Accounting Questions and Answers

Answer:  A regulated entity may incur costs for preliminary surveys, plans, investigations, etc., when considering the feasibility of a construction project, and records such costs as Preliminary Survey and Investigation Charges (Account 183 for electric utilities; and Account 183.2 for gas companies, except for land).  This account is credited, and Construction Work in Progress, or CWIP (Account 107) is debited when the project is determined to be feasible, and construction work begins.  If the project is abandoned at the preliminary phase, the costs are transferred to Other Deductions (Account 426.5), if non-operating in nature, or to appropriate operating expense accounts (if not significant), or to Unrecovered Plant and Regulatory Study Costs (Account 182.2), if significant and with Commission approval.

• Source:  See 18 CFR Part 101, Instructions to Accounts 107, 182.2, 183, and 426.5; Part 201, Instructions to Accounts 107, 182.2, 183.2, and 426.5.
• See also, Commission precedent:  Order No. 390, 49 Fed. Reg. at 32,502-503 (1984) (clarification that insignificant costs in Account 183 could be expensed currently).

Answer:  When a construction project recorded as CWIP (in Account 107) is cancelled, regulated entities should carefully consider the circumstances that resulted in the cancellation to determine if such cancelled project costs should be recorded as operating or nonoperating in nature.  Regulated entities have an ongoing responsibility to identify any costs associated with cancelled projects that could have been reasonably avoided and would be considered in excess of just and reasonable charges and record such amounts as nonoperating for exclusion from rates.

When a construction project recorded as CWIP is cancelled, and is considered to be nonoperating in nature, it should be written off to nonoperating accounts (e.g., to Other Deductions (Account 426.5)).  However, when a construction project recorded as CWIP is cancelled, and is considered to be operating in nature, the entity may write off such costs to operating expense if insignificant, or, if significant and with Commission approval for recovery in rates, transfer such costs from CWIP to Unrecovered Plant and Regulatory Study Costs (Account 182.2) and amortize the balance to Amortization of Property Losses, Unrecovered Plant and Regulatory Study Costs (Account 407, for electric utilities; and Account 407.1, for gas companies), over a period specified by the Commission.

• Source:  See 18 CFR Part 101, Instructions to Accounts 107, 182.2, 407, and 426.5; Part 201, Instructions to Accounts 107, 182.2, 407.1 and 426.5.

• See also, Commission precedent:   Duke Energy Corp., Docket No. AC19-178-000 (2019); Tri-State Generation and Transmission Association, Inc., Docket No. AC23-133-000 (2023).

Answer:  Abandoned plant is retired from the regulated entity’s books either in place or by sale.  In the case of a normal retirement, the entire original cost of the plant in Plant in Service (Account 101) is credited, with a corresponding credit to Accumulated Provision for Depreciation of Plant in Service (Account 108). 

Abandoned plant by sale can relate to either an operating unit or system or a retirement unit.  In the case of an operating unit or system, Plant Purchased or Sold (Plant Instruction No. 5), provides that the transaction is cleared using Plant Purchased or Sold (Account 102) by: 

1. debiting cash and crediting Account 102 for the sale price,

2. debiting Account 102 and crediting Account 101 for the entire original cost of the plant,

3. debiting Account 108 and crediting Account 102 for the associated accumulated depreciation, and

4. clearing the remaining amount in Account 102 by crediting Gain on Disposition of Property (Account 421.1), or debiting Loss on Disposition of Property (Account 421.2), for the difference between the sale price and the net book value of the plant.

All balances in Account 102 must equal zero at the end of clearing the transaction. 

In the case of an abandoned retirement unit (i.e., plant that does not constitute an operating unit or system) by sale, Additions and Retirements (Plant Instruction No. 10) provides that normal retirement accounting is followed, which requires that the entire original cost of the plant be credited to plant in service (Account 101) and debited to accumulated depreciation (Account 108), with any cost of removal debited, and any proceeds from the sale (i.e., salvage) credited, to accumulated depreciation (Account 108), with a credit and debit to cash, respectively.

• Source:  18 CFR Parts 101/201, Plant Instructions No. 5 and 10, Instructions to Accounts 101, 102, 108, 421.1, and 421.2.

Answer:  If a regulated entity affirms that it has a definite plan for future use of temporarily deactivated plant, then the original cost of the plant should be transferred to Plant Held for Future Use (Account 105), with the associated accumulated depreciation remaining in Account 108, but with proper segregation.  Depreciation expense is not recorded on plant held for future use, unless there are special circumstances, in which case Miscellaneous Nonoperating Income (Account 421) is used to record the depreciation.

• Source:  18 CFR Parts 101/201, Plant Instruction No. 12, and Instructions to Accounts 105, 108 (A)(3), and 421.
• See also, Commission precedent:  Columbia Gas Transmission Corporation, 71 FERC ¶ 61,077 (1995).

Answer:  When a regulated entity proposes to temporarily abandon plant, and the plant is not treated as backup or spare plant, and there is no definite plan for reuse, then the plant is reclassified to Nonutility Property (Account 121), with the associated accumulated depreciation reclassified to Accumulated Provision for Depreciation and Amortization of Nonutility Property (Account 122).   Depreciation expense on nonutility property is recorded to Expenses of Nonutility Operations (Account 417.1). 

• Source:  18 CFR Parts 101/201, Plant Instruction No. 12, and Instructions to Accounts 108, 121, 122, and 417.1. 
• See also, Commission precedent:  Columbia Gas Transmission Corporation, 71 FERC ¶ 61,077 (1995).

Answer:  A construction project includes the financing cost of the project in the form of AFUDC, calculated on the balance of CWIP, consistent with Components of Construction Cost, Allowance for Funds Used During Construction (Plant Instruction No. 3(17)).  However, when the Commission allows for inclusion of a construction project (i.e., CWIP) in rate base, the Commission ensures that the entity has clear procedures in place to avoid double recovery by including AFUDC as a component of the project and also including the balance of CWIP in rate base. 

