Electric FERC

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18 CFR Pt. 101 Page 118 C.F.R. Pt. 101

CODE OF FEDERAL REGULATIONS

TITLE 18--CONSERVATION OF POWER AND

WATER RESOURCES

CHAPTER I--FEDERAL ENERGY

REGULATORY COMMISSION,

DEPARTMENT OF ENERGY

SUBCHAPTER C--ACCOUNTS, FEDERALPOWER ACT

PART 101--UNIFORM SYSTEM OF

ACCOUNTS PRESCRIBED FOR PUBLIC

UTILITIES AND

LICENSEES SUBJECT TO THE PROVISIONS

OF THE FEDERAL POWER ACT

Current through January 22, 2003; 68 FR 3154

PART 101

UNIFORM SYSTEM OF ACCOUNTSPRESCRIBED FOR PUBLIC UTILITIES AND

LICENSEESSUBJECT TO THE PROVISIONS OF THE

FEDERAL POWER ACT

DEFINITIONS

When used in this system of accounts:

1. "Accounts" means the accounts prescribed in thissystem of accounts.

2. "Actually issued," as applied to securities issuedor assumed by the utility, means those which have been sold to bona fide purchasers for a valuableconsideration, those issued as dividends on stock, andthose which have been issued in accordance withcontractual requirements direct to trustees of sinkingfunds.

3. "Actually outstanding," as applied to securitiesissued or assumed by the utility, means those whichhave been actually issued and are neither retired norheld by or for the utility; provided, however, that

securities held by trustees shall be considered asactually outstanding.

4. "Amortization" means the gradual extinguishmentof an amount in an account by distributing suchamount over a fixed period, over the life of the assetor liability to which it applies, or over the periodduring which it is anticipated the benefit will berealized.

5. A. "Associated (affiliated) companies" meanscompanies or persons that directly, or indirectlythrough one or more intermediaries, control, or arecontrolled by, or are under common control with, theaccounting company.

B. "Control" (including the terms "controlling,""controlled by," and "under common control with")means the possession, directly or indirectly, of the power to direct or cause the direction of themanagement and policies of a company, whethersuch power is exercised through one or moreintermediary companies, or alone, or in conjunctionwith, or pursuant to an agreement, and whether suchpower is established through a majority or minorityownership or voting of securities, common directors,officers, or stockholders, voting trusts, holding trusts,associated companies, contract or any other direct orindirect means.

6. "Book cost" means the amount at which propertyis recorded in these accounts without deduction ofrelated provisions for accrued depreciation,amortization, or for other purposes.

7. "Commission," means the Federal EnergyRegulatory Commission.

8. "Continuing Plant Inventory Record" meanscompany plant records for retirement units and massproperty that provide, as either a single record, or inseparate records readily obtainable by referencesmade in a single record, the following information:

A. For each retirement unit:

(1) The name or description of the unit, or both;

(2) The location of the unit;

(3) The date the unit was placed in service;

(4) The cost of the unit as set forth in PlantInstructions 2 and 3 of this part; and

(5) The plant control account to which the cost of the

unit is charged; and

B. For each category of mass property:

(1) A general description of the property andquantity;

(2) The quantity placed in service by vintage year;

(3) The average cost as set forth in Plant Instructions

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2 and 3 of this part; and

(4) The plant control account to which the costs arecharged.

9. "Cost" means the amount of money actually paidfor property or services. When the considerationgiven is other than cash in a purchase and saletransaction, as distinguished from a transactioninvolving the issuance of common stock in a mergeror a pooling of interest, the value of suchconsideration shall be determined on a cash basis.

10. "Cost of removal" means the cost ofdemolishing, dismantling, tearing down or otherwiseremoving electric plant, including the cost oftransportation and handling incidental thereto.

11. "Debt expense" means all expenses in connectionwith the issuance and initial sale of evidences of debt,

such as fees for drafting mortgages and trust deeds;fees and taxes for issuing or recording evidences ofdebt; cost of engraving and printing bonds andcertificates of indebtedness; fees paid trustees;specific costs of obtaining governmental authority;fees for legal services; fees and commissions paidunderwriters, brokers, and salesmen for marketingsuch evidences of debt; fees and expenses of listingon exchanges; and other like costs.

12. "Depreciation," as applied to depreciable electricplant, means the loss in service value not restored bycurrent maintenance, incurred in connection with the

consumption or prospective retirement of electricplant in the course of service from causes which areknown to be in current operation and against whichthe utility is not protected by insurance. Among thecauses to be given consideration are wear and tear,decay, action of the elements, inadequacy,obsolescence, changes in the art, changes in demandand requirements of public authorities.

13. "Discount," as applied to the securities issued orassumed by the utility, means the excess of the par(stated value of no-par stocks) or face value of thesecurities plus interest or dividends accrued at the

date of the sale over the cash value of theconsideration received from their sale.

14. "Investment advances" means advances,represented by notes or by book accounts only, withrespect to which it is mutually agreed or intended between the creditor and debtor that they shall besettled by the issuance of securities or shall not besubject to current settlement.

15. "Lease, capital" means a lease of property usedin utility or nonutility operations, which meets one ormore of the criteria stated in General Instruction 19.

16. "Lease, operating" means a lease of propertyused in utility or nonutility operations, which doesnot meet any of the criteria stated in GeneralInstruction 19.

17. "Licensee" means any person, or State, licensedunder the provisions of the Federal Power Act andsubject to the Commission's accounting requirementsunder the terms of the license.

18. "Minor items of property" means the associated parts or items of which retirement units arecomposed.

19. "Net salvage value" means the salvage value ofproperty retired less the cost of removal.

20. "Nominally issued," as applied to securitiesissued or assumed by the utility, means those whichhave been signed, certified, or otherwise executed,and placed with the proper officer for sale anddelivery, or pledged, or otherwise placed in somespecial fund of the utility, but which have not beensold, or issued directto trustees of sinking funds inaccordance with contractual requirements.

21. "Nominally outstanding," as applied to securitiesissued or assumed by the utility, means those which,after being actually issued, have been reacquired by

or for the utility under circumstances which requirethem to be considered as held alive and not retired,provided, however, that securities held by trusteesshall be considered as actually outstanding.

22. "Nonproject property" means the electric plant ofa licensee which is not a part of the project propertysubject to a license issued by the Commission.

23. "Original cost," as applied to electric plant,means the cost of such property to the person firstdevoting it to public service.

24. "Person" means an individual, a corporation, apartnership, an association, a joint stock company, a business trust, or any organized group of persons,whether incorporated or not, or any receiver ortrustee.

25. "Premium," as applied to securities issued orassumed by the utility, means the excess of the cashvalue of the consideration received from their saleover the sum of their par (stated value of no-par


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18 CFR Pt. 101 Page 318 C.F.R. Pt. 101

stocks) or face value and interest or dividendsaccrued at the date of sale.

26. "Project" means complete unit of improvementor development, consisting of a power house, allwater conduits, all dams and appurtenant works and

structures (including navigation structures) which area part of said unit, and all storage, diverting, orforebay reservoirs directly connected therewith, theprimary line or lines transmitting power therefrom tothe point of junction with the distribution system orwith the interconnected primary transmission system,all miscellaneous structures used and useful inconnection with said unit or any part thereof, and allwater rights, rights of way, ditches, dams, reservoirs,lands, or interest in lands the use and occupancy ofwhich are necessary or appropriate in themaintenance and operation of such unit.

27. "Project property" means the property describedin and subject to a license issued by the Commission.

28. "Property retired," as applied to electric plant,means property which has been removed, sold,abandoned, destroyed, or which for any cause hasbeen withdrawn from service.

29. "Public utility" means any person who owns oroperates facilities subject to the jurisdiction of theCommission under the Federal Power Act. (Seesection 201(e) of said act.)

30. "Regulatory Assets and Liabilities" are assets

and liabilities that result from rate actions ofregulatory agencies. Regulatory assets and liabilitiesarise from specific revenues, expenses, gains, orlosses that would have been included in net incomedetermination in one period under the generalrequirements of the Uniform System of Accounts butfor it being probable:

A. that such items will be included in a different period(s) for purposes of developing the rates theutility is authorized to charge for its utility services;or

B. in the case of regulatory liabilities, that refunds tocustomers, not provided for in other accounts, will berequired.

31. A. "Replacing" or "replacement," when nototherwise indicated in the context, means theconstruction or installation of electric plant in placeof property retired, together with the removal of theproperty retired.

