On July 17, 2014, FERC released informal staff guidance on preparing annual formula rate updates.  The guidance follows several recently released orders that required certain public utilities to submit formula rate protocols or revise their current protocols.

After reviewing numerous annual formula rate updates, FERC staff identified several areas of “common deficiencies that have impeded the ability to review the annual updates and verify that the resulting rates have been developed consistent with the requirements of the verified rate.”  Therefore, FERC staff developed guidance to assist utilities with the preparation of their annual formula rate updates and informational filings.

The guidance focuses on two areas: format and level of support.  With regard to format, FERC staff states that any formula rate updates or informational filings must include formula templates and workpapers in their native format, fully populated and with the formula rates intact. 

With regard to the level of support that must accompany updates and informational filings, the guidance states that any deviations of inputs from referenced lines or a column entry must be supported by a narrative description of the steps and calculations used to derive the input.  Furthermore, a utility must submit detailed workpapers describing how the deviated input was derived and that it is consistent with the formula rate.  FERC noted that common examples of inputs not taken from referenced lines or a column entry and require such support include: (1) inputs that require adjustments from account balances, such as Unfunded Accumulated Deferred Income Tax Balances, Transaction-Related Costs, and Accounting for Asset Retirement Obligations, and Acquisition Premiums; (2) Transmission Incentives; and (3) Inputs that require adjustments from account balances as required by the formula rates.

A copy of the guidance is available here.