[Federal Register Volume 71, Number 215 (Tuesday, November 7, 2006)]
[Rules and Regulations]
[Pages 65200-65299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9003]



[[Page 65199]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Parts 366, 367, et al.



 Financial Accounting, Reporting and Records Retention Requirements 
Under the Public Utility Holding Company Act of 2005; Final Rule

Federal Register / Vol. 71, No. 215 / Tuesday, November 7, 2006 / 
Rules and Regulations

[[Page 65200]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 366, 367, 368, 369, and 375

[Docket No. RM06-11-000; Order No. 684]


Financial Accounting, Reporting and Records Retention 
Requirements Under the Public Utility Holding Company Act of 2005

Issued October 19, 2006.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: In this Final Rule, the Federal Energy Regulatory Commission 
(Commission) is amending its regulations to further implement the 
Public Utility Holding Company Act of 2005 (PUHCA 2005). Specifically, 
the Commission is adding a Uniform System of Accounts (USofA) for 
Centralized Service Companies, adding preservation of records 
requirements for holding companies and service companies, revising FERC 
Form No. 60, Annual Report of Centralized Service Companies, to provide 
for financial reporting consistent with the new USofA and providing for 
electronic filing of the revised FERC Form No. 60. The Final Rule will 
provide for greater accounting transparency for centralized service 
company operations, and uniform records retention by holding companies 
and service companies subject to PUHCA 2005. This transparency will 
protect ratepayers from pass-through of improper service company costs.

EFFECTIVE DATE: The rule will become effective January 8, 2007.

FOR FURTHER INFORMATION CONTACT: James K. Guest (Technical 
Information), Division of Financial Regulation, Office of Enforcement, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, telephone (202) 502-6614, e-mail: 
<a href="/cdn-cgi/l/email-protection#3b515a565e48155c4e5e484f7b5d5e4958155c544d"><span class="__cf_email__" data-cfemail="ee848f838b9dc0899b8b9d9aae888b9c8dc0898198">[email protected]</span></a>.
    Lawrence Greenfield (Legal Information), Office of the General 
Counsel--Energy Markets, Federal Energy Regulatory Commission, 888 
First Street, NE., Washington, DC 20426, telephone (202) 502-6415, e-
mail: <a href="/cdn-cgi/l/email-protection#3d515c4a4f58535e58135a4f5858535b545851597d5b584f5e135a524b"><span class="__cf_email__" data-cfemail="87ebe6f0f5e2e9e4e2a9e0f5e2e2e9e1eee2ebe3c7e1e2f5e4a9e0e8f1">[email protected]</span></a>.
    Julia A. Lake (Legal Information), Office of the General Counsel--
Energy Markets, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, telephone (202) 502-8370, e-mail: 
<a href="/cdn-cgi/l/email-protection#0d677861646c23616c66684d6b687f6e236a627b"><span class="__cf_email__" data-cfemail="08627d646169266469636d486e6d7a6b266f677e">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
III. Overview of Final Rule
IV. Discussion
    1. Adoption of the Proposed Uniform System of Accounts
    2. Implementation Date
    3. FERC Form No. 60 Filing Deadline
    4. Definitions
    (a) ``Direct cost'' and ``Indirect cost''
    (b) ``Work order system''
    5. Instructions
    (a) Section 367.2--Companies for which this system of accounts 
is prescribed
    (b) Section 367.8--Extraordinary items
    (c) Section 367.10--Unaudited Items
    (d) Section 367.20(b)--Depreciation accounting
    (e) Section 367.23--Transactions with non-associate companies
    (f) Section 367.24--Construction and service contracts for other 
companies
    (g) Section 367.25--Determination of service cost
    (h) Section 367.27--Billing procedures
    (i) Section 367.51(a)(17)--Allowance for funds used during 
construction
    (j) Section 367.53--Service company property purchased or sold
    (k) Section 367.54--Expenditures on leased property
    (l) Section 367.59-- Additions and retirements of property
    (m) Sections 367.103-.104--Current & Deferred Income Taxes
    (n) Section 367.23--Transactions with non-associate companies; 
Sec.  367.25--Determination of service cost; Sec.  367.27--Billing 
procedures; Sec.  367.28--Methods of allocation; Sec.  367.29--
Compensation for use of capital
    6. Balance Sheet Accounts
    7. Income Statement Accounts
    (a) Sections 367.4570-.4594--Revenue accounts for services 
rendered
    (b) Sections 367.5000 and 367.8000--Operation and maintenance 
expense accounts
    (c) Sections 367.9220 and 367.4171--Account 922, Administrative 
expenses transferred--Credit, and Account 417.1, Expenses of non-
utility company
    (d) Section 367.4160--Costs and expenses of merchandising, 
jobbing and contract work; Sec.  367.9120--Demonstrating and selling 
expenses; Sec.  367.9130--Advertising expenses; Sec.  367.9301--
General advertising expenses
    (e) Sections 367.4263, 367.4117, 367.4180--Miscellaneous Income 
Statement Issues
    8. Records Retention Requirements
    9. FERC Form No. 60
    (a) Use of GAAP Financial Statement instead of Structured FERC 
Form No. 60
    (b) FERC Form No. 60 Schedules
    (1) Schedule II, Service Company Property
    (2) Schedule III-A, Summary of Service Company Property and 
Accumulated Provisions for Depreciation and Amortization
    (3) Schedule IV, Investments and Schedule XII, Long-Term Debt
    (4) Schedule V, Accounts Receivable from Associate Companies
    (5) Schedule VI, Fuel Stock Expenses Undistributed
    (6) Schedule X, Research, Development or Demonstration Expenses
    (7) Schedule XI, Proprietary Capital
    (8) Schedule XIV, Notes to Financial Statements
    (9) Schedule XV, Comparative Income Statement
    (10) Schedule XV-A, Schedule of Utility Operating Expenses; 
Schedule XVI, Analysis of Charges for Service; Schedule XVII, 
Schedule of Expense Distribution by Department or Service Function
    (11) Analysis of Billing Schedules
    (12) Departmental Analysis of Salaries Schedule; Methods of 
Allocation Schedule; and Organizational Chart Schedule
    (13) Annual Statement of Compensation for Use of Capital Billed
    (14) Miscellaneous General Expenses Schedule (Account 930.2)
    (c) General Instruction IX
    (d) Raising the Threshold for Individually Itemized Items
    (e) Reporting in Whole Dollars or Alternatively in Thousands
    (f) Comparative Information
    (g) Request to Expand Data Collection in FERC Form No. 60
    (h) Schedule Numbering
    (i) Chief Accountant's delegated authority
V. Information Collection Statement
VI. Environmental Analysis
VII. Regulatory Flexibility Act
VIII. Document Availability
IX. Effective Date and Congressional Notification
Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. 
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

I. Introduction

    1. On April 24, 2006, the Commission issued a notice of proposed 
rulemaking (NOPR) that proposed to add a new Uniform System of Accounts 
(USofA) for centralized service companies, i.e., service companies that 
are not special purpose companies, and new preservation of records 
requirements for holding companies and service companies as new parts 
367 and 368 of Title 18 of the Code of Federal Regulations.\1\ The NOPR 
also proposed to revise FERC Form No. 60, Annual Report of Centralized 
Service Companies, to be codified in new part 369, to provide for 
financial reporting by centralized service companies consistent with 
the new USofA; to provide for electronic filing of Form No. 60; and to 
make conforming changes to the Commission's regulations in part 366 and 
corresponding changes to the Commission's Chief Accountant's delegation 
of authority in part 375. The

[[Page 65201]]

NOPR proposed to make the changes effective January 1, 2007.
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    \1\ 71 FR 28464 (May 16, 2006), FERC Stats. & Regs. ] 32,600 
(2006).
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    2. As directed by the Commission in the NOPR, the Commission staff 
held a technical conference on July 18, 2006, to provide interested 
persons an opportunity to discuss the regulations proposed in the NOPR. 
At the conclusion of the technical conference, staff announced that the 
record in this docket would remain open until August 8, 2006, to 
provide interested persons additional time to submit specific 
recommendations on how the Commission's proposed regulations could be 
modified to accommodate their concerns.
    3. This Final Rule adopts, in many respects, the proposals 
contained in the NOPR, but with certain noted changes to minimize any 
unnecessary burden. Chief among them, the Commission defers the 
implementation date by an additional year, to January 1, 2008.

II. Background

    4. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005) 
\2\ was signed into law. In relevant part, it repealed the Public 
Utility Holding Company Act of 1935 (PUHCA 1935) \3\ and enacted the 
Public Utility Holding Company Act of 2005 (PUHCA 2005),\4\ which, with 
one exception not relevant here, became effective on February 8, 2006 
(six months from the date of enactment). On December 8, 2005, the 
Commission issued Order No. 667, adding a new Subchapter U and part 366 
to Title 18 of the Code of Federal Regulations to implement PUHCA 
2005.\5\
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    \2\ Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 
(2005).
    \3\ 15 U.S.C. 79a et seq.
    \4\ EPAct 2005 at 1261 et seq.
    \5\ Repeal of the Public Utility Holding Company Act of 1935 and 
Enactment of the Public Utility Holding Company Act of 2005, Order 
No. 667, 70 FR 75592 (Dec. 20, 2005), FERC Stats. & Regs. ] 31,197 
(2005), order on reh'g, Order No. 667-A, 71 FR 28446 (May 16, 2006), 
FERC Stats. & Regs. ] 31,213 (2006), order on reh'g, Order No. 667-
B, 71 FR 42750 (July 28, 2006), FERC Stats. & Regs. ] 31,224 (2006).
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    5. Order No. 667 required that, unless otherwise exempted by 
Commission rule or order, holding companies \6\ and service companies 
\7\ must maintain and make available to the Commission their books and 
records.\8\ In addition, Order No. 667 allowed holding companies and 
service companies that did not currently follow the Commission's 
records retention requirements to transition to the Commission's 
requirements by January 1, 2007. Order No. 667 further provided that 
holding companies would not be required to comply with a Uniform System 
of Accounts, but that centralized service companies would be required 
to do so as of January 1, 2007. The Commission also indicated in Order 
No. 667 that it would initiate a separate rulemaking proceeding to 
address how the Commission's Uniform Systems of Accounts and records 
retention requirements in Parts 101, 125, 201 and 225 of its 
regulations \9\ should be modified to adopt or otherwise integrate the 
relevant parts of the Securities and Exchange Commission's (SEC) 
Uniform System of Accounts and records retention rules.
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    \6\ As defined in 18 CFR 366.1, a holding company is (i) any 
company that directly or indirectly owns, controls, or holds, with 
power to vote, 10 percent or more of the outstanding voting 
securities of a public-utility company or of a holding company of 
any public-utility company; and (ii) any person, determined by the 
Commission, after notice and opportunity for hearing, to exercise 
directly or indirectly (either alone or pursuant to an arrangement 
or understanding with one or more persons) such a controlling 
influence over the management or policies of any public-utility 
company or holding company as to make it necessary or appropriate 
for the rate protection of utility customers with respect to rates 
that such person be subject to the obligations, duties, and 
liabilities imposed by this subtitle upon holding companies.
    \7\ As defined in 18 CFR 366.1, a service company is any 
associate company within a holding company system organized 
specifically for the purpose of providing non-power goods or 
services or the sale of goods or construction work to any public 
utility in the same holding company system. ``Centralized service 
companies'' are defined in 18 CFR 367.1(a)(7) as a service company 
that provides services such as administrative, managerial, 
financial, accounting, recordkeeping, legal or engineering services, 
which are sold, furnished, or otherwise provided (typically for a 
charge) to other companies in the same holding company system. 
Centralized service companies are different from other service 
companies that only provide a discrete good or service.
    \8\ Order No. 667 also required centralized service companies to 
file the newly created FERC Form No. 60, Annual Report of 
Centralized Service Companies.
    \9\ 18 CFR parts 101, 125, 201 and 225 (2006).
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    6. In the April 24, 2006 NOPR,\10\ the Commission recognized that 
the range of changes that would be needed to Parts 101, 125, 201 and 
225 of its regulations to allow for application of those requirements 
to holding companies and service companies would make understanding and 
applying them difficult for all entities. Therefore, the Commission 
proposed to adopt separate accounting, records retention, and reporting 
requirements for holding companies and service companies in new Parts 
367, 368 and 369.
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    \10\ Supra note 1.
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    7. After consideration of the discussion during the technical 
conference and the comments received, the Commission is adopting this 
Final Rule which is generally consistent with the NOPR, but with 
several significant changes to reduce the compliance burden on affected 
entities. The Commission received nine comments on the proposed NOPR 
and ten supplemental comments submitted following the July 18, 2006 
staff technical conference. A list of the commenters is attached as 
Appendix B. Comments received on specific aspects of the Commission's 
proposal are discussed in greater detail below.

