[Federal Register Volume 72, Number 134 (Friday, July 13, 2007)]
[Proposed Rules]
[Pages 38511-38526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-13389]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1767

RIN 0572-AC08


Accounting Requirements for RUS Electric Program Borrowers

AGENCY: Rural Utilities Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Utilities Service, an agency delivering the United 
States Department of Agriculture's Rural Development Utilities 
Programs, hereinafter referred to as Rural Development, proposes to 
amend its regulation on accounting policies and procedures for Rural 
Development Electric Programs borrowers as set forth in 7 CFR Part 
1767, Accounting Requirements for Rural Development Electric Program 
Borrowers. This proposed rule seeks to reconcile Part 1767 with the 
Uniform System of Accounts as set forth by the Federal Energy 
Regulatory Commission (FERC); to adopt FERC accounting guidance for 
Regional Transmission Organizations, Asset Retirement Obligations with 
modifications, Other Comprehensive Income, and Derivatives and Hedging 
Instruments; to amend accounting interpretations for Special Equipment 
Accounting, Storm Damage, Rural Economic Development Loan and Grant 
Program and Consolidated Financial Statements; to set forth accounting 
interpretations that establish uniform reporting procedures for 
Accounting for Cushion of Credit Accounts and Renewable Energy Credits, 
and to codify guidance on records retention currently published in 
Bulletin 180-2. This proposed rule also seeks to correct a number of 
administrative errors currently existing within this part.

DATES: Written comments must be received by Rural Development or carry 
a postmark or equivalent no later than September 11, 2007.

ADDRESSES: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov and, in the lower ``Search Regulations and Federal 
Actions'' box, select ``Rural Utilities Service'' from the agency drop-
down menu, then click on ``Submit.'' In the Docket ID column, select 
RUS-07-Electric-0002 to submit or view public comments and to view 
supporting and related materials available electronically. Information 
on using Regulations.gov, including instructions for accessing 
documents, submitting comments, and viewing the docket after the close 
of the comment period, is available through the site's ``User Tips'' 
link.
     Agency Web Site: http://www.usda.gov/rus/index2/Comments.htm. Follow the instructions for submitting comments.
     E-mail: [email protected]. Include in the subject line 
of the message ``Accounting Requirements for Electric Borrowers.''
     Mail: Addressed to Michele Brooks, Acting Director, 
Program Development and Regulatory Analysis, Rural Development, U.S. 
Department of Agriculture, 1400 Independence Avenue, SW., STOP 1522, 
Washington, DC 20250-1522.
     Hand Delivery/Courier: Addressed to Michele Brooks, Acting 
Director, Program Development and Regulatory Analysis, Rural 
Development, U.S. Department of Agriculture, 1400 Independence Avenue, 
SW., Room 5168-S, Washington, DC 20250-1522.
    Instructions: All submissions received must include the agency name 
and the subject heading ``Accounting Requirements for Electric 
Borrowers''. All comments received must identify the name of the 
individual (and the name of the entity, if applicable) who is 
submitting the comment. All comments received will be posted without 
change to http://www.usda.gov/rus/index2/Comments.htm, including any 
personal information provided.

FOR FURTHER INFORMATION CONTACT: Ms. Diana C. Alger, Chief, Technical 
Accounting and Auditing Staff, Program Accounting Services Division, 
Rural Development, Ag Box 1523, Room 2221, South Building, U.S. 
Department of Agriculture, Washington, DC 20250, telephone number (202) 
720-5227.

SUPPLEMENTARY INFORMATION: 

Executive Order 12866

    This proposed rule is exempted from the Office of Management and 
Budget

[[Page 38512]]

(OMB) review for purposes of Executive Order 12866 and, therefore has 
not been reviewed by OMB.

Regulatory Flexibility Act Certification

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule since Rural Development is not required by 5 
U.S.C. 551 et seq. or any other provision of law to publish a notice of 
proposed rulemaking with respect to the subject matter of this rule.

Information Collection and Recordkeeping Requirements

    This rule contains no new reporting or recordkeeping burdens under 
OMB control number 0572-0003 that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

National Environment Policy Act Certification

    It has been determined by Rural Development that this proposed rule 
will not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.). Therefore, this action does not require an environmental 
impact statement or assessment.

Catalog of Federal Domestic Assistance

    The program described by this proposed rule is listed in the 
Catalog of Federal Domestic Assistance Program under numbers 10.850--
Rural Electrification Loans and Loan Guarantees. This catalog is 
available on a subscription basis from the Superintendent of Documents, 
the United States Government Printing Office, Washington, DC 20402-
9325, (202) 512-1800.

Executive Order 12372

    This proposed rule is excluded from the scope of Executive Order 
12372, Intergovernmental Consultation, which may require a consultation 
with State and local officials. See the final rule related notice 
entitled, ``Department Programs and Activities Excluded from Executive 
Order 12372'' (50 FR 47034) advising that Rural Development loans and 
loan guarantees were not covered by Executive Order 12372.

Background

    In order to facilitate the effective and economical operation of a 
business enterprise, adequate and reliable financial records must be 
maintained. Accounting records must provide a clear, accurate picture 
of current economic conditions from which management can make informed 
decisions in charting the company's future. The rate regulated 
environment in which an electric utility operates causes an even 
greater need for financial information that is accurate, complete, and 
comparable with that of other electric utilities.
    Rural Development, as a Federal lender and mortgagee, and in 
furthering the objectives of the Rural Electrification Act (RE Act) (7 
U.S.C. 901 et seq.), has a legitimate programmatic interest and a 
substantial financial interest in requiring adequate records to be 
maintained. In order to provide Rural Development with financial 
information that can be analyzed and compared with the operations of 
other borrowers in the Rural Development program, all Rural Development 
borrowers must maintain financial records that utilize uniform accounts 
and uniform accounting policies and procedures. The standard Rural 
Development security instrument, therefore, requires borrowers to 
maintain their books, records, and accounts in accordance with methods 
and principles of accounting prescribed by Rural Development in the 
Rural Development Uniform System of Accounts (USoA) for its electric 
borrowers.
    The Uniform System of Accounts promulgated by the Federal Energy 
Regulatory Commission (FERC) serves as a basis for this part. When new 
or revised accounting guidance is provided by FERC for electric 
utilities, Rural Development must review this guidance within the 
framework of this part for applicability to our borrowers. FERC issued 
Order 627, Accounting and Reporting of Financial Instruments, 
Comprehensive Income, Derivatives and Hedging Activities, on October 
10, 2002. A review of this Order has determined that this guidance 
should be adopted with modification. Order 627 established Account 219, 
Accumulated Other Comprehensive Income, an account number already in 
use in this part and identified as Other Margins and Equities. 
Therefore, Rural Development proposes to establish Account 209, 
Accumulated Other Comprehensive Income, and modifies Section 1767.15(w) 
Accounting for Other Comprehensive Income, accordingly. All other 
accounts and instructions will be adopted as set forth in Order 627.
    On April 9, 2003, FERC issued Order 631, Accounting, Financial 
Reporting and Rate Filing Requirements for Asset Retirement 
Obligations. The purpose of this order was the incorporation of the 
requirements of Statement of Financial Accounting Standard No. 143, 
Accounting for Asset Retirement Obligations, issued in June 2001 by the 
Financial Accounting Standards Board. A review of this Order has 
determined that this guidance should be adopted with modification. In 
addition to a number of changes in instructions and account 
descriptions to accommodate the prescribed accounting for Asset 
Retirement Obligations, FERC established new accounts to record 
transactions associated with asset retirement obligations. One of the 
new accounts created by this Order was Account 403.1, Depreciation 
expense for asset retirement costs. This account number is already used 
within the mandated subaccounts of 403 to represent Depreciation 
Expense--Steam Production Plant. Therefore, Rural Development is 
proposing to establish Account 403.8, Depreciation Expense--Asset 
Retirement Obligations, and modifies paragraph (C) of the description 
for Account 103, Experimental Electric Plant Unclassified, accordingly. 
All other accounts and instructions will be adopted as set forth in 
Order 631 with one exception. Rural Development does not intend to 
require that separate subsidiary records be maintained for the amount 
of accrued cost of removal other than legal obligations for the 
retirement of plant recorded in Account 108, Accumulated Provision for 
Depreciation of Electric Utility Plant.
    Order 668, Accounting and Financial Reporting for Public Utilities 
Including Regional Transmission Organizations (RTO), issued by FERC on 
December 16, 2005, amended the USoA and established standard accounting 
guidance for RTO costs to provide better comparability between 
utilities and to improve the transparency of financial information 
pertaining to RTOs along with a better understanding of RTO costs. The 
new accounts established by FERC in this Order and the instructions are 
proposed for adoption by Rural Development. In 1997, in response to 
FERC Orders 888 and 889 on open access, Rural Development revised its 
USoA to require borrowers to allocate employee pensions and benefits 
expense, as well as payroll taxes and insurance costs to the 
appropriate functional operations, maintenance, and administrative 
expense accounts to which labor charges are accrued to make available 
to management reliable financial information concerning the actual cost 
of products and services it provides. To ensure comparable results, 
Rural Development must modify the

