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FERC Says Regulated Firms in Full Compliance with Cash Management Rule

FERC staff reported last Wednesday 100% compliance with a final rule that requires regulated natural gas and oil pipelines and public utilities who participate in intra-corporate pool arrangements with their unregulated parents and affiliates to submit written agreements to the agency for agreement.

The rule, which took effect in December 2003, directed jurisdictional companies that were involved in so-called cash management programs to file a copy of the agreements with the Federal Energy Regulatory Commission within 10 days of the effective date of the final rule. The agency's audit staff began a compliance review of company cash management filings in March 2004.

Of the 142 actual cash management agreements that were filed with FERC, staff said 139 were found to be fully compliant. The remaining three -- Duquesne Light, Endicott Pipeline and Equitrans LP -- submitted revised agreements that were later deemed fully complaint with the rule.

The Commission initiated the rule because it was concerned that financially troubled parent corporations, such as Enron Corp., were draining the cash funds that were maintained by jurisdictional subsidiaries in these cash management arrangements. FERC proposed the new regulation to shield both regulated companies and their ratepayers.

Under cash management arrangements, funds in excess of the daily needs of a FERC-regulated company are combined with the excess funds of the unregulated parent corporation and affiliates, and are made available for use by entities within the corporate group. The cash assets of affiliates are concentrated in joint accounts for the purpose of providing financial flexibility and lower cost of borrowing.

While cash management arrangements do have benefits for regulated companies, they also present certain risks, as was demonstrated by Enron when it dipped into the funds of regulated pipeline subsidiaries before going bankrupt in December 2001.

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