Examples of such procedures include: 

1. an upfront procedure that prevents AFUDC from being calculated and recorded on identified qualified projects (which ensures no AFUDC is included as part of the cost of construction);

2. the removal of previously recorded AFUDC from CWIP by crediting CWIP (Account 107) and debiting the same accounts that were initially credited to record the AFUDC in CWIP (i.e., Allowance for Other Funds Used During Construction (Account 419.1) and Allowance for Borrowed Funds Used During Construction – Credit (Account 432)); and

3. recording a regulatory liability in Other Regulatory Liabilities (Account 254) to offset the AFUDC previously recorded in CWIP (i.e., AFUDC remains as a component of construction in CWIP, but the regulatory liability amount is included in rate base to negate the impact).

• Source:  18 CFR Parts 101/201, Plant Instruction No. 3(17).
• See also, Commission precedent:  Order Nos. 679/679-A, 116 FERC ¶ 61,057 and 117 FERC ¶ 61,345, Promoting Transmission Investment through Pricing Reform (2006); Duquesne Light Company, 179 FERC ¶ 61,218 (2022), and Public Service Electric and Gas Company, 147 FERC ¶ 61,142 (2014), (discussing upfront procedures); Otter Tail Power Company, 129 FERC ¶ 61,287 (2009), and The United Illuminating Company, 119 FERC ¶ 61,182, (2007) (discussing the use of a regulatory liability to offset the recorded AFUDC).

Answer: Upon repurposing a plant asset, a utility must maintain the original cost of the asset and avoid duplication of capitalized installation costs.  Materials that are recovered for future use upon the retirement of a plant unit or system are considered salvage and are returned to inventory at their original cost (estimated, if not known) and recorded as a debit in a materials and supplies account (e.g., Account 154, for electric and gas, and Account 17, for oil) and credited to an accumulated depreciation account (e.g., Account 108, for electric and gas, and Account 31, for oil).  All other costs (e.g., costs associated with relocating, rearranging, and repurposing of plant, and repairing recovered materials for future use) are recorded in operating expense accounts (noting that Plant Instruction No. 10’s guidance regarding retirement units and minor items of property continues to apply).

• Source:  18 CFR Parts 101/201, Plant Instruction Nos. 10 and 12, Operating Expense Instruction No. 2, and Instructions to Accounts 108 and 154; 18 CFR Part 352, Instructions for Carrier Property Accounts Nos. 3-1 and 3-8, Instructions to Account 310.
• See also, Niagara Mohawk Power Corp., Docket No. AC93-165-000 (1997) (where previously capitalized installation costs were removed from the books and the new installation costs were capitalized upon repurposing); Ozark Gas Transmission Sys., 75 FERC ¶ 62,179 (1996) (installation costs cannot be capitalized twice if retired assets are reused).

Answer:  A utility would include, as part of a construction project, costs for all activities that are necessary to complete the project for its intended use.  Rescoping typically involves changes that are necessary to ensure that a project can meet regulatory, environmental, and other requirements.  The Commission has previously determined that such costs are directly tied to the completion of a project.  As such, a utility that experiences changes or modifications to a construction project would continue to include such costs, if properly justified, as components of the construction project. 

• See, Pacific Gas & Elec., 177 FERC ¶ 61,217 (2021) (finding that PG&E’s projects were not abandoned, but were instead rescoped, and, as such, the costs were properly includable in the cost of construction of the project); and Trans-Allegheny Interstate Line Co., 135 FERC ¶ 61,128 (2011) (siting and engineering changes to a project are includable as costs of the construction project).

Answer:  Such contributions received from outside parties by a regulated entity are intended to reduce the cost of construction or plant in service.  The contribution received is recorded by debiting cash and crediting Construction Work in Progress (Account 107), or Plant in Service (Account 101), if the constructed plant was already placed in service.

• Source:  18 CFR Parts 101/201, Plant Instruction No. 2(D).

Answer:  Such contributions paid by a regulated entity to an outside party are recorded by debiting Miscellaneous Intangible Plant (Account 303) and crediting cash. 

For regulated electric utilities, the intangible asset may be amortized over the life of the associated agreement, or the life of the associated plant, by debiting Amortization of Limited-term Electric Plant (Account 404) and crediting Accumulated Provision for Amortization of Electric Plant, for major utilities (Account 111) or Accumulated Provision for Depreciation and Amortization of Electric Plant, for nonmajor utilities (Account 110). 

For regulated gas companies, the intangible asset may be amortized by debiting Amortization of Other Limited-term Gas Plant (Account 404.3) and crediting Accumulated Provision for Amortization and Depletion of Gas Utility Plant (Account 111).

• Source:  18 CFR Part 101, Instructions to Accounts 110, 111, 303, and 404; Part 201, Instructions to Accounts 111, 303, and 404.3.
• See also, Commission precedent for gas companies:  Texas Gas Transmission, LLC, 142 FERC ¶ 61,224, P 4 (2013) (Account 303 can be used for CIAC, even when costs relate to non-jurisdictional facilities); Kinder Morgan Interstate Gas Transmission LLC, 122 FERC ¶ 61,154, P 32 (2008) (amortization over the life of the associated agreement); Kern River Gas Transmission Co., 98 FERC ¶ 61,205, P 27 (2002) (amortization over the life of the associated plant asset, and the use of Account 404.3 rather than Amortization of Other Gas Plant (Account 405) when companies claimed the CIAC did not have a definite or terminable life); Williston Basin Interstate Pipeline Company, Docket No. AC05-68-000 (2006) (discussing that Account 405 is not appropriate).
• See also, Commission precedent for electric utilities:  Tampa Electric Company, 148 FERC ¶ 61,172, P 486 (2014) (amortization to Account 404 over the period of benefit, which is typically the depreciable life of the asset constructed with the contribution). 

