Document ID: FERC-2009-1803-0001
Agency: ferc
Document Type: Notice
Title: Technical Conference on Commission Policy on Commencement of Accrual of Allowance Funds, etc.
Posted Date: 2009-12-09T05:00Z

[Federal Register: December 9, 2009 (Volume 74, Number 235)]
[Notices]               
[Page 65117-65119]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09de09-48]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

 
Notice of Technical Conference on Commission Policy on 
Commencement of Accrual of Allowance for Funds Used During Construction

December 2, 2009.

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------------------------------------------------------------------------
Accrual of Allowance for Funds   Docket No. AD10-3-000.
 Used During Construction.
Pacific Connector Gas Pipeline,  Docket Nos. CP07-441-000.
 LP.
Florida Gas Transmission         Docket No. CP09-17-000.
 Company, LLC.
                                 Docket No. AC08-161-000.
Southern Natural Gas Company...  Docket No. CP09-36-002.
Southeast Supply Header, LLC/    Docket No. CP09-40-001.
 Southern Natural Gas Company.

[[Page 65118]]

Ruby Pipeline, LLC.............  Docket No. CP09-54-001.
Texas Eastern Transmission, LP.  Docket No. CP09-68-000.
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    In several recent and pending cases,\1\ the Commission has been 
presented with proposals to accrue Allowance for Funds Used During 
Construction (AFUDC) on expenditures made prior to the time that an 
application is filed for authorization to construct and operate a 
natural gas pipeline. Applicants and potential applicants have 
suggested that the Commission should allow the accrual of AFUDC with 
respect to expenses incurred prior to the filing of a certification 
application, particularly those costs incurred during the pre-filing 
period.
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    \1\ Texas Eastern Transmission, LP, 129 FERC ] 61,151 (2009); 
Florida Gas Transmission Company, LLC, 129 FERC ] 61,150 (2009); 
Ruby Pipeline, LLC, 128 FERC ] 61,224 (2009); Pacific Connector Gas 
Pipeline, LP, Docket Nos. CP07-441-000, CP07-442-000, and CP07-443-
000; Southern Natural Gas Company, Docket No. CP09-36-002.
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    In establishing cost-based rates, the Commission has traditionally 
included only costs relating to a plant that is ``used and useful'' in 
utility operations. However, the Commission has recognized that the 
entities it regulates incur costs associated with the funds invested in 
construction projects prior to the time the facilities are placed in 
service (i.e., are ``used and useful''), and, accordingly, has allowed 
entities to reflect these financing costs by accruing AFUDC. When the 
completed facilities are placed in service, the cost of the facilities, 
including the accrued AFUDC, becomes part of rate base. The entity is 
then able to recover the capitalized AFUDC in the same manner as other 
capital costs, i.e. through rates which include depreciation charges to 
recover the capitalized amounts over the service life of the 
facilities. Gas Plant Instruction 3(17) prescribes the formula for 
determining the maximum amount of AFUDC that may be capitalized as a 
component of construction costs.\2\ The Commission has required an 
applicant to limit its AFUDC rate to a rate no higher than it could 
earn on operating assets. The Commission has limited the maximum amount 
of AFUDC that the pipeline could capitalize by limiting the AFUDC rate 
to a rate no higher than the overall rate of return underlying its 
recourse rates.\3\
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    \2\ 18 CFR part 201 (2009).
    \3\ See Gulfstream Natural Gas System, LLC, 91 FERC ] 61,119 
(2000) and Buccaneer Gas Pipeline Co., LLC, 91 FERC ] 61,117 (2000).
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    Until recently, the Commission has not addressed the question of 
what project-related expenditures may appropriately be the subject of 
AFUDC accrual. However, in 1968 the Chief Accountant issued AR-5, 
Capitalization of Interest During Construction, which among other 
things, provided guidance on when a natural gas pipeline company may 
begin accruing AFUDC on expenditures related to construction projects. 
AR-5 set forth two standards for beginning the accrual of AFUDC. 
Specifically, AR-5 states, in relevant part:

    Interest during construction may be capitalized starting from 
the date that construction costs are continuously incurred on a 
planned progressive basis. Interest should not be accrued for the 
period of time prior to: * * * the date of the application to the 
Commission for a certificate to construct facilities by a natural 
gas company. Interest accruals may be allowed by the Commission for 
the period prior to the above dates if so justified by the company.

