[Federal Register Volume 67, Number 65 (Thursday, April 4, 2002)]
[Proposed Rules]
[Pages 16071-16073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8133]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Chapter I

[Docket No. RM02-7-000]


Accounting and Reporting of Asset Retirement Obligations

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of informal technical conference, agenda and request for 
comments.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) 
previously issued a Notice of Informal Technical Conference on March 8, 
2002. Today's notice announces that the technical conference will be 
held on Tuesday, May 7, 2002, starting at 9 A.M., in the Commission's 
Meeting Room, 888 First Street, NE., Washington, DC. The Conference 
will address the financial accounting, reporting and related ratemaking 
implications related to asset retirement obligations associated with 
the retirement of tangible long-lived assets. This notice provides the 
format for the conference, the agenda and requests for comments and 
provides further details regarding the technical conference. All 
interested parties are invited to attend.

DATES: Written comments should be submitted on or before April 29, 2002 
in the above-captioned proceeding.

ADDRESSES: Send comments to: Office of the Secretary, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426. The 
comments may be filed electronically via the internet in lieu of paper. 
See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the 
Commission's web site at http://www.ferc.gov/ and click on ``Make an 
Electronic Filing,'' and follow the instructions for each screen.

FOR FURTHER INFORMATION CONTACT: Mark Klose (Project Manager), Office 
of Executive Director, Division of Regulatory Accounting Policy, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. Phone (202) 219-2595; Fax: (202) 219-2632; E-
Mail; [email protected].
    Raymond Reid (Technical Issues), Office of Executive Director, 
Division of Regulatory Accounting Policy, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426. Phone (202) 
219-2928; Fax: (202) 219-2632; E-Mail; [email protected].
    Julia Lake (Legal Issues), Office of General Counsel, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426. Phone (202) 208-2019; E-Mail; [email protected].

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, it is available for inspection 
in the Commission's Public Reference Room at 888 First Street, NE., 
Room 2A, Washington, DC 20426, during regular business hours and is 
posted on both the Commission's Issuance Posting System (CIPS) and the 
Records and Information Management Systems (RIMS), and may be viewed 
and printed remotely via the Internet through Commission's Home Page 
(http://www.ferc.gov).

Notice of Informal Technical Conference, Agenda and Request for 
Comments

March 29, 2002.
    Take notice that on Tuesday, May 7, 2002,\1\ the Commission staff 
will hold a technical conference to discuss the financial accounting, 
reporting and ratemaking implications related to asset retirement 
obligations associated with the retirement of tangible long-lived 
assets. The conference will begin at 9:00 A.M. and is scheduled for the 
Commission Meeting Room, at the offices of the Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC. All 
interested parties are invited to attend. This conference is being 
convened to enlist the participation of CPA firms, industry 
associations, jurisdictional entities, state commissions, other 
regulatory bodies, rural electric cooperatives \2\ and other

[[Page 16072]]