Answer:  Such advances by customers for construction are intended to be refunded either wholly or in part to the customer.  The customer advance is initially recorded by a debit to cash and a credit to Customer Advances for Construction (Account 252).  When the customer is refunded, either wholly or in part, the liability (Account 252) is debited, and cash is credited; if partially refunded, any remaining balance in this account (i.e., Account 252) is credited to the respective plant account(s).  

Answer:  In purchase transactions, acquisition adjustments can be positive or negative, resulting from the difference between the purchase price and the net book value (NBV) of the plant asset.  When the purchase price exceeds the NBV, a positive acquisition adjustment is recorded as a debit to Plant Acquisition Adjustments (Account 114).  However, when the purchase price is less than the NBV, the resulting negative acquisition adjustment is initially recorded as a credit to Account 114, and immediately cleared by debiting Account 114 and crediting Accumulated Provision for Depreciation of Plant in Service (Account 108).

• Source:  18 CFR Parts 101/201, Classification of Plant (Plant Instruction No. 1 (C)), Instructions to Account 114.
• See also, Commission precedent:   Locust Ridge Gas Company, 29 FERC ¶ 61,052 (1984) (where the Commission stated that a negative acquisition adjustment represents a loss in service value that was not already recognized by the previous owner through depreciation).

Answer:  For electric and gas entities, costs incurred to facilitate a purchase (or sale) transaction of an operating unit or system that was previously devoted to public service that are part of the purchase (or sale) consideration and are cleared through Plant Purchased or Sold (Account 102) are embedded in acquisition adjustments for purchases (Account 114), or in gains and losses for sales (Account 421.1, Gain on Disposition of Property, and Account 421.2, Loss on Disposition of Property).  Such costs that are not part of the purchase (or sale) consideration are treated as Other Deductions (Account 426.5), for electric and gas, and Miscellaneous Income Charges (Account 660), for oil companies.

• Source:  18 C.F.R. Parts 101/201, Instructions to Accounts 102, 114, 421.1, 421.2, and 426.5; Part 352, Instructions to Account 660.

Answer:  A regulated entity treats the costs incurred to prepare a unit of property for sale (referred to as a retirement unit for electric and gas, and as a property unit for oil) as part of salvage value by debiting accumulated depreciation (Account 108, for electric and gas, and Account 31, for oil) and crediting cash, akin to the treatment for cost of removal.

• Source:  18 CFR Parts 101/201, Definition Nos. 19 and 35, Plant Instruction No. 10; Part 352, Definition Nos. 20 and 28, Instruction for Carrier Property Accounts No. 3-7.

Answer:  An entity should treat the sale of a previously retired plant asset as salvage by debiting cash and crediting accumulated depreciation (Account 108, for electric and gas, and Account 31, for oil).

• Source: 18 CFR Parts 101/201, Plant Instructions No. 10(B)(2), Instructions to Account 108; 18 CFR Part 352, Definitions, General Instructions Nos. 1-8, Instructions to Account 31.
• See also, Wisconsin Elec. Power Co., Docket No. AC07-122-000 (2007). 

Answer:  No.  Under the group method of depreciation, similar or related plant assets that have various useful lives are included in a group to which a single composite depreciation rate is calculated, and all assets within the group are depreciated over the average useful service life of the group using the composite rate.  Because the use of a composite depreciation rate recognizes that some assets within the group will outlive the average useful service life of the group while other assets within the group will be retired from service earlier than the average service life, gains and losses upon retirement are not recognized on the income statement.  Instead, the plant asset is retired by crediting the plant account at its original cost and debiting accumulated depreciation for the original cost which results in any implied gain or loss being embedded in the accumulated depreciation balance.   Estimated net salvage value is offset by actual net salvage (i.e., cost of removal and salvage value), with any differences also embedded in the accumulated depreciation balance.

• Source:  18 CFR Part 101, General Instruction No. 22; 18 CFR Parts 101/201, Instructions to Accounts 281(d), 282(d), and 283(e); 18 CFR Part 352, Definition 17.
• See also, Williston Basin Interstate Pipeline Co., 55 FERC ¶ 61,341 (1991) (explaining the concept of group (i.e., composite) depreciation).

Answer:  Yes.  Under the Commission’s regulations, carrier property acquired in a purchase must be recorded at cost or, if other consideration is given, at fair value.  A replacement cost study is proper if it reasonably reflects fair market value.

• Source: 18 CFR Part 352, Instruction for Carrier Property Accounts No. 3-11(b).
• See also, EOTT Energy Pipeline Ltd. P’ship, Docket Nos. AC96-31-000 and AC96-31-001 (1996).

Answer:  Yes, for electric and gas entities, and no, for oil entities.  For electric and gas entities, the Commission’s accounting regulations do not include a requirement to seek Commission approval prior to the use of new depreciation rates for accounting purposes.  Further, for electric utilities, the Commission confirmed that specific accounting approval of depreciation rates is not required.  However, Commission approval is needed to change rates charged for jurisdictional power sales or transmission services to reflect a change in depreciation expense.    

For oil entities, the Commission’s accounting regulations require approval prior to the use of new depreciation rates for accounting purposes. 

• Source:  18 C.F.R. Parts 101/201; Part 352, General Instruction 1-8.

• See also, Commission precedent:  Depreciation Accounting, Order No. 618, 92 FERC ¶ 61,078 (2000) (applicable to electric utilities); and Florida Power Corporation, 134 FERC ¶ 61,145 (2011).

Answer:  No.  The Commission does not prescribe an entity’s property units listing which is used for its property recordkeeping system, to allow the entity flexibility in identifying the level of property record detail that would support its business needs.

• Source:  Units of Property Accounting Regulations, Order No. 598, FERC Stats. & Regs. ¶ 31,061 (1998) (which removed the previously prescribed property unit listings); Pacific Gas and Electric Company, 178 FERC ¶ 61,123 at P 21 (2022).

Answer:  No, approval is not required.  The Commission previously determined that regulated entities are required to maintain a written property units listing, to apply the listing consistently, and be able to furnish the Commission with any details, in the event such details are requested by the Commission.