[[Page 38513]]

newly added accounts accommodate to this allocation.
    To ensure that borrowers consistently account for their financial 
operations and to keep pace with the changing environment in which they 
operate, the Rural Development USoA must be revised and updated from 
time to time. Rural Development is, therefore, proposing to amend and 
revise several accounting interpretations found in Section 1767.41, 
Accounting Methods and Procedures required of all Rural Development 
Borrowers. Interpretation 119, Special Equipment, is revised to conform 
to guidance provided in a Rural Development letter dated November 14, 
2000, providing guidelines for requesting a waiver from the special 
equipment accounting procedures. Interpretation 136, Storm Damage, is 
revised to provide new guidance on accounting for reimbursements of 
storm damage by the Federal Emergency Management Administration. 
Interpretation 626, Rural Economic Development Loan and Grant Program, 
is revised to include accounting guidance for recording the default on 
the repayment of economic development loans made by borrowers to local 
economic development projects. Interpretation 404, Consolidated 
Financial Statements, is revised to clarify the requirements for 
reporting consolidated subsidiaries on Forms 7 and 12. Rural 
Development is also proposing to set forth new accounting 
interpretations that establish uniform accounting and reporting 
procedures for Cushion of Credit Accounts and Renewable Energy Credits. 
Although the Cushion of Credits Payments Program was added to the RE 
Act in 1987, accounting requirements have not been formalized through 
inclusion in this part. Rural Development seeks to rectify this 
oversight with this proposed rule. Conversely, renewable energy credits 
(REC) are a new and emerging phenomenon. There is no authoritative 
guidance available for recording and reporting for RECs. The guidance 
provided in this proposal is our first attempt at establishing 
guidance. Comments in this area are specifically requested and will be 
instrumental in developing the final guidelines.
    Bulletin 180-2, Record Retention Recommendations for Rural 
Development Electric Borrowers, effective June 26, 2003, currently 
provides the Agency's recommendations for record retention. This rule 
proposes to codify these requirements with modifications in subpart D.
    This proposed rule contains a number of other revisions to make 
administrative corrections to addresses for submitting requests, 
position titles, update current version of forms, change publication 
names, and to correct for errors found in the previously codified 
version of this part.

List of Subjects in 7 CFR Part 1767

    Administrative practice and procedure, Agriculture, Electric power, 
Loan programs-energy, Rural areas, Uniform System of Accounts.

    For the reason set forth in the preamble, Rural Development hereby 
proposes to amend 7 CFR chapter XVII as follows:

PART 1767--ACCOUNTING REQUIREMENTS FOR RUS ELECTRIC BORROWERS

    1. The authority for part 1767 continues to read as follows:

    Authority: 7 U.S.C. 901 et seq.

    2. Section 1767.10 is amended by:
    a. Revising the definition of Cost of removal;
    b. Removing the definitions of Capital lease and Operating Lease; 
and
    c. Adding the definitions of Form 7; Form 12; Lease Capital; Lease 
Operating; and Regional Market in alphabetical order as set forth 
below.
    The additions and revision read as follows:


Sec.  1767.10  Definitions.

* * * * *
    Cost of removal is 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 Sec.  1767.15 (y).
* * * * *
    Form 7 is the January 2004 revision (or the revision of any other 
date which may be specified) of such Form 7, Financial and Statistical 
Report, or any later revision which shall have been at the time 
prescribed for use by Rural Development.
    Form 12 is the December 2002 revision (or the revision of any other 
date which may be specified) of such Form 12, Operating Report--
Financial, or any later revision which shall have been at the time 
prescribed for use by Rural Development.
* * * * *
    Lease, capital is a lease of property used in utility or nonutility 
operations, which meets one or more of the criteria stated in Sec.  
1767.15 (s).
    Lease, operating is a lease of property used in utility or 
nonutility operations, which does not meet any of the criteria stated 
in Sec.  1767.15 (s).
* * * * *
    Regional Market is an organized energy market operated by a public 
utility, whether directly or through a contractual relationship with 
another entity.
* * * * *
    3. In Sec.  1767.12, paragraph (a) is revised to read as follows:


Sec.  1767.12  Accounting system requirements.

    (a) Each Rural Development electric borrower must maintain and keep 
its books of accounts and all other books and records that support the 
entries in such books of accounts in accordance with Sec. Sec.  
1767.13-1767.31.
* * * * *
    4. In Sec.  1767.13, paragraph (a) is revised, and paragraph (e) is 
amended by redesignating paragraph (e)(4) as (e)(5) and adding a new 
(e)(4) to read as follows:


Sec.  1767.13  Departures from the prescribed Rural Development uniform 
system of accounts.

    (a) No departures are to be made to the prescribed Rural 
Development USoA without the prior written approval of Rural 
Development. Requests for departures from the Rural Development USoA 
shall be addressed, in writing, to the Assistant Administrator, Program 
Accounting and Regulatory Analysis. (AA-PARA).
* * * * *
    (e) * * *
    (4) A resolution from the borrower's Board of Directors authorizing 
such action; and
* * * * *
    5. Section 1767.14 is revised to read as follows:


Sec.  1767.14  Interpretations of the Rural Development uniform system 
of accounts.

    To maintain uniformity in accounting, borrowers must submit 
questions concerning interpretations of the Rural Development USoA, in 
writing, to the AA-PARA, for consideration and decision.

(Approved by the Office of Management and Budget under control 
number 0572-0002).

    6. Amend Sec.  1767.15, as follows:
    a. Revise paragraphs (a)(4), (a)(6), and (t)(2);
    b. Redesignate paragraphs (t)(3) and (t)(4) as (t)(4) and (t)(5), 
respectively, and add a new paragraph (t)(3); and
    c. Add new paragraphs (v) through (y).
    The additions and revisions read as follows:

[[Page 38514]]

Sec.  1767.15  General instructions.

    (a) * * *
    (4) No utility shall destroy any such books or records unless the 
destruction thereof is permitted by the rules and regulations contained 
in subpart D of this part.
* * * * *
    (6) When the utility chooses to recognize the gain in the year of 
reacquisition as a taxable gain, Account 411.1, Provision for Deferred 
Income Taxes--Credit, Utility Operating Income, shall be credited with 
the amount of the related tax effect, such amount to be allocated to 
the periods affected in accordance with the provisions of Account 190, 
Accumulated Deferred Income Taxes.
* * * * *
    (t) * * *
    (2) The utility shall record a capital lease as an asset in Account 
101.1, Property Under capital Leases, Account 120.6, Nuclear Fuel Under 
Capital Leases or Account 121 Nonutility Property.
    (3) The utility, as a lessee, shall recognize an asset retirement 
obligation 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, or Account 518, 
Nuclear Fuel Expense, 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.
* * * * *
    (v) Depreciation Accounting--(1) Method. Utilities must use a 
method of depreciation that allocates in a systematic and rational 
manner the service value of depreciable property over the service life 
of the property.
    (2) Service lives. Estimated useful service lives of depreciable 
property must be supported by engineering, economic, and other 
depreciation studies.
    (3) Rate. Utilities must use percentage rates of depreciation that 
are based on a method of depreciation that allocates in a systematic 
and rational manner the service value of depreciable property to the 
service life of the property. Where composite depreciation rates are 
used, they should be based on the weighted average estimated useful 
service lives of the depreciable property comprising the composite 
group.
    (w) Accounting for other comprehensive income. (1) Utilities shall 
record items of other comprehensive income in Account 209, Accumulated 
Other Comprehensive Income. Amounts included in this account shall be 
maintained by each category of other comprehensive income. Examples of 
categories of other comprehensive income include foreign currency 
items, minimum pension liability adjustments, unrealized gains and 
losses on available-for-sale type securities and cash flow hedge 
amounts. Supporting records shall be maintained for Account 209 so that 
the cumulative amount of other comprehensive income for each item 
included in this account can be readily identified.
    (2) When an item of other comprehensive income enters into the 
determination of net income in the current or subsequent periods, a 
reclassification adjustment shall be recorded in Account 209 to avoid 
double counting of that amount.
    (3) When it is probable that an item of other comprehensive income 
will be included in the development of cost-of-service rates in 
subsequent periods, that amount of unrealized losses or gains will be 
recorded in Accounts 182.3 or 254 as appropriate.
    (x) Accounting for derivative instruments and hedging activities. 
(1) Utilities shall recognize derivative instruments as either assets 
or liabilities in the financial statements and measure those 
instruments at fair value, except those falling within recognized 
exceptions. Normal purchases or sales are contracts that provide for 
the purchase or sale of goods that will be delivered in quantities 
expected to be used or sold by the utility over a reasonable period in 
the normal course of business. A derivative instrument is a financial 
instrument or other contract with all of the following characteristics:
    (i) It has one or more underlyings and a notional amount or payment 
provision. Those terms determine the amount of the settlement or 
settlements, and, in some cases, whether or not a settlement is 
required.
    (ii) It requires no initial net investment or an initial net 
investment that is smaller than would be required for other types of 
contracts that would be expected to have a similar response to changes 
in market factors.
    (iii) Its terms require or permit net settlement, can readily be 
settled net by a means outside the contract, or provide for delivery of 
an asset that puts the recipient in a position not substantially 
different from net settlement.
    (2) The accounting for the changes in the fair value of derivative 
instruments depends upon its intended use and designation. Changes in 
the fair value of derivative instruments not designated as fair value 
or cash flow hedges shall be recorded in Account 175, Derivative 
instrument assets, or Account 244, Derivative Instrument Liabilities, 
as appropriate, with the gains recorded in Account 421, Miscellaneous 
Nonoperating Income, and losses recorded in Account 426.5, Other 
Deductions.
    (3) A derivative instrument may be specifically designated as a 
fair value or cash flow hedge. A hedge is used to manage risk to price, 
interest rates, or foreign currency transactions. A company shall 
maintain documentation of the hedge relationship at the inception of 
the hedge that details the risk management objective and strategy for 
undertaking the hedge, the nature of the risk being hedged, and how 
hedge effectiveness will be determined.
    (4) If the utility designates the derivative instrument as a fair 
value hedge against exposure to changes in the fair value of a 
recognized asset, liability, or a firm commitment, it shall record the 
change in fair value of the derivative instrument to Account 176, 
Derivates in Instruments Assets-Hedges, or Account 245, Derivative 
Instrument Liabilities-Hedges, as appropriate, with a corresponding 
adjustment to the subaccount of the item being hedged. The ineffective 
portion of the hedge transaction shall be reflected in the same income 
or expense account that will be used when the hedged item enters into 
the determination of net income. In the case of a fair value hedge of a 
firm commitment a new asset or liability is created. As a result of the 
hedge relationship, the new asset or liability will become part of the 
carrying amount of the item being hedged.
    (5) If the utility designates the derivative instrument as a cash 
flow hedge against exposure to variable cash flows of a probable 
forecasted transaction, it shall record changes in the fair value of 
the derivative instrument in Account 176, Derivative Instrument Assets-
Hedges, or Account

