The Federal Energy Regulatory Commission’s (FERC) recent audit of a company participating in numerous wholesale power markets highlights errors that can occur with electronic quarterly reports as well as the actions suggested by FERC and taken by the company to prevent such errors in the future.
FERC requires entities holding market-based rates to submit electronic reports of their sales. The electronic quarterly reports (EQR) are due 30 days after the end of the prior quarter.
To be sure, government reporting can sometimes be considered a thankless task. In the case of the FERC quarterly filing requirement, however, compliance is imperative. Transaction-specific reporting provided in quarterly reports is necessary: (i) for rates to be on file as required by section 205(c) of the Federal Power Act, (ii) to evaluate the reasonableness of the charges, and (iii) “to provide for ongoing monitoring of the marketer’s ability to exercise market power.”1 While FERC can approve market-based rates, such approval must be “coupled with enforceable post-approval reporting that would enable FERC to determine whether the rates were “just and reasonable” and whether market forces were truly determining the price.”2
In this case, the audit revealed various errors in the quarterly reporting. First, the company misreported uplift payments from each RTO and ISO. The company reported uplift transactions as sales between their affiliates, rather than as transactions between the entity reporting and the individual ISO. Further, the company misreported the amount of such uplift payments.
The company made these errors for three reasons: (1) the company’s EQR templates incorrectly mapped RTO/ISO data into the appropriate EQR categories; (2) the company did not refile its EQR promptly after the ISO made ex post facto adjustments to its original data; and (3) the company made errors in entering data.
Second, the company failed to report some capacity sales and reported capacity sales with volumetric and pricing data that did not conform to the required EQR standards, nor did the company include accurate dates for the sales.
Third, the company incorrectly reported Real-Time Net Regulation Adjustment (RTNRA) credits as energy sales into MISO markets.3 Rather than reporting these transactions as “Energy” with a fixed price, such transactions should have been reported as “Other” with a Rate Unit as “Flat Rate.”
To prevent such occurrences in the future, the FERC auditors recommended, in addition to more training on EQR filings, for the company to develop effective controls to ensure that the quarterly reports accurately, completely, and consistently comply with Commission EQR filing guidance. The auditors said such controls should “encompass a comparison and financial reconciliation of sales data from its own internal accounting records with the transaction data received from the RTO/ISO before filing its EQRs with the Commission.”4
In response, the company said it had “initiated an IT automation project in order to improve the data extraction, consolidation, and review process” that “will substantially improve both the accuracy and completeness of its EQRs.”5 The company also stated that it is “preparing written protocols for verifying the accuracy and completeness of its EQRs,” which will provide for, among other things, “routine and random checks of draft EQRs, including comparison and reconciliation of the sales data received from RTOs and ISOs against the company’s internal accounting records.”6 Furthermore, the company added an item to its Internal Audit Plan for 2017 to perform an audit covering EQR processes and controls.
The mistakes that occurred here and the corrective actions taken should be informative to market participants as they seek fully to comply with FERC’s EQR requirement.