[Federal Register Volume 67, Number 223 (Tuesday, November 19, 2002)]
[Proposed Rules]
[Pages 69816-69908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28294]



[[Page 69815]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Parts 35, 101, et al.



Accounting, Financial Reporting, and Rate Filing Requirements for Asset 
Retirement Obligations; Proposed Rule

  Federal Register / Vol. 67, No. 223 / Tuesday, November 19, 2002 / 
Proposed Rules  

[[Page 69816]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 35, 101, 154, 201, 346, and 352

[Docket No. RM02-7-000]


Accounting, Financial Reporting, and Rate Filing Requirements for 
Asset Retirement Obligations

Issued: October 30, 2002.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) proposes 
to revise its regulations to update the accounting and reporting 
requirements for liabilities for asset retirement obligations under its 
Uniform Systems of Accounts for public utilities, licensees, natural 
gas companies, and oil pipeline companies.
    The Commission proposes to establish uniform accounting and 
financial reporting for the recognition and measurement of liabilities 
arising from retirement and decommissioning obligations of tangible 
long-lived assets and the related capitalized costs. The Commission 
also proposes to add new income statement accounts to the Uniform 
Systems of Accounts to record the accretion of the liability and the 
depreciation of the related capitalized costs. The Commission proposes 
to add or revise as necessary the definitions, general and plant 
instructions, and balance sheet and income statement accounts contained 
in the Uniform Systems of Accounts. Additionally, the Commission 
proposes to revise its rate filing requirements to incorporate the 
above mentioned changes.
    Finally, the Commission proposes to revise the following Annual 
Reports: 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) to include the 
new accounts and revised schedules proposed by this rulemaking.
    An important objective of the proposed rule is to provide sound and 
uniform accounting and financial reporting for the above types of 
transactions and events. The new instructions and accounts will result 
in improved, consistent and complete accounting and reporting of 
liabilities for obligations associated with the retirement of tangible 
long-lived assets and the related asset retirement costs capitalized. 
The additions of new accounts and changes to the FERC Forms noted above 
will add visibility, completeness and consistency of the accounting and 
reporting of liabilities for asset retirement obligations and the 
related asset retirement costs capitalized.

DATES: Comments on the proposed rulemaking are due on or before January 
3, 2003.

ADDRESSES: File written comments with the Office of the Secretary, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. Comments should reference Docket No. RM02-7-000. 
Comments may be filed electronically or by paper (an original and 14 
copies, with an accompanying computer diskette in the prescribed format 
requested).

FOR FURTHER INFORMATION CONTACT:

Mark Klose (Project Manager), Office of the Executive Director, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, (202) 502-8283.
Raymond Reid (Technical Information), Office of the Executive Director, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6125.
Robert T. Catlin (Technical Information), Office of Markets, Tariffs, 
and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8754.
Julia A. Lake (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8370.

SUPPLEMENTARY INFORMATION:

I. Introduction
II. Background
III. Discussion of Proposed Revisions to Regulations for Public 
Utilities, Licensees, and Natural Gas Companies
    A. General
    B. Proposed New Accounts for Asset Retirement Obligations
    C. Proposed New Accounts for Capitalized Asset Retirement Costs
    D. Proposed New General Instructions for Accounting for Asset 
Retirement Obligations
    E. Other Revisions to the Uniform Systems of Accounts
    1. Proposed Revisions to the Cost of Removal Definition
    2. Proposed Revisions to Electric and Gas General Instruction 
20, Accounting for Leases
    3. Proposed Revisions to Electric and Gas Plant Instructions
    4. Proposed Revision to Account 121, Nonutility Property
    5. Proposed Revisions to Electric and Gas Utility Operating 
Income Accounts
    F. Proposed Accounting for Transition Adjustments
    G. Proposed Revisions to Tariff Filing Requirements under 18 CFR 
part 35 and 18 CFR part 154
IV. Discussion of Proposed Revisions to Regulations for Oil Pipeline 
Companies
    A. General
    B. Proposed New Accounts for Asset Retirement Obligations
    C. Proposed New Accounts for Capitalized Asset Retirement Costs
    D. Proposed New General Instruction for Accounting for Asset 
Retirement Obligations
    E. Other Revisions to the Uniform System of Accounts
    1. Proposed Revisions to the Cost of Removal Definition
    2. Proposed Revisions to Instructions for Carrier Property 
Accounts
    3. Proposed Revisions to Account 34, Noncarrier Property
    4. Proposed New Account for Operating Expenses
    F. Proposed Accounting for Transition Adjustments
    G. Proposed Revisions to Tariff Filing Requirements under 18 CFR 
part 346
V. Proposed Effective Date
VI. Proposed Changes to the FERC Annual Report Forms
VII. Regulatory Flexibility Act Statement
VIII. Environmental Impact Statement
IX. Information Collection Statement and Public Reporting Burden
X. Public Comment Procedures
XI. Document Availability
Regulatory Text
Appendix A--Summary of Proposed Changes to Schedules for Forms 1, 1-
F, 2, 2-A, and 6

I. Introduction

    1. In this Notice of Proposed Rulemaking (NOPR), the Federal Energy 
Regulatory Commission (Commission) proposes to revise its Uniform 
Systems of Accounts \1\ for public utilities and licensees,\2\ natural 
gas companies \3\ and

[[Page 69817]]

oil pipeline companies \4\ for the recognition of liabilities for legal 
obligations associated with the retirement of tangible long-lived 
assets and the associated capitalization of these amounts as part of 
the cost of the asset giving rise to the obligation.
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    \1\ Section 301(a) of the Federal Power Act (FPA), 16 U.S.C. 
825(a), section 8 of the Natural Gas Act (NGA), 15 U.S.C. 717g and 
section 20 of the Interstate Commerce Act (ICA) 49 App. U.S.C. 20 
(1988), authorize the Commission to prescribe rules and regulations 
concerning accounts, records and memoranda as necessary or 
appropriate for the purposes of administering the FPA, NGA and the 
ICA. The Commission may prescribe a system of accounts for 
jurisdictional entities and, after notice and opportunity for 
hearing, may determine the accounts in which particular outlays and 
receipts will be entered, charged or credited.
    \2\ Part 101 Uniform System of Accounts Prescribed for Public 
Utilities and Licensees Subject to the Provisions of the Federal 
Power Act. See 18 CFR part 101 (2002).
    \3\ Part 201 Uniform System of Accounts Prescribed for Natural 
Gas Companies Subject to the Provisions of the Natural Gas Act. See 
18 CFR part 201 (2002).
    \4\ Part 352 Uniform System of Accounts Prescribed for Oil 
Pipeline Companies Subject to the Provisions of the Interstate 
Commerce Act. See 18 CFR part 352 (2002).
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    2. The purpose of the NOPR is to improve the usefulness of 
financial information provided to the Commission and other users of the 
FERC Forms by establishing uniform accounting and reporting 
requirements for legal obligations associated with the retirement of 
tangible long-lived assets. The Commission proposes to add or revise as 
necessary the definitions, general and plant instructions, and balance 
sheet and income statement accounts contained in the Uniform Systems of 
Accounts to incorporate the proposed changes for the accounting for 
asset retirement obligations. The Commission is of the view that such 
requirements are needed because these types of transactions and events 
are not clearly or consistently reported. This NOPR is part of the 
Commission's ongoing effort to address emerging accounting developments 
within the context of the Uniform Systems of Accounts.
    3. The proposed accounting for asset retirement obligations is 
consistent with the accounting and reporting requirements that 
jurisdictional entities will use in their general purpose financial 
statements provided to shareholders and the Securities Exchange 
Commission (e.g., companies will separately account and report the 
liability for the asset retirement obligations, capitalize the asset 
costs, and charge earnings for depreciation of the asset and operating 
expense for the accretion of the liability).
    4. An asset retirement obligation is a liability resulting from a 
legal obligation to retire or decommission a plant asset. The types of 
work activities typically include removing or dismantling the asset. 
For example, public utilities have a legal liability to decommission 
nuclear plants under certain Nuclear Regulatory Commission (NRC) 
regulations. The activities would include the dismantlement and removal 
of the reactor vessel and the related contaminated facilities. Natural 
gas pipeline companies may have legal liabilities to remove compressor 
stations and related piping under state regulations, local ordinances 
or agreements entered into with the landowners. Offshore pipelines may 
have legal obligations that arise under federal and state site 
clearance requirements to remove the offshore platforms, wells, pilings 
and other appurtenances resulting from the retirement of such 
facilities. However, certain assets may not have legal obligations if 
no law, statute, ordinance, or contract exists to remove or dismantle 
the facilities.
    5. Business entities have accounted for legal obligations in 
various ways. Some business entities recognize these asset retirement 
obligations gradually over the life of the asset as part of 
depreciation expense while others have not recognized any liability for 
the legal obligations for the asset to be retired. Under the proposed 
accounting all entities must record the present value of the legal 
obligation at the time it is incurred.
    6. To illustrate, the owner of a nuclear plant estimates that the 
cost to decommission the facilities as required by law is $400,000 ten 
years from today. Under the current practice the owner records $40,000 
($400,000/10 years) of additional depreciation expense each year for 
the cost of removing the plant. This simplified example ignores 
interest earnings, etc. on amounts placed in an external fund.
    7. The new accounting standard requires that the owner record a 
liability for the present value of the $400,000. Assuming a $100,000 
present value, the owner initially records a liability of $100,0000 and 
capitalizes a corresponding amount as part of the asset costs. The 
liability recorded will increase or grow over time (time value of 
money) until the actual retirement activity commences and the liability 
is settled (paid). Both approaches recognize the same total expenses of 
$400,000 over the asset's useful life. Under the new accounting 
standard, the total expenses are made up of $100,000 in depreciation on 
the capitalized asset costs plus $300,000 for the time value of money, 
while under the current practice the decommissioning liability is 
recognized on a pro rata basis over the life of the plant as 
depreciation expense of $400,000.
    8. In summary, the new accounting standard requires the present 
value of the liability to be recorded for all assets. Additionally, the 
entity capitalizes this amount as part of the cost of the plant and 
depreciates it over the useful life of the related asset.
    9. Finally, a gain or loss may be recognized for any difference 
between the estimated liability and the actual amount paid to settle 
the asset retirement obligation. In the example above, if the owner 
paid a contractor $380,000 to remove the plant and thereby settle the 
obligation, a gain of $20,000 will be recognized for the difference 
between the $400,000 liability recorded on its books and the $380,000 
paid to the contractor for the work performed.
    10. The Commission also proposes to revise its rate filing 
requirements to accommodate the above mentioned changes. In that 
regard, we specifically note that the proposed accounting will not 
affect jurisdictional entities' ability to recover costs arising from 
asset retirement obligations in rates. However, public utilities, 
licensees, natural gas and oil pipeline companies with formula rate 
tariffs must seek approval with the Commission prior to implementing 
the accounting changes, if doing so would affect tariff billings.
    11. Finally, the Commission proposes to revise the following Annual 
Reports: 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 FERC 
Form No. 6, Annual Report of Oil Pipeline Companies (Form 6) to include 
the new accounts and the revised schedules proposed in this 
rulemaking.\5\
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    \5\ The FERC Annual Reports bear the following OMB approval 
control numbers: Form 1 has OMB approval number 1902-0021; Form 1-F 
has OMB approval number 1902-0029; Form 2 has OMB approval number 
1902-0028; Form 2-A has OMB approval number 1902-0030; and Form 6 
has OMB approval number 1902-002.
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II. Background

    12. The recognition and measurement of legal liabilities associated 
with the retirement and decommissioning of long-lived assets by various 
entities, including Commission jurisdictional entities, has been 
inconsistent over the years. The usefulness of consistently recognizing 
and measuring asset retirement obligations in the financial statements 
resulted in the Financial Accounting Standards Board (FASB) issuing a 
new accounting pronouncement affecting the manner in which legal 
obligations are measured and reported in the financial statements 
applicable to entities in general.\6\ The