[[Page 38515]]

245, Derivative Instrument Liabilities-Hedges, as appropriate, with a 
corresponding amount in Account 209, accumulated other comprehensive 
income, for the effective portion of the hedge. The ineffective portion 
of the hedge transaction shall be reflected in the same account or 
expense account that will be used when the hedged item enters into the 
determination of net income. Amounts recorded in other comprehensive 
income shall be reclassified into earning in the same period or periods 
that the hedged forecasted item enters into the determination of net 
income.
    (y) Accounting for asset retirement obligations. (1) 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.
    (2) 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 obligation. 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:
    (i) 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
    (ii) 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.
    (3) 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:
    (i) Gains shall be credited to Account 411.6, Gains from 
disposition of utility plant, and;
    (ii) Losses shall be charged to Account 411.7, Losses from 
Disposition of Utility Plant.
    (4) 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:
    (i) Gains shall be credited to Account 421, Miscellaneous 
Nonoperating Income, and;
    (ii) Losses shall be charged to Account 426.5, Other Deductions.
    (5) 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 to each component and supporting computations 
related to the measurement of the asset retirement obligation.
    7. Amend Sec.  1767.16 as follows:
    a. Add paragraph (a)(4) to read as set forth below;
    b. Amend paragraph (c)(17)(i) by revising the description of the 
value of W to read as set forth below; and,
    c. Add paragraph (c)(21) to read as set forth below;
    The additions and revisions read as follows:


Sec.  1767.16  Electric plant instructions.

    (a) * * *
    (4) Plant acquired by lease which qualifies as capital lease 
property under Sec.  1767.15(s), Criteria for Classifying Leases, shall 
be recorded in Account 101.1, Property under Capital Leases, or Account 
120.6, Nuclear Fuel under Capital Leases, as appropriate.
* * * * *
    (c) * * *
    (17) * * *
    (i) * * *
    W = Average balance in construction work in progress plus nuclear 
fuel in process of refinement, conversion, enrichment, and fabrication, 
less asset retirement costs related to plant under construction.
* * * * *
    (21) Asset retirement. 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.
* * * * *
    8. Amend Sec.  1767.18 as follows:
    a. In the subject table, under heading Utility Plant, add entries 
175 and 176;
    b. Under 101.1 Property Under Capital Leases, revise paragraph C.;
    c. Under 103 Experimental Electric Plant Unclassified, amend 
paragraph C. by revising the first sentence;
    d. Under 108 Accumulated Provision for Depreciation of Electric 
Utility Plant, amend paragraph C. by adding an entry for 108.9;
    e. Revise paragraph A. of 121 Nonutility Property;
    f. Revise paragraph A. of 124 Other Investments;
    g. Revise 125 Sinking Funds;
    h. Revise 126 Depreciation Fund;
    i. Revise 128 Other Special Funds;
    j. Add Account 175 Derivative Instrument Assets;
    k. Add Account 176 Derivative Instrument Assets--Hedge ; and
    l. Revise paragraph B. of 182.3 Other Regulatory Assets.
    The additions and revisions read as follows:


Sec.  1767.18  Assets and other debits.

* * * * *

Utility Plant

* * * * *
175 Derivative Instrument Assets
176 Derivative Instrument Assets--Hedges
* * * * *
101.1 Property Under Capital Leases
    C. Records shall be maintained with respect to each capital lease 
reflection: (1) Name of lessor, (2) basic details of

[[Page 38516]]

lease, (3) terminal date, (4) original cost or fair market value of 
property leased, (5) future minimum lease payments, (6) executory 
costs, (7) present value of minimum lease payments, (8) the amount 
representing interest and the interest rate used, and (9) expenses 
paid. 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
* * * * *
    C. The depreciation on property in this account shall be charged to 
Account 403.8, Depreciation Expense, for asset retirement costs, as 
appropriate, and credited to Account 108, Accumulated Provision for 
Depreciation of Electric Utility Plant. * * *
* * * * *
108 Accumulated Provision for Depreciation of Electric Utility Plant
* * * * *
    C. * * *
108.9 Accumulated Provision for Depreciation of Asset Retirement Costs
* * * * *
121 Nonutility Property
    A. This account shall include the book cost of land, structure, and 
equipment or other tangible or intangible property owned by the 
utility, but used in utility service and not properly includible in 
Account 105, Electric Plant held for Future Use. This account shall 
also include, where applicable, amounts recorded for asset retirement 
costs associated with nonutility plant.
* * * * *
124 Other Investments
    A. This account shall include the book cost of investments in 
securities issued or assumed by nonassociated companies, investment 
advances to such companies, and any investments not accounted for 
elsewhere. This account shall also included unrealized holding gains 
and losses on trading and available-for-sale types of security 
investments. Include also the offsetting entry to the recording of 
amortization of discount or premium on interest bearing investments. 
(See Account 419, Interest and Dividend Income.)
* * * * *
125 Sinking Funds
    This account shall include the amount of cash and book cost of 
investments held in sinking funds. This account shall also include 
unrealized holding gains and losses on trading and available-for-sale-
types of investments. A separate account, with appropriate title, shall 
be kept for each sinking fund. Transfers from this account to special 
deposit accounts, may be as necessary for the purpose of paying matured 
sinking fund obligations, or obligations called for redemption but not 
presented, or the interest thereon.
126 Depreciation Fund
    This account shall include the amount of cash and the book cost of 
investments which have been segregated in a special fund for the 
purpose of identifying such assets with the accumulated provisions for 
depreciation. This account shall also include unrealized holding gains 
and losses on trading and available-for-sale types of security 
investments.
128 Other Special Funds
    This account shall include the amount of cash and book cost of 
investments which have been segregated in special funds for insurance, 
employee pensions, savings, relief, hospital, and other purposes not 
provided for elsewhere. This account shall also include unrealized 
holding gains and losses on trading and available-for-sale types of 
security investments. A separate account, with appropriate title, shall 
be kept for each fund.

    Note: Amounts deposited with a trustee under the terms of an 
irrevocable trust agreement for pensions or other employee benefits 
shall not be included in this account.

* * * * *
175 Derivative Instrument Assets
    This account shall include the amounts paid for derivative 
instruments, and the change in the fair value hedges. Account 421, 
Miscellaneous Nonoperating Income, shall be credited or debited, as 
appropriate, with the corresponding amount of the change in the fair 
value of the derivative instrument.
176 Derivative Instrument Assets-Hedges
    A. This account shall include the amounts paid for derivative 
instruments, and the change in the fair value of derivative instrument 
assets designated by the utility as cash flow or fair value hedges.
    B. When a utility designates a derivative instrument asset as a 
cash flow hedge it will record the change in the fair value of the 
derivative instrument in this account with a concurrent charge to 
Account 209, accumulated other comprehensive income, with the effective 
portion of the gain or loss. The ineffective portion of the cash flow 
hedge shall be charged to the same income or expense account that will 
be used when the hedged item enters into the determination of net 
income.
    C. When a utility designates a derivative instrument as a fair 
value hedge it shall record the change in the fair value of the 
derivative instrument in this account with a concurrent charge to a 
subaccount of the asset or liability that carries the item being 
hedged. The ineffective portion of the fair value hedge shall be 
charged to the same income or expense account that will be used when 
the hedged item enters into the determination of net income.
* * * * *
182.3 Other Regulatory Assets
* * * * *
    B. The amounts included in this account are to be established by 
those charges which would have been included in net income, or 
accumulated other comprehensive income, determinations in the current 
period under the general requirements of the Uniform System of Accounts 
but for it being probable that such items will be included in a 
different period(s) for purposes of developing the rates that the 
utility is authorized to charge for its utility services. When specific 
identification of the particular source of a regulatory asset cannot be 
made, such as in plant phase-ins, rate moderation plans, or rate 
levelization plans, Account 407.4, Regulatory Credits, shall be 
credited. The amounts recorded in this account are generally to be 
charged, concurrently with the recovery of the amounts in rates, to the 
same account that would have been charged if included in income when 
incurred, except all regulatory assets established through the use of 
Account 407.4 shall be charged to Account 407.3, Regulatory Debits, 
concurrent with the recovery of the amounts in rates.
* * * * *
    9. Amend 1767.19 as follows:
    a. In the table of contents, under Margins and Equities, add an 
entry for 209;
    b. In the table of contents, under Long-term Debt, add an entry for 
224.18;
    c. Add a new entry for 209 Accumulated Other Comprehensive Income;