    Under this guidance, interest may be capitalized, i.e., AFUDC may 
be accrued, starting from the date (1) ``construction costs are 
continuously incurred on a planned progressive basis,'' but (2) not 
before the date an application to construct the facilities is filed 
with the Commission, unless justified by the applicant.
    Since the issuance of AR-5, the natural gas pipeline industry has 
gone though many changes. So, too, has the process for obtaining 
Commission authorization to construct and operate natural gas pipeline 
facilities. Commission staff has for several years strongly encouraged 
potential applicants to engage in extensive stakeholder contact, route 
development, facility design, and environmental study prior to filing 
an application. This process has the virtue of providing for early 
public engagement, as well as early understanding of environmental 
issues, stakeholder concerns, and other matters that may affect 
pipeline design and route selection issues. Substantial expenditures 
may be incurred during this period, raising the question of the 
continuing propriety of the Commission's current policy of limiting the 
accrual of AFUDC to expenditures incurred after the filing of an 
application. Therefore, the Commission is convening a technical 
conference seeking input and comment on this issue. Participants may be 
guided by, but should not consider themselves limited to, the following 
questions prepared by Commission staff.
    (1) Is it appropriate to continue to use the filing date of an 
application for a certificate to construct facilities to determine the 
expenses on which an applicant may accrue AFUDC? Under what 
circumstances, if any, should the Commission allow an applicant to 
accrue AFUDC on expenditures made before the application date?
    (2) Should the Commission seek to define the term ``if construction 
results'' as used in relation to Account 183.2, i.e., when it is 
appropriate to clear amounts from Account 183.2 and when an applicant 
may appropriately begin recording expenditures in Account 107, 
Construction Work in Progress? If so, how should the term be defined 
for these purposes and what objective indicia of ``construction'' would 
be appropriate?
    (3) Is ``the continuous incur[ing] of construction costs on a 
planned progressive basis'' a useful standard for designating expenses 
on which an entity may accrue AFUDC, and, if so, what are the 
indications that this standard has been met?
    (4) Should there be a presumption that it is appropriate to accrue 
AFUDC on all expenditures recorded in Account 107?
    (5) Should the date an applicant is authorized to commence the 
formal pre-filing process be the date as of which it should be allowed 
to accrue AFUDC?
    a. If so, when should applicants that do not participate in the 
pre-filing process be allowed to begin to accrue AFUDC?
    b. If so, under what circumstances, if any, should an applicant be 
allowed to accrue AFUDC before commencing the pre-filing process?
    (6) Should the Commission allow applicants to accrue AFUDC on 
amounts recorded in Account 183.2? If so, under what circumstances?
    (7) What other bases should the Commission consider for allowing 
applicants to begin accruing AFUDC?
    The technical conference will be held on Tuesday, December 15, 
2009, from 9 a.m. until 1 p.m., in the Commission Meeting Room, at the 
Commission's offices at 888 First Street, NE., Washington, DC. The 
conference will begin with a presentation by Commission staff, followed 
by discussion among the attendees. All interested parties are invited 
to attend, and there is no registration fee to attend the conference.
    Any person interested in filing comments before the technical 
conference may do so, in Docket No. AD10-3-000 and also, if the 
comments pertain to any ongoing proceeding, in

[[Page 65119]]

that proceeding's docket, as well, no later than 5 p.m., December 11, 
2009. Following the conference, persons may file comments, in Docket 
No. AD10-3-000 and also, if the comments pertain to any ongoing 
proceeding, in that proceeding's docket, as well, no later than 5 p.m., 
December 29, 2009. A person is not required to attend the conference in 
order to file comments.
    Any person with questions about the conference may contact Scott 
Molony, Chief Accountant, at (202) 502-8919, or Mark Klose, Senior 
Accountant, at (202) 502-8283.
    FERC conferences are accessible under section 508 of the 
Rehabilitation Act of 1973. For accessibility accommodations please 
send an e-mail to accessibility@ferc.gov or call toll free (866) 208-
3372 (voice) or (202) 502-8659 (TTY), or send a fax to (202) 208-2106 
with the required accommodations.

Kimberly D. Bose,
Secretary.
[FR Doc. E9-29284 Filed 12-8-09; 8:45 am]

BILLING CODE 6717-01-P