# Presentation: 094748

## Rural Development Utilities Programs

**KENNETH M. ACKERMAN**
**Assistant Administrator,**
**Program Accounting and Regulatory Analysis**
** ****2007 G&T Accounting and Finance Association Conference **
**Park City, Utah**
**June 25, 2007**

## Today’s Topics

**Part 1767 – Proposed Rule Changes**
**Conforming to FERC changes**
**Revised Interpretations**
**New Interpretations**
**Record Retention**
**Retirement Unit Update**
**GIS Accounting **
**DCS – Form 12**
**AFUDC vs IDC**
**Depreciation Issues**
**Part 1773 – Audit Policy**

## Part 1767 Changes

- Part 1767 – Electric Uniform System of Accounts (USoA)
- Publication Date :  Soon
- Comments Due :  60 days after publication
- Purpose : To make conforming changes to the USoA and to provide additional guidance to our borrowers.

## Uniform System of Accounts

- Proposed Rulemaking updates our Electric System of Accounts
- Implements recent FERC orders
- Clarifies existing and provides new Rural Development Utilities Program specific guidance

## Uniform System of Accounts

- Proposes accounting for Renewable Energy Credits and seeks input from all interested parties on methodologies.

## FERC Orders Adopted

- Order 627, Accounting and Reporting of Financial Instruments, Comprehensive Income, Derivatives and Hedging Activities (October 10, 2002)
- Order 631, Accounting, Financial Reporting and Rate Filing Requirements for Asset Retirement Obligations (April 9, 2003)
- Order 668, Accounting and Financial Reporting for Public Utilities Including Regional Transmission Organizations (December 16, 2005 )

## FERC Order No. 627

- Accounting and Reporting of Financial Instruments, Comprehensive Income, Derivatives and Hedging Activities
- Issued October 10, 2002
- Established Account 219, Accumulated Other Comprehensive Income, already in use by RDUP as Other Margins and Equities
- Propose to establish Account 209 instead

## FERC Order No. 631Accounting Related to ARO

- Issued April 9, 2003
- Accounting, Financial Reporting and Rate Filing Requirements for Asset Retirement Obligations
- Effective January 1, 2006 for FERC filings
- RDUP will establish 403.8, Depreciation Expense - ARO

## FERC Order No. 668Accounting Related to RTO/ISO

- Issued December 16, 2005
- Accounting requirements for public utilities including RTOs
- Established plant accounts, revenue and expense accounts, and procedures related to RTO/ISO accounting
- Effective January 1, 2006

## Revised Interpretations

- Interpretation 119, Special Equipment
- Interpretation 136, Storm Damage
- Interpretation 404, Consolidated Financial Statements

## Interpretation 119, Special Equipment

- Incorporates guidance provided in RUS letter dated November 14, 2000, providing guidelines for requesting a waiver from the special equipment accounting procedures.

## Interpretation 136, Storm Damage

- Provides new guidance on accounting for reimbursements of storm damage by the Federal Emergency Management Administration

## Interpretation 404, Consolidated Financial Statements

- Clarifies the requirements for reporting consolidated subsidiaries on the RUS Forms 7 and 12

## New Interpretations

- Interpretation 633, Cushion of Credit Accounts
- Interpretation 634, Renewable Energy Credits

## Interpretation 633, Cushion of Credit Accounts 

- Authorized by 7 CFR Part 1785, Subpart B
- RUS Cushion of Credit account is available to all RUS Borrowers.
- Account earns 5% interest on deposits, accrued daily, posted quarterly
- Funds are available only for the payment of RUS or FFB debt

## Interpretation 633, Cushion of Credit Accounts

- Borrower may not have more in account including accrued interest than total debt
- Beginning in CY 2006, Form 7 will include a separate line for cushion of credit balances