interested parties to address the financial accounting, reporting and 
ratemaking implications related to asset retirement obligations 
associated with the retirement of tangible long-lived assets.
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    \1\ See 67 FR 11954 (Mar. 18, 2002). The initial notice 
indicated that the technical conference would be held on, Tuesday 
and Wednesday, May 7 and 8, 2002. However, Commission has decided at 
this time not to extend the technical conference to Wednesday, May 
8, 2002.
    \2\ The Rural Utilities Service (RUS) and its rural electric 
cooperatives have an interest in this proceeding because RUS's 
Uniform System of Accounts for its rural electric cooperative 
utilities incorporates accounting requirements which are similar to 
the Commission's uniform System of Accounts for public utilities 18 
CFR Part 101.
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    This notice provides the format for the technical conference, the 
agenda, a request for comments and further details regarding the 
technical conference. Panels that have been formed are shown in 
Attachment 1. Attachment 2 are questions that can be addressed in 
written comments.
    The Commission staff will discuss with the panelist the following 
topics:
    1. The types of fixed assets that have an asset retirement 
obligation that would be recognized and measured under such a 
requirement.
    2. The impact asset retirement obligations have on depreciation 
accounting and depreciation procedures.
    3. The accounting implementation issues related to the recognition 
of asset retirement obligations for existing and future long-lived 
assets.
    4. The impact on the Uniform Systems of Accounts and the 
Commission's rate regulations.
    The Commission's existing Uniform Systems of Accounts \3\ do not 
address the accounting and reporting of the asset retirement 
obligations.\4\ There are a number of implementation issues related to 
the accounting requirements for asset retirement obligations that are 
capable of different interpretations. These interpretations could 
result in inconsistent accounting treatment between companies, and have 
unintended effects on cost-of-service and formula rates. The main 
purpose for convening this technical conference is to afford an 
opportunity for the electric, natural gas and oil pipeline industries 
and other interested parties to discuss with the Commission staff 
issues related to the implementation of accounting requirements for 
asset retirement obligations. The goal of the conference is to identify 
how recognition of asset retirement obligations may affect the 
Commission's existing accounting and rate regulations.
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    \3\ See 18 CFR Part 101 (2001), Uniform System of Accounts 
Prescribed for Public Utilities and Licensees Subject to the 
Provisions of the Federal Power Act; 18 CFR Part 201 (2001), Uniform 
System of Accounts Prescribed for Natural Gas Companies Subject to 
the Provisions of the Natural Gas Act; and 18 CFR Part 352 (2001), 
Uniform System of Accounts Prescribed for Oil Pipeline Companies 
Subject to the Provisions of the Interstate Commerce Act.
    \4\ The Commission's Chief Accountant issued interim accounting 
guidance stating that public utilities and licensees, natural gas 
companies, and oil pipelines may not early adopt this accounting 
standard for financial accounting and reporting to the Commission 
until it acts on this matter. See All Jurisdictional Public 
Utilities, Licensees, Natural Gas Companies, and Oil Pipeline 
Companies, Docket No. AI02-1-000, issued February 20, 2002, found at 
http://www.ferc.gov/news/ai02-1-000.htm.
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    In order to aid Commission staff's evaluation of the accounting, 
reporting and ratemaking implications of recognizing asset retirement 
obligations, we invite all interested parties to submit written 
comments to the questions in Attachment 2 on or before April 29, 2002, 
in the above-captioned proceeding. All comments will be placed in the 
Commission's public files and will be available for inspection in the 
Commission's Public Reference Room at 888 First Street, NE., 
Washington, DC 20426, during regular business hours. Additionally, all 
comments may be viewed, printed, or downloaded remotely via the 
Internet through FERC's Homepage using the RIMS link. User assistance 
for RIMS is available at (202) 208-2222, or by e-mail to 
[email protected].
    Comments related to this proceeding may be filed either in paper 
format or electronically. Those filing electronically do not need to 
make a paper filing. For paper filings, the original and 14 copies of 
the comments should be submitted to the Office of the Secretary, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426 and should refer to Docket No. RM02-7-000. 
Comments filed electronically via the Internet must be prepared in 
WordPerfect, MS Word, Portable Document Format, or ASCII format. To 
file the comments, access the Commission's website at www.ferc.gov and 
click on ``Make an Electronic Filing,'' and follow the instructions for 
each screen. First time users will have to establish a user name and 
password. The Commission will send an automatic acknowledgment to the 
sender's E-mail address upon receipt of comments. User assistance for 
electronic filing is available at (202) 208-0258 or by e-mail to 
[email protected]. Comments should not be submitted to the e-mail 
address.
    The conference will be transcribed. Those interested in obtaining 
transcripts need to contact ACE Federal Reporters, at (202) 347-3700 or 
(800) 336-6646. Transcriptions will be placed in the public record ten 
days after the conference.
    For further information contact about the conference, please 
contact either: Mark Klose (Project Manager), at (202) 219-2595 or 
[email protected], Raymond Reid (Technical Issues), at (202) 219-2928 
or [email protected] or Julia Lake (Legal Issues), at (202) 208-
2019 or [email protected].