• Source: 18 CFR Parts 101/201, Plant Instruction No. 10; Part 352, Instruction for Carrier Property Accounts No. 3-4.
• See also, Commission precedent:  Units of Property Accounting Regulations, Order No. 598, FERC Stats. & Regs. ¶ 31,061 (1998).

Answer:  No.  The Commission previously determined that all plant consists of retirement/property units and minor items of property, where detailed plant recordkeeping requirements relate only to retirement/property units, and not to minor items of property.  An entity is not expected to maintain any additional records to track minor items of property, but an entity may do so to satisfy its own business needs.

• Source:  18 CFR Part 101, Definition Nos. 18 and 34, Electric Plant Instruction No. 10; Part 201, Definition Nos. 20 and 34, Gas Plant Instruction No. 10; Part 352, Definition No. 19.
• See also, Commission precedent:  Units of Property Accounting Regulations, Order No. 598, FERC Stats. & Regs. ¶ 31,061 (1998) (which confirms that the accounting for minor items did not change).

Answer:  The impairment of plant assets is treated as nonoperating in nature and recorded as a debit to Other Deductions (Account 426.5) for electric and gas, and Miscellaneous Income Charges (Account 660) for oil, with a corresponding credit to accumulated depreciation (Account 108, for electric and gas, or Account 31, for oil).

• Source:  18 CFR Parts 101/201, Instructions to Accounts 108 and 426.5; Part 352, Instructions to Accounts 31 and 660.
• See also, Commission precedent for electric utilities:  El Paso Electric Company, Docket No. AC97-175-000; Dayton Power and Light Company, Docket No. AC15-116-000 (2015) (stated that depreciation expense (Account 403) is not appropriate and directed the use of Account 426.5); Duke Energy Corporation, Docket No. AC15-139-000 (2015); South Carolina Electric & Gas Company, Docket No. AC18-194-000 (2018).
• See also, Commission precedent for oil pipelines:  Chevron Pipe Line Company, Docket No. AC01-13-000 (2000).

Answer:  Costs to repair utility property are generally recorded as operation and maintenance expense, and are not capitalized.  Costs that maintain or restore the serviceability of existing plant, or maintain the original life of existing plant, are operation and maintenance expense; expense classification does not depend on the significance of the cost involved.  However, when a project involves costs that are not recurring in nature, but are instead nonrecurring, one-time, first-time costs that extend the useful life of the associated plant beyond its original estimated life (which could be supported by a depreciation study), costs meeting such criteria may be capitalized.

The replacement of a minor item of property is considered a type of repair and, thus, recorded as expense; however, there are limited situations in which replacement of a minor item of property may be capitalized:  [1] the replacement involves a substantial addition of a minor item that did not previously exist, or [2] the replacement involves a substantial betterment, in which case only the cost in excess of the cost of a similar replacement of the minor item can be capitalized (materials cost, excluding labor).  When retirement units or units of property are replaced, the old units are retired, and the new units are capitalized.

• Source:  18 CFR Parts 101/201, Plant Instruction No. 10 and Operating Expense Instruction No. 2.
• See also, Pacific Gas & Elec. Co., 178 FERC ¶ 61,123 (2022); Am. Transmission Co. LLC, Docket No. AC23-152-000 (2023); and SFPP, L.P., Docket No. AC22-58-000 (2022) (explaining limited situations in which major rehabilitation projects or program costs can be capitalized, rather than treated as operation and maintenance expense, when certain criteria are met).

Answer:  Yes.  When items were previously treated as capital assets and later reclassified to inventory, and accumulated depreciation is affected, Commission approval is required. 

• Source:  18 CFR Parts 101/201, Instructions to Account 108; 18 CFR Part 352, Instructions to Account 31.
• See also, Central Louisiana Elec., Docket No. AC93-9-000 (1993).

Answer:  Merger costs include both merger transaction costs (costs of activities that are incurred to facilitate the completion of a merger transaction such as legal fees for legal advice, consulting fees for financial and accounting advice, regulatory fees for obtaining regulatory approvals, among others) and merger transition costs (costs of activities that are incurred during the post-merger integration process such as integration, restructuring, operational, among others).  Merger transaction costs are recorded as nonoperating expenses (in Account 426.5, Other Deductions, for electric and gas, and Account 660, Miscellaneous Income Charges, for oil companies). Merger transition costs can be  nonoperating  or operating, and either capitalized or expensed, as appropriate.

• Source:  Policy Statement on Hold Harmless Commitments, 155 FERC ¶ 61,189, Docket No. PL15-3-000 (2016), for electric utilities.
• See also:  18 CFR Parts 101/201, Instructions to Account 426.5 (provides for nonoperating activities which would allow inclusion of merger related costs); Part 352, Instructions to Account 660 (provides for nonoperating activities which would allow inclusion of merger related costs).

Answer:  In a merger transaction, goodwill represents the difference between the portion of the purchase price that relates to all identifiable non-plant related assets and liabilities and their book value, and is recorded by debiting Miscellaneous Deferred Debits (Account 186), and crediting Miscellaneous Paid-in Capital (Account 211), for electric and gas, and by debiting Organization Costs and Other Intangibles (Account 40), and crediting Additional Paid-in Capital (Account 73), for oil companies. 

• Source:  18 CFR Parts 101/201, Instructions to Accounts 186 and 211; Part 352, General Instructions No. 1-10, Instructions for Balance Sheet Accounts No. 2-2 (c)(4), Instructions to Accounts 40 and 73.
• See also, Commission precedent (for electric and gas):   Ameren Corporation, 140 FERC ¶ 61,034, Docket No. AC11-46-000 (2012); Central Vermont Public Service Corporation, Docket No. AC12-40-000 (2012); Louisville Gas & Electric Company and Kentucky Utilities Company, Docket No. AC11-83-000 (2011); Michigan Electric Transmission Company, LLC, Docket No. AC03-9-000 (2004); Transwestern Pipeline Company, Docket No. AC03-50-000 (2003). 
• See also, Commission precedent (for oil):   Rocky Mountain Pipeline System LLC, L.P., Docket No. AC18-218-000 (2018); Magellan Pipeline Company, L.P.; Docket No. AC12-29-000 (2012).

