodology, “the financial actuality of the transaction governs, with divergence from commonplace observe famous and defined within the FERC Form Nos. 1 and 3-Q disclosures.” [51]
Creation of Accounts for Computer Hardware, Software, and Communication Equipment
The Final Rule additionally adopted the NOPR’s proposal to set up a number of new accounts in every operate and subfunction for pc {hardware}, software program, and communication tools to get rid of ambiguity and guarantee higher consistency in FERC accounting. [52] The Commission added three plant accounts and three upkeep accounts to all features and subfunctions, together with the brand new Renewable Generation subfunctions and the brand new Energy Storage operate. [53] The Commission additionally added a brand new Electric Plant Instruction No. 17, which directs that the place pc {hardware}, software program, and communication tools is built-in as half of a bigger retirement unit, it shall be recorded within the property account of the retirement unit bought. [54] Where this pc {hardware}, software program, or communication tools is just not built-in, Plant Instruction No. 10 must be adopted. [55] The Commission clarified that if utilities are unable to establish the purposeful stage of detailed balances of plant with related collected depreciation, such balances could reside within the accounts initially utilized by the utilities. [56] Additionally, for {hardware}, software program, and communication tools that serves a number of features, the Commission defined that utilities could report such belongings based mostly on predominant use or operate, or alternatively, report such belongings within the new General Plant accounts. [57] The Commission famous that fiber optic cables must be categorized based mostly on their objective and operate. [58] In response to commenters, the Commission additional famous that the appropriateness of classic depreciation is taken into account on a case-by-case foundation inside depreciation price case proceedings. [59]
Reporting
The Final Rule adopted, with revisions, the NOPR’s proposal to amend FERC Form Nos. 1, 1-F, and 3-Q (electrical) to mirror the Final Rule’s accounting modifications. [60] These amendments embrace including the brand new subfunctions for Wind, Solar, and Other Non-Hydro Renewable, [61] and including a brand new Energy Storage operate within the plant and operations and upkeep expense sections of the Forms. [62] As a results of these modifications, the Final Rule contains in FERC Form No. 60 new rows for the summarized totals of the proposed new Energy Storage operate and Generation sub-functions O&M accounts. [63] The Final Rule additionally provides new plant and upkeep expense accounts for pc {hardware}, software program, and communication tools inside all features and subfunctions to FERC Form Nos. 1, 1-F, and 3-Q (electrical). [64]
The Final Rule additionally updates references in FERC Form Nos. 1, 1-F, and 3-Q (electrical) to the proposed Other Non-Hydro Renewable subfunction to refer as a substitute to the Other Renewable subfunction. [65] The Final Rule additionally updates references to RECs to as a substitute reference environmental credit. [66] Additionally, the Final Rule maintained statistical plant pages 402-03 and 406-07. [67] Instead, the Final Rule added a brand new renewable producing plant statistical web page 404 to FERC Form No. 1. [68]
Compliance Procedures
The Final Rule requires regulated entities to implement the Final Rule’s necessities by January 1, 2025. [69] The Final Rule, nevertheless, doesn’t require retroactive reporting in FERC Form Nos. 1 and 3-Q of those accounting modifications. [70] The Final Rule additionally doesn’t require a restatement of prior years within the preliminary Forms beneath the implementation of the brand new accounts. [71] The Final Rule additionally famous that historic balances must be transferred to the brand new accounts within the present 12 months with out restating balances for prior years. [72] The utilities’ FERC Forms filed with the Commission ought to embrace the quantities transferred. [73]
The Final Rule additionally acknowledged that current depreciation charges ought to apply to the newly categorized plant going ahead, together with classic depreciation charges which can be utilized to non-General Plant, in addition to present amortization charges being handled as classic depreciation with equivalent charges. [74] The Final Rule famous that the appropriateness of this depreciation methodology shall be thought-about on a case-by-case foundation and will think about the entire acceptable data related to retirement items within the account. [75] The Final Rule additionally acknowledged that jurisdictional utilities with components charges may search to replace their components charges to adjust to this rule [76] through a single-issue submitting beneath FPA Section 205 or different Section 205 components price replace submitting involving different issues. [77]
A replica of the Final Rule could be discovered right here.
[1] Accounting and Reporting Treatment of Certain Renewable Energy Assets, Order No. 898, 183 FERC ¶ 61,205 (2023) (Final Rule).
[2] See Third-Party Provision of Ancillary Servs.; Acct. & Fin. Reporting for New Elec. Storage Tech., Order No. 784, 78 FR 46178 (July 30, 2013),144 FERC ¶ 61,056 (2013), order on clarification, Order No. 784-A, 146 FERC ¶ 61,114 (2014).
[3] Final Rule at P 1.
[4] Id.
[5] See Acct. & Reporting Treatment of Certain Renewable Energy Assets, Notice of Proposed Rulemaking, 87 FR 59870 (Oct. 3, 2022), 180 FERC ¶ 61,050 (2022).
[6] See Acct. & Rep. Treatment of Certain Renewable Energy Assets, Notice of Inquiry, 86 FR 7086, 174 FERC ¶ 61,032 (2021).
[7] See Locke Lord LLP, 174 FERC ¶ 61,033 (2021) (submitting petition to the Chief Accountant in Docket No. AC20-103 requesting affirmation that the prices of sure wind and photo voltaic producing belongings must be booked to Other Production Accounts 343 (Prime Movers), 344 (Generators), and 345 (Accessory Electric Equipment)).
