[Federal Register Volume 73, Number 102 (Tuesday, May 27, 2008)]
[Rules and Regulations]
[Pages 30277-30291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-11264]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1767

RIN 0572-AC08


Accounting Requirements for RUS Electric Borrowers

AGENCY: Rural Utilities Service, USDA.

ACTION: Final 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 and/or Agency, 
is amending 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 final rule reconciles Part 1767 with the 
Uniform System of Accounts as set forth by the Federal Energy 
Regulatory Commission (FERC); adopts FERC accounting guidance for 
Regional Transmission Organizations, Asset Retirement Obligations with 
modifications, Other Comprehensive Income, and Derivatives and Hedging 
Instruments; amends accounting interpretations for Special Equipment 
Accounting, Storm Damage, Rural Economic Development Loan and Grant 
Program and Consolidated Financial Statements; sets forth an accounting 
interpretation to establish uniform reporting procedures for Accounting 
for Cushion of Credit Accounts, and codifies guidance on records 
retention currently published in Bulletin 180-2. This final rule also 
corrects a number of administrative errors existing within this part. 
The section of the proposed rule that deals with accounting for and 
reporting on Renewable Energy Credits will be addressed in a subsequent 
final rule.

EFFECTIVE DATE: May 27, 2008.

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

SUPPLEMENTARY INFORMATION:

General Discussion

    On July 13, 2007 the Agency published a proposed rule in the 
Federal Register (72 FR 38511) entitled Accounting Requirements for RUS 
Electric Program Borrowers, and the public was invited to submit 
comments on or before September 11, 2007. Comments were received and 
are addressed in the Discussion Comment section of this rule. One issue 
still under consideration is the renewable energy credit market. The 
Agency has determined that it is best to defer any decisions on this 
accounting treatment until further information is available. A separate 
rulemaking will address this issue and will be published in the Federal 
Register at a future date.

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

[[Page 30278]]

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 its borrowers. FERC issued 
Order 627, Accounting and Reporting of Financial Instruments, 
Comprehensive Income, Derivatives and Hedging Activities, on October 
10, 2002. After reviewing Order 627, Rural Development has determined 
that this guidance shall be adopted with minor 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 is establishing 
Account 209, Accumulated Other Comprehensive Income, and modify Section 
1767.15(w) Accounting for Other Comprehensive Income, accordingly. All 
other accounts and instructions are 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. After reviewing Order 631, Rural 
Development has determined to adopt with minor 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 Order 631 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 
establishing 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 are being adopted as set forth in Order 631 
with one exception. Rural Development will not 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, and clarifying Order 668-A, Accounting and Financial 
Reporting for Public Utilities Including RTOs, issued by FERC on April 
20, 2006, 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 Order 668 and the instructions is being adopted 
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 has modified 
the newly added accounts to accommodate 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, amending and revising 
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, Financial and 
Statistical Reports for Distribution Borrowers, and Form 12, Financial 
and Statistical Reports for Power Supply Borrowers and Electric 
Distribution Borrowers with Generating Facilities. Rural Development is 
also setting forth a new accounting interpretation that establishes 
uniform accounting and reporting procedures for Cushion of Credit 
Accounts which are created by voluntary unscheduled payment by a 
borrower in excess of amounts due and payable.
    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 final 
rule codifies these requirements with modifications in subpart D.
    The final rule contains a number of other revisions to make 
administrative corrections to addresses for submitting requests, 
position titles to update current versions of forms, to change 
publication names, and to correct errors found in the previously 
codified version of this part.

Summary of Comments

    A proposed rule entitled, ``Accounting Requirements for RUS 
Electric Program Borrowers,'' published July 13, 2007, at 72 FR 38511, 
invited interested parties to submit comments on or before September 
11, 2007. The National Rural Electric Cooperative Association (NRECA), 
Southern Maryland Electric Cooperative, Inc, and the National Rural 
Utilities Cooperative Finance Corporation (CFC) submitted comments. No 
comments from any other sources were received. The comments submitted 
by NRECA represent the views of its members. The following paragraphs 
address the various topics that were discussed by the commenters.