Answer:  In a merger transaction, an acquisition adjustment represents the difference between the portion of the purchase price that relates to plant assets and their net book value and is recorded in Plant Acquisition Adjustments (Account 114), via the use of the clearing account (Account 102), for electric and gas.  Oil companies do not record acquisition adjustments when acquiring carrier property, and instead record such property at its fair value.

Answer:  While merger transaction costs are nonoperating in nature and are recorded in Other Deductions (Account 426.5), merger transition costs can be considered as operating in nature and recorded in operating expense accounts or capitalized in plant asset accounts, or considered as nonoperating and recorded in nonoperating accounts, as appropriate.  This accounting does not permit electric utilities to recover any merger costs through jurisdictional rates without first making a section 205 filing and receiving authorization from the Commission.

• Source:  Policy Statement on Hold Harmless Commitments, 155 FERC ¶ 61,189, Docket No. PL15-3-000 (2016).
• See also, Commission precedent:  Exelon Corporation and Pepco Holdings, Inc., 149 FERC ¶ 61,148, at P 149 (2014) (instructing applicants that accounting does not permit recovery of any merger-related costs through transmission rates without Commission authorization).
• See also:  18 CFR Part 101, Instructions to Account 426.5 (provides for nonoperating activities which would allow inclusion of merger related costs).

Answer: Electric and gas entities do not amortize goodwill.  Should an impairment loss occur, the entity would record the loss to Account 426.5, Other Deductions.  For oil entities, goodwill is amortized over a reasonable period not to exceed 40 years, consistent with the Commission’s accounting regulations.

• Source:  18 CFR Parts 101/201, Instructions to Accounts 186; 18 CFR Part 352, General Instructions Nos. 1-10, Instructions for Balance Sheet Accounts No. 2-2 (c)(4), Instructions to Account 40.
• See also, Ameren Corp., 140 FERC ¶ 61,034 (2012); Louisville Gas & Elec. Co. & Kentucky Utils. Co., Docket No. AC11-83-000 (2011); Michigan Elec. Transmission Co., LLC, Docket No. AC03-9-000 (2004); Transwestern Pipeline Co., Docket No. AC03-50-000 (2003). 

Answer:   Rent expense should be recorded on a straight-line basis using the accrual method of accounting, which allows a regulated entity to defer the difference between monthly rent expense and the actual monthly cash outlay.

• Source:  18 CFR Parts 101 /201, General Instruction Nos. 11 and 20; Part 352, General Instruction 1-4.
• See also, Commission precedent:  Gulf South Pipeline Company, LLC, Docket No. AC24-11-000 (2024).

Answer:  Regulated electric and gas entities record capital lease assets and lease obligations using Account 101.1 (Property under Capital Leases), Account 227 (Obligations under Capital Leases—Noncurrent), and Account 243 (Obligations under Capital Leases—Current), and record rental payments using the appropriate rent expense accounts.  The Commission’s accounting regulations do not require operating leases to be capitalized on the balance sheet, but allow entities to choose to implement the guidance provided in FASB’s Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and report operating leases with a lease term in excess of 12 months as right of use assets, with corresponding lease obligations, using the balance sheet accounts established for capital leases.   Entities must continue to record rental payments using the appropriate rent expense account.

We note that the Commission’s regulations for lease accounting do not align with generally accepted accounting principles (GAAP); instead, the Commission’s Uniform System of Accounts supports both regulatory accounting and ratemaking objectives.  Under the Commission’s accounting regulations, capital leases are not amortized; instead, the capital lease asset and related lease obligation are reduced over the period of the lease by equal amounts representing the principal portion of each lease payment. 

• Source:  18 CFR Parts 101/201, General Instruction Nos. 19 and 20; Operating Expense Instruction No. 3; Instructions to Accounts 101.1, 227, and 243.
• See also, Order No. 390, 49 Fed. Reg. at 32,502-503 (1984); and Acct. & Financial Reporting for Leases, Docket No. AI19-1-000 (2018).

Answer:  Regulated electric and gas entities record operating plant leased to others in plant in service (Account 101), with associated rent revenues recorded in rent from property (Account 454, for electric, and Account 493, for gas), interdepartmental rents (Account 455, for electric, and Account 494, for gas), or other revenues (Account 456, for electric, and Account 495, for gas), as appropriate.  If the leased plant constitutes an operating unit or system, electric and gas entities record such plant as plant leased to others (Account 104), and the associated revenues and expenses are recorded in Account 412 (Revenues from Plant Leased to Others) and Account 413 (Expenses of Plant Leased to Others, which includes the related operation, maintenance, depreciation, and amortization expenses).  

• Source:  18 CFR Part 101, Instructions to Accounts 101, 104, 412, 413, 454, 455, and 456; and 18 CFR Part 201, Instructions to Accounts 101, 104, 412, 413, 493, 494, and 495.
• See also, San Diego Gas & Elec. Co., Docket No. AC20-69-000 (2020); Florida Power Corp., 59 FERC ¶ 62,207 (1992).

Answer:  A capacity lease refers to a lease agreement where a gas pipeline leases a specific portion of a pipeline asset's capacity either from or to another gas pipeline.  Such capacity leases are considered as an operating lease in nature where payments are recorded in Account 858 (Transmission and Compression of Gas by Others) and receipts are recorded in Account 489.2 (Revenues from Transportation of Gas of Others Through Transmission Facilities), consistent with the Commission’s accounting regulations and precedent.