III. Overview of Final Rule

    8. As an initial matter, the Commission in this Final Rule has been 
guided by the clear intent of Congress to repeal the regulatory regime 
established by PUHCA 1935 and to rely on this Commission and state 
regulatory authorities to protect energy customers. Throughout, we have 
attempted to strike a balance between the Commission's need for 
information to carry out its regulatory responsibilities and the burden 
that gathering and reporting information imposes on industry. 
Therefore, as described below, we have modified our proposal in several 
key respects to reduce any unnecessary burden. The modifications 
include deleting and modifying certain accounts and instructions in the 
originally proposed USofA, providing flexibility in the work order 
system requirements, streamlining and eliminating certain schedules in 
the FERC Form No. 60, retaining the May 1 filing date for the FERC Form 
No. 60, and postponing the implementation date of the Final Rule until 
January 1, 2008. These modifications balance the Commission's need for 
information to fulfill its regulatory responsibilities with minimizing 
any unnecessary burden.
    9. Specifically, in the NOPR, the Commission proposed to add, as 
Part 367 of its regulations, a new USofA for centralized service 
companies that conforms, to the maximum extent practicable, to the 
existing USofA for public utilities and licensees and for natural gas 
companies as set forth in Parts 101 and 201, respectively, of the 
Commission's regulations. The Final Rule adopts the new USofA for 
centralized service companies, but with the following modifications to 
reduce the burden on respondents:
    <bullet> Centralized service companies will not be required to 
adopt a formal work order system. Instead, the Commission will permit 
centralized service companies to use a variety of cost accumulation 
systems, provided such systems support the allocation of expenses to 
the services performed and readily identify the source of the expenses 
and the basis for their allocation.

[[Page 65202]]

    <bullet> Centralized service companies will not be required to 
obtain Commission approval to account for an item as extraordinary. 
Instead, the Commission will only require extraordinary items to be 
disclosed in footnotes to the financial statements.
    <bullet> Centralized service companies will not be required to 
conduct extensive mortality studies to support the useful lives of all 
depreciable assets, but can exercise judgment in determining the 
evidence needed to support the lives of depreciable assets.
    <bullet> Centralized service companies will not be required to 
prepare paper invoices each month for services rendered to associate 
utility companies. Instead, the Commission will permit centralized 
service companies to use a variety of accounting mechanisms, provided 
that associate utilities are receiving accurate information about the 
work being done for them and the related costs on a monthly basis.
    <bullet> Centralized service companies will not be required to 
capitalize an allowance for funds used during construction (AFUDC) as a 
component of construction cost but will instead be allowed to 
capitalize interest.
    <bullet> Centralized services companies will not be required to 
calculate income taxes for individual departments.
    <bullet> Centralized service companies will not be required to 
recognize revenues received for, or expenses incurred in, providing 
services to non-utility companies in separate accounts.
    <bullet> Centralized service companies will not be required to 
record revenues received for services provided in support of 
merchandising, jobbing and contract work in a separate account. 
Instead, revenues from such services will be included in the accounts 
provided for other service company revenues. Proposed Account 415, 
Revenues from merchandising, jobbing and contract work, will be 
eliminated.
    10. In the NOPR, the Commission also proposed to add, as new part 
368 of its regulations, preservation of records requirements for 
holding companies and service companies, that conform to the 
preservation of records requirements for public utilities and natural 
gas companies contained in Sec. Sec.  125.3 and 225.3 of the 
Commission's regulations, with certain modifications appropriate for 
holding companies and service companies. The Final Rule adopts the new 
requirements, with certain modifications to the Schedule of Records and 
Periods of Retention in Sec.  368.3. In order to reduce any unnecessary 
burden, the Commission will revise the retention period for certain 
depreciation records from 25 years to 3 years after retirement or 
disposition of the property.
    11. Additionally, the NOPR proposed to revise FERC Form No. 60 to 
permit reporting consistent with the proposed USofA for centralized 
service companies, and to codify it in new part 369. The Final Rule 
adopts the revised FERC Form No. 60 in part 369, but deletes or 
modifies the following schedules in the Form itself to reduce the 
compliance burden:
    <bullet> Schedule XV-A, Schedule of Utility Operating Expenses, 
will be deleted because similar information is available on Schedule 
XVI, Analysis of Charges for Service.
    <bullet> Schedule XVI will be modified to reflect the Commission's 
decision not to require a separate account for recording expenses 
attributable to services provided to non-utility companies.
    <bullet> The Analysis of Billing Non-utility Companies--Account 459 
Schedule, will be deleted to reflect the Commission's decision to 
eliminate Account 459.
    <bullet> The schedules for analysis of service company billings 
will eliminate the need to separately report billings to utility 
customers and non-utility customers.
    <bullet> The departmental analysis of salaries schedule will be 
eliminated because the reported data is not comparable across 
companies.
    12. In addition, the Final Rule delays the implementation date of 
the new requirements until January 1, 2008, and makes conforming 
changes to the transition provisions contained in Sec. Sec.  366.21, 
366.22 and 366.23 of the Commission's regulations. The delay in the 
implementation date and the transition periods will allow for a more 
orderly implementation of the new requirements and further reduce the 
compliance burden on affected entities.
    13. The Final Rule, therefore, adopts new parts 367, 368 and 369 
and corresponding changes to parts 366 and 375 of the Commission's 
regulations.

IV. Discussion

    14. In general, the National Association of Regulatory Utility 
Commissioners (NARUC), the American Public Power Association (APPA), 
the Florida Municipal Power Authority (FMPA), and National Rural 
Electric Cooperative Association (NRECA) supported the NOPR while 
Edison Electric Institute (EEI) and individual service companies 
opposed the NOPR.

1. Adoption of the Proposed Uniform System of Accounts

    15. The Commission proposed to adopt a new USofA for Centralized 
Service Companies that generally mirrors the Commission's existing 
USofA for public utilities and licensees and for natural gas companies, 
with certain modifications to reflect the unique business 
characteristics of centralized service companies.
Comments
    16. Several industry commenters urge the Commission to allow 
centralized service companies to continue to use their existing systems 
of accounts.\11\ These commenters contend that centralized service 
companies should not be required to adopt the USofA as proposed in the 
NOPR. EEI, First Energy, and XES also argue that centralized service 
companies should be permitted to continue to maintain their financial 
records in conformance with Generally Accepted Accounting Principles 
(GAAP) and Sarbanes-Oxley requirements.\12\
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    \11\ EEI at 19-20; FirstEnergy Service Company (FirstEnergy) 
Supplemental Comments at 2; Pepco Holdings, Inc. and PHI Service 
Company (PHI Companies) jointly-filed Supplemental Comments at 4-5; 
Progress Energy, Inc. (Progress Energy) at 2; Public Service 
Enterprise Group Incorporated (PSEG Companies) at 9-10; Xcel Energy 
Services, Inc. (XES) at 2-3.
    \12\ EEI at 20-21; FirstEnergy Supplemental Comments at 2; XES 
at 2-3.
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    17. EEI argues that, to the extent there is some detail the 
Commission does not currently have, but wants to obtain, rather than 
requiring centralized service companies to restructure their accounting 
systems, the Commission could simply add items to FERC Form No. 60 to 
obtain that information.\13\
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    \13\ EEI at 18.
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    18. Progress Energy contends that instituting reporting 
requirements that are more complicated and time-consuming runs counter 
to the spirit that prompted the repeal of PUHCA 1935.\14\
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    \14\ Progress Energy at 3.
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    19. PSEG Companies maintain that the Commission has substantially 
underestimated the costs of complying with the NOPR and that it failed 
to balance the costs associated with implementing the NOPR against the 
benefits expected to result from implementation.\15\ PSEG Companies 
state that the proposals in the NOPR, if adopted, would impose more 
regulatory burdens than was required under PUHCA 1935. They state this 
would be inconsistent with the intent of Congress. PSEG Companies 
express their concern that the increased cost of compliance will be 
much higher than the Commission has estimated and that the benefits of 
the rule are non-existent and

[[Page 65203]]

may be counter-productive.\16\ PSEG Companies request the Commission to 
withdraw the requirement that the centralized service companies must 
adopt the USofA, or, at a minimum, modify the NOPR in such a manner 
that provides net public benefits.\17\
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    \15\ PSEG Companies at 3.
    \16\ Id. at 6-7.
    \17\ Id. at 12.
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    20. XES claims that conversion to the new USofA proposed by the 
Commission would be expensive and time consuming, and is unnecessary 
because the current accounts and accounting systems comply with SEC's 
requirements and state regulations. Additionally, XES asserts that it 
does not foresee any additional benefit to federal and state regulatory 
agencies by conversion to the USofA proposed by the Commission.\18\
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    \18\ XES at 3-4.
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    21. Southern Company Services and Southern Nuclear Operating 
Company (Southern) state that the accounting and work order systems now 
in place allow the public utility company receiving service company 
billings to report these expenses using the USofA. They state, further, 
that the Commission's proposal for the centralized service companies to 
use a modified USofA does nothing to enhance that process. They suggest 
that, if the Commission concludes there must be a conversion to its 
USofA, there be flexibility.\19\ In their supplemental comments, 
Southern notes that the Commission receives detailed FERC Form No. 1 
information from all public utility companies, which is where the 
service company charges are ultimately placed in the appropriate USofA 
classification.\20\
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    \19\ Southern at 1.
    \20\ Southern Supplemental Comments at 1.
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    22. Some commenters express their belief that compliance with 
existing reporting requirements, including GAAP and SEC requirements, 
along with the Sarbanes-Oxley and state regulatory requirements, will 
provide adequate information in sufficient detail to ensure 
transparency and facilitate review of centralized service company 
charges.\21\ XES adds, further, that existing federal and state 
requirements ensure the accuracy of records and the adequacy of 
internal accounting controls.\22\ As such, these commenters believe the 
Commission's proposal to adopt the proposed conversion to a USofA is 
unnecessary.\23\
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    \21\ EEI at 17-19; Progress Energy at 2; PSEG Companies at 9-10; 
XES at 3-4.
    \22\ XES at 3.
    \23\ EEI at 23; XES at 3.
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    23. Conversely, APPA supports the Commission's effort to develop a 
comprehensive chart of accounts for centralized service companies. APPA 
believes that the Commission generally has done an admirable and 
workmanlike job of developing a comprehensive chart of accounts for 
centralized service companies. APPA states that such companies are 
likely to perform many operations and maintenance services for their 
public utility affiliates. The costs of these functions should be 
recorded and accounted for in the same way, regardless of exactly what 
entity performs them. APPA reports that some of its members that have 
had to deal with allocations of costs from centralized service 
companies to their public utility affiliates in the past have reported 
that accounting for such service company costs was often vague and 
opaque, recorded in accounts such as ``Administrative and General.'' 
According to APPA, these accounts could lead to improper allocation of 
such costs to utility customers. The new chart of accounts should be of 
material assistance in this regard. Indeed, APPA states that the 
Commission should make clear its intent to use the greater transparency 
achieved by the proposed service company accounting requirements to 
protect ratepayers from the pass-through of improper service company 
costs--i.e., costs that would not be chargeable to ratepayers 
consistent with Commission policy if incurred at the operating company 
level.\24\
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    \24\ APPA at 5.
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    24. NRECA shares APPA's comments and concerns, and urges the 
Commission to adopt regulations ensuring just and reasonable rates by 
prohibiting the pass-through of improper service company costs to 
jurisdictional public utilities.\25\
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    \25\ NRECA Supplemental Comments at 2.
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    25. FMPA supports the NOPR and compliments the Commission on the 
proposed standards, accounting requirements, and new accounts for 
centralized service companies. FMPA states that the rule provides long-
needed transparency and consistency for centralized service companies' 
accounting. FMPA is of the view that the current method is broken, and 
there would not have been a need for a staff technical conference on 
this topic if it were otherwise. FMPA states that the current 
accounting method undermines the Commission's ability to insure just 
and reasonable rates and, that without the proposed reforms, the 
problem will only get worse. FMPA points out that with consolidation 
and mergers likely to follow the PUHCA repeal, inadequacies in the 
current accounting systems will face increasing stress leading to 
consumer harm. FMPA adds that there is growing reliance on formula 
rates at the Commission that heightens the need for greater 
transparency and consistency which also aids in their ability to audit 
and intervene in rate cases. FMPA states that the new USofA should 
facilitate scrutiny of costs passed through to customers, particularly 
as they need proper functionalization of costs under formula rates. 
FMPA indicates that there are centralized service companies that they 
deal with and have extreme difficulty getting the information needed to 
see the transparency. FMPA indicates also that, when they do get access 
to the information, it is very time consuming to ferret out, purge and 
find the information needed because there is not consistency of 
accounting between utilities. FMPA cautions that the Commission should 
not be swayed by the GAAP argument. FMPA states that financial 
reporting under GAAP is oriented toward investors, and that it does not 
provide sufficient regulatory scrutiny to protect the wholesale and 
retail ratepayers or to prevent cross-subsidization. FMPA asks that the 
Commission not water down the NOPR because it would only undermine the 
transparency and consistency that is needed.\26\
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    \26\ See Technical Conference Tr. 111-115 (Mr. Steven Ruppel).
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    26. NARUC and the Wisconsin Commission state that service company 
costs are an important piece to the ratemaking responsibilities at the 
state regulatory level. They state that, typically, costs originating 
at the service company make up a large and increasing percentage of the 
operating expenses of the regulated utilities. They point out that, as 
affiliated companies, these transactions are not made on an arms-length 
basis and, therefore, require additional controls. Therefore, NARUC 
supports the Commission's effort in attempting to increase transparency 
in bringing uniformity of these costs.\27\
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    \27\ See Technical Conference Tr. 90 (Mr. Thomas Ferris).
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Commission Determination
    27. The Commission concludes that a structured USofA as proposed 
under new part 367 of the Commission's regulations is necessary to 
ensure consistency across the centralized service companies and, 
equally important, to ensure the Commission has the information 
necessary to carry out its obligations under PUHCA 2005, the Federal 
Power Act (FPA), and the

[[Page 65204]]