Adoption of FERC Order 668

    Comment: CFC concurred with the Agency's adoption of recent FERC 
orders and suggested that the Agency incorporate FERC Order 668-A which 
made technical corrections to the original order and added 
clarification to certain netting concepts found in Order 668.
    Agency Response: The Agency agrees with the recommendation and has 
revised the final rule accordingly.

[[Page 30279]]

Interpretation No. 633, Cushion of Credit

    Comment: NRECA, on behalf of its members, expressed concern for 
what they see as an inappropriate matching of the requirement to record 
interest income from the cushion of credit account in Account 419, 
Interest and Dividend Income, with the requirement that the balance in 
the account be reported as an unapplied payment and netted against 
long-term debt. This commenter suggests that it may be more appropriate 
to record the balance in the cushion of credit account as an investment 
if the requirement remains to record the interest income in Account 
419.
    Agency Response: For purposes of the USoA and for reporting on the 
Forms 7 and 12, the Agency believes that its treatment for cushion of 
credit funds and interest earned is best suited for the substance of 
this transaction. While we recognize that this accounting treatment 
produces results unique to our borrowers, we expect and anticipate 
these results during our financial analysis and factor the results into 
our financial decision making.
    However, a valid argument can be made for an alternative 
presentation on the audited financial statements, particularly if those 
statements are being used to support efforts to secure outside 
financing. Therefore, we revised the final rule to permit presentation 
of the cushion of credit balance as a long-term investment for 
financial statement presentation while maintaining the current 
treatment for Forms 7 and 12 reporting.

Interpretation No. 634, Renewable Energy Credits

    Comment: All three commenters expressed dissatisfaction with the 
accounting guidance provided for Renewable Energy Credits.
    Agency Response: Because of the controversy currently surrounding 
recording renewable energy credits, the lack of authoritative guidance 
from the Federal Energy Regulatory Commission or the Financial 
Accounting Standards Board, and the relative immaturity of the 
renewable energy credit market, the Agency has determined that it is 
best to defer any decisions on this accounting treatment until further 
information is available. The Agency will proceed with this final rule 
and address renewable energy credits in a later rulemaking.

Executive Order 12866

    This final rule has been determined to be not significant for 
purposes of Executive Order 12866, and therefore has not been reviewed 
by the Office of Management and Budget (OMB).

Regulatory Flexibility Act Certification

    Pursuant to 5 U.S.C. 553(a)(2), this final rule is exempt from the 
rulemaking requirements of the Administrative Procedure Act (5 U.S.C. 
551 et seq.), including the requirement to provide prior notice and an 
opportunity for public comment. Because this final rule is not subject 
to a requirement to provide prior notice and an opportunity for public 
comment pursuant to 5 U.S.C. 553, or any other law, the analytical 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) 
are inapplicable.

Information Collection and Recordkeeping Requirements

    This final 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

    The Administrator of RUS has determined that this final 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 final 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 final 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.

List of Subjects in 7 CFR Part 1767

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

0
For the reason set forth in the preamble, Rural Development hereby 
amends 7 CFR chapter XVII as follows:

PART 1767--ACCOUNTING REQUIREMENTS FOR RUS ELECTRIC BORROWERS

0
1. The authority for part 1767 continues to read as follows:

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

0
2. Amend Sec.  1767.10 by:
0
a. Revising the definition of Cost of removal to read as set forth 
below;
0
b. Removing the definitions of Capital lease and Operating Lease; and
0
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

[[Page 30280]]

contractual relationship with another entity.
* * * * *

0
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.
* * * * *

0
4. In Sec.  1767.13, paragraph (a) is revised to read as set forth 
below, 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
* * * * *

0
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).

0
6. Amend Sec.  1767.15, as follows:
0
a. Revise paragraphs (a)(4), (a)(6), and (t)(2) to read as set forth 
below;

0
b. Redesignate paragraphs (t)(3) and (t)(4) as (t)(4) and (t)(5), 
respectively, and add a new paragraph (t)(3) to read as set forth 
below; and
0
c. Add new paragraphs (v) through (y) to read as set forth below.
    The additions and revisions read as follows:


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, Other Regulatory Assets or 254, Other 
Regulatory Liabilities, 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

[[Page 30281]]

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, 
Derivatives in Instrument 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 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 
Obligation, 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.

