FERC’s Office of Enforcement last week found that ALLETE overbilled its wholesale transmission customers through improper accounting practices.

ALLETE, which owns Minnesota Power, inappropriately billed its customers for environmental mitigation costs imposed on it after it violated the Clean Air Act, FERC said in an audit report Dec. 4. The audit covered Jan. 1, 2016, to Sept. 3, 2020 (FA20-2).

The commission gave the Duluth, Minn.-based utility 60 days to submit a refund analysis identifying the improperly recovered expenses. ALLETE wrote that it accepted FERC’s audit findings and recommendations Nov. 19. But it said FERC’s finding on accounting for environmental costs “overlooks important policy considerations that should inform the proper accounting of related expenses.”

FERC investigators found that the utility used an account earmarked for its labor and general management to record environmental mitigation projects after a failure to comply with the Clean Air Act. The commission said the ensuing solar projects should have been accounted for in an account reserved for projects donated after their completion and not included in its wholesale annual transmission revenue requirement (ATRR).

EPA struck a settlement with the company in 2014 over emissions at three coal-fired power plants in Minnesota. The settlement required ALLETE to pay a $1.4 million civil penalty, install pollution-control technology and spend $4.2 million on projects benefiting the environment and local communities.

FERC Enforcement staff found several other accounting irregularities at the utility. They said it also:

• applied state-approved depreciation rates to assets included in its transmission formula, though it had not filed those depreciation rates with FERC.
• overstated transmission plant balances in its ATRR by miscalculating the pre-funded allowance for construction funds.
• inappropriately recorded proceeds from long-term debt in accounts reserved for miscellaneous deferred debt.
• misclassified distribution assets in transmission plant accounts and transmission assets in distribution plant accounts.
• improperly recorded $26,000 worth of lobbying expenses in 2016 and 2017 in an account for office supplies when they should have gone into an account reserved for civic, political and related expenses. Audit staff said some lobbying costs were incorrectly recovered as part of ALLETE’s ATRR.
• wrongly recorded various administrative and general expenses “in a manner contrary to the commission’s accounting regulations.”
• did not report all the required information in FERC filings.

In addition to calculating customer refunds with interest, the commission prescribed that the company update its policies within a month and provide more employee training on accounting procedures. FERC also asked for progress updates on the corrective actions in quarterly reports.

“Integrity and compliance are core values at ALLETE. We take audits of this nature seriously and believe they help improve systems and procedures, and we look forward to implementing and improving compliance measures,” ALLETE Manager of Corporate Communications Amy Rutledge said in an emailed statement.

Rutledge said FERC auditors during the process “expressed their appreciation about ALLETE’s high level of cooperation and collaboration.” She also said that FERC’s findings affect only Minnesota Power’s transmission and wholesale customers, “all of whom have been notified regarding the plans for refunds.”

“FERC identified no systemic issues in ALLETE’s accounting practices, and the findings related primarily to differences in interpretation of FERC regulations,” Rutledge said.