Natural Gas Act (NGA).\28\ In reaching this conclusion, the Commission 
is mindful that one of Congress' goals in repealing PUHCA 1935 was to 
reduce the regulatory burden on holding companies. The Commission, 
nevertheless, finds that the absence of a structured USofA would impede 
the Commission's ability to carry out the new regulatory 
responsibilities imposed by Congress when it adopted PUHCA 2005. 
Without a structured USofA, the Commission would not have adequate 
information to be able to ensure just and reasonable jurisdictional 
rates, discern potential or actual cross-subsidization, or be able to 
approve cost allocations between holding company affiliates.
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    \28\ 42 U.S.C. 16451 et seq.; 16 U.S.C. 824 et seq.; 15 U.S.C. 
717 et seq.
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    28. Although GAAP and the SEC's accounting rules may be sufficient 
for some purposes, they alone are not sufficient for fulfilling the 
Commission's new regulatory responsibilities under PUHCA 2005. In order 
to carry out its regulatory responsibilities, the Commission needs 
accounting information that is more ``granular,'' i.e., more detailed, 
than what is required under GAAP. For example, reporting a single 
figure for total operation and maintenance expense on an income 
statement would satisfy GAAP requirements. However, the Commission 
needs information, among other things, about how much was spent on 
operations compared to maintenance, how much was spent on transmission 
compared to distribution, and what one company spent on an activity 
compared to another for that same activity in order to ensure, for 
example, just and reasonable jurisdictional rates.
    29. Although flexibility in accounting rules may have enabled the 
SEC to meet its regulatory responsibilities, such flexibility will not 
allow the Commission to accomplish its regulatory mandate to ensure 
just and reasonable rates. There are hundreds of entities subject to 
the Commission's jurisdiction. The only way the Commission can 
efficiently carry out this mandate is by requiring these entities to 
account for transactions in a structured and uniform manner. That is 
why the Commission adopted and still maintains USofAs for public 
utilities and licensees and for natural gas companies. A structured 
USofA for centralized service companies is an equally essential tool 
that the Commission needs to carry out its regulatory responsibilities.
    30. Upon further consideration, however, the Commission finds that 
the USofA proposed in the NOPR for centralized service companies may 
include some requirements that, in retrospect, may not be needed. 
Therefore, consistent with the overall objective of not imposing 
unnecessarily burdensome regulatory requirements under PUHCA 2005, we 
are adopting the following modifications suggested by the commenters to 
the proposed USofA to reduce that burden, as discussed below.

2. Implementation Date

    31. The NOPR proposed to require holding companies and service 
companies to implement the new accounting, records retention, and 
reporting requirements on January 1, 2007.
Comments
    32. Several commenters argue that the January 1, 2007 
implementation date does not allow sufficient time to implement the 
Final Rule.\29\ They argue that compliance with the Final Rule, if 
adopted as proposed, would require time, man hours and company 
resources to implement software changes, train personnel, to update 
Sarbanes-Oxley controls, and to receive sign off from internal and 
external auditors. In addition, Progress Energy argues that 
reengineering of company processes, procedures and software, remapping 
of thousands of projects to new Commission accounts, and testing and 
auditing (internal and external) of revised systems would take many 
months to ensure error-free implementation.\30\ The commenters suggest, 
therefore, that the Commission defer compliance with the Final Rule 
until January 1, 2008. According to commenters, this deferral also 
would provide time to issue a Final Rule and an order on rehearing. 
NARUC and other state commissions had no objections to extension of the 
implementation date as long as there was no gap between the SEC's 
regulations and implementation of the Commission's regulations.\31\
---------------------------------------------------------------------------

    \29\ EEI at 45-48; XES at 5; Southern at 2; Progress Energy at 
12; National Grid USA (National Grid) at 14-15; NiSource Inc. 
(NiSource) Supplemental Comments at 3; FirstEnergy Supplemental 
Comments at 4; PHI Companies Supplemental Comments at 5-6.
    \30\ Progress Energy at 12.
    \31\ See Technical Conference Tr. 97-98 (Mr. Thomas Ferris); 
Technical Conference Tr. 101 (Mr. Joseph Buckley); Technical 
Conference Tr. 109 (Mr. James Mitchell).
---------------------------------------------------------------------------

Commission Determination
    33. The Commission agrees with the commenters, and will move the 
implementation date of this Final Rule from January 1, 2007 to January 
1, 2008. As a result, the revised FERC Form No. 60 prescribed in this 
Final Rule will first be due on May 1, 2009 (reporting data for the 
2008 reporting year).\32\ This change will provide companies sufficient 
time to implement software changes, train personnel, update Sarbanes-
Oxley controls, and receive sign off from internal and external 
auditors. The change in implementation date will reduce the burden and 
cost to service companies impacted by the Final Rule. Additionally, the 
Commission will extend the transition periods for holding companies and 
service companies to comply with the Commission's accounting and 
recordkeeping requirements.\33\
---------------------------------------------------------------------------

    \32\ The currently effective FERC Form No. 60 due on May 1, 2007 
and May 1, 2008 will be the FERC Form No. 60 adopted in Order Nos. 
667, 667-A and 667-B. See Repeal of the Public Utility Holding 
Company Act of 1935 and Enactment of the Public Utility Holding 
Company Act of 2005, Order No. 667, 70 FR 75592 (December 20, 2005), 
FERC Stats. & Regs. ] 31,197 (2005), order on reh'g, Order No. 667-
A, 71 FR 28446 (May 16, 2006), FERC Stats. & Regs. ] 31,213 (2006), 
order on reh'g, Order No. 667-B, 71 FR 42750 (July 28, 2006), FERC 
Stats. & Regs. ] 31,224 (2006).
    \33\ In Order No. 667, the Commission established transition 
periods for holding companies formerly ``registered'' under PUHCA 
1935 to comply with the Commission's record retention requirements, 
and for service companies in such holding company systems to comply 
with the Commission's accounting, records retention, and reporting 
requirements. See 18 CFR 366.21(b), 366.22(a)(2), 366.22(b)(2) and 
366.23(b).
---------------------------------------------------------------------------

3. FERC Form No. 60 Filing Deadline

    34. In the NOPR, the Commission proposed to change the filing 
deadline for the FERC Form No. 60 from May 1 to April 18. The proposed 
April 18 filing date is consistent with the filing date for most of the 
Commission's other annual report forms that contain financial 
information.
Comments
    35. EEI proposes that the Commission retain the current FERC Form 
No. 60 filing deadline of May 1 because companies have a number of 
financial reporting requirements with spring due dates affecting the 
same staff. EEI claims accelerating the filing date to April 18 would 
increase the cost of compliance, and increase company staffing needs.
Commission Determination
    36. We will retain the current FERC Form No. 60 filing date of May 
1. Retention of the May 1 date will minimize the burden on service 
companies that may also be responsible for filing FERC Form Nos. 1, 2 
or 6 on behalf of regulated public utility companies and licensees, 
natural gas pipelines, or oil pipelines. The

[[Page 65205]]

Commission will also make submission software available to companies, 
allowing for electronic filing of the revised FERC Form No. 60 for the 
2008 reporting year and subsequent reporting years, similar to the 
submission software used for electronic filing of Form Nos. 1, 2, 2-A, 
3-Q, 6, and 6-Q.\34\
---------------------------------------------------------------------------

    \34\ We note that, contemporaneously with this Final Rule, we 
are issuing, in Docket No. RM06-25-000, a Final Rule providing for 
the electronic filing of the currently-effective FERC Form No. 60 
for 2006 and 2007 reporting years, to be filed on May 1, 2007 and 
May 1, 2008, respectively. See Electronic Filing of FERC Form No. 
60, Order No. 685, published elsewhere in this issue of the Federal 
Register, FERC Stats. & Regs. ] (2006).
---------------------------------------------------------------------------

4. Definitions

(a) ``Direct cost'' and ``Indirect cost''
    37. In the NOPR, the Commission proposed to define ``direct cost'' 
to include ``the labor costs and expenses which can be identified 
through a work order system as being applicable to services performed 
for a single or group of associate and non-associate companies. Costs 
incidental to or related to a directly charged item must be classified 
as a direct cost.'' ``Indirect cost'' was defined to include ``the 
costs of a general overhead nature such as general services, 
housekeeping costs, and other support costs which cannot be separately 
identified to a single or group of associate and non-associate 
companies and, therefore, must be allocated. Indirect costs must be 
accumulated on a departmental basis.'' These are the same definitions 
that were contained in the SEC's former USofA for service 
companies.\35\
---------------------------------------------------------------------------

    \35\ See 17 CFR part 256 (Uniform System of Accounts for Mutual 
Service Companies; Subsidiary Companies, Public Utility Holding 
Company Act of 1935).
---------------------------------------------------------------------------

Comments
    38. Southern recommends redefining the terms ``direct cost'' and 
``indirect cost'' because it believes the definitions of these terms in 
the NOPR require costs it views as direct costs to be recharacterized 
as indirect costs. Southern explains that billings for direct costs 
should include overhead costs, such as employee benefits, as an adder 
to those direct costs, which otherwise would be characterized as 
indirect costs based on the definition in the NOPR. Southern suggests 
the Commission define ``direct cost'' as ``those costs which are 
applicable to services performed for a single client company. Costs 
incidental to, or related to, a directly charged item also should be 
classified as a direct cost.'' Likewise, Southern suggests ``indirect 
cost'' be defined as ``those costs which are not applicable to services 
performed for a single client company and which must be allocated.'' 
Costs incidental to, or related to, indirect items should also be 
classified as an indirect cost.\36\
---------------------------------------------------------------------------

    \36\ Southern at 4; Southern Supplemental Comments at 2.
---------------------------------------------------------------------------

Commission Determination
    39. We do not agree with Southern's assertion that costs such as 
employee benefit costs must be recharacterized as indirect costs. The 
definition for ``direct cost'' includes labor costs and expenses 
applicable to services performed for a single or group of associate and 
non-associate companies and any cost incremental to or related to a 
directly charged item. Based on that definition, employee labor costs 
that are applicable to a service performed for a single or group of 
companies are a ``direct cost'' together with the related employee 
benefit costs.
    40. We also will not adopt Southern's proposal to define ``direct 
cost'' as those applicable to services performed for a single client 
company, and ``indirect cost'' as those not applicable to services 
performed for a single client company. We do not believe Southern's 
proposed definition would be workable in all situations. For example, a 
centralized service company could provide engineering services for a 
construction project that is jointly owned by two associated public 
utilities. In that instance, the labor costs of providing the 
engineering services are a direct cost of the project but the services 
are provided for more than a single client company. Therefore, we will 
adopt the definitions set forth in the NOPR.
(b) ``Work Order System''
    41. In the NOPR, the Commission proposed to adopt the definition 
and requirements of ``work order system'' from the SEC's former USofA 
for service companies. The NOPR, therefore, defined ``work order 
system'' as a system for the accumulation of service company costs on a 
job, project, or functional basis. It includes schedules and worksheets 
used to account for charges billed to single and groups of associate 
and non-associate companies. The requirements of a ``work order 
system,'' in turn, were provided as a General Instruction in Sec.  
367.30. This instruction provides that a service company must maintain 
a detailed classification of service costs that permits costs to be 
identified with the functional processes of the associate companies 
served and also various other accounting and cost allocation records 
needed to support work order charges.
Comments
    42. Commenters suggest that the Commission clarify and redefine the 
term ``work order system'' to incorporate a broader use of the 
term.\37\ XES believes the focus of the Commission, as it relates to a 
work order system, should be on complete and accurate reporting to 
enable it, state commissions, and other interested persons to monitor 
service company activities. XES states that variation in work order 
procedures should not affect the accuracy of reporting, and holding 
company systems should have the flexibility to rely on the systems that 
they have previously developed and implemented.
---------------------------------------------------------------------------

    \37\ EEI Supplemental Comments at 15; FirstEnergy Supplemental 
Comments at 4; XES Supplemental Comments at 2.
---------------------------------------------------------------------------

    43. EEI notes that, at the technical conference, industry panelists 
suggested that work order systems could include the use of a variety of 
systems.\38\ EEI recommends that the Commission replace the current 
definition of ``work order system'' with the following broader 
definition: ``Work order system means a system for the accumulation of 
service company costs on a job, project, or functional basis. It 
includes any method used to account clearly for charges billed to 
single and groups of associate and non-associate companies, including, 
but not limited to, use of actual work orders, electronic 
notifications, bills, ledger entries, or activity-based accounting 
software systems.'' \39\ EEI encourages the Commission to reflect this 
broad meaning of the term ``work order system'' throughout this Final 
Rule, by conforming the regulatory text and preamble to this broadly 
defined concept. To do this, EEI states the following sections should 
be revised to avoid implying that work orders are required: Sec. Sec.  
367.24(a), 367.27, 367.28, 367.58(a), 367.4571, 367.4581, 367.4591, 
367.50(d), 367.52(c), 367.1070(b), 367.1080(c), 367.1520, 367.1850, and 
367.9240(d); and Records Retention Requirements Nos. 13, 15, 16, 17, 
and 19.
---------------------------------------------------------------------------

    \38\ EEI Supplemental Comments at 15.
    \39\ Id. at 16.
---------------------------------------------------------------------------

    44. Commenters also argue that, while the SEC previously had 
regulations on work order systems, the SEC never formally required 
formal work order systems and allowed significant flexibility in how to 
account for inter-affiliate transactions.\40\ They state that, for the 
Commission to impose a formal work order system, centralized service 
companies would incur substantial

