FERC Enforcement Report Brief 2023

Observations for energy and utility companies from the 2023 FERC Enforcement Report

The Federal Energy Regulatory Commission (FERC or Commission) has released the 2023 Enforcement Report identifying observations and findings resulting from audits of electric utilities, natural gas pipelines and oil pipelines as well as FERC audits of formula rate filings.

The Enforcement Report provides a window into the types of deficiencies noted by FERC during their audits and should be used by electric, gas and oil companies as a check on their compliance with FERC rules and regulations, particularly with respect to the accounting requirements contained in the FERC Uniform System of Accounts (USoA) and completion of the relevant FERC financial statements (e.g., FERC Form 1, Form 2, etc.).

The Enforcement Report listed the following major areas of noncompliance:

  • Charging labor and labor-related costs to construction projects based on a metric and not using an appropriate cost allocation method or time tracking process to ensure capitalized labor costs have a definite relation to construction as required by the FERC USoA. (Particular areas of focus were Administrative & General [A&G] and Engineering & Supervision [E&S] cost pools)
  • Errors in determining the Allowance For Funds Used During Construction (AFUDC) rate and/or the Construction Work In Progress (CWIP) balance to which the AFUDC rate is applied
  • Recording certain expenses in the incorrect FERC USoA accounts (e.g., above-the-line versus below-the-line) as well as recording certain costs as A&G instead of charging such costs to generation, transmission or distribution functional accounts, thereby misstating the revenue requirements of certain functions
  • Improperly accounting for merger-related costs as recoverable costs without first obtaining FERC approval
  • Other areas include improperly including Assessment Retirement Obligation (ARO) related balances in the determination of revenue requirements, incorrectly accounting for early asset retirements, various depreciation issues, including CWIP in rate base without approval, recording regulatory asset and related amortization without FERC and several other matters

FERC Enforcement at a glance: Division of Audits and Accounting

Included in the FERC's Enforcement Report is a section covering the results from the FERC's Division of Audits and Accounting (DAA). This section highlights areas noted during audits to increase awareness of the DAA's concerns to help facilitate compliance efforts. The overall DAA results included


million of findings


million refunds/recoveries

findings of noncompliance


million avoidance in future rates

recommended corrective actions

Below are several recurring issues consistently identified in FERC Enforcement Reports. It is suggested that companies use these issues and download the entire Brief as a checklist before filing (Formula Rates, Forms 1 and 2, page 700 of Form 6) with FERC.

Issue: FERC supports capitalization of indirect costs (including A&G, E&S, etc.) related to construction activities. DAA’s Audit findings have taken exception to companies leveraging “metrics” rather than “time charging” or “time study” as a basis for capitalization.

Comment: We observe that many utilities have not supported capitalization of labor based on time studies, More recently, companies are performing time studies to support their methodology. We have also seen companies revisit the costs to be considered for capitalization for potential expense leakage.

Issue: FPC Order 561 provides guidance on how to calculate the AFUDC rate as well as the CWIP or RWIP balance to which such rate should be applied.

AFUDC guidance includes the assumption that short-term debt is to be the first source of construction financing and some utilities have not followed this approach. Another finding in this area includes not excluding supplier payables from the CWIP base.

AFUDC compliance errors result in recalculating and recording correct balances which could trigger refunds with an impact on future rate base/depreciation consequences.

Comment: On every audit, it appears that FERC is going to review the AFUDC calculation as well as the CWIP/RWIP base to which it applies. This AFUDC review occurs in virtually every FERC audit whether it be an electric, gas or oil company. It would be prudent for companies to check their calculations in this area.

Issue: During audits, FERC finds many jurisidictional companies have recorded non-operating expenses and functional operating and maintenance expenses in A&G expense accounts thus resulting in errors in calcualting the revenue requirement. Examples include lobbying expenses, charitable contributions, storm damage costs to distribution systems, distribution system maintenance expenses, generation function costs, costs of services provided to affiliates, penalties and employment discrimination settlement payments.

Comment: The FERC USoA differentiates between accounts incurred for expenses recoverable in the ratemaking process and those that are non-recoverable. Further, accounts exist for various functions (generating, transmission, distribution) and, if costs are not segregated and reported in the appropriate function, the respective tariffs will not reflect the true cost of service. Processes and internal controls should be in place and operate effectively to prevent misclassifications.

Issue: Utilities routinely will send employees to other jurisdictions to assist with storm remediation. However, if care is not taken on how these costs and the associated payments from the utilities being assisted are accounted for, it can result in improper ratemaking treatment.

Comment: FERC has identified that when companies do not use the proper USoA accounts to capture this activity, utilities frequently double collect for this mutual assitance, once from the utility being assisted and again in tariff rates. Companies should evaluate their process for recording these costs and the associated receipt of payment for these services.

How PwC can help

PwC’s Complex Accounting & Business Solutions Practice (CABS) specializes in supporting rate regulated entities, improving efficiencies and reducing risk within their regulatory functions. Our goal is to help utilities identify solutions that are positive for all stakeholders, improving profitability and fostering positive regulatory outcomes. Our team of specialists offer a wide range of bespoke rate case, regulatory and accounting solutions to help solve your most complex business issues. We drive value by supporting companies in a variety of areas, including expert testimony, rate case process/controls evaluation, rate case preparation and pre-filing analysis, development of rate design solutions, and assistance with broad array of complex accounting matters.

Contact us

Alan Felsenthal

Energy, Utilities and Resources Managing Director, PwC US

Mark Panza

Energy, Utilities and Resources Managing Director, PwC US

Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.