B. "Research, Development, and Demonstration"(RD&D) in the case of Major utilities meansexpenditures incurred by public utilities and licenseeseither directly or through another person ororganization (such as research institute, industryassociation, foundation, university, engineering

company or similar contractor) in pursuing research,development, and demonstration activities includingexperiment, design, installation, construction, oroperation. This definition includes expenditures forthe implementation or development of new and/orexisting concepts until technically feasible andcommercially feasible operations are verified. Suchresearch, development, and demonstration costsshould be reasonably related to the existing or futureutility business, broadly defined, of the public utilityor licensee or in the environment in which it operatesor expects to operate. The term includes, but is notlimited to: All such costs incidental to the design,development or implementation of an experimentalfacility, a plant process, a product, a formula, aninvention, a system or similar items, and theimprovement of already existing items of a likenature; amounts expended in connection with theproposed development and/or proposed delivery ofalternate sources of electricity; and the costs ofobtaining its own patent, such as attorney's feesexpended in making and perfecting a patentapplication. The term includes preliminaryinvestigations and detailed planning of specificprojects for securing for customers non- conventionalelectric power supplies that rely on technology thathas not been verified previously to be feasible. The

term does not include expenditures for efficiencysurveys; studies of management, managementtechniques and organization; consumer surveys,advertising, promotions, or items of a like nature.

32. "Retained Earnings" (formerly earned surplus)means the accumulated net income of the utility lessdistribution to stockholders and transfers to othercapital accounts.

33. "Retirement units" means those items of electric plant which, when retired, with or withoutreplacement, are accounted for by crediting the book

cost thereof to the electric plant account in whichincluded.

34. "Salvage value" means the amount received for property retired, less any expenses incurred inconnection with the sale or in preparing the propertyfor sale; or, if retained, the amount at which thematerial recoverable is chargeable to materials andsupplies, or other appropriate account.



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35. "Service life" means the time between the dateelectric plant is includible in electric plant in service,or electric plant leased to others, and the date of itsretirement. If depreciation is accounted for on a production basis rather than on a time basis, thenservice life should be measured in terms of theappropriate unit of production.

36. "Service value" means the difference betweenoriginal cost and net salvage value of electric plant.

37. "State" means a State admitted to the Union, theDistrict of Columbia, and any organized Territory ofthe United States.

38. "Subsidiary Company" in the case of Majorutilities means a company which is controlled by theutility through ownership of voting stock. (See"Definitions" item 5B, "Control"). A corporate jointventure in which a corporation is owned by a small

group of businesses as a separate and specific business or project for the mutual benefit of themembers of the group is a subsidiary company for thepurposes of this system of accounts.

39. "Utility," as used herein and when not otherwiseindicated in the context, means any public utility orlicensee to which this system of accounts isapplicable.

General Instructions

1. Classification of Utilities.

A. For purpose of applying the system of accounts prescribed by the Commission, electric utilities andlicensees are divided into classes, as follows:

(1) Major. Utilities and licensees that had, in each ofthe last three consecutive years, sales or transmissionservice that exceeded any one or more of thefollowing:

(a) One million megawatt-hours of total sales;

(b) 100 megawatt-hours of sales for resale;

(c) 500 megawatt-hours of power exchangesdelivered; or

(d) 500 megawatt-hours of wheeling for others(deliveries plus losses).

(2) Nonmajor. Utilities and licensees that are notclassified as "Major" (as defined above), and had

total sales in each of the last three consecutive yearsof 10,000 megawatt-hours or more.

B. This system applies to both Major and Nonmajorutilities and licensees. Provisions have beenincorporated into this system for those entities which, prior to January 1, 1984, were applying theCommission's Uniform System of AccountsPrescribed for Public Utilities and Licensees subjectto the Provisions of the Federal Power Act (Class Cand Class D) [Part 104 of this chapter, now revoked].The notations "(Nonmajor)" and "(Major)" have beenused to indicate those instructions and accounts from previous systems and classifications, which bydefinition, are not interchangeable without causing aloss of detail for the Major (previously Class A andClass B) or an increase in detail burden on theNonmajor (previously Class C and Class D).

C. The class to which any utility or licensee belongs

will originally be determined by its annual megawatt-hours in each of the last three consecutive years, or inthe case of a newly established entity, the projecteddata shall be the basis. Subsequent changes inclassification shall be made as necessary when themegawatt-hours for each of the three immediatelypreceding years shall exceed the upper limit, or beless than the lower limit of the classificationpreviously applicable to the utility.

D. Any utility may, at its option, adopt the system ofaccounts prescribed by the Commission for anylarger class of utilities.

2. Records.

A. Each utility shall keep its books of account, andall other books, records, and memoranda whichsupport the entries in such books of account so as tobe able to furnish readily full information as to anyitem included in any account. Each entry shall besupported by such detailed information as will permitready identification, analysis, and verification of allfacts relevant thereto.

B. The books and records referred to herein include

not only accounting records in a limited technicalsense, but all other records, such as minute books,stock books, reports, correspondence, memoranda,etc., which may be useful in developing the history ofor facts regarding any transaction.

C. No utility shall destroy any such books or recordsunless the destruction thereof is permitted by rulesand regulations of the Commission.


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18 CFR Pt. 101 Page 518 C.F.R. Pt. 101

D. In addition to prescribed accounts, clearingaccounts, temporary or experimental accounts, andsubdivisions of any accounts, may be kept, providedthe integrity of the prescribed accounts is notimpaired.

E. All amounts included in the accounts prescribedherein for electric plant and operating expenses shallbe just and reasonable and any payments or accrualsby the utility in excess of just and reasonable chargesshall be included in account 426.5, Other Deductions.

F. The arrangement or sequence of the accountsprescribed herein shall not be controlling as to thearrangement or sequence in report forms which maybe prescribed by the Commission.

3. Numbering System.

A. The account numbering plan used herein consistsof a system of three-digit whole numbers as follows:

100-199 Assets and other debits.

200-299 Liabilities and other credits.

300-399 Plant accounts.

400-432, 434-435 Income accounts.

433, 436-439 Retained earnings accounts.

440-459 Revenue accounts.

500-599 Production, transmission and distribution expenses.

900-949 Customer accounts, customer service and informational, sales, andgeneral and administrative expenses.

B. In certain instances, numbers have been skippedin order to allow for possible later expansion or topermit better coordination with the numbering systemfor other utility departments.

C. The numbers prefixed to account titles are to beconsidered as parts of the titles. Each utility,however, may adopt for its own purposes a differentsystem of account numbers (see also generalinstruction 2D) provided that the numbers herein

prescribed shall appear in the descriptive headings ofthe ledger accounts and in the various sources oforiginal entry; however, if a utility uses a differentgroup of account numbers and it is not practicable toshow the prescribed account numbers in the varioussources of original entry, such reference to theprescribed account numbers may be omitted from thevarious sources of original entry. Moreover, eachutility using different account numbers for its ownpurposes shall keep readily available a list of suchaccount numbers which it uses and a reconciliation ofsuch account numbers with the account numbers provided herein. It is intended that the utility'srecords shall be so kept as to permit ready analysis byprescribed accounts (by direct reference to sources oforiginal entry to the extent practicable) and to permit preparation of financial and operating statementsdirectly from such records at the end of eachaccounting period according to the prescribedaccounts.

4. Accounting Period.

Each utility shall keep its books on a monthly basisso that for each month all transactions applicablethereto, as nearly as may be ascertained, shall beentered in the books of the utility. Amountsapplicable or assignable to specific utilitydepartments shall be so segregated monthly. Eachutility shall close its books at the end of eachcalendar year unless otherwise authorized by theCommission.

5. Submittal of Questions.

To maintain uniformity of accounting, utilities shallsubmit questions of doubtful interpretation to theCommission for consideration and decision.

6. Item Lists.

Lists of "items" appearing in the texts of theaccounts or elsewhere herein are for the purpose ofmore clearly indicating the application of theprescribed accounting. The lists are intended to berepresentative, but not exhaustive. The appearance ofan item in a list warrants the inclusion of the item inthe account mentioned only when the text of theaccount also indicates inclusion inasmuch as thesame item frequently appears in more than one list.The proper entry in each instance must be determinedby the texts of the accounts.