Linwood A. Watson, Jr.,
Deputy Secretary.

Attachment 1; Accounting and Rate Treatment for Asset Retirement 
Obligations

Conference Agenda

Tuesday, May 7, 2002.
Opening Remarks  9 a.m-9:15 a.m.
    FERC Staff
Panel 1  9:15 a.m. -10:45 a.m.
    CPA Firms
Break  10:45 a.m.-11 a.m.
Panel 2  11 a.m.-12:30 p.m.
    Edison Electric Institute
    Interstate Natural Gas Association of America
    Association of Oil Pipelines
    Public Utilities and Licensees
    Natural Gas Pipelines
    Oil Pipelines
Lunch break  12:30 p.m.-1:30 p.m.
Panel 3  1:30 p.m.-3 p.m.
    National Association of Regulatory Commissioners
    Rural Utilities Services
    National Rural Electric Cooperative Association
    Rural Electric Cooperatives
Break  3 p.m.-3:15 p.m.
Panel 4  3:15 p.m.-4 p.m.
    Other Parties
* * * * *

Attachment 2; Questions To Be Addressed in Request for Comments

    In order to aid Commission staff's evaluation of the accounting, 
reporting and ratemaking implications related to recognizing asset 
retirement obligations, we invite interested parties to submit 
written comments on the following questions and any other questions 
which will aid the Commission staff in assessing the implications of 
recognizing asset retirement obligations for regulatory purposes.
    1. Should legal obligations related to asset retirement 
obligations be recognized in Commission Annual Reports, FERC Forms 
1, 1-F, 2, 2-A, and 6? \5\ If not, what is the authoritative support 
for this position? Please explain.
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    \5\ FERC Form No. 1, Annual Report of Major Public Utilities, 
Licensees and Others (Form 1); FERC Form No. 1-F, Annual Report of 
Nonmajor Public Utilities and Licensees (Form 1-F); FERC Form No. 2, 
Annual Report of Major Natural Gas Companies (Form 2); FERC Form No. 
2-A, Annual Report of Nonmajor Natural Gas Companies (Form 2-A); and 
Form No. 6, Annual Report of Oil Pipeline Companies (Form 6).
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    2. If legal obligations related to asset retirements should be 
recognized for regulatory financial accounting and reporting 
purposes, should they be recognized on the same basis and in the 
same manner as required for external and Securities and Exchange 
Commission financial reporting? If not, please explain the reasons 
for any different accounting treatment?