## Cushion of Credit

- 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

## Interpretation 634, Renewable Energy Credits (REC)

- Created when renewable energy facilities generate electricity.
- Represent the benefit of displacing non-renewable sources of generation, such as coal, oil or gas.
- Overcome the issues of providing renewable energy to purchases who are often geographically remote from the renewable generation facility

## Renewable Energy Credits

- _Accounting Journal Entries - Generation_
- Dr. 303.XXX	Intangible Assets – RECs Held for Sale	    XXX
- Cr. 5XX Power Generation Expense				XXX
- To record the value of renewable energy credits created during the month of XXX through the generation of energy from renewable fuel.
- Note:  Each transaction shall be identified by Month and Year and the number of Certificates created.

## Renewable Energy Credits

- Dr. 143 Accounts Receivable				XXX
- 	Cr. 456 Other Electric Revenues				XXX
- To record the sale of RECs during the month of XXX
- Dr. 5XX Power Generation Expense			XXX
- 	Cr. 303.XXX	Intangible Assets – RECs Held for Sale		XXX
- To record the cost of RECs sold during the month of XXX
- Note:  Each sales transaction shall include the vintage associated with the credits sold.

## Renewable Energy Credits

-  _Accounting Requirements - Distribution Entities _
-  Dr. 303.XXX	Intangible Assets – RECs Held for Sale	   XXX
- 	Cr. 231/232 Accounts/Notes Payable			XXX
- To record the purchase of renewable energy credits.
- Note:  This entry is also appropriate for Generators purchasing renewable energy credits for resale.

## Renewable Energy Credits

- Dr. 142 Customer Accounts Receivable				XXX
- 	Cr. 303.XXX Intangible Assets – RECs Held for Sale		XXX
- To record the sale of renewable energy credits to consumers.

## Record Retention

- Subpart D - Preservation of Records
- Endorses 18 CFR Part 125, FERC Guidelines
- Shall not be construed as excusing compliance with any other lawful requirements for the preservation of records

## Record Retention

- Each borrower:
- Shall designate one or more officials to supervise the preservation of its records
- Shall maintain a master index of records
- Has the flexibility to select its own storage media

## Record Retention

- Financial requirement and expenditure statements are recommended to be kept for one year after the “as of date” of Rural Development ’s loan fund and accounting review
- Consumer accounts’ records should be kept for those years for which patronage capital has not been allocated
- Records supporting construction financed by Rural Development shall be retained until audited and approved by Rural Development
- Records related to plant in service must be retained until the facilities are permanently removed from utility service and and all costs are retired from the accounting records
- 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

## Bulletin 1767B-2

- Signed on June 7, 2007 by Administrator
- Posted at _[http://www.usda.gov/rus/electric/pubs/1767b-2_6_07_addendum.pdf](http://www.usda.gov/rus/electric/pubs/1767b-2_6_07_addendum.pdf)_
- Retirement units were changed and updated for 12.47/7.2kV
- Contains conversion tables for these new  construction units/retirement units

## Electric Program Funding For Geographic Information Systems

## Eligible for Financing

**GIS software with the primary purpose of collecting and supporting spatial data resources**
**GIS computer hardware with the primary purpose of collecting and supporting spatial data resources**
**Initial data collection or field inventory costs (75%)**

## Resources

- Electric Program GIS Page _[http://www.usda.gov/rus/electric/gis/index.htm](http://www.usda.gov/rus/electric/gis/index.htm)_
- USDA Service Center Agency GIS Page _[http://www.gis.sc.egov.usda.gov/index.html](http://www.gis.sc.egov.usda.gov/index.html)_
- US Geospatial One Stop _[http://gos2.geodata.gov/wps/portal/gos](http://gos2.geodata.gov/wps/portal/gos)_
- Federal Geographic Data Committee _[http://www.fgdc.gov/](http://www.fgdc.gov/)_
- USDA NRCS Data Gateway _[http://datagateway.nrcs.usda.gov/](http://datagateway.nrcs.usda.gov/)_
- ESRI Electric and Gas Page _[http://www.esri.com/industries/electric/success-stories/case-studies.html](http://www.esri.com/industries/electric/success-stories/case-studies.html)_
- Glossary _[http://www.gis.com/whatisgis/glossaries.html](http://www.gis.com/whatisgis/glossaries.html)_
- Standards _[http://www.fgdc.gov/standards/](http://www.fgdc.gov/standards/)_