[[Page 38517]]

    d. In 224 Other Long-Term Debt, paragraph B., add an entry for 
subaccount 224.18;
    e. Add 224.18 Other Long-Term Debt Grant Funds;
    f. Add 230 Asset Retirement Obligations;
    g. Add 244 Derivative Instrument Liabilities;
    h. Add 245 Derivative Instrument Liabilities-Hedges; and
    i. Revise paragraph B. of 254 Other Regulatory Liabilities.
    The additions and revisions read as follows:


Sec.  1767.19  Liabilities and other credits.

* * * * *
Margins and Equities
* * * * *
209 Accumulated Other Comprehensive Income
* * * * *
Long-Term Debt
224.18 Other Long-Term Debt--Grant Funds
* * * * *
209 Accumulated Other Comprehensive Income
    A. This account shall include revenues, expenses, gains, and losses 
that are properly includable in other comprehensive income during the 
period. Examples of other comprehensive income include foreign currency 
items, minimum pension liability adjustment, unrealized gains and 
losses on certain investments in debt and equity securities, and cash 
flow hedges. Records supporting the entries to this account shall be 
maintained so that the utility can furnish the amount of other 
comprehensive income for each item included in this account.
    B. This account shall also be debited or credited, as appropriate, 
with amounts of accumulated other comprehensive income that have been 
included in the determination of net income during the period and in 
accumulated other comprehensive income in prior periods. Separate 
records for each category of items shall be maintained to identify the 
amount of the reclassification adjustments from accumulated other 
comprehensive income to earnings made during the period.
* * * * *
224 Other Long-Term Debt
* * * * *
    B. * * *
224.18 Other Long-Term Debt--Grant Funds
* * * * *
224.18 Other Long-Term Debt--Grant Funds
    This account shall include the total amount of Rural Development 
grant funds awarded for rural economic development purposes, which are 
subject to repayment at the conclusion of the project. (See Sec.  
1767.41, Interpretation 626, Rural Economic Development Loan and Grant 
Program)
* * * * *
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 accounts 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 for 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 instruction prescribed in Sec.  1767.15(y).
* * * * *
244 Derivative Instrument Liabilities
    This account shall include the change in the fair value of all 
derivative instrument liabilities not designated as cash flow or fair 
value hedges. Account 426, Other Deductions, shall be debited or 
credited as appropriate with the corresponding amount of the change in 
the fair value of the derivative instrument.
245 Derivative Instrument Liabilities--Hedges
    A. This account shall include the change in the fair value of 
derivative instrument liabilities designated by the utility as cash 
flow or fair value hedges.
    B. A utility shall record the changed in the fair value of a 
derivative instrument liability related to a cash flow hedge in this 
account, with a concurrent charge to Account 209, Accumulated Other 
Comprehensive Income, with the effective portion of the derivative's 
gain or loss. The ineffective portion of the cash flow hedge shall be 
charged to the same income or expense account that will be used when 
the hedged item enters into the determination of net income.
    C. A utility shall record the change in the fair value of a 
derivative instrument liability related to a fair value hedge in this 
account, with a concurrent charge to a subaccount of the asset or 
liability that carries the item being hedged. The ineffective portion 
or the fair value hedge shall be charged to the same income or expense 
account that will be used when the hedged item enters into the 
determination of net income.
* * * * *
254 Other Regulatory Liabilities
* * * * *
    B. The amounts included in this account are to be established by 
those credits which would have been included in net income, or 
accumulated other comprehensive income, determinations in the current 
period under the general requirements of the Uniform System of Accounts 
but for it being probable that: (1) Such items will be included in a 
different period(s) for purposes of developing the rates that the 
utility is authorized to charge for its utility services; or (2) 
refunds to customers, not provided for in other accounts, will be 
required. When specific identification of the particular source of the 
regulatory liability cannot be made or when the liability arises from 
revenues collected pursuant to tariffs on file at a regulatory agency, 
Account 407.3, Regulatory Debits, shall be debited. The amounts 
recorded in this account generally are to be credited to the same 
account that would have been credited if included in income when earned 
except: (1) All regulatory liabilities established through the use of 
Account 407.3 shall be credited to Account 407.4, Regulatory Credits; 
and (2) in the case of refunds, a cash account or other appropriate 
account should be credited when the obligation is satisfied.
* * * * *
    10. Amend 1767.20 as follows:
    a. Revise the introductory text;
    b. In the table of contents, under Steam Production, add an entry 
for 317;
    c. In the table of contents, under Nuclear Production, add an entry 
for 326;
    d. In the table of contents, under Hydraulic Production, add an 
entry for 337;

[[Page 38518]]

    e. In the table of contents, under Other Production, add an entry 
for 347;
    f. In the table of contents, under Transmission Plant, add an entry 
for 359.1;
    g. In the table of contents, under Distribution Plant, add an entry 
for 374;
    h. In the table of contents, add new title Regional Transmission 
Market Operation Plant, and entries for 380, 381, 382, 383, 384, 385, 
and 386;
    i. In the table of contents, under General Plant, add an entry for 
399.1;
    j. Add a new entry for 317 Asset Retirement costs for Steam 
Production Plant;
    k. Add a new entry for 326 Retirement Costs for Nuclear Production 
Plant;
    l. Add a new entry for 337 Asset Retirement costs for Hydraulic 
Production Plant;
    m. Add a new entry for 347 Asset Retirement Costs for Other 
Production Plant;
    n. Add a new entry for subaccount 359.1 Asset Retirement Costs for 
Transmission Plant;
    o. Add a new entry for 374 Asset Retirement Costs for Distribution 
Plant;
    p. Under new account title Regional Transmission Market Operation 
Plant, add new entries for 380, 381, 382, 383, 384, 385, and 386;
    q. Add a new entry for subaccount 399.1 Asset Retirement Costs for 
General Plant.
    The revisions and additions read as follows:


Sec.  1767.20  Plant accounts.

    The plant accounts identified in this section shall be used by all 
Rural Development borrowers.
* * * * *
Production Plant

Steam Production

* * * * *
317 Asset Retirement Costs for Steam Production Plant

Nuclear production

* * * * *
326 Asset Retirement Costs for Nuclear Production Plant

Hydraulic Production

* * * * *
337 Asset Retirement Costs for Hydraulic Production Plant

Other Production

* * * * *
347 Asset Retirement Costs for Other Production Plant
Transmission Plant
* * * * *
359.1 Asset Retirement Costs for Transmission Plant
Distribution Plant
* * * * *
374 Asset Retirement Costs for Distribution Plant
Regional Transmission Market Operation Plant
380 Land and Land Rights
381 Structures and Improvements
382 Computer Hardware
383 Computer Software
384 Communication Equipment
385 Miscellaneous Regional Transmission and Market Operation Plant
386 Asset Retirement Costs for Regional Transmission and Market 
Operation Plant
General Plant
* * * * *
399.1 Asset Retirement Costs for General Plant
* * * * *
Production Plant

Steam Production

* * * * *
317 Asset Retirement Costs for Steam Production Plant
    This account shall include asset retirement costs on plant included 
in the steam production function.
* * * * *

Nuclear Production

* * * * *
326 Asset Retirement Costs for Nuclear Production Plant
    This account shall include asset retirement costs on plant included 
in the nuclear production function.
* * * * *

Hydraulic Production

* * * * *
337 Asset Retirement Costs for Hydraulic Production Plant
    This account shall include asset retirement costs on plant included 
in the hydraulic production function.
* * * * *

Other Production

* * * * *
347 Asset Retirement Costs for Other Production Plant
    This account shall include asset retirement costs on plant included 
in the other production function.
* * * * *

Transmission Plant

* * * * *
359.1 Asset Retirement Costs for Transmission Plant
    This account shall include asset retirement costs on plant included 
in the transmission plant function.
* * * * *

Distribution Plant

374 Asset Retirement Costs for Distribution Plant
    This account shall include asset retirement costs on plant included 
in the distribution plant function.
Regional Transmission and Market Operation Plant
380 Land and Land Rights
    This account shall include the cost of land and land rights used in 
connection with regional transmission and market operations.
381 Structures and Improvements
    This account shall include the cost in place of structures and 
improvement used for regional transmission and market operations.
382 Computer Hardware
    This account shall include the cost of computer hardware and 
miscellaneous information technology equipment to provide scheduling, 
system control and dispatching, system planning, standards development, 
market monitoring, and market administration activities. Records shall 
be maintained identifying to the maximum extent practicable computer 
hardware owned and used for:
    (1) Scheduling, system control and dispatching;
    (2) System planning and standards development; and
    (3) Market monitoring and market administration activities.
Items
    1. Personal computers
    2. Servers
    3. Workstations
    4. Energy Management System (EMS) hardware
    5. Supervisory Control and Data Acquisition (SCADA) system hardware
    6. Peripheral equipment
    7. Networking components