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    3. What specific categories of existing fixed assets have asset 
retirement obligations that would be recognized and measured under 
such requirements? Please provide an approximation of the additional 
asset retirement obligation liability that would be recognized under 
this requirement, the net income effect, and other related financial 
consequences. Please explain.
    4. Under the Uniform Systems of Accounts, what existing or new 
balance sheet accounts should be used to record the capitalized 
asset retirement costs? Also, what existing or new primary plant 
account(s) should be used to record the capitalized asset retirement 
costs? Please explain.
    5. What records should be maintained to support the capitalized 
asset retirement costs and related liability for the asset 
retirement obligations? Please explain.
    6. Under the Uniform Systems of Accounts, what existing or new 
accounts for depreciation expense and accumulated depreciation 
should be used to record depreciation on the capitalized asset 
retirement costs? Please explain.
    7. What detailed depreciation records are needed for the 
capitalized asset retirement costs? Please explain.
    8. Under the Uniform Systems of Accounts, what existing or new 
accounts should be used to record liabilities for asset retirement 
obligations and the related time value of money (accretion expense)? 
Please explain.
    9. What records should be maintained to support the entries and 
the amounts included in the liability account so that companies can 
furnish complete information for each specific liability related to 
each property that gives rise to a liability for an asset retirement 
obligation? Please explain.
    10. How does the accounting for asset retirement obligations 
impact the Uniform Systems of Accounts' definitions for 
Depreciation, Service Value, Net Salvage, Salvage Value, Cost of 
Removal and Service Life? \6\ Please explain.
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    \6\ 18 CFR Parts 101, 201 and 352 (2001).
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    11. What revisions should be made to the Uniform Systems of 
Accounts' definitions for Depreciation, Service Value, Net Salvage, 
Salvage Value, Cost of Removal and Service Life as a result the 
accounting for asset retirement to differentiate between the cost of 
removal that is not recognized as a liability for cost of removal 
versus the cost of removal recognized as a liability for an asset 
retirement obligation? Please explain.
    12. What are the implications of the accounting for asset 
retirement obligations on depreciation procedures (group method 
versus component method)? Please explain.
    13. How should a regulated entity account for the transition 
adjustment related to the adoption of accounting for asset 
retirement obligations? Please explain.
    14. At the date of adoption of the accounting pronouncement, how 
would a jurisdictional entity account for asset retirement 
obligations associated with plant or facilities that have been 
closed or abandoned (i.e. retired but not physically removed)? 
Please explain.
    15. If an existing component part of a larger system asset has a 
legal obligation associated with its retirement, and the component's 
useful life is shorter than the life of the larger system asset of 
which it is a part, must a liability for the asset retirement 
obligation be recognized for the component and the asset retirement 
costs be depreciated over the component useful life? At the date of 
adoption will there be sufficient information and records related to 
such components to recognize and measure the related asset 
retirement obligations? Please explain.
    16. How should any balances remaining at the date of settlement 
of liabilities for asset retirement obligations be accounted for? 
Please explain.
    17. How will the recognition of asset retirement obligations 
affect the Commission's accounting for capital and operating leases? 
Under the Uniform Systems of Accounts, what new or existing balance 
sheet and income statement accounts should be used by a lessor and 
lessee to account for asset retirement obligations associated with 
either capital leases or operating leases? Please explain.
    18. Does ``spent nuclear fuel'' and ``storage casks used for 
interim storage of spent fuel'' result in legal asset retirement 
obligations? \7\ If so, under the Uniform Systems of Accounts, what 
new or existing balance sheet and income statement accounts should 
be used to record the amounts related to the asset retirement 
obligations for ``spent nuclear fuel'' and the ``storage cask used 
for interim storage of spent fuel''? Please explain.
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    \7\ Nuclear fuel discharged from reactors at the end of useful 
life is referred to as spent fuel and is highly radioactive. It is 
stored either in storage pools or dry cask storage facilities, until 
a repository is made available for permanent disposal. The U.S. 
Department of Energy (DOE) is to provide for the ultimate disposal 
of spent fuel waste under the Nuclear Waste Policy Act of 1982, as 
amended. To fund the DOE's contractual obligations, each nuclear 
utility pays an ongoing fee, in addition to a one-time payment to 
cover disposal of fuel utilized prior to April 7, 1983.
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    19. What are the issues involved in reconciling the new 
accounting requirements for asset retirement obligations with 
existing rate practices which may recover asset retirement 
obligations, all or in part, through general rates, depreciation or 
negative salvage (or decommissioning) allowances? How should the 
transition to the new rule reflect that such costs (i.e., negative 
salvage) may have already been recovered in existing rates?
    20. What are the implications of asset retirement obligations 
accounting model that may result in higher total expenses in the 
later years of an asset's life than in earlier years because of 
compounding interest effect?
    21. For rate making purposes, how can interim events involving 
system components, such as asset retirements, sales or spin downs be 
properly reflected if the asset retirement obligations were not 
recognized for the components?

[FR Doc. 02-8133 Filed 4-3-02; 8:45 am]
BILLING CODE 6717-01-P