The Federal Energy Regulatory Commission in last meeting of the year last week asked for comments on whether it should require approximately 1,200 power marketers to file financial reports on their derivative and hedging positions.

The move came in a notice of proposed rulemaking (NOPR) primarily designed to update the Commission’s financial accounting format for regulated utilities. The changes proposed for FERC’s uniform system of accounts would reflect changes made since 1993 by the Financial Accounting Standards Board (FASB). The NOPR would minimize the differences for companies filing financial accounting reports with FERC and other financial agencies such as the Securities and Exchange Commission.

The NOPR follows up on an Aug. 10 guidance that the Commission received from its chief accounting officer. Its proposed changes for utilities would set a regular method for reporting hedging and derivative positions on an annual basis. It also would allow utilities to use mark-to-market accounting for these transactions and report other financial positions on a fair market value basis. The commissioners noted that the financial reports are filed annually and that in the past utilities have not been major players in the hedging and derivatives market. That may change, however, staff said in recommending the new system.

While the NOPR sets out proposed changes for the utilities, specifically to encompass FASB Rules 115, 130 and 133, it only asks a question as to whether waivers exempting power marketers from financial reporting should be eliminated. The commissioners noted that FERC has regularly extended waivers in the past to power marketers who sell at market-based prices, relieving them of financial reporting obligations that are applied to utilities which offer cost-based rates.

Chairman Pat Wood questioned whether FERC might be overextending its jurisdiction in attempting to monitor marketers’ finances: “is this agency — in this reporting requirement — moving from a rate-oriented, customer-protection type role that we’ve had for years to one of more providing counterparty, investor information that can be used to assess the creditworthiness of companies. I am very open to being told that’s another agency’s job to do…..and I might actually agree with that.” Nevertheless, Wood said he had heard opinions that requiring this type of reporting, adding in more transparency, might help stabilize the market, rather than leading to re-regulation as some have claimed. “If it’s us that should do it, fine. If it’s the Securities and Exchange Commission that should do it, fine or CFTC (Commodity Futures Trading Commission), fine. But, it is timely to ask this question.”

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