[[Page 65206]]

costs to update accounting systems and train workers and their 
companies would decrease operating efficiency would suffer because 
routine and recurring work would now need to be reorganized around 
specific work orders.\41\ National Grid also explains that its current 
practice accomplishes all of the goals sought by the Commission's 
proposed work order system.\42\ Accordingly, the commenters believe the 
Commission should not require the use of a formal work order system, 
but should allow centralized service companies to continue to use their 
prior SEC-approved practices for tracking and assigning service costs.
---------------------------------------------------------------------------

    \40\ EEI at 40; National Grid at 4; XES at 4.
    \41\ EEI at 41; National Grid at 5-6; XES at 4.
    \42\ National Grid at 5.
---------------------------------------------------------------------------

    45. NARUC states that if the Commission determines that a formal 
work order system would be too burdensome, an alternative would be for 
the Commission to use the proposed definition and describe the minimum 
requirements of a work order system. NARUC adds that each centralized 
service company would then be required to file information describing 
its system and how it complies with the Commission's definition and 
minimum requirements. NARUC suggests minimum requirements could include 
a written agreement on the types of work that will be performed by the 
service company for the utility, identification of the work to be 
completed by functional area, and the ability to track the costs to the 
services provided. NARUC states the work order system should separately 
break down costs related to one-time/nonrecurring expenditures. 
Further, if the service company incurs direct costs relating to 
construction work for a utility, NARUC believes the service company 
should have a work order system identical to the one that is required 
under parts 101 and 201 of the Commission's regulations.\43\
---------------------------------------------------------------------------

    \43\ NARUC Supplemental Comments at 6; codified at 18 CFR parts 
101 and 201.
---------------------------------------------------------------------------

Commission Determination
    46. While the Commission would prefer centralized service companies 
to utilize formal work order systems, the Commission also recognizes 
that the goals and purposes of a formal work order system can be met 
through other means, as several commenters suggest. The Commission also 
recognizes that there are increased costs associated with implementing 
a formal work order system. Accordingly, the Commission will replace 
the term ``work order system'' with ``cost accumulation system,'' and 
will modify the instructions in Sec.  367.30 so that the instructions 
do not mandate centralized service companies to implement a formal work 
order system. The Commission, further, will allow centralized service 
companies to use a variety of cost accumulation systems, provided any 
cost accumulation system adopted meets the requirements provided in the 
definition for ``cost accumulation system'' and the requirements 
contained in Sec.  367.30. Also, we will modify the regulations to 
remove language that suggests a formal or uniform work order system is 
required.
    47. The definition for ``cost accumulation system'' in Sec.  
367.1(a)(12) will be

    ``a system for the accumulation of service company costs on a 
job, project, or functional basis. It includes schedules and 
worksheets used to account for charges billed to single and groups 
of associate and non-associate companies. It can be a variety of 
systems, including but not limited to, a work order system or an 
activity-based accounting software system.''

While the instructions in Sec.  367.30 will remain the same, we will 
revise all references to a work order system in the regulations.
    48. In making the changes discussed above, the Commission affords 
centralized service companies flexibility in the type of cost 
accumulation system they use to reflect their costs, and reduces any 
unnecessary burden that may be associated with changing their current 
system for accounting for these costs to a formal ``work order 
system.''

5. Instructions

    49. In the NOPR, the Commission proposed to adopt four categories 
of instructions: General Instructions, Service Company Property 
Instructions, Operating Expense Instructions, and Special Instructions. 
The proposed instructions included most of the instructions contained 
in parts 101 and 201 of the Commission's regulations modified to meet 
the needs of centralized service companies and certain additional 
instructions contained in the SEC's USofA relevant to centralized 
service companies. The specific comments received on these instructions 
are discussed below.
(a) Section 367.2--Companies for Which This System of Accounts Is 
Prescribed
    50. The Commission proposed that the USofA apply to any centralized 
service company operating, or organized specifically to operate, within 
a holding company system for the purpose of providing non-power 
services to any public utility in the same holding company system. 
However, we also proposed to continue the existing SEC exemptions from 
the USofA, including: Special-purpose service companies, electric or 
gas utility companies, companies primarily engaged in the production of 
goods, and service companies that provide services exclusively to a 
local gas distribution company.
Comments
    51. NARUC states that Sec.  367.2 does not adequately ensure the 
existence of proper controls in the event of certain possible 
organization changes. For example, NARUC explains that, in the event 
that a service company is eliminated, the utility may transfer relevant 
service company functions to the holding company, a utility within the 
holding company, or another company within the holding company system. 
NARUC claims there is a risk that such transfers will result in the 
elimination of needed accounting controls relating to these functions, 
because under the proposed rules holding companies and special purpose 
companies would not be required to comply with the new USofA. NARUC 
argues that, in order to assure all service companies that provide 
goods and services to utilities are subject to proper controls, Sec.  
367.2 should be revised to (1) eliminate the special purpose service 
company exemption; (2) clarify that the new USofA applies to the entity 
that performs service company functions, even if it is a holding 
company or a company providing electric or gas utility services; and 
(3) prohibit service company functions from being transferred to a 
utility in the holding company system. NARUC states that, in the 
absence of such modifications the purpose of the Commission's proposed 
regulations may be thwarted.\44\
---------------------------------------------------------------------------

    \44\ NARUC at 3-5.
---------------------------------------------------------------------------

    52. Certain commenters, on the other hand, argue that the 
Commission should maintain its requirement that the new recordkeeping 
and reporting requirements apply to centralized service companies 
only.\45\ EEI states that parent holding companies and their 
subsidiaries may own a variety of assets and undertake a variety of 
activities. Thus, EEI argues, if the Commission were to extend the 
requirements beyond centralized service companies, the Commission would 
need to address a variety of potential scenarios in order to define the 
circumstances in which the requirements would apply to other 
companies--which would complicate

[[Page 65207]]

and increase the accounting and recordkeeping burden.\46\ EEI also 
argues that the Commission should not adopt requests to impose 
constraints on whether and how holding companies establish service 
companies to provide services to their subsidiaries. EEI states that 
neither the FPA nor PUHCA 2005 gives the Commission authority to 
regulate holding company structure and operations in such a manner. 
Additionally, EEI urges the Commission to adopt a new definition for 
centralized service companies that would limit application of the Final 
Rule's accounting and reporting requirements to service companies, and 
to preclude holding companies from being classified as service 
companies. EEI also suggests the Commission specify that only parts 367 
and 368 apply to service companies.\47\
---------------------------------------------------------------------------

    \45\ EEI at 38; EEI Supplemental Comments at 19; CMS Energy 
Corporation and Consumers Energy Company (CMS Energy) Supplemental 
Comments at 3.
    \46\ EEI Supplemental Comments at 21-22.
    \47\ EEI Supplemental Comments at 20.
---------------------------------------------------------------------------

    53. For its part, CMS Energy argues that the Commission already has 
put into place the ability to monitor and respond to any concentration 
of utility functions within special purpose companies through the FERC-
65 \48\ and FERC-61 \49\ reporting requirements established in Order 
No. 667.\50\ CMS Energy states these reporting requirements require 
identification of special purpose service companies and annual 
reporting on the functions of each special purpose company. CMS Energy 
adds that special purpose service companies have a simpler, smaller, 
more focused nature and the FERC-65 and FERC-61 reporting requirements 
are well suited to monitor them, without imposing the USofA and FERC 
Form No. 60 requirements.\51\
---------------------------------------------------------------------------

    \48\ Holding companies that meet the definition of a holding 
company as defined by Sec.  366.1 must notify the Commission of this 
status by submitting FERC-65. See 18 CFR366.4(a).
    \49\ Every service company in a holding company system, 
including a special-purpose company, which does not file a FERC Form 
No. 60 must instead file a narrative description of the service 
company's function during the prior calendar year. See 18 CFR 
366.23(a)(2).
    \50\ Supra note 5.
    \51\ CMS Energy Supplemental Comments at 8.
---------------------------------------------------------------------------

Commission Determination
    54. We have decided that the USofA we are adopting herein will 
apply to centralized service companies only, consistent with Order No. 
667.\52\ We agree with EEI that extending the requirements beyond 
centralized service companies would be a difficult definitional 
exercise that could lead to unnecessary regulatory uncertainty. While 
the Commission shares NARUC's concerns that holding company systems 
could potentially circumvent the Commission's accounting and reporting 
requirements for centralized service companies, the Commission does not 
believe NARUC's recommendations are the best way to address the 
potential issue. At this time it is preferable to monitor developments 
in the industry and assess whether the instructions we are adopting 
lead to circumvention of our rules. If centralized service companies 
begin to decentralize their service functions in an effort to 
circumvent the Commission's accounting and reporting regulations, the 
Commission will take the necessary actions to ensure the Commission has 
the information necessary to carryout its obligations under PUCHA 2005, 
the FPA, and the NGA. The Commission also will not impose restrictions 
on holding company systems which prevent centralized service company 
functions from being transferred to other companies in the same holding 
company system. Such restrictions are outside the Commission's 
statutory authority under the PUCHA 2005, the FPA, and the NGA.
---------------------------------------------------------------------------

    \52\ See Order No. 667 at P 38.
---------------------------------------------------------------------------

    55. We also clarify that holding companies are not subject to the 
rules of this USofA, and we will amend the instructions to Sec.  367.2 
to provide for this exemption. Further, we will adopt in Sec.  367.1(a) 
of the regulations a definition for the term ``centralized service 
company'' based on our discussions in Order No. 667.\53\
---------------------------------------------------------------------------

    \53\ See Order No. 667 at P 37.
---------------------------------------------------------------------------

(b) Section 367.8--Extraordinary Items
    56. In the NOPR, we proposed that centralized service companies 
must obtain Commission approval to record all extraordinary items. 
Extraordinary items are items related to the effects of events and 
transactions that have occurred during the current period and that are 
of an unusual nature and infrequent occurrence.
Comments
    57. EEI and Progress Energy disagree with the Commission's proposed 
requirement that Commission approval is required for an item to be 
accounted for as extraordinary.\54\ They state that this requirement is 
unnecessary and burdensome. Further, they contend, it should be 
sufficient for centralized service companies to follow the GAAP 
requirement for reporting extraordinary items. Progress Energy also 
argues that, to the extent the Commission does not approve an item that 
is a required disclosure for SEC reporting, the Commission runs the 
risk of promoting inconsistent treatment of extraordinary items across 
holding company systems.\55\ Progress Energy adds that such a 
requirement would be an unnecessary burden on Commission staff to 
perform the reviews.\56\ EEI suggests that the Commission should 
require centralized service companies to provide a footnote describing 
any amounts included in Accounts 434, Extraordinary income and Account 
435, Extraordinary deductions.\57\
---------------------------------------------------------------------------

    \54\ EEI at 32; Progress Energy at 10.
    \55\ Progress Energy at 10.
    \56\ Id.
    \57\ EEI at 32.
---------------------------------------------------------------------------

Commission Determination
    58. Upon further consideration, we agree that requiring Commission 
approval for any item to be recognized as extraordinary may impose an 
unnecessary burden on centralized service companies. EEI's suggested 
alternative strikes a balance between the need for disclosure of such 
items and the desire to reduce unnecessary regulatory burden. 
Accordingly, the Commission will not require centralized service 
companies to seek Commission approval for all extraordinary items. 
Rather, as suggested by EEI, the Commission will require centralized 
service companies to include disclosure in the Notes to the Financial 
Statements of the FERC Form No. 60 identifying and describing any 
amounts included in Account 434, Extraordinary income, and Account 435, 
Extraordinary deductions. Accordingly, we will add an instruction to 
Schedule XIV, Notes to Financial Statements, to require disclosure of 
extraordinary items.
(c) Section 367.10--Unaudited Items
    59. Proposed Sec.  367.10 states that, when preparing a financial 
statement required by the Commission, if it is known that a transaction 
has occurred that affects the accounts but the amount involved in the 
transaction and the effect upon the accounts cannot be determined with 
absolute accuracy, the amount must be estimated and the estimated 
amount included in the proper accounts.
Comments
    60. Southern questions the purpose of Sec.  367.10 because its 
financial statements are audited and include all estimable liabilities 
in accordance with GAAP.\58\
---------------------------------------------------------------------------

    \58\ Southern at 5.
---------------------------------------------------------------------------

Commission Determination
    61. Southern's comments are misplaced. The Commission does not at 
this time require the centralized service company financial statements,

[[Page 65208]]

contained in the FERC Form No. 60, to be audited by independent public 
accountants. The purpose of Sec.  367.10 is simply to instruct a 
centralized service company, in preparing such statements, that it must 
use estimates if a transaction occurs that affects a company's accounts 
even if the amount involved in the transaction and its effect upon the 
accounts cannot be determined with absolute accuracy and the estimates 
have not been audited.
(d) Section 367.20(b)--Depreciation Accounting
    62. The NOPR at Sec.  367.20(b) required service companies to 
support the estimated useful service lives of depreciable property with 
engineering, economic, or other depreciation studies.
Comments
    63. Southern recommends the Commission eliminate Sec.  367.20(b) or 
use a more restrictive definition of when a study is needed. Southern 
states that a service company would not typically need ``engineering, 
economic, or other depreciation studies'' to support the useful lives 
of depreciable property, which consists primarily of computer 
equipment, furniture, and other fixtures.\59\
---------------------------------------------------------------------------

    \59\ Southern at 5.
---------------------------------------------------------------------------