[[Page 69818]]

major objective of this change in accounting by FASB is to provide 
standards for the recognition and measurement of liabilities for asset 
retirement obligations associated with the retirement of tangible long-
lived assets. When an entity acquires or constructs an asset, it may 
incur certain legal obligations associated with the future retirement 
of that asset. These obligations are generally referred to as asset 
retirement obligations. An asset retirement obligation is a legal 
obligation associated with the retirement of a tangible long-lived 
asset that an entity is required to settle as a result of an existing 
enacted law, statute, ordinance, or written or oral contract or by 
legal construction of a contract under the doctrine of promissory 
estoppel.\7\
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    \6\ The accounting pronouncement issued by FASB was Financial 
Accounting Standards (FAS) No. 143, Accounting for Asset Retirement 
Obligations, issued in June 2001. The accounting may be obtained 
from FASB at http://accounting.rutgers.edu/raw/fasb//.
    \7\ See FAS 143, Appendix A, paragraphs A2 through A5, for a 
discussion of the scope of the legal obligations covered under the 
pronouncement.
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    13. An entity essentially recognizes a liability for the fair value 
of an asset retirement obligation at the time the asset is constructed, 
acquired, or when a change in the law creates a legal obligation to 
perform the retirement activities. Upon initial recognition of that 
liability, an entity also increases the cost of the related asset that 
gives rise to the legal obligation by the same amount.\8\ The liability 
is increased over time until the actual retirement activity 
commences.\9\ Additionally, the asset retirement cost capitalized is 
depreciated over the same life of the related asset giving rise to the 
obligation. An entity is required to remeasure the liability due to the 
passage of time and certain other changes in the estimate of the 
liability.\10\
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    \8\ See FAS 143, paragraphs 11, for a discussion of the 
recognition and allocation of an asset retirement cost.
    \9\ See FAS 143, paragraphs 8 and 9, for a discussion of the 
``credit adjusted risk free rate'' used to measure the fair value of 
the asset retirement obligation.
    \10\ See FAS 143, paragraphs 13 through 16, for a discussion of 
the discussion of the subsequent recognition and measurement of the 
asset retirement obligation.
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    14. Business entities are required to apply the standards for 
accounting for asset retirement obligations to all existing assets as 
if the accounting requirements had always been in existence for such 
assets, as well as those under construction that have associated legal 
obligations for their disposal or retirement.\11\
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    \11\ See FAS 143, paragraphs 24 and 25, for a detailed of the 
accounting for the cumulative effect of a change in accounting 
principle.
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    15. The accounting standards for asset retirement obligations rely 
on the general standards of accounting for the effects of regulation 
for regulated entities in accordance with FASB Statement No. 71, 
Accounting for the Effects of Certain Types of Regulation, (FAS 
71).\12\ Therefore, an entity must recognize a regulatory asset or 
regulatory liability if the requirements of FAS 71 are met. The 
Commission established regulatory assets and liabilities which apply to 
public utilities, licensees and natural gas companies.\13\
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    \12\ See FAS 143, paragraphs 19 through 21 for a discussion of 
the subsequent recognition and measurement of the asset retirement 
obligation.
    \13\ See Order No. 552, 58 FR 17,982 (Apr. 7, 1993), FERC Stats. 
& Regs., Regulations Preambles January 1991-June 1996 ] 30,967, at 
pp. 30,823-26 (Mar. 31, 1993) for guidance on the recognition of 
regulatory assets and regulatory liabilities when certain criteria 
conditions are met.
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    16. The Commission considers it desirable for its accounting 
requirements and those used by jurisdictional entities for general 
purpose financial reporting to be consistent. Currently, some 
jurisdictional entities do not recognize asset retirement obligations 
in the Uniform Systems of Accounts while other jurisdictional entities 
only recognize the amounts included in the rate setting process as a 
component of accumulated depreciation. The Commission is of the view 
that the accounting for asset retirement obligations to be an 
improvement in financial accounting and reporting practices. The 
Commission notes that the proposed rule will improve consistency in 
accounting and reporting of legal obligations to retire tangible long-
lived assets which under current accounting practices are accounted and 
reported in an inconsistent manner. The Commission also notes that the 
proposed rule will provide the Commission's stakeholders with more 
transparent financial statement disclosure of the costs related to the 
legal obligation in the FERC Annual Reports. The proposed rule is 
consistent with the enhanced disclosure initiatives announced by the 
Security Exchange Commission to ensure more important transparent and 
comprehensive accounting and reporting information will be provided by 
business entities to their stakeholders.
    17. In an effort to eliminate the inconsistencies in accounting 
practices by jurisdictional entities for asset retirement obligations, 
the Commission proposes to provide in the Uniform Systems of Accounts 
accounting requirements for the recognition and measurement of 
liabilities for obligations associated with the retirement and 
decommissioning of tangible long-lived assets. The Commission considers 
that the proposed rule for asset retirement obligations will provide 
consistent accounting and reporting requirements for the recognition 
and measurement of liabilities for legal obligations associated with 
the retirement of long-lived assets and the capitalization of the 
related asset retirement costs. The proposed rule, if adopted, will 
initially result in a minimal increase in burden as a result of 
standardizing the accounting and reporting for asset retirement 
obligations for regulatory purposes. The proposed rule will eliminate 
the need by jurisdictional entities to maintain duplicate sets of 
books.
    18. Finally, on May 7, 2002, Commission staff held an informal 
technical conference to discuss the financial accounting, reporting and 
ratemaking implications related to obligations associated with the 
retirement of tangible long-lived assets.\14\ The main purpose for 
convening this technical conference was to afford an opportunity for 
the electric, natural gas and oil pipeline industries and other 
interested parties to discuss the financial and reporting implications 
related to asset retirement obligations on the Commission's existing 
accounting and rate regulations. The Commission staff received 
suggestions from the participants at the technical conference which 
have been incorporated into the NOPR, to the maximum extent possible.
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    \14\ See 67 FR 16,071 (April 4, 2002) and 67 FR 20,922 (April 
29, 2002).
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III. Discussion of Proposed Revisions to Regulation for Public 
Utilities, Licensees, and Natural Gas Companies

A. General

    19. The Commission's existing Uniform Systems of Accounts and 
Annual Report Forms for public utilities, licensees, and natural gas 
companies do not contain adequate instructions and accounts to provide 
for the recording of liabilities for asset retirement obligations and 
the associated asset retirement costs. Therefore, the following changes 
are proposed to our existing accounting and reporting regulations to 
provide transparent accounting and reporting to this Commission and 
other users of the FERC Forms 1, 1-F, 2 and 2-A any legal liabilities 
related to the future retirement or decommissioning of utility and 
nonutility plant.

B. Proposed New Accounts for Asset Retirement Obligations

    20. The Commission proposes to create a new noncurrent liability 
account entitled account 230, Asset

[[Page 69819]]

retirement obligations, to record legal liabilities related to the 
future retirement or decommissioning of utility and nonutility plant 
for public utilities and licensees in part 101 (part 101) of the 
Commission's regulations and for natural gas companies in part 201 
(part 201) of the Commission's regulations. The new proposed account 
230, Asset retirement obligations, will record the fair value of the 
liability based upon a present value calculation. These amounts will 
increase or grow over time until the liability is settled. The process 
of increasing the liabilities recorded in account 230, Asset retirement 
obligations, is referred to as an ``accretion'' to record the increase 
or growth in the liability due to the passage of time. The Commission 
proposes to create a new income statement account entitled account 
411.10, Accretion expense, in parts 101 and 201 of the Commission's 
regulations to record the increase or growth in the liability due to 
the passage of time. The proposed account 411.10 will provide for the 
accretion expense of asset retirement obligations due to the passage of 
time.

C. Proposed New Accounts for Capitalized Asset Retirement Costs

    21. Under the new accounting requirements, when an entity records a 
liability for an asset retirement obligation, it concurrently 
capitalizes that amount as part of the asset's cost. Effectively, the 
fair value of the obligation becomes part of the overall cost of the 
asset, similar to other amounts that are capitalized as part of the 
asset's construction or acquisition cost to separately identify these 
in the electric and gas utility plant records. The Commission proposes 
to create the following new primary plant accounts for each plant 
functions within account 101, Electric plant in service (Major only), 
for public utilities and licensees in part 101 of the Commission's 
regulations, and account 101, Gas plant in service, for natural gas 
companies in part 201 of the Commission's regulation, to record 
separately these amounts across the life of the asset.
    22. For account 101, Electric plant in service (Major only), the 
new proposed primary plant accounts are shown in the following table:

------------------------------------------------------------------------
                              Public utilities and  Proposed new primary
                                    licensees          plant accounts
------------------------------------------------------------------------
1...........................  Steam Production      317, Asset
                               Plant.                retirement costs
                                                     for steam
                                                     production plant.
2...........................  Nuclear Production    326, Asset
                               Plant.                retirement costs
                                                     for nuclear
                                                     production plant.
3...........................  Hydraulic Production  337, Asset
                               Plant.                retirement costs
                                                     for hydraulic
                                                     production plant.
4...........................  Other Production      347, Asset
                               Plant.                retirement costs
                                                     for other
                                                     production plant.
5...........................  Transmission Plant..  359.1, Asset
                                                     retirement costs
                                                     for transmission
                                                     plant.
6...........................  Distribution Plant..  374, Asset
                                                     retirement costs
                                                     for distribution
                                                     plant.
7...........................  General Plant.......  399.1, Asset
                                                     retirement costs
                                                     for general plant.
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    23. For account 101, Gas plant in service, the new proposed primary 
plant accounts are shown in the following table below:

------------------------------------------------------------------------
                                   Natural gas      Proposed new primary
                                    companies          plant accounts
------------------------------------------------------------------------
1...........................  Manufactured Gas      321, Asset
                               Production Plant.     retirement costs
                                                     for manufactured
                                                     gas production
                                                     plant.
2...........................  Natural Gas           339, Asset
                               Production Plant.     retirement costs
                                                     for natural gas
                                                     production and
                                                     gathering plant.
3...........................  Products Extraction   348, Asset
                               Plant.                retirement costs
                                                     for products
                                                     extraction plant.
4...........................  Underground Storage   358, Asset
                               Plant.                retirement costs
                                                     for underground
                                                     storage plant.
5...........................  Other Storage Plant.  363.6, Asset
                                                     retirement costs
                                                     for other storage
                                                     plant.
6...........................  Base Load Liquefied   364.9, Asset
                               Natural Gas           retirement costs
                               Terminaling and       for base load
                               Processing Plant.     liquefied natural
                                                     gas terminaling
                                                     plant.
7...........................  Transmission Plant..  372, Asset
                                                     retirement costs
                                                     for transmission
                                                     plant.
8...........................  Distribution Plant..  388, Asset
                                                     retirement costs
                                                     for distribution
                                                     plant.
9...........................  General Plant.......  399.1, Asset
                                                     retirement costs
                                                     for general plant.
------------------------------------------------------------------------

    24. The Commission proposes that the amounts in the above primary 
plant accounts be depreciated over the life of the electric and gas 
utility plant giving rise to the asset retirement obligations. In order 
to separately identify the depreciation expense recorded on capitalized 
asset retirement costs related to electric and gas utility plant, the 
Commission proposes to create a new depreciation expense account 
entitled account 403.1, Depreciation expense for asset retirement 
costs, in parts 101 and 201 of the Commission's regulations to record 
these amounts on the income statement.

D. Proposed New General Instructions for Accounting for Asset 
Retirement Obligations

    25. In addition to the above mentioned new accounts, the Commission 
also proposes to create a new General Instruction 25, Accounting for 
asset retirement obligations, for public utilities and licensees in 
part 101 and a new General Instruction 24, Accounting for asset 
retirement obligations, for natural gas companies in part 201 of the 
Commission's regulations to provide additional direction for the 
accounting for the recognition of asset retirement costs and related 
obligations. These proposed General Instructions provide for the 
capitalization of the asset retirement costs in electric and gas 
utility plant and nonutility plant accounts as appropriate. It also 
provides for the liability to be recorded in the new proposed 
noncurrent liability account 230, Asset retirement obligations, in 
parts 101 and 201 of the Commission's regulations.
    26. Under proposed General Instruction 25 in part 101 and General 
Instruction 24 in part 201 of the Commission's regulations, the 
Commission proposes that the accretion of the liability be debited to 
the new proposed account 411.10, Accretion expense, for electric and 
gas utility plant, and the existing account 413, Expenses of electric 
plant leased to others, and account 413, Expenses of gas plant leased 
to others, for utility plant

[[Page 69820]]

leased to others and account 421, Miscellaneous nonoperating income, 
for nonutility plant.
    27. Finally, when an asset retirement obligation is settled by a 
jurisdictional entity, a gain or loss can result from the difference 
between the estimated amount of the asset retirement obligation 
liability included in proposed account 230, Asset retirement 
obligations, and the actual amount paid to settle the obligation. For 
example, an entity may settle its asset retirement obligation by either 
using its internal workforce or paying a third party to perform the 
work to retire the electric or gas utility plant. If the amount of the 
liability included in account 230, Asset retirement obligations, is 
greater or less than the actual amount paid to settle the obligation, a 
gain or loss will be incurred. The Commission proposes to record gains 
or losses resulting from the settlement of asset retirement obligations 
for electric and gas utility plant in account 411.6, Gains from 
disposition of utility plant, and the account 411.7, Losses from 
disposition of utility plant, respectively.\15\ The Commission proposes 
to revise the text of accounts 411.6 and 411.7 in Parts 101 and 201 of 
the Commission's regulations to record gains in account 411.6 and 
losses in account 411.7 resulting from the settlement of asset 
retirement obligations related to utility property.
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    \15\ See Order No. 552, supra note 13 for guidance on the 
recognition of regulatory assets and regulatory liabilities when 
certain criteria conditions are met.
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    28. The Commission proposes that any gains or losses relating to 
the settlement of asset retirement obligations for nonutility plant 
must be recorded directly in account 421, Miscellaneous nonoperating 
income, and account 426.5, Other deductions, respectively. The 
Commission proposes to revise the text of accounts 421 and 426.5 in 
parts 101 and 201 of the Commission's regulations to record gains in 
account 421 and losses in account 426.5 resulting from the settlement 
of asset retirement obligations related to nonutility property.
    29. Finally, the Commission proposes that jurisdictional entities 
keep subsidiary records and supporting documentation for each asset 
retirement obligation in order to be able to furnish accurately and 
expeditiously the full details of the identity and nature of the legal 
obligation, the year incurred, the identity of the plant giving rise to 
the obligation, the full particulars relating of each component and 
supporting computations related to the measurement of the asset 
retirement obligation.

