Regulated utilities and natural gas and oil pipelines called on FERC Wednesday to adopt industry guidelines for jurisdictional companies to follow when participating in intra-corporate cash-management programs, as an alternative to the agency’s proposed rule that seeks to set strict limits on the involvement of regulated entities in such arrangements.

“We encourage the Commission to withdraw the proposed rule” that would restrict participation of jurisdictional companies in money pool transactions, said the Interstate Natural Gas Association of America (INGAA), the Edison Electric Institute (EEI) and the Association of Oil Pipe Lines (AOPL). If FERC must take action with respect to money pools, they asked it to opt for guidelines instead.

The three energy-relate groups denounced the Commission’s notice of proposed rulemaking (NOPR) issued in early August, which would require FERC-regulated companies to maintain a minimum proprietary capital balance (stockholders’ equity) of 30%, and subsidiaries and their parent firms to possess an investment grade credit rating, as a precondition to a regulated company’s involvement in a cash-management or money pool arrangement. In addition, FERC proposed that all cash-management transactions be well documented in the future, including deposits, withdrawals, and interest income from and interest expenses related to the arrangements [RM02-14].

The agency’s proposed initiative “would seriously and inappropriately disrupt the ability of jurisdictional companies to participate in money pools, to the detriment of the companies, their shareholders and their customers,” said INGAA, EEI and AOPL. “In addition, the Commission has not sufficiently explained the issue it is trying to address with the proposed rule and its authority to address that issue.”

They urged FERC to consider three guidelines rather than pursue the NOPR:

The guidelines “would allow companies to use their own judgment in deciding whether to participate in a given money pool, an approach we hope the Commission also would adopt,” the three energy groups said.

The Commission-issued NOPR and companion accounting guidance were the result of a sweeping audit conducted this year into energy companies’ cash-management programs. The audit found jurisdictional companies kept large amounts of money — in the billions of dollars — in these type of accounts, that record-keeping by the companies was lax, and uncovered what appeared to be some abuses.

Money-pool arrangements take several forms, but generally they permit parent companies to “sweep” all of the cash of their affiliates together and invest it in one lump sum, thus providing affiliates with a “better rate of return” than what they would receive if they invested the money individually. While cash-management arrangements do have their benefits, FERC warned that they are not without risk.

“Courts have ruled that funds swept into a parent company’s concentration account become the property of the parent, and the subsidiary loses all interest in those funds. There is thus a potential for degradation of the financial solvency of regulated entities, if non-regulated parent companies declare bankruptcy,” the Commission said in the NOPR.

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