• Source:  18 CFR Part 201, Instructions to Accounts 489.2 and 858.
• See also, Cheyenne Plains Gas Pipeline Co., L.L.C. & Nat. Gas Pipeline Co. of Am. LLC, 189 FERC ¶ 62,126 (2024); Tenn. Gas Pipeline Co., L.L.C., 163 FERC ¶ 61,123 (2018); and Millenium Pipeline Co. LP, 97 FERC ¶ 61,292 (2001).

Answer:  Oil pipelines record rental revenues generated by carrier assets using Account 250, Rental Revenue, and revenues generated from activities that are not performed under a tariff in Account 640, Miscellaneous Income.  Rental revenues generated by noncarrier assets are properly recorded in Account 620, Income (net) from Noncarrier Property.  Oil pipelines should properly match carrier versus noncarrier related expenses for rental activities in the same classification.

• Source:  18 CFR Part 352, Instructions for Carrier Property Accounts Nos. 200 - 260, 620, and 640. 

Answer:  Consistent with the Commission’s accounting regulations, regulated entities should record a valuation allowance in a separate subaccount of its accumulated deferred income tax account (Account 190, Accumulated Deferred Income Taxes, for electric and gas, and Account 45, Accumulated Deferred Income Tax Assets, for oil) if it is more likely than not that some portion of its deferred tax assets will not be realized. 

• Source:  Accounting for Income Taxes, Docket No. AI93-5-000, Item 10 (1993), for electric and gas; 18 CFR Part 352, General Instruction 1-4, for oil.

Answer:  No, for electric and gas entities, and yes, for oil entities.  

Electric and gas entities are not permitted to net their ADIT balances.  The Commission’s accounting regulations specifically designate separate accounts for ADIT assets and ADIT liabilities, and related tax expense and amortization, and do not allow regulated entities to net ADIT related account balances.  However,

In contrast, for oil entities, the Commission’s accounting regulations allow for the netting of ADIT related balances. 

• Source:  18 CFR Parts 101/201, Instructions to Accounts 190, 281, 282, 283, 410.1, 410.2, 411.1, and 411.2; Part 352, Accounts 19-5, 45, 59, 64, and 671.

Answer:  For electric and gas, the Commission considers normal and premature retirements of plant as operating in nature.  While the associated accumulated deferred income tax (ADIT) balance sheet accounts do not make a distinction between operating and nonoperating activities, the associated ADIT income statement accounts make such a distinction, and entities should carefully consider the use of the appropriate income statement accounts to record the tax impacts associated with normal and premature plant retirements.  For example, Account 409.1 (Income Taxes, Utility Operating Income) relates to current income taxes that are operating in nature, and Account 411.1 (Provision for Deferred Income Taxes—Credit, Utility Operating Income) and Account 410.1 (Provision for Deferred Income Taxes, Utility Operating Income) relate to deferred income taxes that are operating in nature.

For oil, the Commission’s accounting regulations do not make a distinction between operating and nonoperating activities and accounts; as such, oil companies must reflect the income tax impacts associated with normal and premature plant retirements using appropriate ADIT balance sheet and income statement accounts, as detailed in the source below.

• Source: 18 CFR Parts 101/201, Instructions to Accounts 190, 281, 282, and 283 (where the Commission explains the use of operating ADIT Accounts 410.1 and 411.1, and nonoperating ADIT Accounts 410.2 and 411.2), and Account 409.1 (where the Commission provides that this account is used to record current taxes related to operating activities); Part 352, Instructions to Accounts 19-5, 45, 59, 64, 670, and 671.

Answer:  For electric and gas, the Commission considers such activities as nonoperating in nature, including the resulting gains, losses, and tax impacts related to such activities.  While the associated accumulated deferred income tax (ADIT) balance sheet accounts do not make a distinction between operating and nonoperating activities, the associated ADIT income statement accounts make such a distinction, and entities should carefully consider the use of the appropriate income statement accounts to record the tax impacts resulting from a sale, exchange, or transfer of plant assets to a third party.  For example, Account 409.2 (Income Taxes, Other Income and Deductions) relates to current income taxes that are nonoperating in nature, and Account 411.2 (Provision for Deferred Income Taxes—Credit, Other Income and Deductions) and Account 410.2 (Provision for Deferred Income Taxes, Other Income and Deductions) relate to deferred income taxes that are nonoperating in nature.  This accounting ensures that ratemaking excludes gains, losses and tax impacts associated with nonoperating activities from rate considerations. 

For oil, the Commission’s accounting regulations do not make a distinction between operating and nonoperating activities and accounts; as such, oil companies must reflect the income tax impacts associated with sales, exchanges, and transfers of plant assets to a third party using appropriate ADIT balance sheet and income statement accounts, as detailed in the source below.

• Source: 18 CFR Parts 101/201, Instructions to Accounts 190, 281, 282, and 283 (where the Commission explains the use of nonoperating ADIT Accounts 410.2 and 411.2, and operating ADIT Accounts 410.1 and 411.1), and Account 409.2 (where the Commission provides that this account is used to record current taxes related to nonoperating activities); Part 352, Instructions to Accounts 19-5, 45, 59, 64, 670, and 671.

Answer:  No.  The Commission’s accounting regulations do not require regulated entities to obtain Commission approval to adjust accumulated deferred income tax (ADIT) balances associated with normal and premature retirements of plant assets. 

• Source:  18 CFR Parts 101/201, Instructions to Accounts 190, 236, 281, 282, and 283 (where the Commission’s definitions to these accounts do not require Commission approval when used for the purposes established in such definitions); Part 352, Instructions to Accounts 19-5, 45, 56, 59, 64 (where the Commission’s definitions to these accounts do not require Commission approval).

Answer:  No.  The Commission’s accounting regulations do not require regulated entities to obtain Commission approval to adjust accumulated deferred income tax (ADIT) balances associated with the disposal of plant assets.