E. Other Revisions to the Uniform Systems of Accounts

    30. The Commission also proposes to revise the following additional 
existing definitions and general instructions, and revise the text of 
certain balance sheet and income statement accounts to the Uniform 
Systems of Accounts in parts 101 and 201 of the Commission's 
regulations to incorporate the accounting for asset retirement 
obligations as discussed above.
1. Proposed Revisions to the Cost of Removal Definition
    31. Under the Uniform Systems of Accounts in parts 101 and 201 of 
the Commission's regulations, jurisdictional entities record cost of 
removal related to the disposition and retirement of long-lived assets 
as a component of depreciation expense. The definition of cost of 
removal as presently contained in the Uniform Systems of Accounts 
includes the costs of demolishing, dismantling, tearing down or 
otherwise removing the electric or gas plant.\16\ Certain cost of 
removal activities falling within this definition may relate to a legal 
obligation associated with the retirement of a long-lived asset while 
others may not relate to a legal obligation to retire a long-lived 
asset. Under the proposed rule, retirement activities which constitute 
legal obligations must be removed from cost of removal and accounted 
for separately as liabilities for legal obligations that are 
capitalized as part of the tangible long-lived assets that give rise to 
the obligation. The Commission proposes to amend the definition of cost 
of removal to exclude legal obligations related to the retirement of 
long-lived assets at the end of their service life because the asset 
retirement costs and related obligations will be separately recognized 
on the balance sheet and income statement.
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    \16\ See Definition 10 in 18 CFR part 101 (Public Utilities and 
Licensees), and Definition 10 in 18 CFR part 201 (Natural Gas 
Companies).
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2. Proposed Revisions to Electric and Gas General Instruction 20, 
Accounting for Leases
    32. Under the Uniform Systems of Accounts in parts 101 and 201 for 
public utilities, licensees, and natural gas companies, there are no 
provisions under General Instruction 20, Accounting for leases, for the 
recognition of a liability for an asset retirement obligation and the 
related asset retirement costs that are not recognized as part of the 
liability related to minimum lease payments for a capital lease. The 
Commission proposes to add a new instruction to General Instruction 20, 
Accounting for leases, that provides when an entity incurs an asset 
retirement obligation through assumption of a capital lease, the entity 
must recognize the liability in account 230, Asset retirement 
obligations, and record the related asset retirement costs in account 
101.1, Property under capital leases, account 120.6, Nuclear fuel under 
capital leases, or account 121, Nonutility property, as appropriate.
3. Proposed Revisions to Electric and Gas Plant Instructions
    33. For public utilities, licensees, and natural gas companies, 
there are no specific provisions under the Uniform Systems of Accounts 
to allow for the capitalization of asset retirement costs related to 
legal obligations that were incurred during the construction of 
tangible long-lived assets. The Commission proposes to revise Electric 
and Gas Plant Instructions 3, Components of construction cost, in parts 
101 and 201 of the Commission's regulations by adding asset retirement 
costs to the item list as a new construction cost component that is 
capitalized if incurred during the construction phase of a long-lived 
asset that gives rise to a legal obligation. However, since there will 
be no immediate cash expenditure during the construction phase for this 
cost, the Commission proposes to exclude this cost from the 
construction work in progress base for calculating the allowance for 
funds used during construction (AFUDC).
4. Proposed Revision to Account 121, Nonutility Property
    34. The Commission proposes to revise the instructions to account 
121, Nonutility property, contained in parts 101 and 201 of the 
Commission's regulations to require the asset retirement costs 
associated with the nonutility plant to be recorded in account 121. The 
Commission also proposes that the depreciation expense on the asset 
retirement costs included in account 121 must be recorded in account 
421, Miscellaneous nonoperating income, in parts 101 and 201 of the 
Commission's regulations.
5. Proposed Revisions to Electric and Gas Utility Operating Income 
Accounts
    35. The Commission proposes to add a new instruction to account 
411.6, Gains from disposition of utility plant, and account 411.7, 
Losses from disposition of utility plant, to record

[[Page 69821]]

gains and losses, respectively, resulting from the settlement of asset 
retirement obligations in accordance with the accounting prescribed in 
the new proposed General Instruction 25 in part 101 of the Commission's 
regulations. The Commission also proposes to add a similar instruction 
in accounts 411.6 and 411.7 to record gains or losses in accordance 
with the accounting prescribed for natural gas companies in the new 
proposed General Instruction 24 in part 201 of the Commission's 
regulations.

F. Proposed Accounting for Transition Adjustments

    36. The Commission proposes that at the adoption of the final rule, 
jurisdictional entities must apply the proposed requirements of the 
rule to all existing long-lived assets at January 1, 2003, with legal 
obligations associated with the future retirement or disposal of those 
assets.
    37. The Commission proposes at the initial date of the adoption of 
the accounting for asset retirement obligations rule, jurisdictional 
entities recognize a transition adjustment for a liability for any 
existing asset retirement obligation adjusted for the cumulative 
accretion on the liability and capitalize the associated asset 
retirement costs and the related accumulated depreciation on the 
capitalized costs. The Commission proposes that jurisdictional entities 
measure the transitional adjustment for the asset retirement cost and 
related liability for the retirement obligations for existing long-
lived asset as of the date that the retirement obligation was incurred 
and would have been recognized through January 1, 2003. The 
transitional adjustment recognized for the existing long-lived asset 
represents the cumulative accretion of the liability and the 
accumulated depreciation on the related capitalized asset retirement 
cost from the date the obligation would have been incurred through 
January 1, 2003.
    38. The Commission proposes that when the amount of any previously 
recognized asset retirement obligation recorded in account 108 and 
account 110 for major and non-major public utilities and licensees, 
respectively, and account 108 for natural gas companies is greater than 
the amount recognized under the proposed rule, the excess must be 
credited to account 254, Other regulatory liabilities. However, when 
the amount of any previously recognized asset retirement obligation in 
account 108 and account 110 for major and non-major public utilities 
and licensees, respectively, and account 108 for natural gas companies 
is less than the amount recognized under the proposed rule, the 
Commission proposes that the difference must be charged to income in 
account 435, Extraordinary deductions, and the related income taxes 
recorded in account 409.3, Income taxes, extraordinary items, and 
reported as a cumulative effect of a change in accounting 
principle.\17\ The Commission notes that jurisdictional entities must 
record a regulatory asset for part, or all of the cumulative effect of 
a change in accounting principle in account 182.3, Other regulatory 
assets, if the requirements for recording a regulatory asset under 
Order No. 552 are met.\18\
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    \17\ When authorized by the Commission, amounts related to a 
cumulative effect of a change in accounting principles have been 
reported in account 435. The effect on net income for amounts 
charged to account 435 must be reported on the income statement on 
the lines designated for extraordinary deductions in FERC Forms 1, 
1-F, 2, and 2-A. Public utilities, licensees and natural gas 
companies must disclose in a footnote in the FERC Forms 1, 1-F, 2, 
and 2-A the full particulars of the amounts reported as a cumulative 
effect of a change in accounting principle.
    \18\ See Order No. 552, supra note 13, for guidance on the 
recognition of regulatory assets and regulatory liabilities when 
certain criteria conditions are met.
---------------------------------------------------------------------------

    39. For public utilities, licensees and natural gas companies, the 
instructions to account 108 and account 110 for major and non-major 
public utilities and licensees, respectively, in part 101 of the 
Commission's regulations \19\ and account 108 for natural gas companies 
in part 201 of the Commission's regulations \20\ requires the 
Commission's approval to remove amounts from these accounts. For any 
excess amounts removed from account 108 and 110, the Commission 
proposes that the final rule issued in this proceeding will constitute 
the requisite authority for jurisdictional entities to remove amounts 
from account 108 and 110 to account 254.
---------------------------------------------------------------------------

    \19\ See paragraph E to account 108, Accumulated provision for 
depreciation of electric utility plant (Major only), and paragraph E 
to account 110, Accumulated provision for depreciation and 
amortization of electric utility plant (Nonmajor only), in 18 CFR 
part 101 (Public Utilities and Licensees).
    \20\ See paragraph E to account 108, Accumulated provision for 
depreciation of gas utility plant, in 18 CFR part 201 (Natural Gas 
Companies).
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    40. The Commission proposes that jurisdictional entities must 
charge the cumulative accretion expense on the liability for existing 
legal obligations to account 435, Extraordinary deductions, and the 
related income taxes in account 409.3, Income taxes, extraordinary 
items, under parts 101 and 201 of the Commission's regulations and 
report such amounts in net income as a cumulative effect of a change in 
accounting principle.\21\ The Commission also proposes that the 
cumulative accretion expense related to the liabilities for the asset 
retirement obligations may be included in account 182.3, if the 
requirements for recording a regulatory asset under Order No. 552 are 
met.\22\
---------------------------------------------------------------------------

    \21\ See supra note 17.
    \22\ See Order No. 552, supra note 13, for guidance on the 
recognition of regulatory assets and regulatory liabilities when 
certain criteria conditions are met.
---------------------------------------------------------------------------

    41. In summary, the Commission proposes at the date of adoption of 
the final rule, jurisdictional entities must record the liability for 
asset retirement obligation associated with those long-lived asset 
existing at January 1, 2003, in the new proposed account 230, Asset 
retirement obligations. The jurisdictional entities must capitalize the 
related asset retirement costs in the proposed primary plant accounts 
within the plant functions applicable to the utility plant that gives 
rise to the obligations. The Commission also proposes that 
jurisdictional entities must record any cumulative transition 
adjustments associated with the asset retirement obligations for 
existing long lived assets at the date of the adoption of the final 
rule in the appropriate accounts in the manner as prescribed above.

G. Proposed Revisions to Tariff Filing Requirements Under 18 CFR Part 
35 and 18 CFR Part 154

    42. The Commission's proposed rule will require public utilities, 
licensees or natural gas companies for accounting purposes to recognize 
asset retirement obligations. The Commission is not requiring 
jurisdictional entities with stated rate tariffs to make any tariff 
filings with the Commission due to this rulemaking at this time. 
However, public utilities, licensees and natural gas companies with 
formula rate tariffs must not include any cost components related to 
asset retirement obligations in their formula rate billing 
determinations for automatic recovery prior to obtaining Commission 
approval.
    43. The Commission proposes that to the extent, if any, a 
particular asset retirement cost should be allowed recovery through 
jurisdictional rates, it shall be addressed on a case by case basis in 
the individual rate change proposals filed by public utilities, 
licensees, and natural gas companies. Although the proposed accounting 
rules require the recording of an asset retirement cost, the Commission 
recognizes that no actual cash expenditures are made or required until

[[Page 69822]]

the long-lived assets are retired from service.
    44. Therefore, it would be inappropriate for public utilities, 
licensees, and natural gas companies to include these asset retirement 
costs in rate base and collect a rate of return allowance and related 
income taxes on these amounts in jurisdictional rates. To ensure that 
all rate base amounts related to these assets can be identified and 
excluded from the rate base calculation in a rate change filing, the 
Commission is proposing to add new Sec. Sec.  35.18 and 154.315 to its 
rate change filing requirements. These new regulations require that 
public utilities, licensees, and natural gas companies which have 
recorded an asset retirement obligation on their books in accordance 
with this proposed rule must, as part of any initial rate filing or 
general rate change filing, provide a schedule identifying all cost 
components related to the asset retirement obligation that are included 
in the book balances of all accounts reflected in the cost of service 
computation supporting the proposed rates. In addition, the proposed 
regulations require that all rate base items related to asset 
retirement obligations be removed from the rate base computation 
through an adjustment. If the public utility, licensee or natural gas 
company is seeking recovery of an asset retirement obligation in rates, 
it must also provide a detailed study supporting the amounts proposed 
to be collected in rates. If the public utility, licensee or natural 
gas company is not seeking recovery of the asset retirement obligation 
in rates, then it must remove all cost components related to asset 
retirement obligations from its cost of service.
    45. The Commission is aware that a number of natural gas companies 
are currently collecting an allowance in jurisdictional rates to cover 
the future cost of retiring and removing facilities. This allowance is 
referred to as a negative salvage allowance. The Commission believes 
that these negative salvage allowances do not necessarily reflect the 
existence of a legal asset retirement obligation. Therefore, the 
Commission will require that negative salvage allowances that are not 
established due to an asset retirement obligation be identified for 
rate making purposes separately from asset retirement obligation 
allowances. The current rate change filing requirements for natural gas 
companies at Sec.  154.312(d), Statement D, requires that any 
authorized negative salvage must be maintained in a separate subaccount 
of account 108, Accumulated provision for depreciation of gas utility 
plant. The Commission proposes to amend this section to ensure that 
this subaccount must not include any amounts related to asset 
retirement obligations.

IV. Discussion of Proposed Revisions to Regulations for Oil Pipeline 
Companies

A. General

    46. Similar to the accounting changes for public utilities, 
licensees and natural gas companies, the Commission proposes to provide 
accounting requirements for asset retirement obligations in the Uniform 
Systems of Accounts for oil pipeline companies in part 352 of the 
Commission's regulations. Therefore, the following changes are proposed 
to the Commission's existing accounting regulations to provide 
transparent accounting and reporting of these amounts to this 
Commission and other users of the FERC Form 6.

B. Proposed New Accounts for Asset Retirement Obligations

    47. The Commission proposes to create a new noncurrent liability 
account entitled account 67, Asset retirement obligations, in part 352 
of the Commission's regulations to record legal liabilities related to 
the future decommissioning or retirement of carrier and noncarrier 
property. The Commission also proposes to create a new income statement 
account entitled account 591, Accretion expense, to record the increase 
in the liability due to the passage of time.

C. Proposed New Accounts for Capitalized Asset Retirement Costs

    48. Under the new accounting requirements, when an oil pipeline 
records a liability for its asset retirement obligation, it 
concurrently capitalizes that amount in the carrier property accounts. 
In order to separately identify this cost in the carrier property 
records, the Commission proposes to create new carrier primary property 
accounts within existing account 30, Carrier property, for oil 
pipelines in part 352 of the Commission's regulations to separately 
identify these amounts throughout the life of the asset. The new 
proposed carrier primary property accounts are shown on the following 
table below:

------------------------------------------------------------------------
                                           Proposed new primary property
           Oil pipeline companies                    accounts
------------------------------------------------------------------------
 1  Gathering Lines.....................  117, Asset retirement costs
                                           for gathering lines.
 2  Trunk Lines.........................  167, Asset retirement costs
                                           for trunk lines.
 3  General Property....................  186.7, Asset retirement costs
                                           for general.
------------------------------------------------------------------------

    49. The Commission proposes the amounts in the above carrier 
primary property accounts be depreciated over the life of the carrier 
property that gives rise to the asset retirement obligations. In order 
to identify the depreciation expense recorded on capitalized asset 
retirement costs, the Commission proposes to create a new depreciation 
expense account entitled account 541, Depreciation expense for asset 
retirement costs, to separately record these amounts on the income 
statement.