Commission Determination
    64. Service companies own a variety of assets. Some centralized 
service companies primarily own office furniture and computers while 
others own more significant assets such as office buildings.\60\ 
Accordingly, some centralized service companies may need to conduct a 
more sophisticated engineering, economic, or other type of depreciation 
study than would others based on the complexity and characteristic of 
the depreciable assets that they own. The intent of the instruction is 
to require service lives of depreciable assets to be supported by 
evidence and analysis. It is not intended to require unnecessarily 
extensive mortality studies to be conducted when the cost of doing so 
cannot be supported by the improved accuracy in depreciation estimates. 
The Commission, therefore, will revise the instructions in Sec.  
367.20(b) to state that the ``estimated useful service lives of 
depreciable property must be supported by objective evidence and 
analysis, including where appropriate engineering, economic, or other 
depreciation studies.''
---------------------------------------------------------------------------

    \60\ See, e.g., American Electric Power Service Company's 2005 
FERC Form No. 60.
---------------------------------------------------------------------------

(e) Section 367.23--Transactions With Non-Associate Companies
    65. Proposed Sec.  367.23 was carried over from the SEC's former 
USofA and requires profits and losses on transactions with non-
associate companies to be recorded in Account 458.4, Excess or 
deficiency on servicing non-associate utility companies (Sec.  
367.4584), and Account 459.4, Excess or deficiency on servicing non-
associate non-utility companies (Sec.  367.4594), as appropriate. It 
also requires centralized service companies to use net profits received 
outside of the holding company system to reduce the cost of providing 
service to associate companies within the holding company system.
Comments
    66. NARUC supports the provisions; however, it explains that, if a 
service provided outside the corporate umbrella becomes profitable, a 
utility might form a new affiliate to provide the service so that 
profits associated with that service will no longer flow back to 
regulated operations.\61\ In that circumstance, it points out, the 
excess profits that would otherwise be available to reduce the costs of 
associate companies may decline. Therefore, NARUC suggests that 
services should not be transferred to a new affiliate if, and when, 
they become profitable. Additionally, NARUC suggests the Final Rule 
could require the centralized service company to report yearly which 
services it provides to outside entities, including an explanation of 
why any services were dropped from one year to the next.
---------------------------------------------------------------------------

    \61\ NARUC at 8.
---------------------------------------------------------------------------

Commission Determination
    67. It is beyond the scope of the Commission's authority under 
PUHCA 2005 to set regulations which prohibit the transfer of services 
performed from one associate company in a holding company system to 
another associate company. Therefore, we will not adopt NARUC's 
suggestion to prohibit services provided outside the corporate umbrella 
by a service company from being transferred to another associate 
company. Nor will we adopt the suggestion that service companies 
provide a yearly report on changes to services provided. A separate 
report is unnecessary because the Commission and others will be able to 
monitor such transfers because they will be reported annually either 
through FERC Form No. 60 or in FERC-61.\62\
---------------------------------------------------------------------------

    \62\ Pursuant to Order No. 667-A, service companies that do not 
file the FERC Form No. 60 must file annually a narrative description 
of their functions, as identified in FERC-61. See 18 CFR 
366.23(a)(2).
---------------------------------------------------------------------------

(f) Section 367.24--Construction and Service Contracts for Other 
Companies
    68. Proposed Sec.  367.24 was carried over from the SEC's former 
USofA for service companies. Section 367.24(b) requires centralized 
service companies to exclude from their accounting system the cost of 
materials, construction payrolls, outside services, and other expenses 
directly attributable to the construction of physical property for 
other companies, and requires that these costs must be charged directly 
by the vendor or supplier to the construction project. Additionally, 
Sec.  367.24(c) requires the cost of goods procured (as opposed to 
services) to be excluded from the accounting system of the service 
company and charged directly by the vendor or supplier to the associate 
company concerned.
Comments
    69. Southern states it does not understand the purpose behind Sec.  
367.24(b) and (c), and recommends their elimination as it requires the 
exclusion of certain direct costs and cost of goods procured from the 
accounting system of the service company.\63\ Southern explains that 
its service companies contract for such expenses on behalf of its 
affiliate companies, as well as incur costs directly that are related 
to construction projects, that are then billed to a utility or other 
affiliate company. EEI requests the Commission clarify to whom Sec.  
367.24(b) applies.\64\
---------------------------------------------------------------------------

    \63\ Southern at 5.
    \64\ EEI at 25.
---------------------------------------------------------------------------

    70. National Grid believes Sec.  367.24 requires that expenses 
associated with the construction services performed by service company 
employees will not be accounted for separately but treated as part of 
the capital investment in assets being constructed. This will cause, in 
National Grid's view, an inconsistency with proposals by the Commission 
to create incentives for transmission construction by allowing expense 
treatment of pre-commercial costs incurred in relation to new 
transmission builds.\65\
---------------------------------------------------------------------------

    \65\ National Grid at 7-9.
---------------------------------------------------------------------------

Commission Determination
    71. We agree with Southern that the purpose and intent of Sec.  
367.24(b) and (c) are somewhat unclear. We believe the ambiguity is due 
in part to the fact that Sec.  367.24(a) does not prescribe specific 
accounts for recording costs incurred in connection with construction 
or service contracts under which the service company undertakes 
projects to

[[Page 65209]]

construct physical property for others. Therefore, we will amend Sec.  
367.24(a) to require that costs incurred for this purpose, as well as 
any other purpose not provided for elsewhere in the expense accounts, 
are to be charged to new Account 412, Costs and expenses of 
construction or other services, adopted in this Final Rule. We also 
will eliminate the ambiguous language contained in Sec.  367.24(b) and 
(c).
(g) Section 367.25--Determination of Service Cost
    72. In the NOPR, the Commission proposed to adopt Sec.  367.25 to 
state that the total amounts included in the expense accounts during 
any period plus the amount that appropriately may be added as 
compensation for the use of capital, if paid, constitute cost during 
that period.
Comments
    73. NARUC requests that the Commission clarify the meaning of the 
phrase ``if paid'' in Sec.  367.25 because the language renders the 
meaning of the section unclear.\66\
---------------------------------------------------------------------------

    \66\ NARUC at 13-14.
---------------------------------------------------------------------------

Commission Determination
    74. The Commission agrees that the phrase ``if paid'' in Sec.  
367.25 is unclear. This instruction is intended to state that the cost 
of services provided equals the total amounts included in the expense 
accounts plus an appropriate amount for the compensation for the use of 
capital. Furthermore, the meaning of compensation for the use of 
capital is explained in Sec.  367.29, Compensation for use of capital. 
Therefore, the Commission finds that the phrase ``if paid'' is 
unnecessary and will modify Sec.  367.25 to remove the phrase.
(h) Section 367.27--Billing Procedures
    75. Proposed Sec.  367.27 requires service companies to bill 
monthly for their services and to include sufficient information in 
such billings to permit any company to properly classify the amount 
billed according to the accounting system prescribed by the regulatory 
authority of such company. This section was carried over from the SEC's 
former USofA for service companies.
Comments
    76. Several commenters disagree with the Commission's proposed 
regulation in Sec.  367.27 on monthly billing procedures.\67\ EEI and 
National Grid argue that generating paper invoices for billings of 
services rendered to associate utility companies on a monthly basis is 
largely unnecessary as the specific charges and their accounting are 
obtainable through the holding company's accounting system.\68\ 
Southern also argues that it does not currently provide the level of 
detail required in Sec.  367.27 to its affiliate companies but that the 
information it does provide is sufficient in detail.\69\
---------------------------------------------------------------------------

    \67\ EEI at 41-42; National Grid at 9-10; Southern at 5.
    \68\ EEI at 41, National Grid at 10.
    \69\ Southern at 5.
---------------------------------------------------------------------------

    77. EEI and FirstEnergy encourage the Commission to clarify in the 
regulatory text and preamble to the Final Rule that service companies 
can bill their clients using a variety of mechanisms as long as the 
service company clients are receiving accurate, timely information 
about the work being done for them and the cost of the work.\70\ 
FirstEnergy notes that it has a fully integrated accounting system 
which provides full access to the information contained within the 
system as it relates to their company. Therefore, FirstEnergy argues 
that there is no need for a formal bill due to the available 
technology.\71\
---------------------------------------------------------------------------

    \70\ EEI Supplemental Comments at 18, FirstEnergy Supplemental 
Comments at 4.
    \71\ FirstEnergy Supplemental Comments at 4.
---------------------------------------------------------------------------

    78. With respect to billing of services rendered to non-associated 
utility companies, these commenters state service companies often 
provide a de minimis amount of services.\72\ Thus, according to 
National Grid, it makes little business sense to undertake the costs of 
establishing a detailed monthly invoicing for non-associated companies 
for services rendered.\73\ The commenters add that those arrangements 
are largely negotiated on an arms-length basis without reference to 
specific costs and would potentially provide sensitive competitive 
information that is not required by any contract between the service 
company and the unrelated party.\74\ Consequently, they contend, the 
Commission's mandated monthly invoice scheme would force the service 
company into a cost of service business, even for non-jurisdictional 
services.\75\
---------------------------------------------------------------------------

    \72\ EEI at 42; National Grid at 10; Southern at 5.
    \73\ National Grid at 10.
    \74\ EEI at 42; National Grid at 10; Southern at 5.
    \75\ EEI at 42; National Grid at 10.
---------------------------------------------------------------------------

Commission Determination
    79. The commenters misunderstood the purpose of this section. It 
was not intended to require the use of paper invoices as some 
commenters concluded. Rather, the intent of this instruction is to 
require centralized service companies to charge their associate public-
utility companies for services provided each month, together with 
enough information to allow these companies to properly classify the 
amount in the accounts prescribed by their regulatory authorities. 
However, in order to eliminate any confusion, we will remove the 
reference to ``invoices'' in Sec.  367.27, and clarify it is only 
intended for billings to associate public-utility companies.
(i) Section 367.51(a)(17)--Allowance for Funds Used During Construction
    80. Proposed Sec.  367.51 provided instructions on the cost of 
construction properly included in the service company property 
accounts. These instructions were taken from the Electric and Gas Plant 
Instructions in parts 101 and 201 of the Commission's regulations, and 
include an allowance for funds used during construction (AFUDC).
Comments
    81. EEI believes that AFUDC, as described in Sec.  367.51(a)(17), 
only has relevance to jurisdictional entities that have been granted 
this provision by regulators.\76\ For service companies, EEI contends, 
a more appropriate approach would be to calculate capitalized interest 
based on GAAP. EEI recommends that the section on AFUDC be removed from 
the proposed rule and that service companies be allowed to capitalize 
interest based on GAAP.\77\
---------------------------------------------------------------------------

    \76\ EEI at 25.
    \77\ Id.
---------------------------------------------------------------------------

Commission Determination
    82. Based on a review of the record in this proceeding, the 
construction projects for service company property do not appear to be 
large and the related interest charges will be relatively 
insignificant. In such circumstances, the Commission agrees the use of 
the proposed AFUDC formula would be unnecessarily complex. Therefore, 
the Commission will modify Sec.  367.51(a)(17) to allow centralized 
service companies to capitalize interest in accordance with GAAP.
(j) Section 367.53--Service Company Property Purchased or Sold
    83. In Sec.  367.53, we proposed to modify Electric and Gas Plant 
Instructions No. 5 in parts 101 and 201 of the Commission's regulations 
to require centralized service company property to be recorded at the 
cost of acquisition rather than its original cost. Section Sec.  367.53 
also requires centralized service companies to file journal entries 
with the Commission when they acquire property at a purchase price of 
$10 million or more

[[Page 65210]]

that has been previously devoted to public service.\78\ This filing 
requirement was intended to provide the Commission and others the 
opportunity to monitor transactions involving property previously 
devoted to public service.
---------------------------------------------------------------------------

    \78\ The $10 million threshold is consistent with the threshold 
for certain transactions subject to section 203 of the FPA, as 
amended by section 1289 of EPAct 2005. See Order No. 669, 71 FR 1348 
(Jan. 6, 2006), FERC Stats. & Regs. ] 31,200 (2005).
---------------------------------------------------------------------------

Comments
    84. NARUC states that the regulations on service company property 
purchased or sold could be used as a vehicle to inflate rate base.\79\ 
For example, it posits, a service company may have bought an asset at a 
premium over original cost to the party that previously owned it and 
recorded the asset on the service company's books at the total 
acquisition cost, after which a public utility may have purchased the 
asset from the service company. To avoid such problems, NARUC suggests, 
the new USofA should require that any asset purchased by a service 
company not be transferred at an amount higher than the original 
purchase price or the remaining original cost, whichever is lower. 
Specifically, NARUC suggests that the following language (italicized 
below) should be incorporated into Sec.  367.53(e), Service company 
property purchased or sold:
---------------------------------------------------------------------------

    \79\ NARUC at 6.

    In connection with the acquisition of property previously 
devoted to service company operations or acquired from an associate 
company, the service company must procure, if possible, all existing 
records relating to the property acquired or related certified 
copies, and must preserve the records in conformity with regulations 
or practices governing the preservation of records of its own 
construction. If the property was previously devoted to utility 
service, the service company must preserve the original cost of the 
property in the records of the service company.\80\
---------------------------------------------------------------------------

    \80\ Id. at 6-7.

    85. NARUC also states that, in order for state commissions to 
monitor the acquisition of property from affiliates, a copy of the 
journal entries also should be filed with the relevant state 
commissions and suggests the following language changes (stricken 
language in brackets or new language italicized below) to incorporate 
---------------------------------------------------------------------------
this concept.