• Source:  18 CFR Parts 101/201, Instructions to Accounts 190, 236, 281, 282, and 283 (where the Commission’s definitions to these accounts do not require Commission approval when used for the purposes established in such definitions); Part 352, Instructions to Accounts 19-5, 45, 56, 59, 64 (where the Commission’s definitions to these accounts do not require Commission approval).

Answer:  No.  Upon a normal retirement of a plant asset, the simultaneous reduction of both the original cost of the plant and its accumulated depreciation results in no tax effect in the year of retirement under the principles of group or composite depreciation; as such, no adjustment of deferred income taxes is warranted.  The Commission previously explained that the use of composite depreciation rates recognizes that some assets within the group will outlive the average useful life of the group while other assets within the group will be retired from service earlier than the group’s average life; thus, due to the envisioned offsetting mechanisms within the group, journal entries may not be warranted when there is no tax effect for the entire group in the year of retirement.  

• Source:  18 CFR Parts 101/201, Instructions to Account 282.D (when the disposition relates to retirement of an item or items under a group method of depreciation where there is no tax effect in the year of retirement, no entries are required in this account if it can be determined that the related balance would be necessary to be retained to offset future group item tax deficiencies); Part 352, Definition 17 of the Group plan of depreciation (which implies similar methodology).
• See also, Commission precedent:  Williston Basin Interstate Pipeline Company, 55 FERC ¶ 61,341 (1991) (where the Commission explains the concept of group/composite depreciation).

Answer:  Regulated entities generally record such adjustments, including those related to transfers of interest and deemed sales, to ADIT balances using miscellaneous or additional paid-in capital accounts (Account 211, for electric and gas, and Account 73, for oil).  However, if such adjustments are corrections of a prior period error, regulated entities should use accounts for adjustments to retained earnings (Account 439, for electric and gas, and Account 705, for oil).

• Source:  18 CFR Parts 101/201, Instructions to Accounts 211 and 439; 18 CFR Part 352, Instructions for Carrier Property Accounts 3-11, and Instructions to Accounts 73 and 705.

• See also, Tallgrass Energy Partners LP, Docket No. AC23-153-00 (2023) (use of Account 211 for ADIT adjustments related to a purchase, sale, or partnership interest transfer); Rate Changes Relating to Fed. Income Tax Rate, Order No. 849, 164 FERC ¶ 61,031 (2018) (finding that a pass-through tax entity, whose parent pays income taxes, may maintain ADIT on its books).

Answer:  As a general policy, the Commission previously determined that receivables are a form of investment; thus, sales of accounts receivable are considered sales of investments, with any gains and losses from the sale recorded as nonoperating items, using Miscellaneous Nonoperating Income (Account 421, for gains) and Other Deductions (Account 426.5, for losses), for electric and gas, and using Miscellaneous Income (Account 640, for gains) and Miscellaneous Income Charges (Account 660, for losses), for oil.  (Sales of accounts receivable with recourse, sales of accounts receivable with continuing involvement, costs to facilitate sales of accounts receivable, and costs associated with servicing of accounts receivable are addressed separately.)

• Source:  18 C.F.R. Parts 101/201, Instructions to Accounts 421 and 426.5; Part 352, Instructions to Accounts 640 and 660.
• See also, Commission precedent:  System Energy Resources, Inc., Opinion No. 375, 60 FERC ¶ 61,131 (1992); Central Louisiana Electric Company, Inc., Opinion No. 394, 71 FERC ¶ 61,225 (1995); Central Louisiana Electric Company, Inc., Opinion No. 394-A, 80 FERC ¶ 61,314 (1997); Public Service Company of Colorado, Opinion No. 425, 84 FERC ¶ 61,156 (1998); Duke Energy Carolinas, LLC et al., Order Granting Motion to Lodge, Denying Rehearing, and Denying Request for Part 41 Procedure, 156 FERC ¶ 61,201 (2016).

Answer:  Costs incurred to facilitate a sale of accounts receivable are treated as nonoperating activities and recorded in Other Deductions (Account 426.5) for electric and gas), and Miscellaneous Income Charges (Account 660) for oil.  (Costs to facilitate sales of accounts receivable with recourse are addressed separately.)

• Source:  18 C.F.R. Parts 101/201, Instructions to Account 426.5; Part 352, Instructions to Account 660.

• See also, Commission precedent:  Central Louisiana Electric Company, Inc., Opinion No. 394, 71 FERC ¶ 61,225 (1995); Central Louisiana Electric Company, Inc., Opinion No. 394-A, 80 FERC ¶ 61,314 (1997).

Answer:  A transfer of receivables “with recourse” assumes that the transferor would bear the responsibility for nonperformance of the receivable after it is transferred to the transferee.  In several opinions, the Commission has recognized that a sale of receivables with recourse can have many of the same characteristics as a loan collateralized by receivables.  Once a clear distinction can be made, a regulated entity can record a transfer of receivables with recourse as a sale or, absent certain criteria, as a loan.

The Commission explained that a transfer of receivables with recourse should be recognized as a sale provided that the following conditions are met:  1] The transferor surrenders control of the future economic benefits embodied in the receivables; 2] The transferor's obligation under the recourse provision can be reasonably estimated; and 3] The transferee cannot require the transferor to repurchase the receivables except pursuant to the recourse provision.  When such criteria are met, the sale is considered a nonoperating activity, akin to a sale of an investment, with gains, losses, and costs to facilitate the sale recorded in nonoperating accounts (i.e., for electric and gas:  Miscellaneous Nonoperating Income, Account 421, for gains; Other Deductions, Account 426.5, for losses and costs to facilitate the sale; for oil:  Miscellaneous Income, Account 640, for gains; Miscellaneous Income Charges, Account 660, for losses and costs to facilitate the sale).

When such criteria are not met, the sale of accounts receivable with recourse is considered akin to a loan, and as such, the costs to facilitate the sale are considered as nonoperating and recorded as Interest Expense, in Account 431 for electric and gas, and in Account 650, for oil.