0
7. Amend Sec.  1767.16 as follows:
0
a. Add paragraph (a)(4) to read as set forth below;
0
b. Amend paragraph (c)(17)(i) by revising the value of W to read as set 
forth below; and,
0
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) * * *

[[Page 3028]]

    (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.
* * * * *

0
8. Amend Sec.  1767.18 as follows:
0
a. In the subject table, under heading Utility Plant, add entries 
108.9, 175, and 176 to read as set forth below;
0
b. Under 101.1 Property Under Capital Leases, revise paragraph C. to 
read as set forth below;
0
c. Under 103 Experimental Electric Plant Unclassified, amend paragraph 
C. by revising the first sentence to read as set forth below;
0
d. Under 108 Accumulated Provision for Depreciation of Electric Utility 
Plant, amend paragraph C. by adding an entry for 108.9 to read as set 
forth below;
0
e. Revise paragraph A. of 121 Nonutility Property to read as set forth 
below;
0
f. Revise paragraph A. of 124 Other Investments to read as set forth 
below;
0
g. Revise 125 Sinking Funds to read as set forth below;
0
h. Revise 126 Depreciation Fund to read as set forth below;
0
i. Revise 128 Other Special Funds to read as set forth below;
0
j. Add Account 175 Derivative Instrument Assets to read as set forth 
below;
0
k. Add Account 176 Derivative Instrument Assets--Hedges to read as set 
forth below.
0
l. Revise paragraph B. of 182.3 Other Regulatory Assets to read as set 
forth below;
    The additions and revisions read as follows:


Sec.  1767.18  Assets and other debits.

* * * * *

Utility Plant

* * * * *
108.9 Accumulated Provision for Depreciation of Asset Retirement 
Costs
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 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. Account 108 shall be subaccounted as follows
* * * * *

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

[[Page 30283]]

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.
* * * * *


0
9. Amend Sec.  1767.19 as follows:
0
a. In the subject table, under Margins and Equities, add an entry for 
209 to read as set forth below;
0
b. In the subject table, under Long-Term Debt, add an entry for 224.18 
to read as set forth below;
0
c. Add a new entry for 209 Accumulated Other Comprehensive Income to 
read as set forth below;
0
d. In 224 Other Long-Term Debt, paragraph B. subject index, add an 
entry for subaccount 224.18 to read as set forth below;
0
e. Add 224.18 Other Long-Term Debt Grant Funds to read as set forth 
below:
0
f. In 229 Account Accumulated Provision for Rate Refunds, add an entry 
under Current and Accrued Liabilities to read as set forth below;
0
g. Add 230 Asset Retirement Obligations to read as set forth below;
0
h. Add 244 Derivative Instrument Liabilities to read as set forth 
below;
0
i. Add 245 Derivative Instrument Liabilities-Hedges to read as set 
forth below, and
0
j. Revise paragraph B. of 254 Other Regulatory Liabilities to read as 
set forth below.
    The additions and revisions read as follows:


Sec.  1767.19  Liabilities and other credits.

* * * * *

 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 earning 
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.)
* * * * *

Current and Accrued Liabilities

* * * * *

230 Asset Retirement Obligations

    A. This account shall include the amount of liabilities for the 
recognition of asset retirement obligations related to electric 
utility plant and nonutility plant that gives rise to the 
obligations. This account shall be credited for the amount of the 
liabilities for asset retirement obligations with amounts charged to 
the appropriate electric utility plant accounts or nonutility plant 
account to record the related asset retirement costs.
    B. The utility shall charge the accretion expense to Account 
411.10, Accretion Expense, for electric utility plant, Account 413, 
Expenses 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 change 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

[[Page 30284]]