## Data Collection System (DCS)Form 12

- As of June 19, 2007
- 49 Power Supply Borrowers are required to file
- One has not filed
- Two are required to refile

## Ai = s(S/W)+d(D/D+C)(1-S/W)Ac = (1-S/W)(c(C/D+C))

## What is it?

- Loan Subsidy Formula
- Depreciation Formula
- AFUDC
- Basis for Einstein’s Theory of Relativity

## AFUDCvsIDC

## AFUDC

-    Allowance for Funds Used During Construction includes the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used, not to exceed, without prior approval of RUS, allowances computed in accordance with the formula
- presented in Part 1767

## IDC

-    Interest During Construction is interest accumulated during the construction period, which usually equals capitalized interest. The total amount capitalized each period cannot exceed the total interest incurred. (Net cost for the period of construction of borrowed funds used for construction purposes.)

## AFUDC vs IDC

- AFUDC includes an imputed interest on the entity’s own funds used for construction.
- AFUDC is a rate making concept.
- IDC is limited to actual interest incurred
- IDC can be financed with prior approval

## How does AFUDC apply to a portion of a project?

- When only a portion of a project is placed in operation or is ready for service but the construction work as a whole is incomplete, that part of the project placed in operation shall be treated as “Electric Plant in Service” and AFUDC for that part shall cease.

## How does AFUDC apply to a portion of a project?

- AFUDC on that part of the project which is incomplete may continue to be charged to construction until such time as it is placed in operation or is ready for service, except as limited by the Regulators.

## Depreciation Guidelines

- Generation Depreciation Policy
- Use depreciation rates previously approved by RDUP Administrator unless regulatory body having jurisdiction requires different rates
- Do not submit for approval to other regulatory bodies rates not previously approved by RDUP

## Depreciation Guidelines

- Generation Depreciation Policy
- Prescribed rates unless unusual conditions justify special rates
- Detailed studies for special cases and submitted to RDUP for approval

## Depreciation Guidelines

- Nuclear Facilities – Policy
- Proposed composite rate must be submitted for approval
- If a minor participant in a joint participation project, rate used by majority participant shall be used
- Include supporting studies and regulatory orders with proposed rates

## Depreciation Guidelines

- Recent Special Cases
- #1 - Majority owner negotiated lower depreciation rate with State Commission
- Offset previous recovery of stranded costs
- Borrower submitted depreciation study for approval supporting requested rates – Approved by RDUP
- Commission rates for majority owner, if used by our borrower, would extend recovery of plant beyond license date for plant

## Depreciation Guidelines

- Recent Special Cases
- #2 – Nonregulated majority owner of nuclear facility
- License expires in 2014, renewal application not yet filed
- Significant investment required in preparation for license extension application
- Under GAAP, nonregulated majority owner assumes license will be granted and extends useful life by 20 years

## Depreciation Guidelines

- Recent Special Cases
- #2 – Nonregulated majority owner of nuclear facility
- Borrower requests approval to defer depreciation on additional investment
- Deferral will be amortized over the life of the plant if license extension is approved or written off if there is no approval

## Part 1773 – Audit Policy

- Revisions being planned
- Update Independence Standards
- Consider electronic filing of audits
- Redefine users to include both for-profit and not-for-profit grant recipients
- Update sample letters to reflect an adoption of SAS 112

## http://www.usda.gov/rus/

- _[kenneth.ackerman@usda.gov](mailto:kenneth.ackerman@usda.gov)_
- _kenneth.ackerman@wdc.usda.gov_

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