7. Extraordinary Items.

It is the intent that net income shall reflect all items



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of profit and loss during the period with the exceptionof prior period adjustments as described in paragraph7.1 and long-term debt as described in paragraph 17below. Those items related to the effects of eventsand transactions which have occurred during thecurrent period and which are of unusual nature andinfrequent occurrence shall be consideredextraordinary items. Accordingly, they will be eventsand transactions of significant effect which areabnormal and significantly different from theordinary and typical activities of the company, andwhich would not reasonably be expected to recur inthe foreseeable future. (In determining significance,items should be considered individually and not inthe aggregate. However, the effects of a series ofrelated transactions arising from a single specific andidentifiable event or plan of action should beconsidered in the aggregate.) To be considered asextraordinary under the above guidelines, an itemshould be more than approximately 5 percent of

income, computed before extraordinary items.Commission approval must be obtained to treat anitem of less than 5 percent, as extraordinary. (Seeaccounts 434 and 435.)

7.1 Prior Period Items.

A. Items of profit and loss related to the followingshall be accounted for as prior period adjustmentsand excluded from the determination of net incomefor the current year:

(1) Correction of an error in the financial statements

of a prior year.

(2) Adjustments that result from realization ofincome tax benefits of pre- acquisition operating losscarryforwards of purchased subsidiaries.

B. All other items of profit and loss recognizedduring the year shall be included in the determinationof net income for that year.

8. Unaudited Items (Major Utility).

Whenever a financial statement is required by the

Commission, if it is known that a transaction hasoccurred which affects the accounts but the amountinvolved in the transaction and its effect upon theaccounts cannot be determined with absoluteaccuracy, the amount shall be estimated and suchestimated amount included in the proper accounts.The utility is not required to anticipate minor itemswhich would not appreciably affect the accounts.

9. Distribution of Pay and Expenses of Employees.

The charges to electric plant, operating expense andother accounts for services and expenses ofemployees engaged in activities chargeable to variousaccounts, such as construction, maintenance, andoperations, shall be based upon the actual timeengaged in the respective classes of work, or in casethat method is impracticable, upon the basis of astudy of the time actually engaged during arepresentative period.

10. Payroll Distribution.

Underlying accounting data shall be maintained sothat the distribution of the cost of labor charged directto the various accounts will be readily available.Such underlying data shall permit a reasonablyaccurate distribution to be made of the cost of laborcharged initially to clearing accounts so that the totallabor cost may be classified among construction, cost

of removal, electric operating functions (steamgeneration, nuclear generation, hydraulic generation,transmission, distribution, etc.) and nonutilityoperations.

11. Accounting to be on Accrual Basis.

A. The utility is required to keep its accounts on theaccrual basis. This requires the inclusion in itsaccounts of all known transactions of appreciableamount which affect the accounts. If bills coveringsuch transactions have not been received or rendered,the amounts shall be estimated and appropriate

adjustments made when the bills are received.

B. When payments are made in advance for itemssuch as insurance, rents, taxes or interest the amountapplicable to future periods shall be charged toaccount 165, Prepayments, and spread over theperiods to which applicable by credits to account 165,and charges to the accounts appropriate for theexpenditure.

12. Records for Each Plant (Major Utility).

Separate records shall be maintained by electric

plant accounts of the book cost of each plant owned,including additions by the utility to plant leased fromothers, and of the cost of operating and maintainingeach plant owned or operated. The term "plant" ashere used means each generating station and eachtransmission line or appropriate group oftransmission lines.

13. Accounting for Other Departments.


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refunding operation (primarily redemptions forsinking fund purposes), the difference between theamount paid upon reacquisition and the face value; plus any unamortized premium less any relatedunamortized debt expense and reacquisition costs; orless any unamortized discount, related debt expenseand reacquisition costs applicable to the debtredeemed, retired and canceled, shall be included inaccount 189, Unamortized Loss on Reacquired Debt,or account 257, Unamortized Gain on ReacquiredDebt, as appropriate. The utility shall amortize therecorded amounts equally on a monthly basis overthe remaining life of the respective security issues(old original debt). The amounts so amortized shallbe charged to account 428.1, Amortization of Loss onReacquired Debt, or credited to account 429.1,Amortization of Gain on Reacquired Debt--Credit, asappropriate.

C. Reacquisition, with refunding. When the

redemption of one issue or series of bonds or otherlong-term obligations is financed by another issue orseries before the maturity date of the first issue, thedifference between the amount paid upon refundingand the face value; plus any unamortized premiumless related debt expense or less any unamortizeddiscount and related debt expense, applicable to thedebt refunded, shall be included in account 189,Unamortized Loss on Reacquired Debt, or account257, Unamortized Gain on Reacquired Debt, asappropriate. The utility may elect to account for suchamounts as follows:

(1) Write them off immediately when the amountsare insignificant.

(2) Amortize them by equal monthly amounts overthe remainder of the original life of the issue retired,or

(3) Amortize them by equal monthly amounts overthe life of the new issue.

Once an election is made, it shall be applied on aconsistent basis. The amounts in (1), (2) or (3) aboveshall be charged to account 428.1, Amortization of

Loss on Reacquired Debt, or credited to account429.1, Amortization of Gain on Reacquired Debt--Credit, as appropriate.

D. Under methods (2) and (3) above, the increase orreduction in current income taxes resulting from thereacquisition should be apportioned over theremainder of the original life of the issue retired orover the life of the new issue, as appropriate, asdirected more specifically in paragraphs E and F

below.

E. When the utility recognizes the loss in the year ofreacquisition as a tax deduction, account 410.1,Provision for Deferred Income Taxes, UtilityOperating Income, shall be debited and account 283,Accumulated Deferred Income Taxes--Other, shall becredited with the amount of the related tax effect,such amount to be allocated to the periods affected inaccordance with the provisions of account 283.

F. When the utility chooses to recognize the gain inthe year of reacquisition as a taxable gain, account411.1, Provision for Deferred Income Taxes--Credit,Utility Operating Income, shall be credited andaccount 190, Accumulated Deferred Income Taxes,shall be debited with the amount of the related taxeffect, such amount to be allocated to the periodsaffected in accordance with the provisions of account190.

G. When the utility chooses to use the optionalprivilege of deferring the tax on the gain attributableto the reacquisition of debt by reducing thedepreciable basis of utility property for tax purposes,pursuant tosection 108 of the Internal Revenue Code,the related tax effects shall be deferred as the incomeis recognized for accounting purposes, and thedeferred amounts shall be amortized over the life ofthe associated property on a vintage year basis.Account 410.1, Provision for Deferred Income Taxes,Utility Operating Income, shall be debited, andaccount 282, Accumulated Deferred Income Taxes--

Other Property, shall be credited with an amountequal to the estimated income tax effect applicable tothe portion of the income, attributable to reacquireddebt, recognized for accounting purposes during the period. Account 282 shall be debited and account411.1, Provision for Deferred Income Taxes--Credit,Utility Operating Income, shall be credited with anamount equal to the estimated income tax effects,during the life of the property, attributable to thereduction in the depreciable basis for tax purposes.

H. The tax effects relating to gain or loss shall beallocated as above to utility operations except in

cases where a portion of the debt reacquired isdirectly applicable to nonutility operations. In thatevent, the related portion of the tax effects shall beallocated to nonutility operations. Where it can beestablished that reacquired debt is generallyapplicable to both utility and nonutility operations,the tax effects shall be allocated between utility andnonutility operations based on the ratio of netinvestment in utility plant to net investment innonutility plant.
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18 CFR Pt. 101 Page 918 C.F.R. Pt. 101

I. Premium, discount, or expense on debt shall not beincluded as an element in the cost of construction oracquisition of property (tangible or intangible),except under the provisions of account 432,Allowance for Borrowed Funds Used During

Construction--Credit.

J. Alternate method. Where a regulatory authority ora group of regulatory authorities having prime ratejurisdiction over the utility specifically disallows therate principle of amortizing gains or losses onreacquisition of long-term debt without refunding,and does not apply the gain or loss to reduce interestcharges in computing the allowed rate of return forrate purposes, then the following alternate methodmay be used to account for gains or losses relating toreacquisition of long-term debt, with or withoutrefunding.