[[Page 38519]]

383 Computer Software
    This account shall include the cost of off-the-shelf and in-house 
developed software purchased and used to provide scheduling, system 
control and dispatching, system planning, standards development, market 
monitoring, and market administration activities. Records shall be 
maintained identifying to the maximum extent practicable the cost of 
software used for:
    (1) Scheduling, system control and dispatching,
    (2) System planning and standards development, and
    (3) Market monitoring and market administration activities.
Items
    1. Software licenses
    2. User interface software
    3. Modeling software
    4. Database software
    5. Tracking and monitoring software
    6. Energy Management System (EMS) software
    7. Supervisory Control and Data Acquisition (SCADA) system software
    8. Evaluation and assessment system software
    9. Operating, planning and transaction scheduling software
    10. Reliability applications
    11. Market application software
384 Communication Equipment
    This account shall include the cost of communication equipment 
owned and used to acquire or share data and information used to control 
and dispatch the system.
Items
    1. Fiber optic cable
    2. Remote terminal units
    3. Microwave towers
    4. Global Positioning System (GPS) equipment
    5. Servers
    6. Workstations
    7. Telephones
385 Miscellaneous Regional Transmission and Market Operation Plant
    This account shall include the cost of regional transmission and 
market operation plant and equipment not provided for elsewhere.
386 Asset Retirement Costs for Regional Transmission and Market 
Operation Plant
    This account shall include asset retirement costs on regional 
transmission and market operations plant and equipment.
* * * * *
General Plant
* * * * *
399.1 Asset Retirement Costs for General Plant
    This account shall include asset retirement costs on plant included 
in the general plant function.
* * * * *
    11. Section 1767.21 is amended as follows:
    a. Add account titles for 403.8, 403.9 and 411.10;
    b. Add entries for 403.8 and 403.9 under 403 Depreciation Expense;
    c. Amend 411.6 by designating the current text as paragraph A. and 
adding paragraph B.;
    d. Amend 411.7 by designating the current text as paragraph A. and 
adding paragraph B.; and
    e. Add an entry for 411.10.
    The additions read as follows:


Sec.  1767.21  Operating Income.

* * * * *
Utility Operating Income
* * * * *
403.8 Depreciation Expense--Asset Retirement Costs
403.9 Depreciation Expense--Regional Transmission and Market Operation 
Plant
* * * * *
411.10 Accretion Expense
* * * * *
Utility Operating Income
* * * * *
403 Depreciation Expense
* * * * *
    C. * * *
403.8 Depreciation Expense--Asset Retirement Costs
403.9 Depreciation Expense--Regional Transmission and Market Operation 
Plant
* * * * *
411.6 Gains From Disposition of Utility Plants
* * * * *
    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 Sec.  1767.15(y).
411.7 Losses From Disposition of Utility Plant
* * * * *
    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 Sec.  1767.15(y).
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, relating to electric utility 
plant.
    12. Section 1767.22 is amended as follows:
    a. Amend Account 421, Miscellaneous Nonoperating Income, by adding 
items 4. through 6.; and
    b. Amend Account 426.5, Other Deductions, by adding item 6. to read 
as set forth below.
    The additions read as follows:


Sec.  1767.22  Other income and deductions.

* * * * *
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 Sec.  1767.15(y).
* * * * *
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 Sec.  1767.15(y).
    13. Amend Sec.  1767.23 by revising Account 432 to read as follows:


Sec.  1767.23  Interest charges.

* * * * *
432 Allowance for Borrowed Funds Used During Construction--Credit.
    This account shall include concurrent credits for allowance for 
borrowed funds used during construction, not to exceed amounts computed 
in accordance with the formula prescribed in Sec.  1767.16 (c) (17).

    Note: This account shall not be recorded in Account 427.3, 
Interest Charged to Construction--Credit.


[[Page 38520]]


    14. Amend Sec.  1767.26 as follows:
    a. Add entries for 456.1, 457.1, and 457.2 to the subject table;
    b. Amend 456 Other Electric revenues by removing paragraph 5. and 
redesignating paragraph 6 as 5; and
    c. Add entries for 456.1, 457.1 and 457.2.
    The additions read as follows:


Sec.  1767.26  Operating revenue.

* * * * *
Operating Revenue
Sales of Electricity
* * * * *
456.1 Revenues from Transmission of Electricity of Others
457.1 Regional Transmission Service Revenues
457.2 Miscellaneous Revenue
* * * * *
456.1. Revenues from Transmission of Electricity of Others
    This account shall include revenues from transmission of 
electricity of others over transmission facilities of the utility.
457.1 Regional Transmission Service Revenues
    This account shall include revenues derived from providing 
scheduling, system control and dispatching services. Include also in 
this account reimbursements for system planning, standards development, 
and market monitoring and market compliance activities. Records shall 
be maintained so as to show:
    (1) The services supplied and revenues received from each customer; 
and
    (2) The amounts billed by tariff or specified rates.
457.2 Miscellaneous Revenues
    This account shall include revenues and reimbursements for costs 
incurred by regional transmission service providers not provided for 
elsewhere. Records shall be maintained so as to show: (1) The services 
supplied and revenues received from each customer, and (2) the amounts 
billed by tariff or specified rates.
    15. Amend Sec.  1767.27 as follows:
    a. Add new accounts to the subject index;
    b. Amend 555 Purchased Power by adding a note following paragraph 
B.;
    c. Amend 556 System Control Load Dispatching by revising the 
introductory text;
    d. Remove Account 561 Load Dispatching;
    e. Add new accounts and descriptions for 561.1 through 561.8;
    f. Add new accounts and descriptions for 569.1 through 569.4;
    g. Add new accounts and descriptions for 575.1 through 575.8; and
    h. Add new accounts and descriptions for 576.1 through 576.5.
    The additions and revisions read as follows:


Sec.  1767.27  Operation and maintenance expenses.

* * * * *
Transmission Expenses
(Operations)
* * * * *
561.1 Load Dispatch--Reliability
561.2 Load Dispatch--Monitor and Operate Transmission System
561.3 Load Dispatch--Transmission Service and Scheduling
561.4 Scheduling, System Control and Dispatching Services
561.5 Reliability, Planning and Standards Development
561.6 Transmission Service Studies
561.7 Generation Interconnection Studies
561.8 Reliability Planning and Standards Development Services
* * * * * (Maintenance)
* * * * *
569.1 Maintenance of Computer Hardware
569.2 Maintenance of Computer Software
569.3 Maintenance of Communication Equipment
569.4 Maintenance of Miscellaneous Regional Transmission Plant
* * * * *
Regional Market Expenses
(Operation)
575.1 Operation Supervision
575.2 Day-ahead and Real-time Market Facilitation
575.3 Transmission Rights Market Facilitation
575.4 Capacity Market Facilitation
575.5 Ancillary Services Market Facilitation
575.6 Market Monitoring and Compliance
575.7 Market Facilitation
575.8 Rents
(Maintenance)
576.1 Maintenance of Structures and Improvements
576.2 Maintenance of Computer Hardware
576.3 Maintenance of Computer Software
576.4 Maintenance of Communication Equipment
576.5 Maintenance of Miscellaneous Market Operation Plant
* * * * *
555 Purchased Power
* * * * *

    Note: The records supporting this account shall provide 
information pertaining to the purchase of power from renewable 
energy sources.

556 System Control and Load Dispatching
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, and expenses incurred in 
load dispatching activities for system control. Utilities having an 
interconnected electric system or operating under a central authority 
which controls the production and dispatching of electricity may 
apportion these costs to this account and transmission expense Account 
561.1 through 561.4, and Account 581, Load Dispatching--Distribution.
* * * * *
561.1 Load Dispatch--Reliability
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, materials used, and 
expenses incurred by a regional transmission service provider or other 
transmission provider to

