Power & Pipes

FERC, CFTC, and State Energy Law Developments

On March 24, FERC granted a public utility’s petition for declaratory order regarding the treatment of a master license agreement for communications equipment under the public utility’s previously approved revenue sharing mechanism (Revenue Sharing Mechanism).

Pursuant to the Revenue Sharing Mechanism, the public utility may share certain revenues from non-jurisdictional uses of its jurisdictional assets between ratepayers and shareholders. FERC originally allowed the public utility to credit the anticipated net revenues on a 50-50 basis between its ratepayers and shareholders, with shareholders bearing any risk of loss.

At issue in the petition for declaratory order was the treatment under the Revenue Sharing Mechanism of proceeds from a Master Multi-Site License Agreement (Agreement) between the public utility and a communications company. The Agreement granted the communications company exclusive rights to sublicense and market potential additional wireless communications equipment attachment locations on approximately 28,000 of the utility’s electric transmission towers, in exchange for approximately $938 million. The public utility proposed allocating the net proceeds from the Agreement on a site-by-site analysis of the nature of the underlying FERC-jurisdictional assets, with approximately 85% of the net proceeds flowing through its transmission formula rate. The public utility also petitioned for approval of its accounting treatment of the revenue from the Agreement, which required special treatment under Generally Accepted Accounting Principles.

After considering comments and protests, FERC accepted the public utility’s proposal to use its Revenue Sharing Mechanism to flow back revenues from the sales proceeds from the Agreement, noting that it provides both a revenue credit to customers and incentive for shareholders to fund the products and services transactions as well as to bear financial risks.

FERC also granted the public utility’s proposed accounting treatment, finding that the use of the proposed accounts is consistent with the instructions and definitions reflected in the Uniform System of Accounts. FERC clarified that it did not grant preapproval to any specific inputs to the public utility’s formula rates that would be necessary to implement the Revenue Sharing Mechanism and stated that such inputs would need to be addressed in the public utility’s annual update filings.