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.
* * * * *


0
10. Amend 1767.20 as follows:
0
a. Revise the introductory text;
0
b. In the table of contents, under Steam Production, add an entry for 
317;
0
c. In the table of contents, under Nuclear Production, add an entry for 
326;
0
d. In the table of contents, under Hydraulic Production, add an entry 
for 337;
0
e. In the table of contents, under Other Production, add an entry for 
347;
0
f. In the table of contents, under Transmission Plant, add an entry for 
359.1;
0
g. In the table of contents, under Distribution Plant, add an entry for 
374;
0
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;
0
i. In the table of contents, under General Plant, add an entry for 
399.1;
0
j. Add a new entry for 317 Asset Retirement costs for Steam Production 
Plant;
0
k. Add a new entry for 326 Retirement Costs for Nuclear Production 
Plant;
0
l. Add a new entry for 337 Asset Retirement costs for Hydraulic 
Production Plant;
0
m. Add a new entry for 347 Asset Retirement Costs for Other Production 
Plant;
0
n. Add a new entry for subaccount 359.1 Asset Retirement Costs for 
Transmission Plant;
0
o. Add a new entry for 374 Asset Retirement Costs for Distribution 
Plant;
0
p. Under new account title Regional Transmission Market Operation 
Plant, add new entries for 380, 381, 382, 383, 384, 385, and 386;
0
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

[[Page 30285]]

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

 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.
* * * * *

0
11. Section 1767.21 is amended as follows:
0
a. Add account titles for 403.8, 403.9 and 411.10 to read as set forth 
below;
0
b. Add entries for 403.8 and 403.9 under 403 Depreciation Expense to 
read as set forth below;
0
c. Amend 411.6 by designating the current text as paragraph A. and 
adding paragraph B. to read as set forth below;
0
d. Amend 411.7 by designating the current text as paragraph A. and 
adding paragraph B. to read as set forth below; and
0
e. Add an entry for 411.10 to read as set forth below.


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.

0
12. Section 1767.22 is amended as follows:
0
a. Amend Account 421, Miscellaneous Nonoperating Income, by adding 
items (4) through (6) to read as set forth below;
0
b. Amend Account 426.5, Other Deductions, by adding item (6) to read as 
set forth below.


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).

0
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.


0
14. Amend Sec.  1767.26 as follows:
0
a. Add 456.1, 457.1, and 457.2 to the subject table to read as set 
forth below;
0
b. Amend 456, Other Electric Revenues, by removing paragraph 5; and 
redesignating paragraph 6 as 5; and
0
c. Add entries for 456.1, 457.1 and 457.2 to read as set forth below. 
The additions read as follows:


Sec.  1767.26  Operating revenue.

* * * * *

[[Page 30286]]

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.


0
15. Amend Sec.  1767.27 as follows:
0
a. Add new accounts 561.1 through 561.8 to the subject index 
immediately following entry 560, Operations Supervision and 
Engineering, to read as set forth below;
0
b. Add new accounts 569.1 through 569.4 to the subject index 
immediately following entry 569, Maintenance of Structures, to read as 
set forth below;
0
c. Add new accounts 575.1 through 575.8 to the subject index under a 
new account title Regional Market Expense (Operations) immediately 
following entry 573, Maintenance of Miscellaneous Transmission Plant; 
to read as set forth below;
0
d. Add new accounts 576.1 through 576.5 to the subject index under a 
new account title Regional Market Expense (Maintenance) immediately 
following entry 575.8, Rents, to read as set forth below;
0
e. Amend 555 Purchased Power by adding a note following paragraph B. to 
read as set forth below;
0
f. Amend 556 System Control Load Dispatching by revising the 
introductory text to read as set forth below;
0
g. Remove Account 561 Load Dispatching;
0
h. Add new accounts to descriptions for 561.1 through 561.8 to read as 
set forth below;
0
i. Add new accounts and descriptions for 569.1 through 569.4 to read as 
set forth below;
0
j. Add new accounts and descriptions for 575.1 through 575.8 to read as 
set forth below; and
0
k. Add new accounts and descriptions for 576.1 through 576.5 to read as 
set forth below.
    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 Administration
575.3 Transmission Rights Market Administration
575.4 Capacity Market Administration
575.5 Ancillary Services Market Administration
575.6 Market Monitoring and Compliance
575.7 Market Administration, Monitoring and Compliance Services
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 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

[[Page 30287]]

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 panning 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, 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

[[Page 30288]]