• Source:  18 C.F.R. Parts 101/201, Instructions to Accounts 421, 431, and 426.5; Part 352, Instructions to Accounts 640, 650 and 660.
• See also, Commission precedent:  System Energy Resources, Inc., Opinion No. 375, 60 FERC ¶ 61,131 (1992); Central Louisiana Electric Company, Inc., Opinion No. 394, 71 FERC ¶ 61,225 (1995); Central Louisiana Electric Company, Inc., Opinion No. 394-A, 80 FERC ¶ 61,314 (1997); Public Service Company of Colorado, Opinion No. 425, 84 FERC ¶ 61,156 (1998); Duke Energy Carolinas, LLC et al., Order Granting Motion to Lodge, Denying Rehearing, and Denying Request for Part 41 Procedure, 156 FERC ¶ 61,201 (2016).

Answer:  The Commission previously determined that costs associated with servicing accounts receivable (e.g., administrative and collection agent related costs) are incurred in the ordinary course of business in maintaining accounts receivable and recorded as Customer Records and Collection Expenses (Account 903) for electric and gas, and in Other Expenses (Account 590) for oil. 

• Source:  18 C.F.R. Parts 101/201, Instructions to Account 903; Part 352, Instructions to Account 590.

• See also, Commission precedent:  Central Louisiana Electric Company, Inc., Opinion No. 394, 71 FERC ¶ 61,225 (1995); Central Louisiana Electric Company, Inc., Opinion No. 394-A, 80 FERC ¶ 61,314 (1997); Duke Energy Carolinas, LLC et al., Order Granting Motion to Lodge, Denying Rehearing, and Denying Request for Part 41 Procedure, 156 FERC ¶ 61,201 (2016).

Answer:  The Commission previously determined that when accounts receivable is sold with the transferor maintaining continuing involvement in servicing the accounts receivable (e.g., activities associated with rebilling, cash collection, credit reporting, among others which are incurred in the ordinary course of business in maintaining accounts receivable) such costs are appropriately recorded as Customer Records and Collection Expenses (Account 903) for electric and gas, and in Other Expenses (Account 590) for oil. 

• Source:  18 C.F.R. Parts 101/201, Instructions to Account 903; Part 352, Instructions to Account 590.
• See also, Commission precedent:  Central Louisiana Electric Company, Inc., Opinion No. 394, 71 FERC ¶ 61,225 (1995); Central Louisiana Electric Company, Inc., Opinion No. 394-A, 80 FERC ¶ 61,314 (1997); Duke Energy Carolinas, LLC et al., Order Granting Motion to Lodge, Denying Rehearing, and Denying Request for Part 41 Procedure, 156 FERC ¶ 61,201 (2016).

Answer:  The Commission previously directed regulated entities to record such contributions as additional paid-in capital (using Account 211, for electric and gas, and Account 73, for oil). 

• Source:  18 CFR Parts 101/201, Instruction to Account 211; 18 CFR Part 352, Instructions for Carrier Property Accounts 3-10 (b), and Instruction to Account 73.
• See also, Williams Nat. Gas Co. & Williams Gas Processing & Mid-Continent Region Co., 69 FERC ¶ 61,384 (1994) (use of Account 211); Western Gas Interstate Co. & Norteño Pipeline Co., 74 FERC ¶ 61,347 (1996) (use of Account 211 for contributed property donated and received); Nw. Pipeline Corp., Docket No. AC95-59-000 (1998) (use of Account 211 and Account 283 for associated ADIT on deferred gain).

Answer:  An oil pipeline must account for carrier property acquired from an affiliated company by maintaining the affiliate’s original cost and accrued depreciation; thus, the oil pipeline records the affiliate’s original cost and accrued depreciation to the appropriate plant and accumulated depreciation accounts on its own books.  When the oil pipeline’s purchase price exceeds the net book value of the property acquired from the affiliate, the difference is charged to retained income (Account 75); when the purchase price is less than the net book value, the difference is credited to additional paid-in capital (Account 73).

• Source:  18 CFR Part 352, Instruction for Carrier Plant Assets No. 3-1(c), and Instructions to Accounts 73 and 75.
• See also, WesTTex 66 Pipeline Co., Docket Nos. AC96-9-000 and AC96-9-001 (1996) (approving the use of Account 75 when purchase price exceeded net book value).

Answer:  Transfers of property between affiliated entities are typically at net book value (i.e., original cost less accumulated depreciation) and affiliate sellers do not record profit or loss on intercompany transactions.  When transfers of property between affiliates are not made at net book value, the Commission has held that gains and losses from such affiliate transactions are not considered to be at arms-length, and therefore should be deferred and not be considered as income.  As such, affiliate-related gains should be recorded as deferred credits (Account 253) and affiliate-related losses should be recorded as deferred charges (Account 186).  The gains and/or losses recorded in the deferred Accounts (i.e., Accounts 253 for the gains, and Account 186 for the losses) should be cleared to income accounts at the time the property is disposed of outside of the affiliate group (i.e., now considered an arms-length transaction) by clearing deferred gains to gain on disposition (debit Account 253, credit Account 421.1) and clearing deferred losses to loss on disposition (debit Account 421.2, credit Account 186). 

There are exceptions to this rule.  For example, a selling affiliate can begin amortizing the deferred gains and losses to miscellaneous nonoperating income (Account 421, for gains, and Account 426.5, for losses) when the acquiring affiliate begins depreciating the acquired asset, using the same depreciation method over the same time period.  With Commission rate approval, if a deferred gain or deferred loss is allowed to reduce (if a gain) or be recovered in (if a loss) future rates, then the amount allowed to be included in rates should be reclassified to a regulatory liability (Account 254, for gains) or regulatory asset (Account 182.3, for losses) and amortized (using Account 407.4, for gains, and Account 407.3, for losses) over the period allowed in rates.

• See Koch Gateway Pipeline Co., 67 FERC ¶ 61,362 (1994); and Tennessee Gas Pipeline Co., 81 FERC ¶ 61,352 (1997).