This case was before FERC for review an audit finding in Docket No. FA15-16 related to AFUDC for a natural gas pipeline. FERC found that Dominion Energy Transmission’s (DETI) calculation of AFUDC is not consistent with FERC’s accounting regulations. FERC found that it was undisputed that from 2008 to the present period covered by the Audit Report, DETI’s short-term debt balances exceeded DETI’s CWIP balances. Per the regulations in GPI No. 3(17)(b) (like those for electric utilities), DETI should have calculated its AFUDC rate using only weighted average short-term debt rates. However, DETI instead used the consolidated balances for short-term debt and CWIP maintained by its parent entity, Dominion Energy Gas Holdings, which covered numerous subsidiaries in addition to DETI. DETI determined that, for these consolidated balances, the consolidated CWIP monthly balances exceeded consolidated short-term debt, and thus DETI applied cost rates for long-term debt, preferred stock, and common equity to a portion of its CWIP to arrive at an AFUDC rate. The AFUDC rate, determined by DETI, was above the AFUDC rate allowed under the Commission’s regulations, leading to over capitalization of AFUDC, from 2008 through 2015, by approximately $54.1 million in audit staff’s estimation (although DETI estimates the impact to be approximately $48 million). FERC found that nothing in the text of the Commission’s regulations found at GPI No. 3(17), or in Order No. 561, authorized DETI to exclude the fact that its book balances of short-term debt exceeded its book balances of CWIP. Therefore, per GPI No. 3(17), DETI’s AFUDC rate should have been calculated without reference to cost rates for long-term debt, preferred stock, or common equity. The amount of AFUDC calculated by DETI exceeded the maximum amount prescribed by the AFUDC formula, yet at no time did DETI seek authorization from FERC, as required by GPI No. 3(17), to exceed that maximum amount. As FERC held in another proceeding in which a regulated entity, without seeking its authorization, excluded its short-term debt balances from its AFUDC rate calculation: “[O]ur regulations are clear and explicit that short-term debt should be included in the calculation of AFUDC rates …. It was and is [the regulated entity’s] obligation to justify a departure, i.e., a waiver of those regulations and that policy, and [it] did not and has not done so.”
 Otter Tail Power Co., 119 FERC ¶ 61,217, at P 15 (2007).
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.