(1) The difference between the amount paid uponreacquisition of any long-term debt and the facevalue, adjusted for unamortized discount, expenses orpremium, as the case may be, applicable to the debtredeemed shall be recognized currently in incomeand recorded in account 421, Miscellaneous Nonoperating Income, or account 426.5, OtherDeductions.

(2) When this alternate method of accounting isused, the utility shall include a footnote to eachfinancial statement, prepared for public use,explaining why this method is being used along with

the treatment given for ratemaking purposes.

18. Comprehensive Interperiod Income TaxAllocation.

A. Where there are timing differences between theperiods in which transactions affect taxable incomeand the periods in which they enter into thedetermination of pretax accounting income, theincome tax effects of such transactions are to berecognized in the periods in which the differencesbetween book accounting income and taxable incomearise and in the periods in which the differences

reverse using the deferred tax method. In general,comprehensive interperiod tax allocation should befollowed whenever transactions enter into thedetermination of pretax accounting income for theperiod even though some transactions may affect thedetermination of taxes payable in a different period,as further qualified below.

B. Utilities are not required to utilize comprehensiveinterperiod income tax allocation until the deferred

income taxes are included as an expense in the ratelevel by the regulatory authority having rate jurisdiction over the utility. Where comprehensiveinterperiod tax allocation accounting is not practicedthe utility shall include as a note to each financialstatement, prepared for public use, a footnote

explanation setting forth the utility's accountingpolicies with respect to interperiod tax allocation anddescribing the treatment for ratemaking purposes ofthe tax timing differences by regulatory authoritieshaving rate jurisdiction.

C. Should the utility be subject to more than oneagency having rate jurisdiction, its accounts shallappropriately reflect the ratemaking treatment(deferral or flow through) of each jurisdiction.

D. Once comprehensive interperiod tax allocationhas been initiated either in whole or in part it shall be practiced on a consistent basis and shall not bechanged or discontinued without prior Commissionapproval.

E. Tax effects deferred currently will be recorded asdeferred debits or deferred credits in accounts 190,Accumulated Deferred Income Taxes, 281,Accumulated Deferred Income Taxes--AcceleratedAmortization Property, 282, Accumulated DeferredIncome Taxes--Other Property, and 283,Accumulated Deferred Income Taxes--Other, asappropriate. The resulting amounts recorded in theseaccounts shall be disposed of as prescribed in thissystem of accounts or as otherwise authorized by the

Commission.

19. Criteria for classifying leases.

A. If at its inception a lease meets one or more of thefollowing criteria, the lease shall be classified as acapital lease. Otherwise, it shall be classified as anoperating lease.

(1) The lease transfers ownership of the property tothe lessee by the end of the lease term.

(2) The lease contains a bargain purchase option.

(3) The lease term is equal to 75 percent or more ofthe estimated economic life of the leased property.However, if the beginning of the lease term fallswithin the last 25 percent of the total estimatedeconomic life of the leased property, including earlieryears of use, this criterion shall not be used forpurposes of classifying the lease.

(4) The present value at the beginning of the lease



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term of the minimum lease payments, excluding thatportion of the payments representing executory costssuch as insurance, maintenance, and taxes to be paidby the lessor, including any profit thereon, equals orexceeds 90 percent of the excess of the fair value ofthe leased property to the lessor at the inception ofthe lease over any related investment tax creditretained by the lessor and expected to be realized bythe lessor. However, if the beginning of the leaseterm falls within the last 25 percent of the totalestimated economic life of the leased property,including earlier years of use, this criterion shall not be used for purposes of classifying the lease. Thelessee utility shall compute the present value of theminimum lease payments using its incrementalborrowing rate, unless (A) it is practicable for theutility to learn the implicit rate computed by thelessor, and (B) the implicit rate computed by thelessor is less than the lessee's incremental borrowingrate. If both of those conditions are met, the lessee

shall use the implicit rate.

B. If at any time the lessee and lessor agree tochange the provisions of the lease, other than byrenewing the lease or extending its term, in a mannerthat would have resulted in a different classificationof the lease under the criteria in paragraph A had thechanged terms been in effect at the inception of thelease, the revised agreement shall be considered as anew agreement over its term, and the criteria in paragraph A shall be applied for purposes ofclassifying the new lease. Likewise, any action thatextends the lease beyond the expiration of the

existing lease term, such as the exercise of a leaserenewal option other than those already included inthe lease term, shall be considered as a newagreement and shall be classified according to theabove provisions. Changes in estimates (forexample, changes in estimates of the economic life orof the residual value of the leased property) orchanges in circumstances (for example, default by thelessee) shall not give rise to a new classification of alease for accounting purposes.

20. Accounting for leases.

A. All leases shall be classified as either capital oroperating leases. The accounting for capitalizedleases is effective January 1, 1984, except for theretroactive classification of certain leases which, inaccordance with FASB No. 71, will not be requiredto be capitalized until after a three year transitionperiod. For the purpose of reporting to the FERC, thetransition period shall be deemed to end December31, 1986.

B. The utility shall record a capital lease as an assetin account 101.1, Property under Capital Leases,Account 120.6, Nuclear Fuel under Capital Leases, oraccount 121, Nonutility Property, as appropriate, andan obligation in account 227, Obligations underCapital Leases--Noncurrent, or account 243,Obligations under Capital Leases--Current, at anamount equal to the present value at the beginning ofthe lease term of minimum lease payments during thelease term, excluding that portion of the paymentsrepresenting executory costs such as insurance,maintenance, and taxes to be paid by the lessor,together with any profit thereon. However, if theamount so determined exceeds the fair value of theleased property at the inception of the lease, theamount recorded as the asset and obligation shall bethe fair value.

C. Rental payments on all leases shall be charged torent expense, fuel expense, construction work in

progress, or other appropriate accounts as theybecome payable.

D. For a capital lease, for each period during thelease term, the amounts recorded for the asset andobligation shall be reduced by an amount equal to theportion of each lease payment that would have beenallocated to the reduction of the obligation, if the payment had been treated as a payment on aninstallment obligation (liability) and allocated between interest expense and a reduction of theobligation so as to produce a constant periodic rate ofinterest on the remaining balance.

21. Allowances.

A. Title IV of the Clean Air Act Amendments of1990, Public Law No. 101- 549, 104 Stat. 2399,2584, provides for the issuance of allowances as ameans to limit the emissions of certain airborne pollutants by various entities, including publicutilities. Public utilities owning allowances, otherthan those acquired for speculative purposes, shallaccount for such allowances at cost in Account 158.1,Allowance Inventory, or Account 158.2, AllowancesWithheld, as appropriate. Allowances acquired for

speculative purposes and identified as such incontemporaneous records at the time of purchaseshall be accounted for in Account 124, OtherInvestments.

B. When purchased allowances become eligible foruse in different years, and the allocation of thepurchase cost cannot be determined by fair value, thepurchase cost allocated to allowances of each vintageshall be determined through use of a present-value
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based measurement. The interest rate used in the present-value measurement shall be the utility'sincremental borrowing rate, in the month in whichthe allowances are acquired, for a loan with a termsimilar to the period that it will hold the allowancesand in an amount equal to the purchase price.

C. The underlying records supporting Account 158.1and Account 158.2 shall be maintained in sufficientdetail so as to provide the number of allowances andthe related cost by vintage year.

D. Issuances from inventory from inventory includedin Account 158.1 and Account 158.2 shall beaccounted for on a vintage basis using a monthlyweighted-average method of cost determination. Thecost of eligible allowances not used in the currentyear shall be transferred to the vintage for theimmediately following year.

E. Account 158.1 shall be credited and Account 509,Allowances, debited so that the cost of theallowances to be remitted for the year is charged toexpense monthly based on each month's emissions.This may, in certain circumstances, require allocationof the cost of an allowance between months on afractional basis.

F. In any period in which actual emissions exceedthe amount allowable based on eligible allowancesowned, the utility shall estimate the cost to acquirethe additional allowances needed and charge Account158.1 with the estimated cost. This estimated cost of

future allowance acquisitions shall be credited toAccount 158.1 and charged to Account 509 in thesame accounting period as the related charge toAccount 158.1. Should the actual cost of theseallowances differ from the estimated cost, thedifferences shall be recognized in the then-currentperiod's inventory issuance cost.

