June 25, 2003

TO: All Electric Borrowers

Certified Public Accountants Auditing RUS Electric Borrowers

FROM: KENNETH M. ACKERMAN

Assistant Administrator

Program Accounting and Regulatory Analysis

SUBJECT: Asset Retirement Obligations

The Federal Energy Regulatory Commission (FERC) revised its regulations
and established uniform accounting and reporting for the recognition and
measurement of liabilities arising from retirement and decommissioning
obligations of tangible long-lived assets and related costs.[^1] FERC
added new accounts, revised some old accounts, and added or revised
definitions found in the Uniform System of Accounts (USoA). The new
accounts created by FERC are:

> [Balance Sheet]{.underline}:
>
> 230, Asset retirement obligations
>
> [Electric Plant Accounts]{.underline}:
>
> 317, Asset retirement costs for steam production plant
>
> 326, Asset retirement costs for nuclear production plant
>
> 337, Asset retirement costs for hydraulic production plant
>
> 347, Asset retirement costs for other production plant
>
> 359.1, Asset retirement costs for transmission plant
>
> 374, Asset retirement costs for distribution plant
>
> 399.1, Asset retirement costs for general plant
>
> [Income Statement]{.underline}:
>
> 403.1, Depreciation expense for asset retirement costs
>
> 411.10, Accretion expense

RUS recommends that our borrowers adopt the new accounts, revised
accounts, and other changes set forth by FERC. When RUS adopted and
modified the

FERC's system of accounts, RUS added specific sub-accounts for
depreciation expense by function under account 403, Depreciation
expense. RUS borrowers have been using sub-account 403.1, Depreciation
expense -- Steam production plant for many years. When the FERC proposed
using account 403.1 to record the expense for asset retirement
obligations RUS opposed this. However, the FERC's Final Rule added this
account as proposed. Therefore, RUS will create Account 403.8,
Depreciation Expense -- Asset Retirement Obligations, for our borrowers
to record depreciation expense for asset retirement obligations.

The new accounts, revised accounts and other changes brought about by
the implementation of Statement of Financial Accounting Standard No. 143
(SFAS No. 143) will be reflected in the next revision to 7 CFR Part
1767, Uniform System of Accounts -- Electric.

RUS is in the process of developing guidance to incorporate these new
accounting requirements in Forms 7 and 12. In Part A, Statement of
Operations, of Form 7, Account 403.8 will be included on Line 12,
Depreciation and Amortization Expense, and Account 411.10 will be
included on Line 18, Other Deductions. New plant accounts will be
included on Part C, Balance Sheet, on Line 1, Total Utility Plant in
Service. RUS intends to modify Line 43, Accumulated Operating
Provisions, to include Account 230, Asset Retirement Obligations.
Guidance for the Form 12 will follow separately.

In accordance with the FERC final rule, these changes are effective for
fiscal years beginning on or after January 1, 2003. If you have any
questions or if we can be of any further assistance, please contact the
Technical Accounting and Auditing Staff at (202) 720-5227.

\###

[^1]: 18 CFR Parts 35, 101, 154, 201, 346, and 352, Docket RM02-7-000,
    Order No. 631, Accounting, Financial Reporting, and Rate Filing
    Requirements for Asset Retirement Obligations, issued April 9, 2003.
    This Order is effective for fiscal years beginning on or after
    January 1, 2003.