By Holden Mann

FERC Commissioner Richard Glick warned that the commission’s recent order regarding Duke Energy’s accounting treatment of its cybersecurity program sends a signal that it will let utilities sidestep its rules when convenient.

The order issued Thursday allows Duke to treat its Cybersecurity Informational Technology-Operational Technology Program as a single project for the purposes of calculating FERC’s allowance for funds used during construction (AFUDC) (AC19-75).

FERC permits utilities to record debt- and equity-related financing costs for projects under development as AFUDC, which is combined with actual construction costs in order to establish rates once the project is completed and contributing to utility service and revenue.

Thursday’s change is significant because several components of Duke’s cybersecurity program, such as automated asset identification, are already completed and ready to enter service. Under normal rules, this would mean the entire program must be removed from AFUDC; however, Duke contended that this would be unfair, as these constituent assets cannot make any contribution to revenue by themselves without the rest of the program. Customers would hence be paying for programs that were not creating value for them.

FERC sided with Duke, saying that the commission’s current policy allowed it to recognize that individual parts of a project can enter service without the entire program becoming viable. But Glick argued at FERC’s open meeting last week that the move would encourage other utilities to classify projects as under development when they are in fact ready for service, in hopes of accruing more AFUDC and inflating their investments in order to justify higher rates for consumers.

“If we’re going to change our policy, that’s one thing,” Glick said. “But if we’re going to say that we’re keeping our AFUDC policy, but on the other hand we’re going to ignore what’s in our AFUDC policy — which is very clear … that if some of the components are ready to be placed in service, you take it out of AFUDC right then — I’m really concerned about the precedent we’re setting here.”

Glick’s dissent echoed an objection filed by the North Carolina Electric Membership Corp. (NCEMC) in response to Duke’s request in March. NCEMC pointed out that while a constituent project might not be able to fulfill its intended purpose without the rest of the program in place, it might still provide a benefit to consumers. The company said Duke had not “provided sufficient information to identify whether any of the component parts of the cybersecurity program” would be able to provide such a benefit, and essentially wanted FERC to rely on its word.

FERC acknowledged that its “determination is based on Duke’s representations regarding its cybersecurity program” and pledged that it would review the project to ensure it remained compliant with AFUDC policy — a promise that Glick found unconvincing.

“To me that’s a little circular logic, because in this particular order, we’re saying it is consistent with our AFUDC policy,” Glick said. “So I’m not really sure we can go back and address this particular issue — I think the die is cast, essentially, once we vote out this order.”

Another dissenting voice came from the consumer advocacy group Public Citizen, which observed that NERC assessed a $10 million fine earlier this year on an unnamed utility, widely reported to be Duke, for 127 violations of cybersecurity standards. (See NERC Seeks $10M Fine for Duke Energy Security Lapses.) The group objected to the idea of ratepayers supporting a cybersecurity program that NERC considers likely to suffer further instances of noncompliance in the future.

Public Citizen also questioned whether the proposed accounting change was intended to help Duke recover the cost of the NERC fine and of addressing the security lapses. In response, Duke said the request was not meant for this purpose and that “the cost of the cybersecurity program, including any approved AFUDC, will be recovered through those formula rates, which have been previously approved by the commission.”