G. Any penalties assessed by the EnvironmentalProtection Agency for the emission of excess pollutants shall be charged to Account 426.3,Penalties.

H. Gains on dispositions of allowances, other thanallowances held for speculative purposes, shall beaccounted for as follows. First, if there is uncertaintyas to the regulatory treatment, the gain shall bedeferred in Account 254, Other RegulatoryLiabilities, pending resolution of the uncertainty.Second, if there is certainty as to the existence of aregulatory liability, the gain will be credited toAccount 254, with subsequent recognition in incomewhen reductions in charges to customers occur or the

liability is otherwise satisfied. Third, all other gainswill be credited to Account 411.8, Gains fromDisposition of Allowances. Losses on disposition ofallowances, other than allowances held forspeculative purposes, shall be accounted for asfollows. Losses that qualify as regulatory assets shall

be charged directly to Account 182.3, OtherRegulatory Assets. All other losses shall be chargedto Account 411.9, Losses from Disposition ofAllowances. (See Definition No. 30.) Gains or losseson disposition of allowances held for speculative purposes shall be recognized in Account 421,Miscellaneous Nonoperating Income, or Account426.5, Other Deductions, as appropriate.

22. Depreciation Accounting.

A. Method. Utilities must use a method ofdepreciation that allocates in a systematic andrational manner the service value of depreciableproperty over the service life of the property.

B. Service lives. Estimated useful service lives ofdepreciable property must be supported byengineering, economic, or other depreciation studies.

C. Rate. Utilities must use percentage rates ofdepreciation that are based on a method ofdepreciation that allocates in a systematic andrational manner the service value of depreciableproperty to the service life of the property. Wherecomposite depreciation rates are used, they should be based on the weighted average estimated useful

service lives of the depreciable property comprisingthe composite group.

23. Accounting for other comprehensive income.

A. Utilities shall record items of othercomprehensive income in account 219, Accumulatedother comprehensive income. Amounts included inthis account shall be maintained by each category ofother comprehensive income. Examples ofcategories of other comprehensive income include,foreign currency items, minimum pension liabilityadjustments, unrealized gains and losses on available-

for-sale type securities and cash flow hedge amounts.Supporting records shall be maintained for account219 so that the company can readily identify thecumulative amount of other comprehensive incomefor each item included in this account.

B. When an item of other comprehensive incomeenters into the determination of net income in thecurrent or subsequent periods, a reclassificationadjustment shall be recorded in account 219 to avoid



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double counting of that amount.

C. When it is probable that an item of othercomprehensive income will be included in thedevelopment of cost-of-service rates in subsequentperiods, that amount of unrealized losses or gains willbe recorded in Accounts 182.3 or 254 as appropriate.

24. Accounting for derivative instruments andhedging activities.

A. Utilities shall recognize derivative instruments aseither assets or liabilities in the financial statementsand measure those instruments at fair value, exceptthose falling within recognized exceptions. Normalpurchases or sales are contracts that provide for thepurchase or sale of goods that will be delivered inquantities expected to be used or sold by the utilityover a reasonable period in the normal course of business. A derivative instrument is a financial

instrument or other contract with all of the followingcharacteristics:

1. It has one or more underlyings and a notionalamount or payment provision. Those termsdetermine the amount of the settlement orsettlements, and, in some cases, whether or not asettlement is required.

2. It requires no initial net investment or an initialnet investment that is smaller than would be requiredfor other types of contracts that would be expected tohave a similar response to changes in market factors.

3. Its terms require or permit net settlement, canreadily be settled net by a means outside the contract,or provides for delivery of an asset that puts therecipient in a position not substantially different fromnet settlement.

B. The accounting for the changes in the fair valueof derivative instruments depends upon its intendeduse and designation. Changes in the fair value ofderivative instruments not designated as fair value orcash flow hedges shall be recorded in account 175,derivative instrument assets, or account 244,

derivative instrument liabilities, as appropriate, withthe gains recorded in account 421, miscellaneousnonoperating income, and losses recorded in account426.5, other deductions.

C. A derivative instrument may be specificallydesignated as a fair value or cash flow hedge. Ahedge is used to manage risk to price, interest rates,or foreign currency transactions. A company shallmaintain documentation of the hedge relationship at

the inception of the hedge that details the riskmanagement objective and strategy for undertakingthe hedge, the nature of the risk being hedged, andhow hedge effectiveness will be determined.

D. If the utility designates the derivative instrumentas a fair value hedge against exposure to changes inthe fair value of a recognized asset, liability, or a firmcommitment, it shall record the change in fair valueof the derivative instrument to account 176,derivative instrument assets-hedges, or account 245,derivative instrument liabilities-hedges, asappropriate, with a corresponding adjustment to thesubaccount of the item being hedged. The ineffectiveportion of the hedge transaction shall be reflected inthe same income or expense account that will be usedwhen the hedged item enters into the determinationof net income. In the case of a fair value hedge of afirm commitment a new asset or liability is created.As a result of the hedge relationship, the new asset or

liability will become part of the carrying amount ofthe item being hedged.

E. If the utility designates the derivative instrumentas a cash flow hedge against exposure to variablecash flows of a probable forecasted transaction, itshall record changes in the fair value of the derivativeinstrument in account 176, derivative instrumentassets-hedges, or account 245, derivative instrumentliabilities-hedges, as appropriate, with acorresponding amount in account 219, accumulatedother comprehensive income, for the effective portionof the hedge. The ineffective portion of the hedge

transaction shall be reflected in the same income orexpense account that will be used when the hedgeditem enters into the determination of net income.Amounts recorded in other comprehensive incomeshall be reclassified into earnings in the same periodor periods that the hedged forecasted item enters intothe determination of net income.

Electric Plant Instructions

1. Classification of Electric Plant at Effective Dateof System of Accounts (Major Utilities).

A. The electric plant accounts provided herein arethe same as those contained in the prior system ofaccounts except for inclusion of accounts for nuclearproduction plant and some changes in classificationin the general equipment accounts. Except for thesechanges, the balances in the various plant accounts,as determined under the prior system of accounts,should be carried forward. Any remaining balance ofplant which has not yet been classified, pursuant to


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18 CFR Pt. 101 Page 1318 C.F.R. Pt. 101

the requirements of the prior system, shall beclassified in accordance with the followinginstructions.

B. The cost to the utility of its unclassified plantshall be ascertained by analysis of the utility's

records. Adjustments shall not be made to record inutility plant accounts amounts previously charged tooperating expenses or to income deductions inaccordance with the uniform system of accounts ineffect at the time or in accordance with the discretionof management as exercised under a uniform systemof accounts, or under accounting practices previouslyfollowed.

C. The detailed electric plant accounts (301 to 399,inclusive) shall be stated on the basis of cost to theutility of plant constructed by it and the original cost,estimated if not known, of plant acquired as anoperating unit or system. The difference between theoriginal cost, as above, and the cost to the utility ofelectric plant after giving effect to any accumulatedprovision for depreciation or amortization shall berecorded in account 114, Electric Plant AcquisitionAdjustments. The original cost of electric plant shallbe determined by analysis of the utility's records orthose of the predecessor or vendor companies withrespect to electric plant previously acquired asoperating units or systems and the difference betweenthe original cost so determined, less accumulatedprovisions for depreciation and amortization and thecost to the utility with necessary adjustments forretirements from the date of acquisition, shall be

entered in account 114, Electric Plant AcquisitionAdjustments. Any difference between the cost ofelectric plant and its book cost, when not properlyincludible in other accounts, shall be recorded inaccount 116, Other Electric Plant Adjustments.

D. Plant acquired by lease which qualifies as capitallease property under General Instruction 19. Criteriafor Classifying Leases, shall be recorded in Account101.1, Property under Capital Leases, or Account120.6, Nuclear Fuel under Capital Leases, asappropriate.