D. Proposed New General Instruction for Accounting for Asset Retirement 
Obligations

    50. The Commission also proposes to create a new General 
Instruction 1-19, Accounting for asset retirement obligations, to 
provide the accounting for the recognition of asset retirement costs 
and obligations, in part 352 of the Commission's regulations. The new 
proposed General Instruction 1-19 will provide for the liability to be 
recorded in the new proposed noncurrent liability account entitled 
account 67, Asset retirement obligations, and the capitalization of the 
asset retirement costs in carrier and noncarrier property accounts.
    51. Under proposed General Instruction 1-19, the Commission 
proposes to provide for recording the accretion of the liability for 
carrier property in the new proposed account 591, Accretion expense, 
and for noncarrier property in the existing account 620, Income (net) 
for noncarrier property.
    52. Under proposed General Instruction 1-19, the Commission 
proposes that gains or losses resulting from the difference between the 
amount of the liability for the asset retirement obligation in account 
67, Asset

[[Page 69823]]

retirement obligations, and the actual amount of the settlement of the 
obligation for carrier property be recorded directly in the new 
proposed account 592, Gains or losses on asset retirement obligations, 
and for noncarrier property in the existing account 620, Income (net) 
from noncarrier property. The Commission proposes to add a new account 
592, Gains or losses on asset retirement obligations, in part 352 of 
the Commission's regulations to include gains and losses resulting from 
the settlement of asset retirement obligations.
    53. The Commission also proposes in General Instruction 1-19 that 
oil pipeline companies maintain for purposes of analyses subsidiary 
records and supporting documentation for each asset retirement 
obligation to be able to furnish accurately and expeditiously the full 
details of the nature of the legal obligations and full particulars of 
the components and computations relating to the recognition and 
measurement of the asset retirement obligation.

E. Other Revisions to the Uniform Systems of Accounts

    54. The Commission also proposes to revise certain existing 
definitions, certain existing general instructions, and the text of 
certain balance sheet accounts in the Uniform Systems of Accounts for 
oil pipeline companies in part 352 of the Commission's regulations to 
incorporate the accounting for asset retirement obligations.
1. Proposed Revisions to the Cost of Removal Definition
    55. Under the Uniform Systems of Accounts under part 352 of the 
Commission's regulations, certain oil pipelines record cost of removal 
related to the disposition and retirement of long-lived assets as a 
component of depreciation expense. The Uniform Systems of Accounts 
definition of cost of removal as presently written includes the cost of 
demolishing, dismantling, tearing down or otherwise removing the 
property.\23\ Certain cost of removal activities falling within this 
definition may relate to a legal obligation associated with the 
retirement of a long-lived asset while others may not relate to the 
legal obligation to retire the long-lived asset. The Commission 
proposes to amend the definition of cost of removal to exclude legal 
obligations related to the retirement of long-lived assets at the end 
of their service life because the asset retirement costs and related 
obligations will be separately recognized on the balance sheet and 
income statement.
---------------------------------------------------------------------------

    \23\ See Definition 12 in 18 CFR part 352 (Oil Pipeline 
Companies) (2002).
---------------------------------------------------------------------------

2. Proposed Revisions to Instructions for Carrier Property Accounts
    56. Under the Uniform Systems of Accounts in part 352 of the 
Commission's regulations for oil pipelines, there are no specific 
provisions to allow for the capitalization of an asset retirement cost 
related to a legal obligation that was incurred during the construction 
of tangible long-lived assets. The Commission proposes to revise the 
instructions for carrier property accounts, Instruction 3-3, Cost of 
property constructed, to add a new item for asset retirement costs 
incurred during the construction that will constitute a component of 
construction costs. The Commission proposes to exclude this cost from 
the construction work in progress base for calculating interest during 
construction because there will be no immediate cash expenditure during 
the construction phase for this cost.
3. Proposed Revisions to Account 34, Noncarrier Property
    57. The Commission proposes to include the asset retirement costs 
associated with noncarrier property that gives rise to the obligation 
in account 34, Noncarrier property, in part 352 of the Commission's 
regulations. The Commission also proposes that depreciation expense 
related to the capitalized retirement costs included in account 34, 
Noncarrier property, must be recorded in account 620, Income (net) from 
noncarrier property.
4. Proposed New Account for Operating Expenses
    58. As discussed above under the new proposed General Instruction 
1-19, the Commission proposes to add a new account 592, Gains or losses 
on asset retirement obligations, in part 352 of the Commission's 
regulations to include gains and losses resulting from the settlement 
of asset retirement obligations for carrier property.

F. Proposed Accounting for Transition Adjustments

    59. The Commission proposes that at the adoption of the final rule, 
oil pipeline companies recognize the liability for existing asset 
retirement obligation and recognize the cumulative accretion of the 
liability, associated asset retirement costs and the related 
accumulated depreciation for the capitalized costs. The transition 
adjustment for the cumulative effect of the accretion of the liability 
and the accumulated depreciation on the related capitalized asset 
retirement costs is measured from the date the obligation would have 
been incurred and recognized through January 1, 2003, the initial date 
of adoption of the final rule.
    60. The Uniform Systems of Accounts for oil pipeline companies in 
part 352 of the Commission's regulations provides that any change in 
accounting principle must be referred to this Commission for 
approval.\24\ For oil pipeline companies the cumulative effect of a 
change in accounting principle is ordinarily reflected in account 697, 
Cumulative effect of changes in accounting principles, in the year of 
adoption. The Commission proposes that the final rule in this 
proceeding will constitute the requisite authorization for oil pipeline 
companies to reflect the change as a cumulative effect of a change in 
accounting principles in account 697.
---------------------------------------------------------------------------

    \24\ See General Instruction 1-6, Extraordinary, unusual or 
infrequent items, prior period adjustments, discontinued operations 
and accounting changes, paragraphs (e) and (g) and the instructions 
to account 697, Cumulative effect of changes in accounting 
principles. See 18 CFR part 352 (Oil Pipeline Companies) (2002).
---------------------------------------------------------------------------

    61. The Commission proposes that the difference of any amount 
previously recognized for the asset retirement obligation recorded in 
account 31, Accrued depreciation--carrier property, and the amount 
recognized under the proposed rule, must be charged to account 697. The 
Commission also proposes that oil pipeline companies must charge the 
cumulative accretion expense on the liability for existing legal 
obligations to account 697 as a cumulative effect of a change in 
accounting principle.
    62. In summary, the Commission proposes that oil pipeline companies 
must record the liabilities associated with asset retirement 
obligations for those existing assets that would be incurred at the 
initial date of adoption of the final rule in the new proposed account 
67, Asset retirement obligations, and capitalize the related asset 
retirement costs in the new proposed primary carrier property accounts 
within the carrier property class related to the carrier property that 
gives rise to the legal obligations. The Commission proposes that oil 
pipeline companies must include the cumulative accretion of the 
liability for the legal obligations in account 67, Asset retirement 
obligations, from the date incurred through the initial date of 
adoption of the final rule by charging account 697. The Commission also 
proposes that oil pipeline companies

[[Page 69824]]

must adjust the accrued depreciation in account 31, Accrued 
depreciation--carrier property, for the cumulative depreciation from 
the date incurred through the initial date of adoption of the final 
rule with the offsetting adjustment to account 697.

G. Proposed Revisions to Tariff Filing Requirements Under 18 CFR Part 
346

    63. The Commission's proposed rule will require oil pipeline 
companies to recognize for accounting purposes asset retirement 
obligations. The Commission is not requiring oil pipeline companies 
with stated rate tariffs to make any tariff filings with the Commission 
due to this rulemaking at this time. However, oil pipeline companies 
with formula rate tariffs must not include any cost components related 
to asset retirement obligations in their formula rate tariffs for 
automatic recovery in their billing determinations prior to obtaining 
Commission approval.
    64. For the same reasons discussed above for public utilities, 
licensees and natural gas companies, the Commission proposes that to 
the extent, if any, a particular asset retirement cost should be 
allowed recovery through oil pipeline companies rates, it shall be 
addressed on a case by case basis in the individual rate change 
proposals filed by oil pipeline companies. The Commission proposes to 
add a new Sec.  346.3 to cost-of-service filing requirements for oil 
pipelines. These new regulations require that oil pipelines who have 
recorded an asset retirement obligation on their books in accordance 
with this proposed rule must, as part of any initial rate filing or 
general rate change filing, provide a schedule identifying all cost 
components related to the asset retirement obligation that are included 
in the book balances of all accounts reflected in the cost of service 
computation supporting the proposed rates. In addition, the proposed 
regulations require that all rate base items related to asset 
retirement obligations be removed from the rate base computation 
through an adjustment. Oil pipeline companies seeking recovery of an 
asset retirement obligation in rates must also provide a detailed study 
supporting the amounts proposed to be collected in rates. If the oil 
pipeline is not seeking recovery of the asset retirement obligation in 
rates, then it must remove all asset retirement obligation related cost 
components from its cost of service.
    65. The Commission is aware that a number of oil pipelines are 
currently collecting an allowance in jurisdictional rates to cover the 
future cost of retiring and removing facilities referred to as a 
dismantling, removal and restoration (DR&R) allowance. The Commission 
believes that these DR&R allowances do not necessarily reflect the 
existence of a legal obligation for the retirement of long-lived 
assets. Therefore, the Commission will require that DR&R allowances 
that are not established due to an asset retirement obligation be 
identified for rate making purposes separately from asset retirement 
obligation allowances.

V. Proposed Effective Date

    66. The Commission proposes the rule for accounting and reporting 
purposes be effective January 1, 2003, for public utilities, licensees, 
natural gas companies and oil pipeline companies. This is the date 
jurisdictional entities that file FERC Forms 1, 1-F, 2, 2-A and 6, will 
record the transitional adjustment to recognize asset retirement 
obligations in their books and records.\25\ The proposed reporting will 
be effective for the FERC Forms 1, 1-F, 2 and 2-A and 6 annual reports 
for the reporting year 2003.\26\
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    \25\ On February 20, 2002, the Commission's Chief Accountant 
issued interim guidance stating that jurisdictional entities may not 
early adopt this accounting standard for financial accounting and 
reporting to the Commission pending the Commission action on this 
matter. See All Jurisdictional Public Utilities, Licensees, Natural 
Gas Companies, and Oil Pipeline Companies, 98 FERC ] 62,222 (2002).
    \26\ The FERC Forms 1-F and 2-A and 6 annual reports for the 
year 2003 are due on or before March 31, 2004. The FERC Forms 1 and 
2 annual reports for the year 2003 are due on or before April 30, 
2004.
---------------------------------------------------------------------------

VI. Proposed Changes to the FERC Annual Report Forms

    67. The proposed changes, if adopted, will require revising the 
existing schedules in the FERC Forms 1, 1-F, 2, 2-A, and 6 filed with 
the Commission. A table summarizing the changes to the various 
schedules is shown in Appendix A. As a result of the Commission 
proposed accounting changes referred to above for public utilities, 
licensees, natural gas and oil pipeline companies, the Commission 
proposes to report in the Forms 1, 1-F, 2, 2-A and 6 the new noncurrent 
liability account for asset retirement obligations in the comparative 
balance sheet schedules, the new depreciation expense accounts and new 
accretion expense accounts in the income statement schedules.
    68. The Commission also proposes to report in the Forms 1, 1-F, 2, 
2-A and 6 the new primary plant accounts for asset retirement costs for 
each function for electric and gas utility plant and oil pipeline 
carrier property. The Commission proposes to report in the Forms 1, 1-
F, 2, 2-A and 6 the depreciation expense related to the asset 
retirement costs separately in the accumulated provision for 
depreciation schedules for electric and gas utility plant and the 
accrued depreciation schedules for carrier property. In addition, the 
Commission proposes for public utilities and licensees to change the 
plant statistical schedules to include the asset retirement costs 
related to electric utility plant.
    69. The Commission is proposing to revise the reporting 
requirements in the Forms 1, 1-F, 2, 2-A and 6 financial reports 
consistent with the changes in the proposed rule to promote consistent 
reporting practices for asset retirement obligations to the Commission 
by jurisdictional entities. The Commission believes that asset 
retirement obligations must be identified and reported in the Forms 1, 
1-F, 2, 2-A and 6 separately in the financial statements and supporting 
schedules because of the long-term nature of the obligations to retire 
long-lived assets. Furthermore, the Commission believes separate 
reporting of the accounts for asset retirement obligations on the 
balance sheet, income statement and certain other schedules in the 
Forms 1, 1-F, 2, 2-A and 6 provides more transparent reporting of the 
asset retirement obligations to meet the Commission's information 
needs.
    70. The reporting would include certain disclosure for asset 
retirement obligations in the ``Notes to Financial Statements'' in the 
FERC Forms 1, 1-F, 2, 2-A and 6.\27\ The Commission expects that 
financial statement disclosures provided by jurisdictional entities in 
the FERC Forms 1, 1-F, 2, 2-A and 6 must be no less than that provided 
in their general purpose financial statements that are provided to 
shareholders and the Securities and Exchange Commission.
---------------------------------------------------------------------------

    \27\ See the instructions to the Notes to Financial Statements 
schedule for FERC Forms 1, 1-F, 2, 2-A and 6 that requires 
respondents to report important notes and information related to the 
financial statements.
---------------------------------------------------------------------------

    71. The Commission proposes that jurisdictional entities that 
report a liability for asset retirement obligations must disclose the 
following: (1) A general description of the asset retirement 
obligations and the associated long-lived assets; (2) the fair value of 
assets that legally are restricted for purposes of settling the asset 
retirement obligations; (3) a reconciliation of the beginning and 
ending aggregate carrying amount of asset retirement obligations 
showing separately the changes attributable to (i)