[[Page 38521]]

manage the reliability coordination function as specified by the North 
American Electric Reliability Council (NERC) and individual reliability 
organizations. These activities shall include performing current and 
next day reliability analysis. This account shall include the costs 
incurred to calculate load forecasts, and performing contingency 
analysis.
561.2 Load Dispatch--Monitor and Operate Transmission System
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, materials used, and 
expenses incurred by a regional transmission service provider or other 
transmission provider to monitor, assess and operate the power system 
and individual transmission facilities in real-time to maintain safe 
and reliable operation of the transmission system. This account shall 
also include the expense incurred to manage transmission facilities to 
maintain system reliability and to monitor real-time flows and direct 
actions according to regional plans and tariffs if necessary.
Items
    1. Receive and analyze outage requests.
    2. Reschedule outage plans.
    3. Monitor solution quality field data values, providing model 
updates to NERC and coordinating network model changes across all 
systems.
    4. Conduct operating training related to NERC Certification.
    5. Monitor generation resources and communicate expected dispatch 
actions.
    6. Ensure ancillary service requirements are met.
    7. Directing switching.
    8. Controlling system voltages.
    9. Obtaining reports on the weather and special events.
    10. Preparing operating reports and data for billing and budget 
purposes.
561.3 Load Dispatch-Transmission Service and Scheduling
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, materials used, and 
expenses incurred by a regional transmission service provider or other 
transmission provider to process hourly, daily, weekly and monthly 
transmission service requests using an automated system such as an Open 
Access Same-Time Information System (OASIS). It shall include the 
expenses incurred to operate the automated transmission service request 
system and to monitor the status of all scheduled energy transactions.
561.4 Scheduling, System Control and Dispatching Services
    This account shall include the costs billed to the transmission 
owner, load serving entity or generator for scheduling, system control 
and dispatching service. Include in this account service billings for 
system control to maintain the reliability of the transmission area in 
accordance with reliability standards, maintaining defined voltage 
profiles, and monitoring operations of the transmission facilities.
561.5 Reliability, Planning and Standards Development
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, materials used, and 
expenses incurred for the system planning of the interconnected bulk 
electric transmission system within a planning authority area.
Items
    1. Developing and maintaining transmission system models to 
evaluate transmission system performance.
    2. Maintaining and applying methodologies and tools for the 
analysis and simulation of the transmission systems for the assessment 
and development of transmission expansion plans.
    3. Assessing, developing and documenting transmission expansion 
plans.
    4. Maintaining transmission system models (steady-state, dynamics, 
and short circuit).
    5. Collecting transmission information and transmission facility 
characteristics and ratings.
    6. Notifying participants of any planned transmission changes that 
may impact their facilities.
    7. Developing and reporting on transmission expansion plans for 
assessment and compliance with reliability standards.
    8. Developing reliability standards for the planning and operation 
of the interconnected bulk electric transmission systems that serve the 
United States, Canada and Mexico.
    9. Developing criteria and certification procedures for reliability 
authorities, transmission operators and others.
    10. Outside services employed.

     Note: The cost of supervision, customer records and collection 
expenses, administrative and general salaries, regulatory commission 
expenses, general advertising, and rents shall be charged to the 
customer accounts, service, administrative and general expense 
accounts contained in the Uniform System of Accounts.

561.6 Transmission Service Studies
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, materials used, and 
expenses incurred to conduct generation interconnection studies for 
proposed interconnections with the transmission system. Detailed 
records shall be maintained for each study undertaken and all 
reimbursements received for conducting such a study.
561.7 Generation Interconnection Studies.
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, materials used, and 
expenses incurred to conduct generation interconnection studies for 
proposed interconnections with the transmission system. Detailed 
records shall be maintained for each study undertaken and all 
reimbursements received for conducting such a study.
561.8 Reliability Planning and Standards Development Services
    This account shall include the costs billed to the transmission 
owner, load serving entity, or generator for system planning of the 
interconnected bulk electric transmission service provider for system 
reliability and resource planning to develop long-term strategies to 
meet customer demand and energy requirements. This account shall also 
include fees and expenses for outside services incurred by the regional 
transmission service provider and billed to the load serving entity, 
transmission owner or generator.
* * * * *
569.1 Maintenance of Computer Hardware
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, materials used and expenses incurred in the maintenance of 
computer hardware serving the transmission function.
569.2 Maintenance of Computer Software
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes,

[[Page 38522]]

injuries and damages, materials used and expenses incurred for annual 
computer software license renewals, annual software update services and 
the cost of ongoing support for software products serving the 
transmission function.
Items
    1. Telephone support
    2. Onsite support
    3. Software updates and minor revisions
569.3 Maintenance of Communication Equipment
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, materials used and expenses incurred in the maintenance of 
communication equipment serving the transmission function.
569.4 Maintenance of Miscellaneous Regional Transmission Plant
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, materials used and expenses incurred in the maintenance of 
miscellaneous regional transmission plant serving the transmission 
function.
* * * * *
Regional Market Expenses
(Operational)
575.1 Operation Supervision
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred in the general supervision and direction 
of the regional energy markets.
575.2 Day-ahead and Real-time Market Administration
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred to facilitate the Day-Ahead and Real-
Time markets. This account shall also include the costs incurred to 
manage the real-time deployment of resources to meet generation needs 
and to provide capacity adequacy verification. Include in this account 
the costs incurred to maintain related sections of the tariff, market 
rules, operating procedures, and standards and coordinating with 
neighboring areas.
Items
    1. Consultant fees and expenses
    2. System record and report forms
    3. Meals, traveling and incidental expenses

    Note: The cost of supervision, customer records and collection 
expenses, administrative and general salaries, regulatory commission 
expenses, general advertising, and rents shall be charged to the 
customer accounts, service, administrative and general expense 
accounts contained in the Uniform System of Accounts.

575.3 Transmission Rights Market Administration
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred to manage the allocation and auction of 
transmission rights.
575.4 Capacity Market Administration
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred to manage the allocation of capacity 
rights.
575.5 Ancillary Services Market Administration
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred to manage all other ancillary services 
market functions.
575.6 Market Monitoring and Compliance
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred to review market data and operational 
decisions for compliance with market rules. It shall also include the 
costs incurred to interface with external market monitors.
575.7 Market Administration, Monitoring and Compliance Services
    This account shall include the cost billed to the transmission 
owner, load serving entity or generator for market administration, 
monitoring and compliance services.
575.8 Rents
    This account shall include all rents of property of others used, 
occupied, or operated in connection with market administration and 
monitoring. (See Sec.  1767.17(c).) (Maintenance)
576.1 Maintenance of Structures and Improvements
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred in the maintenance of structures used in 
market administration and monitoring. (See Sec.  1767.17(b).)
576.2 Maintenance of Computer Hardware
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred in the maintenance of computer hardware 
used in market administration and monitoring.
576.3 Maintenance of Computer Software
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred for annual computer software license 
renewals, annual software update services and the cost of ongoing 
support for software products used in market administration and 
monitoring.
Items
    1. Telephone support
    2. Onsite support
    3. Software updates and minor revisions
576.4 Maintenance of Communication Equipment
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred in the maintenance of communication 
equipment used in market administration and monitoring.
576.5 Maintenance of Miscellaneous Market Operation Plant
    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and 
damages, and expenses incurred in the maintenance of miscellaneous 
market operation plant used in market administration and monitoring.
* * * * *
    16. Amend Sec.  1767.41 as follows:
    a. In the numerical index, add the entries for 633, and 634 in 
numerical order;
    b. In the subject matter index, add items in alphabetical order;
    c. Revise 119 Special Equipment;
    d. Amend 136 Storm Damage by removing paragraph d. and revising 
paragraphs b. and c. and the undesignated paragraph before the table;
    e. Amend 404 Consolidate Financial Statement by revising the 
undesignated concluding paragraph;

[[Page 38523]]

    f. Revise 626 Rural Economic Development Loan and Grant Program; 
and
    g. Add new sections for 633 and 634.
    The additions and revisions read as follows:


Sec.  1767.41  Accounting methods and procedure required of all RUS 
borrowers.

* * * * *

                             Numerical Index
------------------------------------------------------------------------
             Number                              Title
---------------------------------------------------------------------
 
                                * * * * *
633.............................  Cushion of Credit.................
 634............................  Renewable Energy Credits..........
------------------------------------------------------------------------


                          Subject Matter Index
------------------------------------------------------------------------
                                                                 Number
------------------------------------------------------------------------
 
                                * * * * *
Credits, Renewable Energy.....................................       634
Cushion of Credit.............................................       633
 
                                * * * * *
Energy Credits Renewable......................................       634
 
                                * * * * *
Renewable Energy Credits......................................       634
 
                                * * * * *
------------------------------------------------------------------------