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.
* * * * *


0
16. Amend Sec.  1767.41, as follows:
0
a. In the Numerical Index, add the entry for 633 in numerical order to 
read as set forth:
0
b. In the subject matter Index, add Cushion of Credit items in 
alphabetical order to read as set forth below;
0
c. Revise 119 Special Equipment to read as set forth below;
0
d. Amend 136 Storm Damage by removing paragraph d. and revising 
paragraphs b. and c. and the undesignated paragraph before the table to 
read as set forth below;
0
e. Amend 404 Consolidate Financial Statement by revising the 
undesignated concluding paragraph to read as set forth below;
0
f. Revise 626 Rural Economic Development Loan and Grant Program to read 
as set forth below;
0
g. Add a new description for 633 for Cushion of Credit to read as set 
forth below.
    The additions and revisions read as follows:


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

* * * * *


------------------------------------------------------------------------
                  Number                                Title
------------------------------------------------------------------------
633.......................................  Cushion of Credit.
------------------------------------------------------------------------


                          Subject Matter Index
------------------------------------------------------------------------
                                                                 Number
------------------------------------------------------------------------
 
                                * * * * *
                              C
 
                                * * * * *
Cushion of Credit............................................        633
 
                                * * * * *
------------------------------------------------------------------------

* * * * *

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 the Rural 
Development 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 a waiver from the 
special equipment accounting requirements should submit a letter 
request to Rural Development. In order to expedite these requests 
the letter to Rural Development 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 Rural Development:
    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

[[Page 30289]]

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 Rural Development 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

    As a result of recent hurricane, flood, and ice storm damage, 
Rural Development has received several inquiries concerning the 
proper accounting for storm damage costs and the associated funds 
received from the Federal Emergency Management Administration 
(FEMA).
    Storm damage costs should be accounted for under the work order 
procedure. Units of property destroyed or otherwise removed from 
service must be reflected on retirement work orders and units of 
property installed must be shown on construction work orders. To 
ensure that the accounting for construction and retirement costs is 
as accurate as possible, an effort should be made to accurately 
accumulate material, labor, and overhead costs. Even when extreme 
care has been exercised, however, it may still be necessary to use 
estimates to develop the appropriate cost figures.
    When a storm occurs, a utility typically incurs a large 
retirement loss, all or a part of which should be charged to the 
accumulated provision for depreciation. Storm damage costs over and 
above construction and retirement costs represent maintenance 
expense. Maintenance costs include the costs of resagging lines, 
straightening poles, and replacing minor items of property. When 
extensive damage has occurred, the need to restore the property to 
an operating condition without delay usually results in excessive 
costs being incurred. Standard property unit costs may be used as a 
guide in determining the amount to be capitalized. It should be 
noted, however, that when standard property unit costs are used, all 
excess costs are charged to maintenance expense.
    Because of the storm's destruction, property is retired 
prematurely and as a result, extraordinary retirement losses occur. 
When such extraordinary losses occur, they should be recorded in the 
year in which the losses are incurred. If the recording of such 
losses will materially distort the income statement, such losses may 
be charged to Account 435, Extraordinary Deductions. These costs may 
be deferred and amortized to future periods only if the provisions 
of Statement of Financial Accounting Standards No. 71, Accounting 
for the Effects of Certain Types of Regulation (Statement No. 71), 
are applied. Under the provisions of Statement No. 71, a utility may 
defer certain costs, provided such costs are included in the 
utility's rate base and recovered through future rates. If an Rural 
Development borrower elects to apply the provisions of Statement No. 
71, Rural Development approval is required. To obtain Rural 
Development approval, a borrower must submit:
    a. A detailed description of the plan including the nature of 
the expense item, the amount of the deferral, the specific time 
period for rate recovery, and justifying support for the time period 
selected;
    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 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

[[Page 30290]]

    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
    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 
RevolvingFunds
    Cr. 123.4, Investment in Associated Organizations--Non-Federal 
Economic Development Loans or
    Cr. 124.2, Other Investments--Non-Federal Economic 
DevelopmentLoans
    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 The Code of Federal Regulations 
(CFR) 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.
    For purposes of the audited financial statements, presentation 
of the balance of the cushion of credit account as a long-term 
investment is an acceptable alternative to Rural Development.

    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.

[[Page 30291]]

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 a 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: April 7, 2008.
James M. Andrew,
Administrator, Rural Utilities Service.
[FR Doc. E8-11264 Filed 5-23-08; 8:45 am]
BILLING CODE 3410-15-P