[[Page 69825]]

liabilities incurred in the current period, (ii) liabilities settled in 
the current period, (iii) accretion expense, and (iv) revisions in 
estimated cash flows, whenever there is a significant change in one or 
more of those four components during the reporting period. If the fair 
value of an asset retirement obligation cannot be reasonably estimated, 
that fact and the reasons therefore must be disclosed.
    72. The Commission proposes jurisdictional entities must report on 
a separate line in the Statement of Cash Flows in FERC Forms 1, 1-F, 2, 
2-A and 6 under the ``Operating Activities'' classification any cash 
payments made to settle asset retirement obligations.\28\ Although, the 
transition adjustment requirements as discussed above does not permit 
jurisdictional entities to go back and restate prior year balances in 
the initial year of adoption of this rule, the Commission proposes 
jurisdictional entities must provide pro forma disclosure of the effect 
of adopting this change in accounting for asset retirement obligations 
in the Notes to the Financial Statements in the FERC Forms 1, 1-F, 2, 
2-A and 6. The pro forma disclosure must disclose in a footnote in the 
Notes to the Financial Statements of the FERC Annual Reports what the 
asset retirement obligation would have been at the beginning of the 
earliest year presented in the Balance Sheet and Income Statement, and 
at the end of the year of each year presented, as if this rule had been 
applied during those periods. This is the same disclosure requirement 
that jurisdictional entities will have to include in their general 
purpose financial statements that are provided to shareholders and the 
Securities and Exchange Commission.
---------------------------------------------------------------------------

    \28\ See FASB's Emerging Issues Task Force (EITF) No. 02-6, 
Classification in the Statement of Cash Flows of Payments Made to 
Settle an Asset Retirement Obligation within the Scope of FASB 
Statement No. 143, issued in March 2002. The accounting publication 
may be obtained from FASB at http://accounting.rutgers.edu/raw/fasb/.
---------------------------------------------------------------------------

    73. The Commission concludes that the above reporting requirements 
would not be a significant reporting burden since the information would 
be captured in jurisdictional entities accounting systems for internal 
and external reporting as needed.

VII. Regulatory Flexibility Act Statement

    74. The Regulatory Flexibility Act (RFA) requires agencies to 
prepare certain statements, descriptions, and analyses of proposed 
rules that will have a significant economic impact on a substantial 
number of small entities.\29\ The Commission is not required to make 
such analyses if a rule would not have such an effect.
---------------------------------------------------------------------------

    \29\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    75. The Commission does not believe that this proposed rule would 
have such an impact on small entities. Most filing companies regulated 
by the Commission do not fall within the RFA's definition of a small 
entity.\30\ Further, the Commission concludes that this reporting would 
not be a significant burden because the information jurisdictional 
entities will be required to report to the Commission specifically 
focuses on the activities of the jurisdictional entities that will be 
captured in their accounting systems and generally be reported to their 
shareholders and others at a company, or at a consolidated business 
level. Therefore, the Commission certifies that this proposed rule will 
not have a significant economic impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \30\ 5 U.S.C. 601(3), citing to section 3 of the Small Business 
Act,. 15 U.S.C. 632. Section 3 of the Small Business Act defines a 
``small-business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operation.
---------------------------------------------------------------------------

    76. However, if the reporting requirements represent an undue 
burden on small businesses, the entity affected may seek a waiver of 
the disclosure requirements from the Commission.

VIII. Environmental Impact Statement

    77. Commission regulations require that an environmental assessment 
or an environmental impact statement be prepared for any Commission 
action that may have a significant adverse effect on the human 
environment.\31\ No environmental consideration is necessary for the 
promulgation of a rule that is clarifying, corrective, or procedural or 
does not substantially change the effect of legislation or regulation 
being amended,\32\ and also for information gathering, analysis, and 
dissemination.\33\ The proposed rule updates the parts 35, 101, 154, 
201, 346 and 352 of the Commission's regulations, and does not 
substantially change the effect of the underlying legislation or the 
regulations being revised or eliminated. In addition, the Final Rule 
involves information gathering, analysis and dissemination. Therefore, 
this Final Rule falls within categorical exemptions provided in the 
Commission's regulations. Consequently, neither an environmental impact 
statement nor an environmental assessment is required.
---------------------------------------------------------------------------

    \31\ Regulations Implementing National Environmental Policy Act, 
52 FR 47,897 (Dec. 17, 1987), FERC Stats. & Regs. ] 30,783 (1987).
    \32\ 18 CFR 380.4(a)(2)(ii).
    \33\ 18 CFR 380.4(a)(5).
---------------------------------------------------------------------------

IX. Information Collection Statement and Public Reporting Burden

    78. The following collections of information contained in this 
proposed rule have been submitted to the Office of Management and 
Budget (OMB) for review under section 3707(d) of the Paperwork 
Reduction Act of 1995.\34\ OMB's regulations require OMB to approve 
certain information collection requirements imposed by agency rule.\35\ 
The Commission identifies the information provided for under this rule 
as FERC Forms 1, 1-F, 2, 2-A and 6.
---------------------------------------------------------------------------

    \34\ 44 U.S.C. 3507(d).
    \35\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    79. Comments are solicited on the need for this information, 
whether the information will have practical utility, the accuracy of 
the provided burden estimates, ways to enhance the quality, utility, 
and clarity of the information to be collected, and any suggested 
methods for minimizing respondents' burden, including the use of 
automated information techniques. The following burden estimates are 
for complying with this proposed rule as follows:
    Estimated Annual Burden:

----------------------------------------------------------------------------------------------------------------
                                                     Number of       Number of       Hours per     Total annual
                 Data collection                    respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
FERC Form 1.....................................             216             216              17           3,672
FERC Form 1-F...................................              26              26               8             208
FERC Form 2.....................................              57              57              13             741
FERC Form 2-A...................................              53              53               8             424
FERC Form 6.....................................             159             159              10           1,590
                                                 -----------------
    Totals......................................             511             511  ..............           6,635
----------------------------------------------------------------------------------------------------------------


[[Page 69826]]

    80. In addition, the Commission will address changes to tariffs on 
a case by case basis, it has not provided estimates for the number of 
entities that will make filings under FERC-516, FERC-545 or FERC-
550.\36\ However, the Commission will entertain comments on what 
resources and time will be placed on jurisdictional entities in order 
to make the appropriate filings with the Commission.
---------------------------------------------------------------------------

    \36\ These information collection requirements are covered by 
OMB Control Nos. 1902-0096, 1902-0154 and 1902-0089.
---------------------------------------------------------------------------

    81. Total Annual Hours for Collection (reporting + recordkeeping, 
if appropriate) = 6,635 hours. The total hours associated with this 
proposed rule is equal to 6,635 hours. It should be noted that burden 
if the proposed rule if adopted, applies only for jurisdictional 
entities to comply with the Commission's Uniform Systems of Accounts, 
Annual Reports, and Rate Schedule Filings. Jurisdictional entities must 
maintain much of this information in order to implement the accounting 
for asset retirement obligations for reporting under generally accepted 
accounting principles. The proposed rule will eliminate the need by 
jurisdictional entities to maintain duplicate sets of books.
    82. Information Collection Costs: The Commission seeks comments on 
the cost to comply with these requirements. It has projected the 
average annualized cost of all respondents to be: Annualized Capital 
Startup Costs: 6,635 hours / 2080 x $117,041 = $373,350. This is a one-
time cost for the initial implementation of the proposed schedules.
    83. Annualized Costs (Operations & Maintenance)--If adopted, costs 
for performing the proposed schedules will be rolled into the total 
costs for completing the Commission's annual financial reports.
    84. Total Annualized costs--$373,350.
    85. OMB's regulations require it to approve certain information 
collection requirements imposed by agency rule. The Commission is 
submitting notification of this proposed rule to OMB.\37\
---------------------------------------------------------------------------

    \37\ 5 CFR 1320.11
---------------------------------------------------------------------------

    86. Title: FERC Form 1, Annual Report of Major Electric Utilities, 
Licensees, and Others; FERC Form 1-F, Annual Report for Non-Major 
Public Utilities and Licensees; FERC Form 2, Annual Report for Major 
Natural Gas Companies; FERC Form 2-A, Annual Report for Nonmajor 
natural gas companies; FERC Form 6, Annual Report of Oil Pipeline 
Companies.
    87. Action: Proposed Data Collections.
    88. OMB Control Nos. 1902-0021; 1902-0029; 1902-0028; 1902-0030; 
and 1902-0022.
    89. The applicant will not be penalized for failure to respond to 
these collections of information unless the collection of information 
displays a valid OMB control number or the Commission has provided 
justification as to why the control number should not be displayed.
    90. Respondents: Businesses or other for profit.
    91. Frequency of Responses: Annually.
    92. Necessity of the Information: The proposed rule would revise 
the Commission's regulations to specifically address the proper 
accounting and reporting for asset retirement obligations. This 
requires the reporting of obligations associated with the retirement of 
tangible long-lived assets and their associated retirement costs. The 
addition of these new accounts and their corresponding general 
instructions are intended to provide accounting standards for 
recognition and measurement of liabilities for asset retirement 
obligations and associated asset retirement costs in reports to the 
Commission. The addition of these new accounts and related general 
instructions is intended to improve the visibility, completeness and 
consistency of accounting practices for asset retirement obligations. 
Without specific instructions and accounts for recording and reporting 
the above transactions and events, inconsistent and incomplete 
accounting will result.
    93. Internal Review: The Commission has reviewed the requirements 
pertaining to the Uniform Systems of Accounts and to the financial 
reports it prescribes and has determined the proposed revisions are 
necessary because the Commission needs to establish uniform accounting 
and reporting requirements for asset retirement obligations. All of the 
companies regulated by the Commission are capital-intensive and 
therefore involve substantial risk. The reporting of this information 
ensures that regulated companies' balance sheets clearly reflect the 
economic realities of the retirement obligations associated with long-
lived assets and review by the Commission provides both regulated 
companies and their customers with timely regulatory treatment.
    94. These requirements conform to the Commission's plan for 
efficient information collection, communication, and management within 
the electric, natural gas and oil pipeline industries. The Commission 
has assured itself, by means of internal review, that there is 
specific, objective support for the burden estimates associated with 
the information requirements.
    95. Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 [Attention: 
Michael Miller, Office of the Chief Information Officer, Phone (202) 
502-8415, fax: (202) 208-2425, e-mail: [email protected]]
    96. For submitting comments concerning the collection of 
information(s) and the associated burden estimate(s), please send your 
comments to the contact listed above and to the Office of Management 
and Budget, Office of Information and Regulatory Affairs, Washington, 
DC 20503, [Attention: Desk Officer for the Federal Energy Regulatory 
Commission, phone: (202) 395-7856, fax: (202) 395-7285].

X. Public Comment Procedures

    97. The Commission invites interested persons to submit written 
comments on the matters and issues proposed in this notice to be 
adopted, including any related matters or alternative proposals that 
commenters may wish to discuss. Comments are due within 45 days from 
publication in the Federal Register. Comments must refer to Docket No. 
RM02-7-000, and may be filed either in electronic or paper format. 
Those filing electronically do not need to make a paper filing.
    98. Documents filed electronically via the Internet can be prepared 
in a variety of formats, including WordPerfect, MS Word, Portable 
Document Format, Real Text Format, or ASCII format, as listed on the 
Commission's Web site at [chyph]http://ferc.gov, under the e-Filing 
link. The e-Filing link provides instructions for how to Login and 
complete an electronic filing. 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 202-502-8258 or 
by e-mail to [email protected]. Comments should not be submitted to the 
e-mail address.
    99. For paper filings, the original and 14 copies of such comments 
should be submitted to the Office of the Secretary, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington DC 20426.
    100. All comments will be placed in the Commission's public files 
and will be available for inspection in the

[[Page 69827]]

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 FERRIS link.

XI. Document Availability

    101. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m., to 5 
p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 
20426.
    102. From FERC's Home Page on the Internet, this information is 
available in the Federal Energy Regulatory Records Information System 
(FERRIS). The full text of this document is available on FERRIS in PDF 
and WordPerfect format for viewing, printing, and/or downloading. To 
access this document in FERRIS, type the docket number of this 
document, excluding the last three digits in the docket number field. 
User assistance is available for FERRIS and the FERC's Web site during 
normal business hours from our 103.Help Line at (202) 502-8222 (e-mail 
to [email protected]) or the Public Reference at (202) 502-8371 Press 
0, TTY (2020) 502-8659 (e-mail to [email protected]).

List of Subjects

18 CFR Part 35

    Electric power rates, Electric utilities, Electricity, Reporting 
and recordkeeping requirements.

18 CFR Part 101

    Electric power, Electric utilities, Reporting and recordkeeping 
requirements, Uniform System of Accounts.

18 CFR Part 154

    Alaska Natural gas, Natural gas companies, Pipelines, Rate 
schedules and tariffs, Reporting and recordkeeping requirements.

18 CFR Part 201

    Natural gas, Reporting and recordkeeping requirements, Uniform 
System of Accounts.

18 CFR Part 346

    Pipelines, Reporting and recordkeeping requirements.

18 CFR Part 352

    Pipelines, Reporting and recordkeeping requirements, Uniform System 
of Accounts.
    By direction of the Commission.

Magalie R. Salas,
Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
parts 35, 101, 154, 201, 346 and 352, chapter I, title 18, Code of 
Federal Regulations, as follows.

Regulatory Text

PART 35--FILING OF RATE SCHEDULES

    1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.
    2. Section 35.18 is added to read as follows:


Sec.  35.18  Asset retirement obligations.