2. Electric Plant To Be Recorded at Cost.

A. All amounts included in the accounts for electricplant acquired as an operating unit or system, exceptas otherwise provided in the texts of the intangibleplant accounts, shall be stated at the cost incurred bythe person who first devoted the property to utilityservice. All other electric plant shall be included inthe accounts at the cost incurred by the utility, exceptfor property acquired by lease which qualifies as

capital lease property under General Instruction 19.Criteria for Classifying Leases, and is recorded inAccount 101.1, Property under Capital Leases, orAccount 120.6, Nuclear Fuel under Capital Leases.Where the term "cost" is used in the detailed plantaccounts, it shall have the meaning stated in this

paragraph.

B. When the consideration given for property isother than cash, the value of such consideration shall be determined on a cash basis (see, however,definition 9). In the entry recording such transition,the actual consideration shall be described withsufficient particularity to identify it. The utility shallbe prepared to furnish the Commission the particularsof its determination of the cash value of theconsideration if other than cash.

C. When property is purchased under a planinvolving deferred payments, no charge shall bemade to the electric plant accounts for interest,insurance, or other expenditures occasioned solely bysuch form of payment.

D. The electric plant accounts shall not include thecost or other value of electric plant contributed to thecompany. Contributions in the form of money or itsequivalent toward the construction of electric plantshall be credited to accounts charged with the cost ofsuch construction. Plant constructed fromcontributions of cash or its equivalent shall be shownas a reduction to gross plant constructed whenassembling cost data in work orders for posting to

plant ledgers of accounts. The accumulated grosscosts of plant accumulated in the work order shall berecorded as a debit in the plant ledger of accountsalong with the related amount of contributionsconcurrently being recorded as a credit.

3. Components of Construction Cost.

A. For Major utilities, the cost of constructionproperly includible in the electric plant accounts shallinclude, where applicable, the direct and overheadcosts as listed and defined hereunder:

(1) "Contract work" includes amounts paid for workperformed under contract by other companies, firms,or individuals, costs incident to the award of suchcontracts, and the inspection of such work.

(2) "Labor" includes the pay and expenses ofemployees of the utility engaged on constructionwork, and related workmen's compensationinsurance, payroll taxes and similar items of expense.It does not include the pay and expenses of



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employees which are distributed to constructionthrough clearing accounts nor the pay and expensesincluded in other items hereunder.

(3) "Materials and supplies" includes the purchaseprice at the point of free delivery plus customs duties,excise taxes, the cost of inspection, loading andtransportation, the related stores expenses, and thecost of fabricated materials from the utility's shop. Indetermining the cost of materials and supplies usedfor construction, proper allowance shall be made forunused materials and supplies, for materialsrecovered from temporary structures used in performing the work involved, and for discountsallowed and realized in the purchase of materials andsupplies.

Note: The cost of individual items of equipment ofsmall value (for example, $500 or less) or of short

life, including small portable tools and implements,shall not be charged to utility plant accounts unlessthe correctness of the accounting therefor is verifiedby current inventories. The cost shall be charged tothe appropriate operating expense or clearingaccounts, according to the use of such items, or, ifsuch items are consumed directly in constructionwork, the cost shall be included as part of the cost ofthe construction.

(4) "Transportation" includes the cost of transportingemployees, materials and supplies, tools, purchasedequipment, and other work equipment (when not

under own power) to and from points of construction.It includes amounts paid to others as well as the costof operating the utility's own transportationequipment. (See item 5 following.)

(5) "Special machine service" includes the cost oflabor (optional), materials and supplies, depreciation,and other expenses incurred in the maintenance,operation and use of special machines, such as steamshovels, pile drivers, derricks, ditchers, scrapers,material unloaders, and other labor saving machines;also expenditures for rental, maintenance andoperation of machines of others. It does not include

the cost of small tools and other individual items ofsmall value or short life which are included in thecost of materials and supplies. (See item 3, above.)When a particular construction job requires the usefor an extended period of time of special machines,transportation or other equipment, the net book costthereof, less the appraised or salvage value at time ofrelease from the job, shall be included in the cost ofconstruction.

(6) "Shop service" includes the proportion of theexpense of the utility's shop department assignable toconstruction work except that the cost of fabricatedmaterials from the utility's shop shall be included in"materials and supplies."

(7) "Protection" includes the cost of protecting theutility's property from fire or other casualties and thecost of preventing damages to others, or to theproperty of others, including payments for discoveryor extinguishment of fires, cost of apprehending and prosecuting incendiaries, witness fees in relationthereto, amounts paid to municipalities and others forfire protection, and other analogous items ofexpenditures in connection with construction work.

(8) "Injuries and damages" includes expenditures orlosses in connection with construction work onaccount of injuries to persons and damages to theproperty of others; also the cost of investigation of

and defense against actions for such injuries anddamages. Insurance recovered or recoverable onaccount of compensation paid for injuries to personsincident to construction shall be credited to theaccount or accounts to which such compensation ischarged. Insurance recovered or recoverable onaccount of property damages incident to constructionshall be credited to the account or accounts chargedwith the cost of the damages.

(9) "Privileges and permits" includes payments forand expenses incurred in securing temporary privileges, permits or rights in connection with

construction work, such as for the use of private orpublic property, streets, or highways, but it does notinclude rents, or amounts chargeable as franchisesand consents for which, see account 302, Franchisesand Consents.

(10) "Rents" includes amounts paid for the use ofconstruction quarters and office space occupied byconstruction forces and amounts properly includiblein construction costs for such facilities jointly used.

(11) "Engineering and supervision" includes the portion of the pay and expenses of engineers,

surveyors, draftsmen, inspectors, superintendents andtheir assistants applicable to construction work.

(12) "General administration capitalized" includesthe portion of the pay and expenses of the generalofficers and administrative and general expensesapplicable to construction work.

(13) "Engineering services" includes amounts paid toother companies, firms, or individuals engaged by the


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18 CFR Pt. 101 Page 1518 C.F.R. Pt. 101

utility to plan, design, prepare estimates, supervise,inspect, or give general advice and assistance inconnection with construction work.

(14) "Insurance" includes premiums paid or amounts provided or reserved as self-insurance for the

protection against loss and damages in connectionwith construction, by fire or other casualty injuries toor death of persons other than employees, damages to property of others, defalcation of employees andagents, and the nonperformance of contractualobligations of others. It does not include workmen'scompensation or similar insurance on employeesincluded as "labor" in item 2, above.

(15) "Law expenditures" includes the general lawexpenditures incurred in connection with constructionand the court and legal costs directly related thereto,other than law expenses included in protection, item7, and in injuries and damages, item 8.

(16) "Taxes" includes taxes on physical property(including land) during the period of construction andother taxes properly includible in construction costsbefore the facilities become available for service.

(17) "Allowance for funds used during construction"

(Major and Nonmajor Utilities) includes the net costfor the period of construction of borrowed funds usedfor construction purposes and a reasonable rate onother funds when so used, not to exceed, without prior approval of the Commission, allowancescomputed in accordance with the formula prescribedin paragraph (a) of this subparagraph. No allowancefor funds used during construction charges shall beincluded in these accounts upon expenditures forconstruction projects which have been abandoned.

(a) The formula and elements for the computation ofthe allowance for funds used during constructionshall be:

Ai = s(S/W)+d(D/D+P+C)(1-S/W)

Ae = [1-S/W][p(P/D+P+C)+c(C/D+P+C)]

Ai = Gross allowance for borrowed funds used during construction rate.

Ae = Allowance for other funds used during construction rate.

S = Average short-term debt.

s = Short-term debt interest rate.

D = Long-term debt.

d = Long-term debt interest rate.

P = Preferred stock.

p = Preferred stock cost rate.

C = Common equity.

c = Common equity cost rate.

W = Average balance in construction work in progress plus nuclear fuel

in

process of refinement, conversion, enrichment and fabrication.

(b) The rates shall be determined annually. The balances for long-term debt, preferred stock andcommon equity shall be the actual book balances asof the end of the prior year. The cost rates for long-term debt and preferred stock shall be the weightedaverage cost determined in the manner indicated in 35.13 of the Commission's Regulations Under theFederal Power Act. The cost rate for common equity

shall be the rate granted common equity in the lastrate proceeding before the ratemaking body having primary rate jurisdictions. If such cost rate is notavailable, the average rate actually earned during the preceding three years shall be used. The short-termdebt balances and related cost and the average balance for construction work in progress plusnuclear fuel in process of refinement, conversion,enrichment, and fabrication shall be estimated for the

current year with appropriate adjustments as actualdata becomes available.