* * * * *
119 Special Equipment
    Special Equipment items are classified as such because they are 
continually being moved from one location to another due to load 
changes and maintenance practices. The USoA provides accounting that 
differs from that used for other types of materials. The cost, new, of 
special equipment items shall be capitalized at the time of purchase; 
it shall not be charged to Account 154 as is the case with other 
materials. The first installation cost, as well as all incidental costs 
necessary to prepare the equipment for use, shall be capitalized with 
the material upon purchase. All subsequent costs of removing, 
resetting, changing, renewing oil, and repairing constitute operations 
and maintenance expenses. The capitalized cost of special equipment 
items, including the first installation, shall be removed from the 
electric plant accounts only when the items are abandoned or retired 
from the system.
    Meters, line-type transformers, oil circuit reclosers, 
sectionalizers, current and potential transformers, meter sockets, and 
other metering equipment listed in Account 370, Meters, as well as 
pole-type and underground voltage regulators in Account 368, Line 
Transformers, are considered to be special equipment items. Similarly, 
load control receivers (load control switches) recorded in Account 371, 
Installations on Customers' Premises, are considered to be items of 
special equipment. (See Interpretation No. 118.) Transformers, voltage 
regulators, metering equipment, and current and potential transformers 
for substations are not.
    Special equipment items which are classified as nonusable shall be 
segregated in the warehouse and retired from service. The Summary of 
Special Equipment Costs shall be retitled Summary of Special Equipment 
Costs Retired and used for this purpose. A journal entry reflecting 
this information shall be prepared and posted to the books. Since loan 
funds for special equipment, including first installation costs, are 
approved for advance by RUS upon receipt of the borrower's written 
estimate of funds required, and not on the basis of an Inventory of 
Work Orders, it is improper to take a credit for any salvage involved 
in the retirement of special equipment on the Inventory of Work Orders.
    Electric borrowers that wish to receive such a waiver from the 
special equipment accounting requirements should submit a letter 
request to RUS. In order to expedite these requests the letter to RUS 
should state that the borrower will adhere to the following 
requirements to account for special equipment using the work order 
procedure rather than the special equipment accounting procedures 
prescribed by RUS:
    1. New purchases of special equipment items are to be charged to 
Account 154, Materials and Supplies, upon purchase.
    2. Labor, material and overhead costs associated with the initial 
installation and all subsequent installations of special equipment are 
recorded on construction work orders and charged to the appropriate 
plant accounts upon closeout of the construction work order.
    3. Labor and overhead costs associated with the removal of special 
equipment items, whether the items removed are placed in inventory or 
permanently retired and disposed of, are recorded on retirement work 
orders and charged or credited to the depreciation reserve account upon 
closeout of the retirement work order.
    4. The special equipment items retired and salvaged for reuse are 
returned to the materials and supplies account at the average material 
cost in the materials and supplies account and credited to the 
depreciation reserve upon closeout of the retirement work order.
    In addition to recognition of the requirements noted above, the 
borrower should indicate how it plans to account for the items of 
special equipment that have been charged to the plant accounts but not 
installed (in inventory). Two acceptable methods to account for this 
equipment are: (1) Leave the equipment in the plant accounts until the 
inventory is depleted and charge only new purchases to materials and 
supplies, or (2) credit the plant accounts for the installed cost of 
the equipment in inventory, charge the equipment cost to materials and 
supplies, and charge the installation cost to the appropriate 
operations expense account. Also, under the second method, the borrower 
must submit a ``negative'' special equipment summary to RUS to return 
to the balance in reserve for the current loan the installed cost of 
special equipment in inventory on the date of transition.
* * * * *
136 Storm Damage
* * * * *
    b. The accounting journal entries being used by the cooperative to 
record the expense deferral and amortization of deferred costs; and
    c. A copy of the state Commission order authorizing recovery of the 
deferred costs through future rates, or in the absence of commission 
jurisdiction, a resolution from the cooperative's board of directors 
authorizing such recovery.
    To assist in the restoration of the damaged facilities, the Federal 
government often provides assistance through Federal Emergency 
Management Agency (FEMA). Under current FEMA procedures, FEMA provides 
funds for the restoration of facilities based upon the cost estimates 
submitted by the entity requesting assistance. If the FEMA grant is for 
less than 100 percent of the cost estimates, and does not specify 
offset expenses, thereby providing the borrower with the maximum 
opportunity to utilize Rural Development Utilities Program loan funds 
to finance capitalizable costs. When the funds are received, they 
should be accounted for by first applying the funds received as a 
credit to maintenance expense and administrative and general costs. Any 
remaining funds should then be applied as a credit to construction and 
retirement costs.
* * * * *
404 Consolidated Financial Statements
* * * * *
    Although Statement No. 94 requires the consolidation of majority-
owned

[[Page 38524]]

subsidiaries, Forms 7 and 12 must be prepared on a basis consistent 
with the equity method of accounting for investments. For distribution 
borrowers, this requires that the investment be shown on Form 7 in Part 
C, Balance Sheet, on line 7, Investments in Subsidiary Companies, or 
line 9, Investments in Associated Organizations--Other--General Funds, 
as appropriate. The result of operation is shown in Part A, Statement 
of Operations, on line 23, Income (Loss) from Equity Investments. For 
generation and transmission borrowers, the investments should be shown 
on Form 12, in Section C, Balance Sheet, on Line 7, Investments in 
Subsidiary Companies, or Line 9, Investments in Associated 
Organizations--Other--General Funds, as appropriate. The result of 
operations should be shown in Section A, Statement of Operations, on 
line 30, Income (Loss) from Equity Investments.
* * * * *
626 Rural Economic Development Loan and Grant Program
* * * * *
    On December 21, 1987, Section 313, Cushion of Credits Payments 
Program, was added to the Rural Electrification Act. Section 313 
establishes a Rural Economic Development Subaccount and authorizes the 
Administrator of the Rural Utilities Service to provide zero interest 
loans or grants to RE Act borrowers for the purpose of promoting rural 
economic development and job creation projects.
    Subpart B, Rural Economic Development Loan and Grant Program, 7 CFR 
Part 1703, sets forth the policies and procedures relating to the zero 
interest loan program and for approving and administering grants.
    The accounting journal entries required to record the transactions 
associated with a rural economic development loan are as follows:

Dr. 224.17, RUS Notes Executed--Economic Development--Debit
    Cr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed

    To record the contractual obligation to RUS for the Economic 
Development Notes.

Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 224.17, RUS Notes Executed--Economic Development--Debit

    To record the receipt of the economic development loan funds.

Dr. 123, Investment in Associated Organizations or
Dr. 124, Other Investments
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the disbursement of Economic development loan funds to 
the project.

Dr. 131.1, Cash--General Funds
    Cr. 421, Miscellaneous Nonoperating Income

    To record payment received from the project for loan servicing 
charges.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the interest earned on the investment of rural economic 
development loan funds.

Dr. 426.1, Donations or
Dr. 426.5, Other Deductions
    Cr. 131.1, Cash--General Funds

    To record the payment of interest earned in excess of $500.00 on 
the investment of rural economic development loan funds.


    Note: Interest earned in excess of $500.00 must be used for the 
rural economic development project for which the loan funds were 
received or returned to RUS.

Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 123, Investment in Associated Organizations or
    Cr. 124, Other Investments

    To record receipt of the repayment, by the project, of economic 
development loan funds.

Dr. 426.5, Other Deductions
    Cr. 123, Investment in Associated Organizations or
    Cr. 124, Other Investments

    To record the default, by a project, of economic development loan 
funds.

Dr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the repayment, to RUS, of the economic development loan 
funds.
    The accounting journal entries required to record the transactions 
associated with a rural economic development grant are as follows:

Dr. 131.13, Cash--General--Economic Development Grant Funds
    Cr. 224.18, Other Long-Term Debt--Grant Funds;
    Cr. 208, Donated Capital; or
    Cr. 421, Miscellaneous Nonoperating Income

    To record grant funds disbursed by RUS. If the grant agreement 
requires repayment of the funds upon termination of the revolving loan 
program, Account 224.18 should be credited. If the grant agreement 
states that there is absolutely no obligation for repayment upon 
termination of the revolving loan program, the funds should be 
accounted for as a permanent infusion of capital by crediting Account 
208. If, however, the grant agreement is silent as to the final 
disposition of the grant funds, Account 421 should be credited.

Dr. 123.3, Investment in Associated Organizations--Federal Economic 
Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to associated organizations for 
authorized rural economic development projects.

Dr. 124.1, Other Investments--Federal Economic Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to nonassociated organizations 
for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the accrual of interest on loans made to associated and 
nonassociated organizations with Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
Funds
    Cr. 123.3, Investment in Associated Organizations--Federal Economic 
Development Loans or
    Cr. 124.1, Other Investments--Federal Economic Development Loans

    To record repayment of loans made with Federal funds.
Dr. 123.4, Investment in Associated Organizations--Non-Federal Economic 
Development Loans
    Cr. 131.14, Cash--General--Economic Development Non-Federal 
Revolving Funds

    To record advances of non-Federal funds to associated organizations 
for authorized rural economic development projects.

Dr. 124.2, Other Investments--Non-Federal Economic Development Loans
    Cr. 131.14, Cash--General--Economic Development Non-Federal 
Revolving Funds

    To record advances of non-Federal funds to nonassociated 
organizations for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable

[[Page 38525]]

    Cr. 419, Interest and Dividend Income

    To record the accrual of interest on loans made to associated and 
nonassociated organizations with non-Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
Funds
    Cr. 123.4, Investment in Associated Organizations--Non-Federal 
Economic Development Loans or
    Cr. 124.2, Other Investments--Non-Federal Economic Development 
Loans

    To record repayment of loans made with non-Federal funds.
* * * * *
633 Cushion of Credit
    On December 21, 1987, Section 313, Cushion of Credits Payments 
Program, was added to the Rural Electrification Act. Cushion of credit 
regulations are located in 7 CFR part 1785. A cushion of credit payment 
is a voluntary unscheduled payment by a borrower in excess of amounts 
due and payable. A cushion of credit account is automatically 
established by Rural Development for each borrower who makes a payment 
after October 1, 1987, in excess of amounts then due on a Rural 
Development note. Payments received in the month in which an 
installment is due will be applied to the installment due. However, if 
the regular installment payment is received at a later date in the 
month, the first payment received will be applied retroactively to the 
cushion of credit account and the second will be applied to the 
installment due. By law, cushion of credit accounts earn five per cent 
interest annually, accrued daily and posted quarterly. Although the 
interest earned will appear as a reduction in the interest billed on 
the borrower's Rural Development notes and will be separately shown on 
Form 694, Statement of Interest and Principal Due, interest billed must 
be adjusted by adding back the interest earned while principal is 
reduced by the amount of the interest earned before recording the debt 
payment. Below is an example of the adjustment required:

------------------------------------------------------------------------
                                    As billed    Adjustment    Adjusted
------------------------------------------------------------------------
Payment Billed...................       $1,000  ...........       $1,000
Principal........................          800         -$50          750
Interest.........................         *200           50         250
------------------------------------------------------------------------
* Includes reduction of $50 for interest earned on cushion of credit
  account.