    (a) A public utility that files a rate schedule under Sec.  35.12 
or Sec.  35.13 and has recorded an asset retirement obligation on its 
books must provide a schedule, as part of the supporting work papers, 
identifying all cost components related to the asset retirement 
obligations that are included in the book balances of all accounts 
reflected in the cost of service computation supporting the proposed 
rates. However, all cost components related to asset retirement 
obligations that would impact the calculation of rate base, such as 
electric plant and related accumulated depreciation and accumulated 
deferred income taxes, may not be reflected in rates and must be 
removed from the rate base calculation through a single adjustment.
    (b) A public utility seeking to recover nonrate base costs related 
to asset retirement costs in rates must provide, with its filing under 
Sec.  35.12 or Sec.  35.13, a detailed study supporting the amounts 
proposed to be collected in rates.
    (c) A public utility who has recorded asset retirement obligations 
on its books but is not seeking recovery of the asset retirement costs 
in rates, must remove all asset retirement obligations related cost 
components from the cost of service supporting its proposed rates.
* * * * *

PART 101--UNIFORM SYSTEM OF ACCOUNTS PRESCRIBED FOR PUBLIC 
UTILITIES AND LICENSEES SUBJECT TO THE PROVISIONS OF THE FEDERAL 
POWER ACT

    3. The authority citation for part 101 continues to read as 
follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352, 7651-7651o.
    4. In Definitions, Definition 10 is revised to read as follows:

Definitions

* * * * *
    10. Cost of removal means the cost of demolishing, dismantling, 
tearing down or otherwise removing electric plant, including the cost 
of transportation and handling incidental thereto. It does not include 
the cost of removal activities associated with asset retirement 
obligations that are capitalized as part of the tangible long-lived 
assets that give rise to the obligation. (See General Instruction 25).
* * * * *
    5. In General Instructions, Instruction 20, paragraphs C. and D. 
are redesignated as paragraphs D. and E. and new paragraph C. is added; 
and a new Instruction 25 is added to read as follows:

General Instructions

* * * * *
    20. Accounting for leases.
* * * * *
    C. The utility, as a lessee, shall recognize an asset retirement 
obligation (See General Instruction 25) arising from the plant under a 
capital lease unless the obligation is recorded as an asset and 
liability under a capital lease. The utility shall record the asset 
retirement cost by debiting account 101.1, Property under capital 
leases, or account 120.6, Nuclear fuel under capital leases, or account 
121, Nonutility property, as appropriate, and crediting the liability 
for the asset retirement obligation in account 230, Asset retirement 
obligations. Asset retirement costs recorded in account 101.1, account 
120.6, or account 121 shall be amortized by charging rent expense (See 
Operating Expense Instruction 3), or account 518, Nuclear fuel expense 
(Major only), or account 421, Miscellaneous nonoperating income, as 
appropriate, and crediting a separate subaccount of the account in 
which the asset retirement costs are recorded. Charges for the periodic 
accretion of the liability in account 230, Asset retirement 
obligations, shall be recorded by a charge to account 411.10, Accretion 
expense, for electric utility plant, and account 421, Miscellaneous 
nonoperating income, for nonutility plant and a credit to account 230, 
Asset retirement obligations.
* * * * *
    25. Accounting for asset retirement obligations.

[[Page 69828]]

    A. An asset retirement obligation represents a liability for the 
legal obligation associated with the retirement of a tangible long-
lived asset that a company is required to settle as a result of an 
existing or enacted law, statute, ordinance, or written or oral 
contract or by legal construction of a contract under the doctrine of 
promissory estoppel. An asset retirement cost represents the amount 
capitalized when the liability is recognized for the long-lived asset 
that gives rise to the legal obligation. The amount recognized for the 
liability and an associated asset retirement cost shall be stated at 
the fair value of the asset retirement obligation in the period in 
which the obligation is incurred.
    B. The utility shall initially record a liability for an asset 
retirement obligation in account 230, Asset retirement obligations, and 
charge the associated asset retirement costs to electric utility plant 
(including accounts 101.1 and 120.6), and nonutility plant, as 
appropriate, related to the plant that gives rise to the legal 
obligation. The asset retirement cost shall be depreciated over the 
useful life of the related asset that gives rise to the obligations. 
For periods subsequent to the initial recording of the asset retirement 
obligation, a utility shall recognize the period to period changes of 
the asset retirement obligation that result from the passage of time 
due to the accretion of the liability and any subsequent measurement 
changes to the initial liability for the legal obligation recorded in 
account 230, Asset retirement obligations, as follows:
    (1) The utility shall record the accretion of the liability by 
debiting account 411.10, Accretion expense, for electric utility plant, 
account 413, Expenses of electric plant leased to others, for electric 
plant leased to others, and account 421, Miscellaneous nonoperating 
income, for nonutility plant and crediting account 230, Asset 
retirement obligations; and
    (2) The utility shall recognize any subsequent measurement changes 
of the liability initially recorded in account 230, Asset retirement 
obligations, for each specific asset retirement obligation as an 
adjustment of that liability in account 230 with the corresponding 
adjustment to electric utility plant, electric plant leased to others, 
and nonutility plant, as appropriate. The utility shall on a timely 
basis monitor any measurement changes of the asset retirement 
obligations.
    C. Gains or losses resulting from the settlement of asset 
retirement obligations associated with utility plant resulting from the 
difference between the amount of the liability for the asset retirement 
obligation included in account 230, Asset retirement obligations, and 
the actual amount paid to settle the obligation shall be accounted for 
as follows:
    (1) Gains shall be credited to account 411.6, Gains from 
disposition of utility plant, and;
    (2) Losses shall be charged to account 411.7, Losses from 
disposition of utility plant.
    D. Gains or losses on the settlement of asset retirement 
obligations associated with nonutility plant resulting from the 
difference between the amount of the liability for the asset retirement 
obligation in account 230, Asset retirement obligations, and the amount 
paid to settle the obligation, shall be accounted for as follows:
    (1) Gains shall be credited to account 421, Miscellaneous 
nonoperating income, and;
    (2) Losses shall be charged to account 426.5, Other deductions.
    E. Separate subsidiary records shall be maintained for each asset 
retirement obligation showing the initial liability and associated 
asset retirement cost, any incremental amounts of the liability 
incurred in subsequent reporting periods for additional layers of the 
original liability and related asset retirement cost, the accretion of 
the liability, the subsequent measurement changes to the asset 
retirement obligation, the depreciation and amortization of the asset 
retirement costs and related accumulated depreciation, and the 
settlement date and actual amount paid to settle the obligation. For 
purposes of analyses a utility shall maintain supporting documentation 
so as to be able to furnish accurately and expeditiously with respect 
to each asset retirement obligation the full details of the identity 
and nature of the legal obligation, the year incurred, the identity of 
the plant giving rise to the obligation, the full particulars relating 
of each component and supporting computations related to the 
measurement of the asset retirement obligation.
* * * * *
    6. In Electric Plant Instructions, paragraph 3.A.(17)(a) the (W) 
element is revised; and a new paragraph 3.A.(21) is added to read as 
follows:

Electric Plant Instructions

* * * * *
    3. Components of construction cost.
    A. * * *
    (17) * * *
    (a) * * *
    (W) = Average balance in construction work in progress plus nuclear 
fuel in process of refinement, conversion, enrichment and fabrication, 
less asset retirement costs (See General Instruction 25) related to 
plant under construction.
* * * * *
    (21) Asset retirement costs. The costs recognized as a result of 
asset retirement obligations incurred during the construction and 
testing of utility plant shall constitute a component of construction 
costs.
* * * * *
    7. Balance Sheet Accounts is amended as follows:
    (a) Account 101.1 is amended by adding a sentence to the end of 
paragraph C.;
    (b) Account 103 paragraph C. is revised;
    (c) Account 108 paragraph A.(2) through A.(7) are redesignated as 
paragraphs A.(3) through A.(8) and a new paragraph A.(2) is added;
    (d) Account 110 paragraph A.(2) through A.(4) are redesignated as 
paragraphs A.(3) through A.(5) and a new paragraph A.(2) is added;
    (e) Account 121, paragraph A. is amended by adding a sentence to 
the end of the paragraph; and
    (f) Account 230 is added.
    The revision and additions read as follows:

Balance Sheet Accounts

* * * * *
    101.1 Property under capital leases.
* * * * *
    C. * * * Records shall also be maintained for plant under a lease, 
to identify the asset retirement obligation and cost originally 
recognized for each lease and the periodic charges and credits made to 
the asset retirement obligations and asset retirement costs.
* * * * *
    103 Experimental electric plant unclassified (Major only).
* * * * *
    C. The depreciation on plant in this account shall be charged to 
account 403, Depreciation expense, and account 403.1, Depreciation 
expense for asset retirement costs, as appropriate, and credited to 
account 108, Accumulated provision for depreciation of electric utility 
plant (Major only). The amounts herein shall be depreciated over a 
period which corresponds to the estimated useful life of the relevant 
project considering the characteristics involved. However, when 
projects are transferred to account 101, Electric plant in service, a 
new depreciation rate based on the remaining service life and

[[Page 69829]]

undepreciated amounts, will be established.
* * * * *
    108 Accumulated provision for depreciation of electric utility 
plant (Major only).
    A. * * *
    (2) Amounts charged to account 403.1, Depreciation expense for 
asset retirement costs, for current depreciation expense related to 
asset retirement costs in electric plant in service in a separate 
subaccount.
* * * * *
    110 Accumulated provision for depreciation and amortization of 
electric utility plant (Nonmajor only).
    A. * * *
    (2) Amounts charged to account 403.1, Depreciation expense for 
asset retirement costs, in electric utility plant in service in a 
separate subaccount.
* * * * *
    121 Nonutility property.
    A. * * * This account shall also include, where applicable, amounts 
recorded for asset retirement costs associated with nonutility plant.
* * * * *
    230 Asset retirement obligations.
    A. This account shall include the amount of liabilities for the 
recognition of asset retirement obligations related to electric utility 
plant and nonutility plant that gives rise to the obligations. This 
account shall be credited for the amount of the liabilities for asset 
retirement obligations with amounts charged to the appropriate electric 
utility plant accounts or nonutility plant account to record the 
related asset retirement costs.
    B. The utility shall charge the accretion expense to account 
411.10, Accretion expense, for electric utility plant, account 413, 
Expenses of electric plant leased to others, for electric plant leased 
to others, or account 421, Miscellaneous nonoperating income, for 
nonutility plant, as appropriate, and credit account 230, Asset 
retirement obligations.
    C. This account shall be debited with amounts paid to settle the 
asset retirement obligations recorded herein.
    D. The utility shall clear from this account any gains or losses 
resulting from the settlement of asset retirement obligations in 
accordance with the instructions prescribed in General Instruction 25.
* * * * *
    8. In Electric Plant Accounts, new primary plant accounts, 317, 
326, 337, 347, 359.1, 374, and 399.1 are added to read as follows:

Electric Plant Accounts

* * * * *
    317 Asset retirement costs for steam production plant.
    This account shall include asset retirement costs on plant included 
in the steam production function.
* * * * *
    326 Asset retirement costs for nuclear production plant (Major 
only).
    This account shall include asset retirement costs on plant included 
in the nuclear production function.
* * * * *
    337 Asset retirement costs for hydraulic production plant.
    This account shall include asset retirement costs on plant included 
in the hydraulic production function.
* * * * *
    347 Asset retirement costs for other production plant.
    This account shall include asset retirement costs on plant included 
in the other production function.
* * * * *
    359.1 Asset retirement costs for transmission plant.
    This account shall include asset retirement costs on plant included 
in the transmission plant function.
* * * * *
    374 Asset retirement costs for distribution plant.
    This account shall include asset retirement costs on plant included 
in the distribution plant function.
* * * * *
    399.1 Asset retirement costs for general plant.
    This account shall include asset retirement costs on plant included 
in the general plant function.
* * * * *
    9. Amend Income Accounts as follows:
    a. Account 403.1 is added,
    b. Accounts 411.6 and 411.7 are amended by designating the current 
paragraph as A., and adding a new paragraph B.,
    c. Account 411.10 is added,
    d. In account 421, paragraphs 4. through 6. are added, and
    e. In account 426.5 paragraph 6 is added.
    The additions read as follows:

Income Accounts

* * * * *
    403.1 Depreciation expense for asset retirement costs.
    This account shall include the depreciation expense for asset 
retirement costs included in electric utility plant in service.
* * * * *
    411.6 Gains from disposition of utility property.
    A. * * *
    B. The utility shall record in this account gains resulting from 
the settlement of asset retirement obligations related to utility plant 
in accordance with the accounting prescribed in General Instruction 25.
* * * * *
    411.7 Losses from disposition of utility property.
    A. * * *
    B. The utility shall record in this account losses resulting from 
the settlement of asset retirement obligations related to utility plant 
in accordance with the accounting prescribed in General Instruction 25.
* * * * *
    411.10 Accretion expense.
    This account shall be charged for accretion expense on the 
liabilities associated with asset retirement obligations included in 
account 230, Asset retirement obligations, related to electric utility 
plant.
* * * * *
    421 Miscellaneous nonoperating income.
* * * * *
    4. This account shall include the accretion expense on the 
liability for an asset retirement obligation included in account 230, 
Asset retirement obligations, related to nonutility plant.
    5. This account shall include the depreciation expense for asset 
retirement costs related to nonutility plant.
    6. The utility shall record in this account gains resulting from 
the settlement of asset retirement obligations related to nonutility 
plant in accordance with the accounting prescribed in General 
Instruction 25.
* * * * *
    426.5 Other deductions.
* * * * *
    6. The utility shall record in this account losses resulting from 
the settlement of asset retirement obligations related to nonutility 
plant in accordance with the accounting prescribed in General 
Instruction 25.
* * * * *

PART 154--RATE SCHEDULES AND TARIFFS

    10. The authority citation for part 154 continues to read as 
follows:

    Authority: 15 U.S.C. 717-717w; 31 U.S.C. 9701; 42 U.S.C. 7102-
7352.
    11. In Sec.  154.312 paragraph (d), introductory text, is amended 
by removing the sentence ``Any authorized negative salvage must be 
maintained in a separate subaccount of account 108,''

[[Page 69830]]

and adding in its place the following sentence to read as follows:


Sec.  154.312  Composition of Statements.