Note: When a part only of a plant or project is placed in operation or is completed and ready forservice but the construction work as a whole isincomplete, that part of the cost of the property

placed in operation or ready for service, shall betreated as "Electric Plant in Service" and allowancefor funds used during construction thereon as acharge to construction shall cease. Allowance forfunds used during construction on that part of the costof the plant which is incomplete may be continued asa charge to construction until such time as it is placedin operation or is ready for service, except as limitedin item 17, above.



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(18) "Earnings and expenses during construction."The earnings and expenses during construction shallconstitute a component of construction costs.

(a) The earnings shall include revenues received orearned for power produced by generating plantsduring the construction period and sold or used by theutility. Where such power is sold to an independentpurchaser before intermingling with power generatedby other plants, the credit shall consist of the sellingprice of the energy. Where the power generated by aplant under construction is delivered to the utility'selectric system for distribution and sale, or isdelivered to an associated company, or is delivered toand used by the utility for purposes other thandistribution and sale (for manufacturing or industrialuse, for example), the credit shall be the fair value ofthe energy so delivered. The revenues shall alsoinclude rentals for lands, buildings etc., and

miscellaneous receipts not properly includible inother accounts.

(b) The expenses shall consist of the cost ofoperating the power plant, and other costs incident tothe production and delivery of the power for whichconstruction is credited under paragraph (a), above,including the cost of repairs and other expenses ofoperating and maintaining lands, buildings, and otherproperty, and other miscellaneous and like expensesnot properly includible in other accounts.

(19) "Training Costs" (Major and Nonmajor

Utilities). When it is necessary that employees betrained to operate or maintain plant facilities that are being constructed and such facilities are notconventional in nature, or are new to the company'soperations, these costs may be capitalized as acomponent of construction cost. Once plant is placedin service, the capitalization of training costs shallcease and subsequent training costs shall beexpensed. (See Operating Expense Instruction 4.)

(20) "Studies" includes the costs of studies such asnuclear operational, safety, or seismic studies orenvironmental studies mandated by regulatory bodies

relative to plant under construction. Studies relativeto facilities in service shall be charged to account183, Preliminary Survey and Investigation Charges.

B. For Nonmajor utilities, the cost of construction of property chargeable to the electric plant accountsshall include, where applicable, the cost of labor;materials and supplies; transportation; work done byothers for the utility; injuries and damages incurredin construction work; privileges and permits; special

machine service; allowance for funds used duringconstruction, not to exceed without prior approval ofthe Commission, amounts computed in accordancewith the formula prescribed in paragraph (a) of paragraph (17) of this Instruction; training costs;and such portion of general engineering,administrative salaries and expenses, insurance,taxes, and other analogous items as may be properlyincludable in construction costs. (See OperatingExpense Instruction 4.) The rates and balances ofshort and long-term debt, preferred stock, commonequity and construction work in progress shall bedetermined as prescribed in paragraph (b) ofparagraph (17) of this Instruction.

4. Overhead Construction Costs.

A. All overhead construction costs, such asengineering, supervision, general office salaries andexpenses, construction engineering and supervision

by others than the accounting utility, law expenses,insurance, injuries and damages, relief and pensions,taxes and interest, shall be charged to particular jobsor units on the basis of the amounts of suchoverheads reasonably applicable thereto, to the endthat each job or unit shall bear its equitableproportion of such costs and that the entire cost of theunit, both direct and overhead, shall be deductedfrom the plant accounts at the time the property isretired.

B. As far as practicable, the determination of payrollcharges includible in construction overheads shall be

based on time card distributions thereof. Where this procedure is impractical, special studies shall bemade periodically of the time of supervisoryemployees devoted to construction activities to theend that only such overhead costs as have a definiterelation to construction shall be capitalized. Theaddition to direct construction costs of arbitrarypercentages or amounts to cover assumed overheadcosts is not permitted.

C. For Major utilities, the records supporting theentries for overhead construction costs shall be sokept as to show the total amount of each overhead for

each year, the nature and amount of each overheadexpenditure charged to each construction work orderand to each electric plant account, and the bases ofdistribution of such costs.

5. Electric Plant Purchased or Sold.

A. When electric plant constituting an operating unitor system is acquired by purchase, merger,consolidation, liquidation, or otherwise, after the


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18 CFR Pt. 101 Page 1718 C.F.R. Pt. 101

effective date of this system of accounts, the costs ofacquisition, including expenses incidental theretoproperly includible in electric plant, shall be chargedto account 102, Electric Plant Purchased or Sold.

B. The accounting for the acquisition shall then be

completed as follows:

(1) The original cost of plant, estimated if notknown, shall be credited to account 102, ElectricPlant Purchased or Sold, and concurrently charged tothe appropriate electric plant in service accounts andto account 104, Electric Plant Leased to Others,account 105, Electric Plant Held for Future Use, andaccount 107, Construction Work in Progress--Electric, as appropriate.

(2) The depreciation and amortization applicable tothe original cost of the properties purchased shall becharged to account 102, Electric Plant Purchased orSold, and concurrently credited to the appropriateaccount for accumulated provision for depreciation oramortization.

(3) The cost to the utility of any property includiblein account 121, Nonutility Property, shall betransferred thereto.

(4) The amount remaining in account 102, ElectricPlant Purchased or Sold, shall then be closed toaccount 114, Electric Plant Acquisition Adjustments.

C. If property acquired in the purchase of an

operating unit or system is in such physical conditionwhen acquired that it is necessary substantially torehabilitate it in order to bring the property up to thestandards of the utility, the cost of such work, exceptreplacements, shall be accounted for as a part of thepurchase price of the property.

D. When any property acquired as an operating unitor system includes duplicate or other plant which will be retired by the accounting utility in thereconstruction of the acquired property or itsconsolidation with previously owned property, the proposed accounting for such property shall be

presented to the Commission.

E. In connection with the acquisition of electric plantconstituting an operating unit or system, the utilityshall procure, if possible, all existing records relatingto the property acquired, or certified copies thereof,and shall preserve such records in conformity withregulations or practices governing the preservation ofrecords of its own construction.

F. When electric plant constituting an operating unitor system is sold, conveyed, or transferred to anotherby sale, merger, consolidation, or otherwise, the bookcost of the property sold or transferred to anothershall be credited to the appropriate utility plantaccounts, including amounts carried in account 114,

Electric Plant Acquisition Adjustments. The amounts(estimated if not known) carried with respect theretoin the accounts for accumulated provision fordepreciation and amortization and in account 252,Customer Advances for Construction, shall becharged to such accounts and contra entries made toaccount 102, Electric Plant Purchased or Sold.Unless otherwise ordered by the Commission, thedifference, if any, between (1) the net amount ofdebits and credits and (2) the consideration receivedfor the property (less commissions and otherexpenses of making the sale) shall be included inaccount 421.1. Gain on Disposition of Property, oraccount 421.2, Loss on Disposition of Property. (Seeaccount 102, Electric Plant Purchased or Sold.)

Note: In cases where existing utilities merge orconsolidate because of financial or operating reasonsor statutory requirements rather than as a means oftransferring title of purchased properties to a newowner, the accounts of the constituent utilities, withthe approval of the Commission, may be combined.In the event original cost has not been determined,the resulting utility shall proceed to determine suchcost as outlined herein.

6. Expenditures on Leased Property.

A. The cost of substantial initial improvements(including repairs, rearrangements, additions, and betterments) made in the course of preparing forutility service property leased for a period of morethan one year, and the cost of subsequent substantialadditions, replacements, or betterments to such property, shall be charged to the electric plantaccount appropriate for the class of property leased.If the service life of the improvements is terminableby action of the lease, the cost, less net salvage, ofthe improvements shall be spread over the life of the

lease by charges to account 404, Amortization ofLimited-Term Electric Plant. However, if the servicelife is not terminated by action of the lease but bydepreciation proper, the cost of the improvements,less net salvage, shall be accounted for as depreciableplant. The provisions of this paragraph are applicableto property leased under either capital leases oroperating leases.