[8] Final Rule at P 18.
[9] Id.
[10] Id. at P 47.
[11] Id.
[12] Accounts 338.1, 338.20, 339.1.
[13] Accounts 338.2, 338.21, 339.2.
[14] Accounts 338.8, 338.29, 339.8.
[15] Accounts 338.12, 338.33, 339.12.
[16] Accounts 338.13, 338.34, 339.13.
[17] Final Rule at P 62.
[18] Accounts 338.5, 338.26.
[19] Accounts 338.6, 338.27.
[20] Accounts 338.7, 338.28.
[21] Final Rule at P 52.
[22] Id. at P 55.
[23] Id.
[24] Account 338.4.
[25] Accounts 338.23, 338.24.
[26] Accounts 339.3, 339.4, and 339.6, respectively.
[27] Final Rule at PP 59-60. These shall be designated as Accounts 558.1-559.16.
[28] Final Rule at P 61.
[29] Id. at P 63.
[30] Id. at P 64.
[31] Id.
[32] Id. at P 72.
[33] Id.
[34] Id.
[35] Id. at P 73.
[36] Account 578.2 (Maintenance of Energy Storage Equipment and Structures (Major solely)), Account 578.3 (Maintenance of Computer Hardware (Major solely)), Account 578.4 (Maintenance of Computer Software (Major solely)), Account 578.5 (Maintenance of Communication Equipment (Major solely)), and Account 578.7 (Maintenance of Other Energy Storage Plant (Nonmajor solely)).
[37] Account 578.6 (Maintenance of Miscellaneous Other Energy Storage Plant (Major solely)).
[38] Final Rule at P 75.
[39] Id.
[40] Id. at P 87. While many commenters requested a technical convention to talk about implementation of the proposed REC therapy, the Commission declined to deal with these requests as exterior the scope of the moment rulemaking continuing.
[41] Id. at P 89.
[42] Id.
[43] Id. at P 90.
[44] The objective of this alteration is to make this instruction in keeping with different current regulatory textual content within the USofA.
[45] Final Rule at P 89.
[46] Id. at PP 77, 94.
[47] Id. at P 94. The Commission created two new stock accounts for Environmental Credits: Account 158.3 (Bundled Environmental Credits Inventory), and Account 158.4 (Unbundled Environmental Credits Inventory).
[48] Id. at P 91. The Commission renamed and renumbered these expense accounts to Account 555.2 (Bundled Environmental Credits) and Account 555.3 (Unbundled Environmental Credits).
[49] Id. at P 94. The Commission famous, nevertheless, that utilities should disclose such different accounting of their FERC Form experiences. Id.
[50] Account 411.12.
[51] Final Rule at P 97.
[52] Id. at P 99 (“The USofA was up to date in 2005 to embrace accounts for recording pc {hardware}, software program, and communication tools owned by regional transmission organizations (RTO), however didn’t create comparable accounts for non-RTO public utilities and licensees to report a lot of these belongings. Consequently, non-RTO public utilities don’t report pc {hardware}, software program, and communication tools uniformly, with many utilities recording these belongings basically accounts (e.g., Account 303 (Miscellaneous Intangible Plant) and Account 391 (Office Furniture and Equipment)).”).
[53] Id. at P 100. These Accounts are: Accounts 315.1, 324.1, 334.1, 338.9, 338.30, 339.9, 345.1, 351.1, 363.1, 387.8, and 397.1 (Computer Hardware); Accounts 315.2, 324.2, 334.2, 338.10, 338.31, 339.10, 345.2, 351.2, 363.2, 387.9, and 397.2 (Computer Software); Accounts 315.3, 324.3, 334.3, 338.11, 338.32, 339.11, 345.3, 351.3, 363.3, 387.10, and 397.3 (Communication Equipment); Accounts 513.1, 531.1, 544.1, 553.1, 558.13, 558.33, 559.12, 578.7, 592.2, and 935.1 (Maintenance of Computer Hardware (Major solely)); Accounts 513.2, 531.2, 544.2, 553.2, 558.14, 558.34, 559.13, 578.8, 592.3, 935.2 (Maintenance of Computer Software (Major solely)); and Accounts 513.3, 531.3, 544.3, 553.3, 558.15, 558.35, 559.14, 578.9, 592.4, 935.3 (Maintenance of Communication Equipment (Major solely)). Id. Consistent with the proposed accounts, the Commission additionally added (Major solely) to the account names for current Transmission Expenses Maintenance Accounts 569.1, 569.2, 569.3. Id. Because the RTO operate solely exists for RTOs and unbiased system operators, the Commission didn’t suggest this designation on its accounts (i.e., Accounts 576.2, 576.3, and 576.4). Id. These accounts have the identical descriptions, directions, and objects as the prevailing RTO and Transmission operate accounts of the identical title. Id.
[54] Id. at P 101.
[55] Id.
[56] Id. at P 111.
[57] Id. at P 113.
[58] Id. at P 114. For instance, fiber optic cables used as communication tools must be recorded within the new purposeful accounts for communication tools. Id.
[59] Id. at P 115.
[60] Id. at P 125.
[61] Id.
[62] Id.
[63] Id. at P 118.
[64] Id. at P 120.
[65] Id. at P 125.
[66] Id.
[67] Id. at P 127.
[68] Id.
[69] Id. at P 136.
[70] Id.
[71] Id.
[72] Id.
[73] Id.
[74] Id. at P 137.
[75] Id. at P 137.
[76] Id. at P 138.
[77] Id.
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