    (d) * * * Any authorized negative salvage must be maintained in a 
separate subaccount of account 108, and shall not include any amounts 
related to asset retirement obligations.* * *
* * * * *
    12. Section 154.315 is added to read as follows:


Sec.  154.315  Asset retirement obligations.

    (a) A natural gas company that files a tariff change under this 
part and has recorded an asset retirement obligation on its books must 
provide a schedule, as part of the supporting workpapers, identifying 
all cost components related to the asset retirement obligations that 
are included in the book balances of all accounts reflected in the cost 
of service computation supporting the proposed rates. However, all cost 
components related to asset retirement obligations that would impact 
the calculation of rate base, such as gas plant and related accumulated 
depreciation and accumulated deferred income taxes, may not be 
reflected in rates and must be removed from the rate base calculation 
through a single adjustment.
    (b) A natural gas company seeking to recover nonrate base costs 
related to asset retirement obligations in rates must provide, with its 
filing under Sec.  154.312 or Sec.  154.313, a detailed study 
supporting the amounts proposed to be collected in rates.
    (c) A natural gas company who has recorded asset retirement 
obligations on its books but is not seeking recovery of the asset 
retirement costs in rates, must remove all asset retirement obligations 
related cost components from the cost of service supporting its 
proposed rates.

PART 201-- UNIFORM SYSTEM OF ACCOUNTS PRESCRIBED FOR NATURAL GAS 
COMPANIES SUBJECT TO THE PROVISIONS OF THE NATURAL GAS ACT

    13. The authority citation for part 201 continues to read as 
follows:

    Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352, 
7651-7651o.
    14. In Definitions, Definition 10 is revised to read as follows:

Definitions

* * * * *
    10. Cost of removal means the cost of demolishing, dismantling, 
tearing down or otherwise removing gas plant, including the cost of 
transportation and handling incidental thereto. It does not include the 
cost of removal activities associated with asset retirement obligations 
that are capitalized as part of the tangible long-lived assets that 
give rise to the obligation. (See General Instruction 24).
* * * * *
    15. In General Instructions, Instruction 20 paragraphs C. and D. 
are redesignated as paragraphs D. and E. and a new paragraph C. is 
added; and a new Instruction 24 is added to read as follows:

General Instructions

* * * * *
    20. Accounting for leases.
* * * * *
    C. The utility, as a lessee, shall recognize an asset retirement 
obligation (See General Instruction 24) arising from the plant under a 
capital lease unless the obligation is recorded as an asset and 
liability under a capital lease. The utility shall record the asset 
retirement cost by debiting account 101.1, Property under capital 
leases, or account 121, Nonutility property, as appropriate, and 
crediting the liability for the asset retirement obligation in account 
230, Asset retirement obligations. Asset retirement costs recorded in 
account 101.1 or account 121 shall be amortized by charging rent 
expense (See Operating Expense Instruction 3) or account 421, 
Miscellaneous nonoperating income, as appropriate, and crediting a 
separate subaccount of the account in which the asset retirement costs 
are recorded. Charges for the periodic accretion of the liability in 
account 230, Asset retirement obligations, shall be recorded by a 
charge to account 411.10, Accretion expense, for gas utility plant, and 
account 421, Miscellaneous nonoperating income, for nonutility plant 
and a credit to account 230, Asset retirement obligations.
* * * * *
    24. Accounting for asset retirement obligations.
    A. An asset retirement obligation represents a liability for the 
legal obligation associated with the retirement of a tangible long-
lived asset that a utility is required to settle as a result of an 
existing or enacted law, statute, ordinance, or written or oral 
contract or by legal construction of a contract under the doctrine of 
promissory estoppel. An asset retirement cost represents the amount 
capitalized when the liability is recognized for the long-lived asset 
that gives rise to the legal obligation. The amount recognized for the 
liability and an associated asset retirement cost shall be stated at 
the fair value of the asset retirement obligation in the period in 
which the obligation is incurred.
    B. The utility shall initially record a liability for an asset 
retirement obligation in account 230, Asset retirement obligations, and 
charge the associated asset retirement costs to gas utility plant and 
nonutility plant, as appropriate, related to the plant that gives rise 
to the legal obligation. The asset retirement cost shall be depreciated 
over the useful life of the related asset that gives rise to the 
obligations. For periods subsequent to the initial recording of the 
asset retirement obligation, a utility shall recognize the period to 
period changes of the asset retirement obligation that result from the 
passage of time due to the accretion of the liability and any 
subsequent measurement changes to the initial liability for the legal 
obligation recorded in account 230, Asset retirement obligations, as 
follows:
    (1) The utility shall record the accretion of the liability by 
debiting account 411.10, Accretion expense, for gas utility plant, 
account 413, Expenses of gas plant leased to others, for gas plants 
leased to others, and account 421, Miscellaneous nonoperating income, 
for nonutility plant and crediting account 230, Asset retirement 
obligations; and
    (2) The utility shall recognize any subsequent measurement changes 
of the liability initially recorded in account 230, Asset retirement 
obligations, for each specific asset retirement obligation as an 
adjustment of that liability in account 230 with the corresponding 
adjustment to gas utility plant, gas plant leased to others, and 
nonutility plant, as appropriate. The utility shall on a timely basis 
monitor any measurement changes of the asset retirement obligations.
    C. Gains or losses resulting from the settlement of asset 
retirement obligations associated with utility plant resulting from the 
difference between the amount of the liability for the asset retirement 
obligation included in account 230, Asset retirement obligations, and 
the actual amount paid to settle the obligation shall be accounted for 
as follows:
    (1) Gains shall be credited to account 411.6, Gains from 
disposition of utility plant, and;
    (2) Losses shall be charged to account 411.7, Losses from 
disposition of utility plant.
    D. Gains or losses on the settlement of the asset retirement 
obligations associated with nonutility plant resulting from the 
difference between the amount of the liability for the asset retirement 
obligation in account 230, Asset retirement obligations, and the

[[Page 69831]]

amount paid to settle the obligation, shall be accounted for as 
follows:
    (1) Gains shall be credited to account 421, Miscellaneous 
nonoperating income, and;
    (2) Losses shall be charged to account 426.5, Other deductions.
    E. Separate subsidiary records shall be maintained for each asset 
retirement obligation showing the initial liability and associated 
asset retirement cost, any incremental amounts of the liability 
incurred in subsequent reporting periods for additional layers of the 
original liability and related asset retirement cost, the accretion of 
the liability, the subsequent measurement changes to the asset 
retirement obligation, the depreciation and amortization of the asset 
retirement costs and related accumulated depreciation, and the 
settlement date and actual amount paid to settle the obligation. For 
purposes of analyses a utility shall maintain supporting documentation 
so as to be able to furnish accurately and expeditiously with respect 
to each asset retirement obligation the full details of the identity 
and nature of the legal obligation, the year incurred, the identity of 
the plant giving rise to the obligation, the full particulars relating 
of each component and supporting computations related to the 
measurement of the asset retirement obligation.
* * * * *
    16. In Gas Plant Instructions, paragraph 3.A.(17)(a) the (W) 
element is revised; and new paragraph 3.A.(23) is added to read as 
follows:

Gas Plant Instructions

* * * * *
    3. Components of construction cost.
    A. * * *
    (17) * * *
    (a) * * *
    (W) = Average balance in construction work in progress less asset 
retirement costs (See General Instruction 24) related to plant under 
construction.
* * * * *
    (23) ``Asset retirement costs.'' The costs recognized as a result 
of asset retirement obligations incurred during the construction and 
testing of utility plant shall constitute a component of construction 
costs.
* * * * *
    17. Balance Sheet Accounts are amended as follows:
    (a) Account 101.1, is amended by adding a sentence to the end of 
paragraph C.;
    (b) Account 103, paragraph C. is revised;
    (c) Account 108, paragraphs A.(2) through A.(7) are redesignated as 
paragraphs A.(3) through A.(8) and a new paragraph A.(2) is added;
    (d) Account 121, paragraph A. is amended by adding a sentence to 
the end of the paragraph; and
    (f) Account 230 is added.
    The additions and revisions read as follows:

Balance Sheet Accounts

* * * * *
    101.1 Property under capital leases.
* * * * *
    C. * * * Records shall also be maintained for plant under a lease, 
to identify the asset retirement obligation and cost originally 
recognized for each lease and the periodic charges and credits made to 
the asset retirement obligations and asset retirement costs.
* * * * *
    103 Experimental gas plant unclassified.
* * * * *
    C. The depreciation on plant in this account shall be charged to 
account 403, Depreciation expense, and account 403.1, Depreciation 
expense for asset retirement costs, as appropriate, and credited to 
account 108, Accumulated provision for depreciation of gas utility 
plant. The amounts herein shall be depreciated over a period which 
corresponds to the estimated useful life of the relevant project 
considering the characteristics involved. However, when projects are 
transferred to account 101, Gas plant in service, a new depreciation 
rate based on the remaining service life and undepreciated amounts, 
will be established.
* * * * *
    108 Accumulated provision for depreciation of gas utility plant.
    A. * * *
    (2) Amounts charged to account 403.1, Depreciation expense for 
asset retirement costs, for current depreciation expense related to 
asset retirement costs in gas plant in service in a separate 
subaccount.
* * * * *
    121 Nonutility property.
    A. * * * This account shall also include, where applicable, amounts 
recorded for asset retirement costs associated with nonutility plant.
* * * * *
    230 Asset retirement obligations
    A. This account shall include the amount of liabilities for the 
recognition of asset retirement obligations related to gas utility 
plant and nonutility plant that gives rise to the obligations. This 
account shall be credited for the amount of the liabilities for asset 
retirement obligations with amounts charged to the appropriate gas 
utility plant accounts or nonutility plant accounts to record the 
related asset retirement costs.
    B. This account shall also include the period to period changes for 
the accretion of the liabilities in account 230, Asset retirement 
obligations. The utility shall charge the accretion expense to account 
411.10, Accretion expense, for gas utility plant, account 413, Expenses 
of gas plant leased to others, for gas plant leased to others, or 
account 421, Miscellaneous nonoperating income, for nonutility plant, 
as appropriate, and credit account 230, Asset retirement obligations.
    C. This account shall be debited with amounts paid to settle the 
asset retirement obligations recorded herein.
    D. The utility shall clear from this account any gains or losses 
resulting from the settlement of asset retirement obligations in 
accordance with the instructions prescribed in General Instruction 24.
* * * * *
    18. In Gas Plant Accounts, new primary plant accounts, 321, 339, 
348, 358, 363.6, 364.9, 372, 388, and 399.1 are added to read as 
follows:

Gas Plant Accounts

* * * * *
    321 Asset retirement costs for manufactured gas production plant.
    This account shall include asset retirement costs on plant included 
in the manufactured gas production plant function.
* * * * *
    339 Asset retirement costs for natural gas production and gathering 
plant.
    This account shall include asset retirement costs on plant included 
in the natural gas production and gathering plant function.
* * * * *
    348 Asset retirement costs for products extraction plant.
    This account shall include asset retirement costs on plant included 
in the products extraction plant function.
* * * * *
    358 Asset retirement costs for underground storage plant.
    This account shall include asset retirement costs on plant included 
in the underground storage plant function.
* * * * *
    363.6 Asset retirement costs for other storage plant.
    This account shall include asset retirement costs on plant included 
in the other storage plant function.
* * * * *
    372 Asset retirement costs for transmission plant.

[[Page 69832]]

    This account shall include asset retirement costs on plant included 
in the transmission plant function.
* * * * *
    388 Asset retirement costs for distribution plant.
    This account shall include asset retirement costs on plant included 
in the distribution plant function.
* * * * *
    399.1 Asset retirement costs for general plant.
    This account shall include asset retirement costs on plant included 
in the general plant function.
* * * * *
    19. Income Accounts are amended as follows:
    a. Account 403.1 is added,
    b. Accounts 411.6 and 411.7 are amended by designating the current 
paragraph as A. and adding a new paragraph B.,
    c. Account 411.10 is added,
    d. In account 421, paragraphs 4. through 6. are added, and
    e. In account 426.5 paragraph 6. is added.
    The additions read as follows:

Income Accounts

* * * * *
    403.1 Depreciation expense for asset retirement costs.
    This account shall include the depreciation expense for asset 
retirement costs included in gas utility plant in service.
* * * * *
    411.6 Gains from disposition of utility property.
    A. * * *
    B. The utility shall record in this account gains resulting from 
the settlement of asset retirement obligations related to utility plant 
in accordance with the accounting prescribed in General Instruction 24.
* * * * *
    411.7 Losses from disposition of utility property.
    A. * * *
    B. The utility shall record in this account losses resulting from 
the settlement of asset retirement obligations related to utility plant 
in accordance with the accounting prescribed in General Instruction 24.
* * * * *
    411.10 Accretion expense.
    This account shall be charged for accretion expense on the 
liabilities associated with asset retirement obligations included in 
account 230, Asset retirement obligations, related to gas utility 
plant.
* * * * *
    421 Miscellaneous nonoperating income.
* * * * *

    4. This account shall include the accretion expense on the 
liability for an asset retirement obligation included in account 
230, Asset retirement obligations, related to nonutility plant.
    5. This account shall include the depreciation expense for asset 
retirement costs related to nonutility plant.
    6. The utility shall record in this account gains resulting from 
the settlement of asset retirement obligations related to nonutility 
plant in accordance with the accounting prescribed in General 
Instruction 24.