    (c) Unless otherwise authorized by the Commission, all service 
company property acquired from an affiliate company must be at its 
book value. Additionally, if property is acquired that is in excess 
of $10 million and has been previously devoted to public service [at 
a price above book value], the service company must file with the 
Commission the proposed journal entries associated with the 
acquisition within six months from the date of acquisition of the 
property. In addition, a copy of the proposed journal entries filed 
with the Commission must be sent to the state regulatory commissions 
having jurisdiction in the states in which associated utility 
companies provide utility service.\81\
---------------------------------------------------------------------------

    \81\ NARUC at 11-12.

Commission Determination
    86. The Commission will not adopt NARUC's proposed language changes 
to Sec.  367.53. The regulations which are already in place for public 
utilities and licensees, and natural gas companies adequately prevent 
rate base from being artificially inflated. The Commission's 
regulations in parts 101 and 201 require all electric and gas plant 
purchased by a public utility or a natural gas company to be recorded 
at its original cost and the related journal entries must be filed with 
the Commission.\82\ Further, proposed Sec.  367.53(c) requires that 
property acquired from affiliates must be at book value and journal 
entries must be filed with the Commission for purchases of property 
previously devoted to public service in excess of $10 million. 
Therefore, NARUC's proposed language is not necessary, nor do we 
believe it is necessary for the Commission to require copies of journal 
entries to be filed with State commissions. All filings of this nature 
are docketed by the Commission and can be viewed electronically by all 
interested parties. Accordingly, state commissions will be able to 
monitor the acquisition of property from affiliates without imposing an 
additional reporting burden on service companies. We also note that our 
determination here is consistent with the filing requirements applied 
to public utilities, licensees, and natural gas companies for similar 
transactions under the Commission's regulations in parts 101 and 201.
---------------------------------------------------------------------------

    \82\ See, e.g., 18 CFR part 101, Account No. 102.
---------------------------------------------------------------------------

(k) Section 367.54--Expenditures on Leased Property
    87. Proposed Sec.  367.54 requires the cost of improvements made to 
leased property to be used for more than one year to be charged to the 
appropriate service company property account. It also requires that 
amounts charged to service company property be amortized to Account 
404, Amortization of limited-term service property, over the lease term 
if the service life of the improvement is terminable by the action of 
the lease. Otherwise, the improvement is subject to depreciation 
practices normally followed for amounts recorded in the account to 
which the improvement was charged. The forgoing requirements are 
essentially the same requirements for public utilities, licensees and 
natural gas companies for leasehold improvements in Electric and Gas 
Plant Instructions No. 6 of parts 101 and 201 of the Commission's 
regulations.
Comments
    88. Southern notes that GAAP requires that the life of a leasehold 
improvement be co-terminus with the lease; thus, there would not be a 
leasehold improvement whose ``service life is not terminated by action 
of the lease but by depreciation proper.'' \83\ By this section's 
definition, according to the company, all leasehold improvement 
amortization would have to be accounted for as ``amortization of 
limited term property.'' Southern asks what value this information is 
to the Commission.
---------------------------------------------------------------------------

    \83\ Southern at 5.
---------------------------------------------------------------------------

Commission Determination
    89. This instruction provides important guidance on how the costs 
of leasehold improvements are to be recorded and depreciated or 
amortized under the USofA. We, therefore, will retain this instruction. 
Further, we do not believe this instruction prohibits a centralized 
service company from following GAAP as it relates to leasehold 
improvements.
(l) Section 367.59--Additions and Retirements of Property
    90. Proposed Sec.  367.59 requires centralized service companies to 
adopt and maintain a list of retirement units. The list forms the basis 
for determining whether the cost of property-related work should be 
capitalized or charged to expense. In general, if the work involves 
adding or replacing an item of property appearing on the list, the cost 
of the work is capitalized. If the work involves adding or replacing an 
item of property that is not on the list and, therefore, constitutes a 
minor item of property, the cost of the work is charged to expense.
Comments
    91. Southern states it does not believe that retirement units are 
applicable to service company property. Southern states that each 
service company purchase is a discrete unit of property and service 
companies would not be able to maintain a written property units

[[Page 65211]]

listing for use in accounting for additions and retirements of 
property.\84\
---------------------------------------------------------------------------

    \84\ Southern at 5.
---------------------------------------------------------------------------

Commission Determination
    92. We do not agree with Southern that retirement units are not 
applicable to service company property. Establishing a retirement unit 
is necessary to determine whether property-related expenditures should 
be capitalized or expensed. It is the same requirement that is followed 
by public utilities and licensees and by natural gas companies under 
parts 101 and 201 of the Commission's regulations. We see no reason 
service companies should not follow the same practice because they have 
the same assets that an electric or gas company would have if the 
service company did not exist. Therefore, service companies should 
maintain property unit listings.
(m) Sections 367.103-.104--Current and Deferred Income Taxes
    93. Proposed Sec. Sec.  367.103-.104 contain special accounting 
instructions for recognizing income tax expense. Among other things, 
they require the accruals for income taxes to be apportioned among 
service company departments and other income and deductions. These 
requirements were carried over from the Special Instructions for the 
current and deferred tax expense accounts in parts 101 and 201 of the 
Commission's regulations.
Comments
    94. EEI and Progress Energy recommend that there be no requirement 
to calculate or allocate taxes on a department level because income 
taxes are generally computed at a legal entity level, not to individual 
departments.\85\ Progress Energy notes that service companies are not 
income-producing; rather, they are cost centers required to bill all of 
their expenses at cost and their income statements net to zero. The 
only income taxes that are computed for service companies are due to 
timing differences between GAAP and tax accounting, which, according to 
Progress Energy, cannot, in any meaningful way, be associated with 
individual departments. Therefore, Progress Energy states it does not 
have actual income tax accruals for its individual service company 
departments and could not meaningfully apportion the limited timing-
related income tax accruals to the individual departments.\86\
---------------------------------------------------------------------------

    \85\ EEI at 39; Progress Energy at 8-9.
    \86\ Progress Energy at 9.
---------------------------------------------------------------------------

Commission Determination
    95. Upon further consideration, the Commission agrees that it is 
not practical or necessary for centralized service companies to 
calculate income taxes for individual departments. Therefore, the 
regulations will be revised to eliminate this requirement.
(n) Section 367.23--Transactions With Non-Associate Companies; Sec.  
367.25--Determination of Service Cost; Sec.  367.27--Billing 
Procedures; Sec.  367.28--Methods of Allocation; Sec.  367.29--
Compensation for Use of Capital
    96. The proposed sections of the Commission's regulations listed 
above specify rules or standards that must be applied in accounting for 
certain transactions or events. The rules are fairly broad in their 
application and were carried over from the SEC's USofA for service 
companies.
    97. More specifically, Sec.  367.23 requires that the excess or 
deficiencies in providing services to non-associated companies to be 
recorded in Account 458.4, and that the net excess be used to reduce 
charges to associate companies. Section 367.25 states that a service 
must be deemed at cost and the total amounts included in the expense 
accounts during any period plus the amount that appropriately may be 
added as compensation for the use of capital constitutes cost during 
that period. Section 367.27 provides that charges for services to 
associate public-utility companies be made monthly with sufficient 
information and in sufficient detail to permit such company, where 
applicable, to identify and classify the charge in terms of the system 
of accounts prescribed by the regulatory authorities to which it is 
subject. Section 367.28 requires that indirect costs and compensation 
for use of capital must be allocated to projects in accordance with the 
service company's applicable and currently effective methods of 
allocation. Section 367.29 states that interest on borrowed capital and 
compensation for the use of capital must represent a reasonable return 
on the amount of capital reasonably necessary for the performance of 
services or construction work for associate companies. It also requires 
that the amount of compensation be separately stated on each billing to 
associate companies and an annual statement to support the amount of 
compensation for the use of capital billed for the previous 12 months 
be supplied to each associate company at the end of the calendar year.
Comments
    98. EEI argues that the proposed rule goes beyond accounting 
regulations and adopts cost allocation and billing practice principles 
in the definition of ``indirect cost'' and in Sec. Sec.  367.23, 
367.25, 367.27, 367.28, and 367.29.\87\ EEI states these cost 
allocation and billing principles should be made applicable only in the 
context of service company cost allocations the Commission is asked to 
review under section 1275 of PUHCA 2005.\88\
---------------------------------------------------------------------------

    \87\ EEI at 39.
    \88\ Section 1275 of PUHCA 2005 provides that in the case of 
non-power goods or administrative or management services provided by 
an associate company organized specifically for the purpose of 
providing such goods or services to any public utility in the same 
holding company system, at the election of the system or a State 
commission having jurisdiction over the public utility, the 
Commission, must review and authorize the allocation of costs for 
those goods or services to the extent relevant to that associate 
company. See 42 U.S.C. 16462.
---------------------------------------------------------------------------

Commission Determination
    99. The Commission disagrees with EEI's assertion that the matters 
addressed in these sections of the regulations are only applicable in 
the context of cost allocation reviews under section 1275 of PUHCA 
2005. Costs are incurred continually and on an on-going basis by 
centralized service companies and these costs must be accounted for and 
eventually reported to the Commission in the FERC Form No. 60. The 
noted regulations provide important guidance to centralized service 
companies as to how the items covered by those regulations should be 
accounted for as the transactions or events occur. For example, Sec.  
367.23 requires excesses or deficiencies in providing services to non-
associate companies to be recorded in Account 458.4, and Sec.  367.25 
provides that ``cost'' includes reasonable compensation for the use of 
capital. The guidance that these instructions provide promotes 
uniformity in accounting practices.
    100. As it relates to the portions of these sections which relate 
to cost allocation and billing requirements, we note that such 
regulations are necessary to carry out the Commission's obligations and 
duties under PUCHA 2005, the FPA and the NGA. These instructions assist 
the Commission in ensuring just and reasonable jurisdictional rates, 
discerning potential or actual cross-subsidization, and approving cost 
allocations between holding company affiliates. Therefore, these 
instructions are needed beyond the review required under section 1275 
of PUCHA 2005 and are adopted as proposed.

[[Page 65212]]

6. Balance Sheet Accounts
    101. In the NOPR, the Commission proposed to adopt in the new USofA 
for centralized service companies many, but not all, of the balance 
sheet accounts contained in parts 101 and 201 of the Commission's 
regulations, as well as the primary property Accounts 301 (Sec.  
367.3010), 303 (Sec.  367.3030) and 389 to 399.1 (Sec. Sec.  367.3890 
to 367.3991).
Comments
    102. EEI suggests that the Commission add the following balance 
sheet accounts to part 367 subpart F:

Account 106--Completed construction not classified
Account 182.3--Other regulatory assets
Account 189--Unamortized loss on reacquired debt
Account 228.2--Accumulated provision for injuries and damages
Account 228.3--Accumulated provision for pensions and benefits
Account 254--Other regulatory liabilities \89\
---------------------------------------------------------------------------

    \89\ EEI at 26.

    103. These accounts were not included in the SEC's Uniform System 
of Accounts.\90\ However, a review of 2005 FERC Form No. 60s indicates 
that some companies are using these accounts.\91\
---------------------------------------------------------------------------

    \90\ 17 CFR part 256.
    \91\ See, e.g., Schedule I Comparative Balance Sheet contained 
in 2005 FERC Form No. 60 of American Electric Power Service 
Corporation, E. ON U.S. Services INC, PHI Service Company, and 
Progress Energy Service Company, LLC.
---------------------------------------------------------------------------

    104. In addition, EEI and Southern suggest that the Commission make 
improvements to Account 146, Accounts receivable from associate 
companies, and Account 123, Investment in associate companies.\92\ EEI 
argues that the requirement to classify long-term receivables as 
investments in associate companies is contrary to GAAP, and recommends 
elimination of this requirement.\93\ Southern asserts that, on 
occasion, operating companies do not have to submit payment 
immediately. The company argues that the delay in payment could exceed 
12 months, which, according to Southern, would be appropriately 
classified as long-term receivables and not as investments in associate 
companies.\94\
---------------------------------------------------------------------------

    \92\ EEI at 26; Southern at 6.
    \93\ EEI at 26.
    \94\ Southern at 6.
---------------------------------------------------------------------------

    105. NARUC asks that the Commission clarify the meaning of ``common 
expenditures'' in Sec.  367.1070, Construction work in progress, 
because, in its opinion, the proposed language renders the section 
unclear.\95\ NARUC also believes proposed Sec.  367.1070 includes 
language that may not be appropriate for a service company doing work 
for more than an associate public utility company. Accordingly, it 
requests that the Commission clarify the language (italicized below) in 
Sec.  367.1070 as follows:
---------------------------------------------------------------------------

    \95\ NARUC at 14.

    (b) Work orders must be cleared from this account as soon as 
practicable after completion of the job. Further, if a project is 
designed to consist of two or more units that may be placed in 
service at different dates, any expenditures that are common to and 
that will be used in the operation of the project as a whole must be 
included in service company property upon the completion and the 
readiness for service of the first unit...\96\
---------------------------------------------------------------------------

    \96\ NARUC at 14.