    Cushion of credit is intended to enable the borrower to deposit 
funds and have those funds available to make scheduled payments (or 
installments) only. A borrower may not have more cushion of credit 
funds, including accrued interest, than their entire Rural Development 
debt which includes loans made in Rural Electric and Telephone (RET) 
and Federal Financing Bank (FFB). If a borrower makes less than or no 
payment when their billing invoice is due, cushion of credit will 
automatically add to or make their payment systematically for them.
    Cushion of credit is not available to use for prepayment of loan 
accounts before maturity except for the following situations:
    1. The total amount of cushion of credit principal with accrued 
interest equals the borrower's total debt.
    2. The borrower intends to prepay all remaining debt using a 
combination of payment with all cushion of credit funds available.

Accounting Requirements

    All payments made to a cushion of credit account should be recorded 
as follows:

Dr. 224.6, Advance Payments Unapplied--Long-Term Debt--Debit
    Cr. 131.1, Cash--General

    All interest earned on the balance of funds in the account should 
be recorded as follows:

Dr. 224.6, Advance Payments Unapplied--Long-Term Debt--Debit
    Cr. 419, Interest and Dividend Income

Reporting Requirements

    Previously, Rural Development required that the balance in the 
cushion of credit account be reported, on the Form 7, Financial and 
Statistical Report, as a reduction of the Rural Development long-term 
debt balance. On January 15, 2003, Rural Development issued letter 
guidance permitting a proportionate share of the cushion of credit 
balance be reported as a reduction in Current Maturities Long-Term 
Debt. Additionally, beginning with calendar year 2006 submissions, Form 
7 has been revised to include a separate line for cushion of credit 
balances within the long-term debt section of Part C.
634 Renewable Energy Credits
    Renewable Energy Credits (REC) are created when renewable energy 
facilities, such as wind farms, biomass generators, and solar 
facilities, generate electricity. These RECs represent the 
environmental benefits of renewable energy. When a purchaser acquires 
RECs, the price represents the benefit of displacing non-renewable 
sources of generation, such as coal, oil or gas. Energy is generated 
and injected into the grid from a number of sources. Because 
electricity is a fungible commodity, energy being purchased from the 
grid cannot be specifically identified as to its source. To facilitate 
the sale of renewable energy nationally, a system has been created that 
separates energy generated from renewable resources into two parts; the 
energy itself and the benefits derived from displacing energy generated 
from non-renewable sources. These RECs overcome the issues of providing 
renewable energy to purchasers who are often geographically remote from 
the renewable generation facility. The REC can be sold in combination 
with the purchase of electricity or may be sold independently of the 
sale of energy.

Accounting Requirements--Generation Entities

    When electricity is generated using a renewable energy fuel source, 
Renewable Energy Credit Certificates are created. The value of these 
certificates shall be recorded as a debit to a subaccount of Account 
303, Intangible Assets, and a credit to the appropriate power 
generation expense account. The value of the certificate shall be 
determined on the basis of the market value posted and/or offered 
through the RTO/ISO operating in the area of generation on the date the 
power associated with the REC was created. The unit of measure shall be 
stated in terms of mega-watt-hours (mWh).
    When RECs are sold, the sale is recorded with a credit to the 
appropriate operating revenue account, and the RECs are removed from 
inventory by crediting Intangible Assets and debiting the power 
generation expense.

[[Page 38526]]

Accounting Journal Entries

Dr. 303.XXX Intangible Assets--RECs Held for Sale XXX
    Cr. 5XX Power Generation Expense XXX

    To record the value of renewable energy credits created during the 
month of XXX through the generation of energy from renewable fuel.

    Note: Each transaction shall be identified by Month and Year and 
the number of Certificates created.

Dr. 143 Accounts Receivable XXX
    Cr. 456 Other Electric Revenues XXX

    To record the sale of RECs during the month of XXX.

Dr. 5XX Power Generation Expense XXX
    Cr. 303.XXX Intangible Assets--RECs Held for Sale XXX

    To record the cost of RECs sold during the month of XXX.

    Note: Each sales transaction shall include the vintage 
associated with the credits sold.

Accounting Requirements--Distribution Entities

Dr. 303.XXX Intangible Assets--RECs Held for Sale XXX
    Cr. 231/232 Accounts/Notes Payable XXX

    To record the purchase of renewable energy credits.

    Note: This entry is also appropriate for Generators purchasing 
renewable energy credits for resale.

Dr. 142 Customer Accounts Receivable XXX
    Cr. 303.XXX Intangible Assets--RECs Held for Sale XXX

    To record the sale of renewable energy credits to consumers.
    17. Add Subpart D to read as follows:
Subpart D--Preservation of Records
Sec.
1767.66 Purpose.
1767.67 General.
1767.68 Designation of a supervisory official.
1767.69 Index of records.
1767.70 Record storage media.
1767.71 Periods of retention.
1767.72-1767.85 [Reserved]

Subpart D--Preservation of Records


Sec.  1767.66  Purpose.

    This subpart establishes policies and procedures for the effective 
preservation and efficient maintenance of financial records of Electric 
borrowers.


Sec.  1767.67  General.

    (a) Rural Development endorses the guidelines as described by the 
Federal Energy Regulatory Commission's (FERC) ``Regulations to Govern 
the Preservation of Records of Public Utilities and Licensees.'' The 
FERC guidelines can be found in 18 CFR part 125.
    (b) The regulations prescribed in this part apply to all books of 
account, contracts, records, memoranda, documents, papers, and 
correspondence prepared by or on behalf of the borrower as well as 
those which come into its possession in connection with the acquisition 
of property by purchase, consolidation, merger, etc.
    (c) The regulations prescribed in this part shall not be construed 
as excusing compliance with any other lawful requirements for the 
preservation of records.


Sec.  1767.68  Designation of a supervisory official.

    Each borrower shall designate one or more officials to supervise 
the preservation of its records.


Sec.  1767.69  Index of records.

    (a) Each borrower shall maintain a master index of records. The 
master index shall identify the records retained, the related retention 
period, and the locations where the records are maintained. The master 
index shall be subject to review by Rural Development and Rural 
Development shall reserve the right to add records, or lengthen 
retention periods upon finding that retention periods may be 
insufficient for its purposes.
    (b) At each office where records are kept or stored the borrower 
shall arrange, file, and index the records currently at that site so 
that they may be readily identified and made available to 
representatives of Rural Development.


Sec.  1767.70  Record storage media.

    The media used to capture and store the data will play an important 
part of each Rural Development borrower. Each borrower has the 
flexibility to select its own storage media. The following are 
required:
    (a) The storage media shall have a life expectancy at least equal 
to the applicable retention period provided for in the master index of 
records, unless there is quality transfer from one media to another 
with no loss of data. Each transfer of data from one media to another 
shall be verified for accuracy and documented.
    (b) Each borrower shall implement internal control procedures that 
assure the reliability of, and ready access to, data stored on machine-
readable media. The borrower's internal control procedures shall be 
documented by a responsible supervisory official.
    (c) Records shall be indexed and retained in such a manner that 
they are easily accessible.
    (d) The borrower shall have the hardware and software available to 
locate, identify, and reproduce the records in readable form without 
loss of clarity.
    (e) At the expiration of the retention period, the borrower may use 
any appropriate method to destroy records.
    (f) When any records are lost or destroyed before the expiration of 
the retention period set forth in the master index, a certified 
statement shall be added to the master index listing, as far as may be 
determined, the records lost or destroyed and describing the 
circumstances of the premature loss or destruction.


Sec.  1767.71  Periods of retention.

    (a) Records of Rural Development borrowers of a kind not listed in 
the FERC regulations should be governed by those applicable to the 
closest similar records. Financial requirement and expenditure 
statements, which are not specifically covered by FERC regulations are 
recommended to be kept for one year after the ``as of date'' of Rural 
Development's loan fund and accounting review.
    (b) Consumer accounts' records should be kept for those years for 
which patronage capital has not been allocated.
    (c) Records supporting construction financed by Rural Development 
shall be retained until audited and approved by Rural Development.
    (d) Records related to plant in service must be retained until the 
facilities are permanently removed from utility service, all removal 
and restoration activities are completed, and all costs are retired 
from the accounting records unless accounting adjustments resulting 
from reclassification and original costs studies have been approved by 
Rural Development or other regulatory body having jurisdiction.
    (e) Life and mortality study data for depreciation purposes must be 
retained for 25 years or for 10 years after plant is retired whichever 
is longer.


Sec.  1767.72-1767.85  [Reserved]

    Dated: July 3, 2007.
James M. Andrew,
Administrator, Rural Utilities Service.
 [FR Doc. E7-13389 Filed 7-12-07; 8:45 am]
BILLING CODE 3410-15-P