Audit Evaluates Compliance with Accounting and Reporting Regulations

Morgan Lewis

On February 7, the Division of Audits of the Office of Enforcement of the Federal Energy Regulatory Commission (FERC) issued a report presenting the areas of noncompliance it identified during an audit of PNM Resources (PNMR), an energy holding company, and Public Service Company of New Mexico (PNM), a wholly owned public utility operating company subsidiary of PNMR. Audit Staff evaluated PNMR and PNM’s compliance with cross-subsidization restrictions on affiliate transactions; accounting, recordkeeping, and reporting requirements; the Uniform System of Accounts (USofA) for centralized service companies; preservation of records requirements for holding companies and service companies, and FERC Form No. 60 requirements. The audit covered a two-year period spanning from January 1, 2009 to December 31, 2010.

Audit Staff determined that PNM’s method of computing allowance for funds used during construction (AFUDC) on construction work in progress (CWIP) was deficient. A utility must include actual prior year-end book balances for long-term debt, preferred stock, and common equity, and a 13-month average CWIP balance to derive AFUDC. A utility also must adjust AFUDC calculations at the end of the year to reflect the actual CWIP balance, and compounding is allowed, at most, on a semiannual basis. Audit Staff concluded that PNM instead applied actual prior month-end book balances to calculate AFUDC for each month and compounded its AFUDC on a monthly basis. Audit Staff also concluded that PNM committed various other calculation errors that resulted in over-accrued amounts of AFUDC on CWIP.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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