    106. NiSource states that the definitions of proposed Accounts 233, 
Notes payable to associate companies (Sec.  367.2330) and 234, Accounts 
payable to associate companies (Sec.  367.2340) appear to be identical. 
The language of the definitions, it suggests, should be clarified to 
indicate that Account 233 applies to notes payable, whereas Account 234 
applies to accounts payable.\97\
---------------------------------------------------------------------------

    \97\ NiSource at 3.
---------------------------------------------------------------------------

Commission Determination
    107. EEI did not explain in its comments why it suggests that the 
Commission add the recommended accounts. However, our review of a 
number of the FERC Form No. 60s filed with the Commission for calendar 
year 2005 indicates that some of the recommended accounts are already 
being used by service companies.\98\ For other recommended accounts it 
appears reasonably possible that service companies either already have 
or could enter into transactions in the future requiring use of those 
accounts. Therefore, the Commission will add the following balance 
sheet accounts recommended by EEI to part 367 subpart F:
---------------------------------------------------------------------------

    \98\ See, e.g., Schedule I Comparative Balance Sheet contained 
in 2005 FERC Form No. 60 of American Electric Power Service 
Corporation, E. ON U.S. Services INC, PHI Service Company, and 
Progress Energy Service Company, LLC.

Account 106, Completed construction not classified
Account 182.3, Other regulatory assets
Account 189, Unamortized loss on reacquired debt
Account 228.2, Accumulated provision for injuries and damages
Account 228.3, Accumulated provision for pensions and benefits
Account 254, Other regulatory liabilities

    108. The Commission also will add Account 306, Leasehold 
improvements, as a transitional accommodation only.\99\ Account 306 was 
included in the SEC's Uniform System of Accounts.\100\ Use of this 
account will be restricted to leasehold improvements placed in service 
prior to January 1, 2008. Effective January 1, 2008, leasehold 
improvements must be charged to the appropriate primary plant account 
consistent with Sec.  367.54. Conforming changes to Schedules II and 
III of the FERC Form No. 60 will be made to permit reporting of amounts 
related to Account 306.
---------------------------------------------------------------------------

    \99\ Account 306 was contained in the SEC USofA for service 
companies. We will permit continued use of this account and not 
require reclassification of amounts recorded therein for leasehold 
improvements placed in service prior to January 1, 2008.
    \100\ 17 CFR part 256.
---------------------------------------------------------------------------

    109. In response to EEI and Southern's comments concerning Account 
123, Investment in associate companies, we note that, in the NOPR, the 
Commission proposed to adopt Account 146, Accounts receivable from 
associate companies, (Sec.  367.1460) as contained in parts 101 and 201 
of the Commission's regulations. The text to Account 146 requires that 
items which do not bear a specified due date, but which have been 
carried for more than 12 months and items which are not paid within 12 
months from the due date be transferred to Account 123, Investment in 
associate companies. This requirement results in classifying 
receivables that are long-term in nature to a long-term asset account 
(Account 123) and facilitates preparation of a classified balance sheet 
directly from the accounts. Although the Commission could prescribe a 
new account created specifically for recording long-term accounts 
receivables held by service companies, as Southern suggests, it would 
create an inconsistency between the accounts prescribed for service 
companies and those prescribed for public utilities and licensees and 
for natural gas companies. To ensure consistency between the service 
companies and the public utilities and natural gas companies, the 
Commission will continue to require long-term accounts receivables to 
be recorded in Account 123, Investment in associate companies.
    110. In response to NARUC's comments concerning Account 107, 
Construction work in progress, we agree that the instructions contained 
in Sec.  367.1070 that address construction projects consisting of 
multiple units with different in-service dates are unclear. Therefore, 
the Commission will modify that section and adopt NARUC's recommended 
clarifying language.

[[Page 65213]]

    111. Additionally, in response to NiSource's comments we will 
revise the language in Account 234 (Sec.  367.2340) to indicate that 
Account 234 applies to accounts payable. The language is revised to 
read, ``This account must include all amounts payable to associate 
companies by the service company within one year, which are not 
provided for in other accounts.''

7. Income Statement Accounts

    112. In the NOPR, the Commission proposed to incorporate some of 
the income statement accounts contained in parts 101 and 201 of the 
Commission's regulations and some of the income statement accounts 
contained in the SEC's USofA for service companies. The specific 
comments received on these accounts are discussed below.
(a) Sections 367.4570-.4594--Revenue Accounts for Services Rendered
    113. In the NOPR, we proposed to adopt new revenue control Accounts 
457, Services rendered to associate utility companies; Account 458, 
Services rendered to non-associate utility companies; and Account 459, 
Services rendered to non-utility companies. We proposed that each of 
these new revenue control accounts have corresponding subaccounts for 
direct labor (Accounts 457.1, 458.1 and 459.1) and indirect labor 
(Accounts 457.2, 458.2 and 459.2), and compensation for use of capital 
(Accounts 457.3, 458.3 and 459.3). We also proposed to include revenue 
Accounts 458.4, Excess or deficiency on servicing non-associate utility 
companies, and 459.4, Excess or deficiency on servicing non-associate 
non-utility companies. Our proposal differed slightly from the SEC's 
USofA for service companies, which provided control accounts for 
revenues from services provided to associate companies and revenues 
from services provided to non-associate companies.
Comments
    114. National Grid and NiSource believe that the Commission should 
provide for separate revenue control accounts for services to associate 
companies and to non-associate companies, and that these accounts 
should each be further subdivided into separate accounts or subaccounts 
tracking services to utility and non-utility companies in order to 
satisfy the Commission's stated goals and to provide a more detailed 
picture of service company revenues.\101\ These commenters believe that 
this added detail (i.e., separately identifying revenues associated 
with services to associate, non-utility companies and non-associate, 
non-utility companies) would not impose a significant burden over the 
status quo, but would provide a more detailed picture of service 
company services rendered for non-utility companies than the 
Commission's proposed regulations would require. As an alternative, 
NiSource requests that the Commission clarify that all service company 
revenues received from non-utility companies are to be charged to 
Account 459.4, whether or not they are derived from companies that are 
part of the same holding company system.\102\ Southern believes that 
subaccounts should be added for all direct and indirect charges 
including the non-labor components of billings.\103\
---------------------------------------------------------------------------

    \101\ National Grid at 11-12; at 2-3.
    \102\ NiSource at 2-3.
    \103\ Southern at 4.
---------------------------------------------------------------------------

    115. In contrast, EEI believes most service companies will not have 
information needed to distinguish between direct labor, indirect labor, 
and use of capital costs for services provided to associate utilities, 
non-associate utilities and non-utilities. Instead, EEI encourages the 
Commission to retain the current breakdown into services rendered to 
associate and non-associate companies, at most subdividing the 
associate company information by utility and non-utility if necessary 
to address cross subsidization concerns. EEI also recommends that the 
Commission delete the requirement for tracking revenue related to the 
use of capital, and states that it is a minor aspect of service company 
activities already reflected elsewhere in company accounts.\104\
---------------------------------------------------------------------------

    \104\ EEI at 27-28.
---------------------------------------------------------------------------

    116. Progress Energy expresses concerns that requiring the redesign 
of allocation processes and systems to capture and disaggregate expense 
and revenue data to distinguish utility and non-utility services would 
impose a significant and unjustified burden on company resources 
without any appreciable benefit. Progress Energy points out that 
service companies already have procedures in place to prevent 
inappropriate costs shifts and other cross subsidization, and that the 
separation of costs as proposed by the Commission is not 
necessary.\105\
---------------------------------------------------------------------------

    \105\ Progress Energy at 6-9.
---------------------------------------------------------------------------

Commission Determination
    117. In response to commenters' concerns, the Commission will adopt 
revenue accounts that will provide a breakdown by services rendered to 
associate and non-associate companies, but eliminate the requirement to 
record revenues from services provided to utilities and non-utilities 
in separate accounts. The Commission believes this modification to the 
NOPR is appropriate because this information can be obtained in the 
FERC Form No. 60, Analysis of Billing Schedule, which requires 
reporting amounts billed by customer for the year. Therefore, this 
modification will reduce burden without loss of important data. More 
specifically, we will adopt the following revenue control accounts and 
corresponding subaccounts: Account 457, Services rendered to associate 
companies; Account 457.1, Direct costs charged to associate companies; 
Account 457.2, Indirect costs charged to associate companies; Account 
457.3, Compensation for use of capital-associate companies; Account 
458, Services rendered to non-associate companies; Account 458.1, 
Direct costs charged to non-associate companies; Account 458.2, 
Indirect costs charged to non-associate companies; Account 458.3, 
Compensation for use of capital-non-associate companies; Account 458.4, 
Excess or deficiency on servicing non-associate companies. Consistent 
with the discussion above, we will not adopt proposed Accounts 459, 
459.1, 459.2, 459.3, and 459.4. Use of Accounts 457, 457.1, 457.2, 
457.3, 458, 458.1, 458.2, 458.3, and 458.4 is consistent with the 
requirements that existed under the SEC's USofA for service companies. 
Contrary to EEI's assertion, our review of 2005 FERC Form No. 60s 
indicates that service companies are capable of breaking down amounts 
billed between direct costs, indirect costs and compensation for 
capital.\106\
---------------------------------------------------------------------------

    \106\ 2005 FERC Form No. 60, Analysis of Billing--Associate 
Companies Schedule and Analysis of Billing--Non-associate Companies 
Schedule.
---------------------------------------------------------------------------

(b) Sections 367.5000 and 367.8000--Operation and Maintenance Expense 
Accounts
    118. In the NOPR, the Commission proposed to require centralized 
service companies to use the 500 and 800 series of accounts contained 
in parts 101 and 201 of the Commission's regulations for recording the 
expenses related to generation, transmission and distribution operation 
and maintenance services they provide to associate public-utilities and 
licensees and, where applicable, associate natural gas companies.
Comments
    119. NARUC initially indicated that it was unclear how the 500 and 
800 series

[[Page 65214]]

accounts will be impacted by the types of services that centralized 
service companies provide.\107\ In supplemental comments filed 
following the staff technical conference, NARUC explains that, at the 
July 18, 2006 Technical Conference, it became clear that because some 
service companies currently use the 500 and 800 series accounts, it 
could be reasonable to include the accounts in the centralized service 
company's USofA.\108\ NARUC believes the question the Commission needs 
to determine is whether these accounts should be mandatory. NARUC 
believes that if the Commission determines that use of the 500 and 800 
series accounts should not be mandatory for all service companies, then 
the Commission needs to identify the accounting methods that best 
reflect the financial position of the service companies and associate 
companies within a holding company system. NARUC suggests that one 
approach would be to establish a threshold for when the use of the 500 
and 800 series accounts would become mandatory. NARUC suggests that a 
possible threshold could be a percentage, such as 10 percent or less, 
of utility costs or of service company expenses. Another option, NARUC 
suggests, is to require the use of the 500 and 800 series accounts 
whenever a service company starts performing utility functions that 
should be recorded in the 500 and 800 series accounts. NARUC also 
suggests that the Commission prohibit the recording of charges 
classified in Account 923, Outside services on the utility's records, 
and, instead, it suggests that the Commission mandate that service 
company charges be classified in accordance with the utility account or 
function to which they relate because, in some cases, all costs are 
classified in Account 923. NARUC explains that adoption of this 
recommendation is necessary if the Commission adopts a threshold.\109\
---------------------------------------------------------------------------

    \107\ NARUC at 8-9.
    \108\ NARUC Supplemental Comments at 3-6.
    \109\ NARUC Supplemental Comments at 3-5.
---------------------------------------------------------------------------

    120. Mr. Buckley, a participant at the technical conference, 
indicates that in Ohio they have experienced an explosion of service 
company costs recently. Mr. Buckley states that service company costs 
make up a large and increasing percentage of the costs that are 
ultimately passed on to ratepayers. Mr. Buckley points out that mergers 
and consolidations are moving the physical records and altering the 
existing relationships that state regulators have with the companies 
they regulate. According to Mr. Buckley, this makes it harder to know 
to whom to go to get information and, therefore, any increase in 
transparency is a positive step.\110\ Mr. Buckley adds that, if the 
service companies become more centralized, citing American Electric 
Power as an example and noting that consolidation in the industry could 
lead to things becoming more centralized, the 500 and 800 accounts will 
provide for growth.\111\
---------------------------------------------------------------------------

    \110\ See Technical Conference Tr. 101-102 (Joseph Buckley).
    \111\ See Technical Conference Tr. 120-121 (Joseph Buckley).
---------------------------------------------------------------------------

    121. In contrast, several commenters do not believe that the 500 
and 800 series accounts accurately portray the majority of service 
company costs.\112\ While National Grid recognizes that some companies 
already record costs and revenues to match the accounting accorded to 
such costs and revenues by the ultimate service recipients, it asserts 
there is no reason to require wholesale reclassification of costs and 
revenues by all service companies. National Grid also believes this may 
lead to an inaccurate picture of a service company's financial 
position, and explains that using the 500 and 800 series accounts 
implies that the service company owns the assets that it is operating 
and maintaining.\113\
---------------------------------------------------------------------------

    \112\ NARUC at 8-9; Progress Energy at 3; EEI at 22-24; NiSource 
Supplemental Comments at 4-6; FirstEnergy Supplemental Comments at 
3.
    \113\ National Grid at 7-8.
---------------------------------------------------------------------------

    122. EEI and Progress Energy assert that requiring the use of the 
500 and 800 series of accounts would cause service companies to be out-
of-compliance with GAAP principles.\114\ Progress Energy explains that 
GAAP principles presume that each company reports its financial 
information as if it were a stand-alone (non-affiliated) company. It 
explains that force-fitting a centralized service company's financials 
into the format reported by a public utility would result in books that 
do not properly reflect the work conducted by a centralized service 
company and would over-complicate the accounting, increase the risk of 
errors inherent in any process or system change and violate GAAP 
principles.\115\ In addition, EEI and NARUC contend that the burden 
associated with the 500 and 800 series accounts is greater than the 
benefit.\116\
---------------------------------------------------------------------------