B. If improvements made to property leased for a



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period of more than one year are of relatively minorcost, or if the lease is for a period of not more thanone year, the cost of the improvements shall becharged to the account in which the rent is included,either directly or by amortization thereof.

7. Land and Land Rights.

A. The accounts for land and land rights shallinclude the cost of land owned in fee by the utilityand rights. Interests, and privileges held by the utilityin land owned by others, such as leaseholds,easements, water and water power rights, diversionrights, submersion rights, rights-of-way, and otherlike interests in land. Do not include in the accountsfor land and land rights and rights-of-way costsincurred in connection with first clearing and gradingof land and rights-of-way and the damage costsassociated with the construction and installation ofplant. Such costs shall be included in the appropriate

plant accounts directly benefited.

B. Where special assessments for publicimprovements provide for deferred payments, the fullamount of the assessments shall be charged to theappropriate land account and the unpaid balance shallbe carried in an appropriate liability account. Intereston unpaid balances shall be charged to theappropriate interest account. If any part of the cost ofpublic improvements is included in the general taxlevy, the amount thereof shall be charged to theappropriate tax account.

C. The net profit from the sale of timber, cord wood,sand, gravel, other resources or other propertyacquired with the rights-of-way or other lands shallbe credited to the appropriate plant account to whichrelated. Where land is held for a considerable periodof time and timber and other natural resources on theland at the time of purchase increases in value, thenet profit (after giving effect to the cost of the naturalresources) from the sales of timber or its products orother natural resources shall be credited to theappropriate utility operating income account whensuch land has been recorded in account 105, ElectricPlant Held for Future Use or classified as plant in

service, otherwise to account 421, MiscellaneousNonoperating Income.

D. Separate entries shall be made for the acquisition,transfer, or retirement of each parcel of land, andeach land right (except rights-of-way for distributionlines), or water right, having a life of more than oneyear. A record shall be maintained showing thenature of ownership, full legal description, area, mapreference, purpose for which used, city, county, and

tax district on which situated, from whom purchasedor to whom sold, payment given or received, othercosts, contract date and number, date of recording ofdeed, and book and page of record. Entriestransferring or retiring land or land rights shall referto the original entry recording its acquisition.

E. Any difference between the amount received fromthe sale of land or land rights, less agents'commissions and other costs incident to the sale, andthe book cost of such land or rights, shall be includedin account 411.6, Gains from Disposition of UtilityPlant, or 411.7, Losses from Disposition of UtilityPlant when such property has been recorded inaccount 105, Electric Plant Held for Future Use,otherwise to account 421.1, Gain on Disposition ofProperty or 421.2, Loss on Disposition of Property,as appropriate, unless a reserve therefor has beenauthorized and provided. Appropriate adjustments ofthe accounts shall be made with respect to any

structures or improvements located on land sold.

F. The cost of buildings and other improvements(other than public improvements) shall not beincluded in the land accounts. If at the time ofacquisition of an interest in land such interest extendsto buildings or other improvements (other than publicimprovements) which are then devoted to utilityoperations, the land and improvements shall beseparately appraised and the cost allocated to landand buildings or improvements on the basis of theappraisals. If the improvements are removed orwrecked without being used in operations,the cost of

removing or wrecking shall be charged and thesalvage credited to the account in which the cost ofthe land is recorded.

G. When the purchase of land for electric operationsrequires the purchase of more land than needed forsuch purposes, the charge to the specific land accountshall be based upon the cost of the land purchased,less the fair market value of that portion of the landwhich is not to be used in utility operations. Theportion of the cost measured by the fair market valueof the land not to be used shall be included in account105, Electric Plant Held for Future Use, or account

121, Nonutility Property, as appropriate.

H. Provisions shall be made for amortizing amountscarried in the accounts for limited-term interests inland so as to apportion equitably the cost of eachinterest over the life thereof. (For Major utilities, seeaccount 111, Accumulated Provision forAmortization of Electric Plant Utility, and account404, Amortization of Limited-Term Electric Plant.For Nonmajor utilities, see account 404.)


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18 CFR Pt. 101 Page 1918 C.F.R. Pt. 101

I. The items of cost to be included in the accounts forland and land rights are as follows:

1. Bulkheads, buried, not requiring maintenance orreplacement.

2. Cost, first, of acquisition including mortgages andother liens assumed (but not subsequent interestthereon).

3. [Reserved]

4. Condemnation proceedings, including court andcounsel costs.

5. Consents and abutting damages, payment for.

6. Conveyancers' and notaries' fees.

7. Fees, commissions, and salaries to brokers, agentsand others in connection with the acquisition of theland or land rights.

8. [Reserved]

9. Leases, cost of voiding upon purchase to securepossession of land.

10. Removing, relocating, or reconstructing, property of others, such as buildings, highways,railroads, bridges, cemeteries, churches, telephoneand power lines, etc., in order to acquire quiet

possession.

11. Retaining walls unless identified with structures.

12. Special assessments levied by public authoritiesfor public improvements on the basis of benefits fornew roads, new bridges, new sewers, new curbing,new pavements, and other public improvements, butnot taxes levied to provide for the maintenance ofsuch improvements.

13. Surveys in connection with the acquisition, butnot amounts paid for topographical surveys and maps

where such costs are attributable to structures or plantequipment erected or to be erected or installed onsuch land.

14. Taxes assumed, accrued to date of transfer oftitle.

15. Title, examining, clearing, insuring andregistering in connection with the acquisition anddefending against claims relating to the period prior

to the acquisition.

16. Appraisals prior to closing title.

17. Cost of dealing with distributees or legateesresiding outside of the state or county, such as

recording power of attorney, recording will orexemplification of will, recording satisfaction of statetax.

18. Filing satisfaction of mortgage.

19. Documentary stamps.

20. Photographs of property at acquisition.

21. Fees and expenses incurred in the acquisition ofwater rights and grants.

22. Cost of fill to extend bulkhead line over landunder water, where riparian rights are held, which isnot occasioned by the erection of a structure.

23. Sidewalks and curbs constructed by the utility onpublic property.

24. Labor and expenses in connection with securingrights-of-way, where performed by companyemployees and company agents.

8. Structures and Improvements.

A. The accounts for structures and improvements

shall include the cost of all buildings and facilities tohouse, support, or safeguard property or persons,including all fixtures permanently attached to andmade a part of buildings and which cannot beremoved therefrom without cutting into the walls,ceilings, or floors, or without in some way impairingthe buildings, and improvements of a permanentcharacter on or to land. Also include those costsincurred in connection with the first clearing andgrading of land and rights-of-way and the damagecosts associated with construction and installation ofplant.

B. The cost of specially provided foundations notintended to outlast the machinery or apparatus forwhich provided, and the cost of angle irons, castings,etc., installed at the base of an item of equipment,shall be charged to the same account as the cost ofthe machinery, apparatus, or equipment.

C. Minor buildings and structures, such as valvetowers, patrolmen's towers, telephone stations, fishand wildlife, and recreation facilities, etc., which are



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used directly in connection with or form a part of areservoir, dam, waterway, etc., shall be considered a part of the facility in connection with whichconstructed or operated and the cost thereofaccounted for accordingly.

D. Where furnaces and boilers are used primarily forfurnishing steam for some particular department andonly incidentally for furnishing steam for heating a building and operating the equipment therein, theentire cost of such furnaces and boilers shall becharged to the appropriate plant account, and no partto the building account.

E. Where the structure of a dam forms also thefoundation of the power plant building, suchfoundation shall be considered a part of the dam.

F. The cost of disposing of materials excavated inconnection with construction of structures shall be

considered as a part of the cost of such work, exceptas follows: (a) When such material is used for filling,the cost of loading, hauling, and dumping shall beequitably apportioned between the work inconnection with which the removal occurs and thework in connection with which the material is used;(b) when such material is sold, the net amountrealized from such sales shall be credited to the workin connection with which the removal occurs. If theamount realized from the sale of excavated materialsexceeds the removal costs and the costs in connectionwith the sale, the excess shall be credited to the landaccount in which the site is carried.

G. Lighting or other fixtures temporarily attached tobuildings for purposes of display or demonstrationshall not be included in the cost of the building but inthe appropriate equipment account.

H. The items of cost to be included in the accountsfor structures and improvements are as follows:

1. Architects' plan

Electric FERC

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