Business & Money

FERC's ruling on cash management programs will introduce new transparency into how utilities manage their cash.

On Oct. 22, the Federal Energy Regulatory Commission (FERC) ruled that FERC-regulated entities must file their cash management agreements with the commission and notify the commission within 45 days after the end of each calendar quarter when their proprietary capital ratio drops below 30 percent, and when it subsequently returns to or exceeds 30 percent.

FERC's ruling comes in response to analysis that found "severe record keeping deficiencies" by some FERC-regulated entities. In fact, results of the investigation found: 1) cash management agreements generally were not formalized in writing; 2) the terms of programs and the interest associated with loans were not documented in writing; and 3) it was unclear whether interest had been paid to subsidiary companies by the parent companies.

This problem has led credit rating agencies like Fitch Ratings to warn that consolidated cash management accounts and failure to document fund transfers among affiliated companies as intercompany loans could be factors contributing to a U.S. bankruptcy court's decision to consolidate a solvent company in the bankruptcy proceeding of its affiliate.

Moreover, FERC's chief accountant found that utilities had $16 billion in cash management accounts at the time, and now $25.2 billion, according to a recent analysis.