On July 28, 2022, FERC proposed changes to its Uniform System of Accounts (“USofA”) in response to the growth of non-hydro renewable generation such as wind, solar, and storage and codify accounting for renewable energy credits (“RECs” ). FERC’s Notice of Proposed Rulemaking (“NOPR”) follows a Notice of Inquiry issued in January 2021 seeking comment on the appropriate accounting treatment for certain renewable energy assets (see January 28, 2021 edition of the WER). Comments on the NOPR are due 45 days from its publication in the Federal Register.
FERC’s predecessor, the Federal Power Commission, created the USofA to facilitate its ratemaking responsibilities by uniformly capturing electric utilities’ and natural gas pipelines’ financial and operational information. The USofA has been modified over time to account for changing technological, legal, and market conditions, but has not been significantly modified since 2013. In the NOPR, FERC proposes four main changes to the USofA to address the rapid growth of renewable generation, and to provide clear guidelines on the proper accounting treatment of certain non-hydro renewable energy assets and RECs.
First, the NOPR proposes to create three new production accounts (termed “subfunctions”) for solar, wind, and other renewables: “Solar Production,” “Wind Production,” and “Other Non-Hydro Renewable Production.” Currently, the UsofA contains “Steam,” “Nuclear,” “Hydraulic,” and “Other Production” production accounts, the latter of which utilities use to record non-hydro renewable assets. FERC noted in the NOPR that this approach appears to be inadequate and leads to disputes about which equipment belongs in which account. FERC stated its belief that creating new accounts for renewable generation will make reporting on these assets more uniform and transparent. FERC seeks comment on how to rename the “Other Production” subfunction in light of the new additions and whether to include tidal energy as part of the existing Hydraulic accounts or in the newly proposed Other Non-Hydro Renewable Production accounts.
Second, the NOPR proposes to create a new functional class for energy storage. Currently, energy storage assets are recorded in serval accounts in separate functions (generation, transmission, and distribution) based on how the storage asset is used. The NOPR states that the current accounting treatment is impractical and imposes a significant burden as compared to creating a new, dedicated storage function. Additionally, the NOPR proposes to move the costs of pumped storage plant, which are currently recorded within the Hydraulic Production subfunction, to the new energy storage function.
Third, the NOPR proposes to codify the accounting treatment of RECs. FERC pointed to precedent regarding the jurisdictional status of RECs based on whether they are part of a transaction bundled with, or unbundled from, a wholesale energy transaction. Unbundled RECs do not fall within FERC’s jurisdiction, but bundled RECs do. To account for this, and to reflect FERC’s belief that RECs are “more akin to inventory,” the NOPR proposes two separate inventory accounts for recording bundled and unbundled RECs.
Fourth, the NOPR proposes to add new accounts for computer hardware, software, and communication equipment for each function, including those newly created functions and subfunctions, because existing accounts only apply to Regional Transmission Organizations. The Commission seeks comment on whether to create similar accounts for natural gas and oil pipelines, and a holding company’s service companies.
Finally, although not proposed as a change to the USofA, FERC seeks comment on whether the Chief Accountant should issue guidance on the accounting for hydrogen.
A copy of the NOPR can be found here.