* * * * *
    426.5 Other deductions.
* * * * *

    6. The utility shall record in this account losses resulting 
from the settlement of asset retirement obligations related to 
nonutility plant in accordance with the accounting prescribed in 
General Instruction 24.

* * * * *

PART 346--OIL PIPELINE COST-OF-SERVICE FILING REQUIREMENTS

    20. The authority citation for part 346 continues to read as 
follows:

    Authority: 42 U.S.C. 7101-7352; 49 U.S.C. 60502; 49 App. U.S.C. 
1-85.
    21. Section 346.3 is added to read as follows:


Sec.  346.3  Asset retirement obligations.

    (a) A carrier that files material in support of initial rates or 
change in rates under Sec.  346.2 and has recorded asset retirement 
obligations on its books must provide a schedule, as part of the 
supporting workpapers, identifying all cost components related to the 
asset retirement obligations that are included in the book balances of 
all accounts reflected in the cost of service computation supporting 
the proposed rates. However, all cost components related to asset 
retirement obligations that would impact the calculation of rate base, 
such as carrier property and related accumulated depreciation and 
accumulated deferred income taxes, may not be reflected in rates and 
must be removed from the rate base calculation through a single 
adjustment.
    (b) A carrier seeking to recover nonrate base costs related to 
asset retirement costs in rates must provide, with its filing under 
Sec.  346.2 of this part, a detailed study supporting the amounts 
proposed to be collected in rates.
    (c) A carrier who has recorded asset retirement obligations on its 
books but is not seeking recovery of the asset retirement costs in 
rates, must remove all asset retirement obligations related cost 
components from the cost of service supporting its proposed rates.

PART 352--UNIFORM SYSTEMS OF ACCOUNTS PRESCRIBED FOR OIL PIPELINE 
COMPANIES SUBJECT TO THE PROVISIONS OF THE INTERSTATE COMMERCE ACT

    22. The authority citation for part 352 continues to read as 
follows:

    Authority: 49 U.S.C. 60502; 49 App. U.S.C. 1-85 (1988).
    23. In List of Instructions and Accounts, under Definitions, 
Definition 12 is revised to read as follows:
    Definitions. * * *
    12. Cost of removal means cost of demolishing, dismantling, tearing 
down, or otherwise removing property including costs of handling and 
transportation. It does not include the cost of removal activities 
associated with asset retirement obligations that are capitalized as 
part of the tangible long-lived assets that give rise to the 
obligation. (See General Instruction 1-19).
* * * * *
    24. In General Instructions, paragraph 1-19 is added to read as 
follows:

General Instructions

* * * * *
    1-19 Accounting for asset retirement obligations.
    (a) An asset retirement obligation represents a liability for the 
legal obligation associated with the retirement of a tangible long-
lived asset that a utility is required to settle as a result of an 
existing or enacted law, statute, ordinance, or written or oral 
contract or by legal construction of a contract under the doctrine of 
promissory estoppel. An asset retirement cost represents the amount 
capitalized when the liability is recognized for the long-lived asset 
that gives rise to the legal obligation. The amount recognized for the 
liability and an associated asset retirement cost shall be stated at 
the fair value of the asset retirement obligation in the period in 
which the obligation is incurred.
    (b) The carrier shall initially record a liability for an asset 
retirement obligation in account 67, Asset retirement obligations, and 
charge the associated asset retirement costs to account 30, Carrier 
property, and account 34, Noncarrier property, as appropriate, related 
to the property that gives rise to the legal obligation. The asset 
retirement cost shall be depreciated over the useful life of the 
related asset that gives rise to the obligations. For periods 
subsequent to the initial recording of the asset

[[Page 69833]]

retirement obligation, a carrier shall recognize the period to period 
changes of the asset retirement obligation that result from the passage 
of time due to the accretion of the liability and any subsequent 
measurement revisions to the initial liability for the legal obligation 
recorded in account 67, Asset retirement obligations, as follows:
    (1) The carrier shall record the accretion of the liability by 
debiting account 591, Accretion expense, for carrier property, account 
620, Income (net) from noncarrier property, for noncarrier property and 
crediting account 67, Asset retirement obligations; and
    (2) The carrier shall recognize any subsequent measurement changes 
of the liability initially recorded in account 67, Asset retirement 
obligations, for each specific asset retirement obligation as an 
adjustment of that liability in account 67 with the corresponding 
adjustment to carrier property and noncarrier property accounts, as 
appropriate. The utility shall on a timely basis monitor any 
measurement changes of the asset retirement obligations.
    (c) Gains or losses resulting from the final settlement of asset 
retirement obligations for carrier plant resulting from the difference 
between the amount of the liability for the asset retirement obligation 
in account 67, Asset retirement obligation, and the actual amount to 
settle the obligation, shall be recorded in account 592, Gains or 
losses on asset retirement obligations.
    (d) Gains or losses resulting from the final settlement of asset 
retirement obligations for noncarrier plant resulting from the 
difference between the amount of the liability for the asset retirement 
obligation in account 67, Asset retirement obligation, and the actual 
amount to settle the obligation, shall be recorded in account 620, 
Income (net) from noncarrier property.
    (e) Separate subsidiary records shall be maintained for each asset 
retirement obligation showing the initial liability and associated 
asset retirement cost, any incremental amounts of the liability 
incurred in subsequent reporting periods for additional layers of the 
original liability and related asset retirement cost, the accretion of 
the liability, the subsequent measurement changes to the asset 
retirement obligation, the depreciation and amortization of the asset 
retirement costs and related accumulated depreciation, and the 
settlement date and actual amount paid to settle the obligation. For 
purposes of analyses a carrier shall maintain supporting documentation 
so as to be able to furnish accurately and expeditiously with respect 
to each asset retirement obligation the full details of the identity 
and nature of the legal obligation, the year incurred, the identity of 
the plant giving rise to the obligation, the full particulars relating 
of each component and supporting computations related to the 
measurement of the asset retirement obligation.
* * * * *
    25. In Instructions for Carrier Property Accounts, Instruction 3-3, 
paragraph (11)(iii) and paragraph (13) are added to read as follows:

Instructions for Carrier Property Accounts

* * * * *
    3-3 Cost of property constructed. * * *
    (11) * * *
    (iii) Interest during construction shall not be recognized on the 
asset retirement costs incurred during the construction of carrier and 
noncarrier property.
* * * * *
    (13) Asset retirement costs that are recognized as a result of 
asset retirement obligations incurred during the construction shall be 
included in the cost of construction costs.
* * * * *

Balance Sheet Accounts

    26. In Balance Sheet Accounts, account 34 is amended by adding a 
sentence to the end of paragraph and account 67 is added to read as 
follows:
* * * * *
    34 * * * This account shall also include, amounts recorded for 
asset retirement costs associated with noncarrier property.
* * * * *
    67 Asset retirement obligations.
    A. This account shall include liabilities arising from the 
recognition of asset retirement obligations. The carrier shall credit 
account 67, Asset retirement obligations, for the liabilities for asset 
retirement obligations and charge the appropriate carrier property 
accounts or noncarrier property accounts to record the related asset 
retirement costs.
    B. This account shall also include the period to period changes for 
the accretion of the liabilities in account 67, Asset retirement 
obligations. The carrier shall charge the accretion expense to account 
591, Accretion expense, for carrier property, and account 620, Income 
(net) from noncarrier property, for noncarrier property, as 
appropriate, and credit account 67, Asset retirement obligations.
    C. This account shall be debited with amounts paid to settle the 
asset retirement obligations recorded herein.
    D. The utility shall clear from this account any gains or losses 
resulting from the settlement of asset retirement obligations in 
accordance with the instructions prescribed in General Instruction 1-
19.
* * * * *
    27. In Carrier Property Accounts, accounts 117, 167, 186.1 are 
added to read as follows:

Carrier Property Accounts

* * * * *
    117, 167, 186.1 Asset retirement costs.
    This account shall include asset retirement costs on plant included 
in carrier property.
* * * * *
    28. In Operating Expenses, accounts 541, 591 and 592 are added to 
read as follows:

Operating Expenses

* * * * *
    541 Depreciation expense for asset retirement costs.
    This account shall include charges for the depreciation of asset 
retirement costs related to transportation property.
* * * * *
    591 Accretion expense.
    This account shall be charged for accretion expense on the 
liabilities associated with asset retirement obligations included in 
account 67, Asset retirement obligations. The carrier shall record in 
this account the settlement amounts for asset retirement obligations 
related to carrier property in accordance with the accounting 
prescribed in General Instruction 1-19.
    592 Gains or losses on asset retirement obligations.
    The carrier shall record in this account gains or losses resulting 
from the settlement amounts for asset retirement obligations related to 
carrier property plant. (See General Instruction 1-19).
* * * * *

    Note: Appendix A will not be published in the Code of Federal 
Regulations.

Appendix A--Summary of Proposed Changes to Schedules for Forms 1, 1-F, 
2, 2-A and 6

[[Page 69834]]



------------------------------------------------------------------------
                       Forms 1 and 1-F
                            public       Forms 2 and 2A     Form 6 oil
      Schedule title    utilities and     natural gas        pipeline
                          licensees        companies        companies
------------------------------------------------------------------------
 1   List of           Revise to show   Same as Public   Same as Public
      Schedules.        schedule         Utilities and    Utilities and
                        changes.         Licensees.       Licensees.
 2   Comparative       Add new account  Same as Public   Add account 67
      Balance Sheet.    230 to report    Utilities and    to report
                        asset            Licensees.       asset
                        retirement                        retirement
                        obligations.                      obligations.
 3   Statement of      Add new          Same as Public   Add accounts
      Income for the    accounts         Utilities and    541, to report
      Year.             403.1, to        Licensees.       depreciation
                        report                            expense, 591,
                        depreciation                      to report
                        expense and                       accretion
                        411.10, to                        expense, and
                        report                            592, to report
                        accretion                         gains or
                        expense.                          losses on
                                                          asset
                                                          retirement
                                                          obligations.
 4   Plant in Service  Add new          Same as Public   N/A.
                        Instruction 4.   Utilities and
                        For revisions    Licensees.
                        to the amount
                        of initial
                        asset
                        retirement
                        costs
                        capitalized,
                        included by
                        primary plant
                        account,
                        increases in
                        column (c)
                        additions and
                        reductions in
                        column (e)
                        adjustments.
                       Add new primary  Add new primary  N/A.
                        asset            asset
                        retirement       retirement
                        accounts, 317,   accounts, 339,
                        326, 337, 347,   348, 358,
                        359.1, 374 and   363.6, 364.9,
                        399.1, for       372, 388,
                        each plant       399.1, for
                        function.        each plant
                                         function.
 5   Undivided Joint   N/A............  N/A............  Add new primary
      Interest                                            asset
      Property.                                           retirement
                                                          accounts, 117,
                                                          167, and
                                                          186.1, for
                                                          each carrier
                                                          property
                                                          account
                                                          function.
 6   Accumulated       Added lines to   Same as Public   N/A.
      Provisions for    report ``403.1   Utilities and
      Depreciation of   Depreciation     Licensees.
      Utility Plant.    Expense for
                        Asset
                        Retirement
                        Costs'' and
                        ``Book Cost of
                        Asset
                        Retirement
                        Costs
                        Required''.
 7   Accrued           N/A............  N/A............  Add new primary
      Depreciation--C                                     asset
      arrier Property.                                    retirement
                                                          accounts, 117,
                                                          167, and
                                                          186.1, for
                                                          each carrier
                                                          property
                                                          account
                                                          function and
                                                          revise column
                                                          (c) to read
                                                          Debits to
                                                          Accounts 540
                                                          and 541 and US
                                                          of A (in
                                                          dollars).
 8   Accrued           N/A............  N/A............  Same as above
      Depreciation--U                                     for Accured
      ndivided Joint                                      Depreciation--
      Interest                                            Carrier
      Property.                                           Property.
 9   Depreciation and  Add new Column   Same as Public   N/A.
      Amortization of   (c),             Utilities and
      Plant (Except     Depreciation     Licensees.
      Amortization of   Expense for     Form 2-A N/A...
      Acquisition       Asset
      Adjustments).     Retirement
                        Costs (403.1).
10   Amortization      N/A............  N/A............  Revise header
      Base and                                            over columns
      Reserve.                                            (b), (c), (d)
                                                          and (e) to
                                                          read (Base 540
                                                          and 541).
11   Steam-Electric    Form 1--Revise   N/A............  N/A.
      Generating        to report
      Plant             Asset
      Statistics        Retirement
      (Large Plants).   Costs.
                       Form 1-F N/A...
12   Hydroelectric     Form 1--Revise   N/A............  N/A.
      Generating        to report
      Plant             Asset
      Statistics        Retirement
      (Large Plants).   Costs.
                       Form 1-F N/A...
13   Pumped Storage    Form 1--Revise   N/A............  N/A.
      Generating        to report
      Plant             Asset
      Statistics        Retirement
      (Large Plants).   Costs.
                       Form 1-F N/A...
14   Generating Plant  Form 1--Revise   N/A............  N/A.
      Statistics        Column (g), to
      (Small Plants)    read ``Plant
      (Continued).      Cost
                        (Including
                        Asset
                        Retirement
                        Costs) Per MW
                        Installed
                        Capacity''.
                       Form 1-F N/A...
15   Transmission      Form 1--Add      N/A............  N/A.
      Lines Added       column (o)
      During the Year.  ``Asset
                        Retirement
                        Costs'' to
                        report asset
                        retirements
                        costs as part
                        of line cost.
                       Form 1-F N/A...
------------------------------------------------------------------------

BILLING CODE 6717-01-P

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[FR Doc. 02-28294 Filed 11-18-02; 8:45 am]
BILLING CODE 6717-01-C