    \114\ Progress Energy at 6; EEI at 22-24.
    \115\ Progress Energy at 6.
    \116\ EEI at 5-6; NARUC at 8-9.
---------------------------------------------------------------------------

Commission Determination
    123. We will require centralized service companies to use the 500 
and 800 series of accounts as proposed. It is evident from the July 18, 
2006 Technical Conference and from a review of the 2005 FERC Form No. 
60s that a number of service companies use the 500 and 800 series 
accounts. These centralized service companies perform operation and 
maintenance services related to generation, distribution, transmission, 
and customer services for associate electric and gas companies. The 
expenses incurred from providing these types of services are most 
accurately reported in the 500 and 800 series accounts.
    124. We do not agree with National Grid that use of these accounts 
by centralized service companies performing the types of services for 
which costs are properly included in these accounts would result in an 
inaccurate picture of the service company's financial position. To the 
contrary, we believe the use of these accounts will add transparency to 
centralized service company costs and will facilitate comparison across 
such companies. Centralized service companies that offer operation and 
maintenance services related to generation, distribution, transmission, 
and services perform the same type of work and incur the same costs 
that a public utility would incur if that public utility performed the 
work itself. Therefore, we will require centralized service companies 
to record the expenses it incurs for conducting operation and 
maintenance activities related to generation, transmission, 
distribution and customer services in the same expense accounts public 
utilities are required to use to record these costs. Using the 500 and 
800 series of accounts also provides better assurance that costs are 
properly assigned because like items will be identified and measured in 
the same way regardless of the entity performing the work. Although EEI 
and Progress Energy suggest that this is somehow in violation of GAAP 
principles, they offer nothing in the way of concrete evidence or 
reference to specific accounting standards to support this allegation. 
Furthermore, even if such evidence did exist, and we do not believe it 
does, the Commission's need for comparability and transparency of 
service company expenses provided by use of the 500 and 800 series of 
accounts would outweigh concerns about conformity with GAAP principles.
    125. In responding to NARUC's concern, we will not prohibit the 
recording of charges in Account 923, Outside services. Prohibiting the 
use of this account would be overly prescriptive. It is possible that 
some service company costs would be accurately reported in Account 923. 
However, we believe that it is appropriate for utilities that receive 
bills

[[Page 65215]]

from service companies to classify those costs in the appropriate 
accounts. Utilities would not be in compliance with part 101, General 
Instruction 14, if they do otherwise. Specifically, General Instruction 
14 requires that transactions with associated companies be recorded in 
the appropriate accounts for transactions of the same nature. We will 
require that centralized service companies performing services such as 
operation and maintenance services related to generation, distribution, 
transmission, and customer service on behalf of service companies to 
use the appropriate accounts for those services performed.
    126. We do not agree with NARUC that the use of thresholds is an 
option for determining when centralized service companies must use the 
500 and 800 accounts. As discussed above, the use of the 500 and 800 
accounts provides clarity about the types of services performed by 
centralized service companies and the costs of providing those 
services. Proper classification of service company costs facilitates 
proper classification of the costs at the utility. Therefore, we will 
require centralized service companies to use the 500 and 800 series of 
accounts as proposed.
(c) Sections 367.9220 and 367.4171--Account 922, Administrative 
Expenses Transferred--Credit, and Account 417.1, Expenses of Non-
Utility Company
    127. In the NOPR, the Commission proposed that the portion of 
administrative, general, and customer expenses recorded in the 900 
series of expense accounts, but attributable to services provided to 
non-utility companies, be transferred to proposed Account 417.1, 
Expenses of non-utility company related operations, with a contra-
credit to Account 922, Administrative expenses transferred-credit.
Comments
    128. EEI and Progress Energy request clarification regarding the 
adoption of Account 922 since most service company expenses are 
recorded in Accounts 920, Administrative and general salaries, and 921, 
Office supplies and expenses.\117\ Progress Energy states that service 
companies are labor intensive, so most of their expenses are currently 
charged to Accounts 920 and 921. Progress Energy also states that the 
Commission should not adopt its proposal to credit Account 922 with 
administrative expenses recorded in Accounts 920 and 921 that are 
transferred to construction costs or to other accounts or with the 
amount of operating expenses related to services provided to non-
utility companies and Account 417.1, Expenses of non-utility company 
related operations. In addition, Progress Energy points out that its 
accounts are mapped to the appropriate associate company accounts in 
compliance with the Federal (e.g., Commission and SEC) and state 
regulatory reporting requirements imposed on the affiliated companies. 
Further, Progress Energy explains that its cost allocation methodology 
and charging practices have been approved by state regulatory 
commissions and are currently consistent with inter-company service 
agreements. If required to comply with this proposal, Progress Energy 
asserts its processes, systems and legal documents will have to be 
changed even though the associate companies already accurately report 
their allocations in compliance with Federal and state 
requirements.\118\
---------------------------------------------------------------------------

    \117\ Progress Energy at 9-10; EEI at 24-26.
    \118\ Progress Energy at 9-10.
---------------------------------------------------------------------------

    129. EEI states there is confusion related to the credit posted in 
Account 922. EEI states that many of these costs are administrative and 
general costs that are allocated based on service agreement 
methodologies and that the proposed process would require service 
companies to keep track of a dollar spent on administrative and general 
labor so the dollar could be recorded partly in the administrative and 
general series and partly ``below the line'' in Account 417.1. EEI 
states this would result in a process to build a ``clump'' of expenses 
in Account 417.1 that would be essentially useless to the service 
company. EEI recommends that the Commission not implement, or require 
companies to use, the proposed accounting treatment for new Account 
417.1.\119\
---------------------------------------------------------------------------

    \119\ EEI at 24-25.
---------------------------------------------------------------------------

Commission Determination
    130. Upon further consideration, the Commission has concluded that 
it is not necessary at this time for centralized service companies to 
record expenses attributable to services provided to non-utility 
companies in a separate account because the information reported in the 
Analysis of Billing Schedule should be sufficient to identify such 
amounts. The Analysis of Billing Schedule requires centralized service 
companies to report all amounts billed for services during the year on 
a company by company basis. Since services are billed at cost, it will 
be possible to determine the expenses attributable to services provided 
to non-utilities from the schedule. Therefore, Accounts 417.1, Expenses 
of non-utility company, and Account 922, Administrative expenses 
transferred--credit, will be deleted from Sec. Sec.  367.9220 and 
367.4171.
(d) Section 367.4160--Costs and Expenses of Merchandising, Jobbing and 
Contract Work; Sec.  367.9120--Demonstrating and Selling Expenses; 
Sec.  367.9130--Advertising Expenses; Sec.  367.9301--General 
Advertising Expenses
    131. In the NOPR, the Commission proposed to adopt Account 416, 
Costs and expenses of merchandising, jobbing and contract work; Account 
912, Demonstrating and selling expenses; Account 913, Advertising 
expenses; and Account 930.1, General advertising expenses as they 
presently appear in parts 101 and 201 of the Commission's regulation 
into the USofA for centralized service companies.
Comments
    132. NARUC states that it is difficult to determine in which 
accounts different types of advertising costs should be recorded. It 
also states that the Commission should anticipate service companies 
providing promotional services to non-utility affiliates. To address 
these concerns NARUC suggests: Revising Sec.  367.4160 to clarify that 
only the cost of merchandising and contract work performed for 
associated utility companies is recorded in Account 416, Costs and 
expenses of merchandizing, jobbing and contract work for associate 
companies; revising Sec.  367.9120 and Sec.  367.9130 to clarify that 
demonstrating, selling and advertising costs incurred to promote/retain 
either the service companies services/customers or associate companies 
services/customers are recorded in these accounts; and revising Sec.  
367.9301 to clarify that only general advertising costs incurred on 
behalf of associated utility companies are recorded in this 
account.\120\
---------------------------------------------------------------------------

    \120\ NARUC at 9-12.
---------------------------------------------------------------------------

Commission Determination
    133. The Commission agrees that Sec. Sec.  367.416, 367.912 and 
367.913 should be clarified. We will adopt the revisions suggested by 
NARUC for Sec. Sec.  367.912 and 367.913 and incorporate others that 
will clarify what amounts are properly included in these accounts. In 
considering the suggested revisions to Sec.  367.416, the Commission 
has determined that services related to merchandising, jobbing and 
contract work could be performed on behalf of associate, non-associate, 
utility or non-

[[Page 65216]]

utility companies. Consequently, we do not believe the use of Account 
416 should be limited to costs of merchandising, jobbing and contract 
work performed for associate utility companies. Additionally, we have 
concluded that it is inappropriate to place Account 416 within the 
Other Income section of FERC Form No. 60, Schedule XV--Comparative 
Income Statement, as proposed in the NOPR. Services performed related 
to merchandising, jobbing and contract work are an operating activity 
of a service company and the cost of those services should be included 
in an account that enters into the determination of net operating 
income of the service company. Therefore, we will revise Schedule XV to 
reflect Account 416, Costs and expenses of merchandizing, jobbing and 
contract work, as an operating expense account and require revenues 
related to merchandising, jobbing and contract work to be recorded in 
Accounts 457, Services rendered to associate companies and 458, 
Services rendered to non-associate companies, as appropriate. Account 
415, Revenues for merchandising, jobbing and contract work, will be 
eliminated from the USofA for centralized service companies. Finally, 
we consider Account 930.1 to be a general ``catch all'' account for 
recording advertising costs not provided for elsewhere in the accounts. 
Therefore, we will not adopt NARUC's recommendation to limit its use to 
advertising related to associate utility companies.
(e) Sections 367.4263, 367.4117, 367.4180--Miscellaneous Income 
Statement Issues
Comments
    134. EEI states that the numbering appears to be incorrect in Sec.  
367.4263.\121\ EEI also states the following accounts should be added 
to subpart H: Account 411.7, Losses from disposition of service company 
plant; and Account 418, Non-operating rental income.\122\
---------------------------------------------------------------------------

    \121\ EEI at 26.
    \122\ Id. at 27.
---------------------------------------------------------------------------

Commission Determination
    135. EEI did not explain in its comments why the numbering should 
be corrected in Sec.  367.4263 or why the Commission should add the 
recommended accounts. However, our review of a number of the FERC Form 
No. 60s filed with the Commission for calendar year 2005 indicates that 
these accounts are used by some service companies.\123\ Therefore, we 
will correct the numbering in Sec.  367.4263, and add Account 411.7, 
Losses from disposition of service company plant, and Account 418, Non-
operating rental income.

8. Records Retention Requirements

    136. Order No. 667 required all holding companies and all service 
companies, which were not granted a waiver or otherwise exempted by the 
Commission, to follow the Commission's records retention requirements 
in parts 125 and 225. The NOPR proposed to establish, as new part 368 
of the Commission's regulations, records retention requirements for all 
holding companies and all service companies. The records retention 
requirements proposed were based on the requirements contained in 
Sec. Sec.  125.3 and 225.3 of the Commission's regulations,\124\ with 
certain modifications considered appropriate for holding companies and 
service companies.
---------------------------------------------------------------------------

    \123\ See, 2005 FERC Form No. 60, Schedule XV, Comparative 
Income Statement for American Electric Power Service Corporation.
    \124\ See 18 CFR 125.3 and 225.3.
---------------------------------------------------------------------------

Comments
    137. EEI notes that the NOPR is unclear as to whether a holding 
company that also is a public utility would be subject to both the 
Commission's holding company and public utility records retention 
requirements. EEI requests that the Commission specify that only one 
set of records retention requirements apply and allow the company 
involved to select the most appropriate set to apply. Furthermore, if 
the holding company is already following the public utility records 
retention requirements, it should be able to continue to do so without 
also having to follow the new holding company records retention 
requirements.\125\
---------------------------------------------------------------------------

    \125\ EEI at 39.
---------------------------------------------------------------------------

    138. NARUC requests that the records retention general instruction 
at Sec.  368.2(g) be amended to include the requirement for companies 
to file a copy of a certified statement of records prematurely lost or 
destroyed with state commissions to facilitate the state commissions' 
ability to monitor the activities of service companies.\126\
---------------------------------------------------------------------------

    \126\ NARUC at 12.
---------------------------------------------------------------------------

    139. Southern requests that the records retention requirements be 
better tailored for a service company. Specifically, Southern proposes 
that the retention period for accumulated depreciation records should 
be reduced because the majority of service company property has useful 
lives significantly less than the 25-year retention period proposed in 
the NOPR.\127\
---------------------------------------------------------------------------

    \127\ Southern at 6.
---------------------------------------------------------------------------

Commission Determination
    140. The records retention requirements originally proposed, and as 
adopted here, generally are based on the requirements contained in 
parts 125 and 225 of the Commission's regulations,\128\ with certain 
minor modifications appropriate for holding companies and service 
companies. As a result, most retention periods proposed for holding 
companies and service companies are identical to the retention periods 
required for public utilities and licensees and natural gas pipelines. 
Additionally, the general instructions for parts 125 and 225 and 
proposed Sec.  368.2(a)(5) make clear that ``To the extent that any 
Commission regulations may provide for a different records retention 
period, the records must be retained for the longer of the retention 
periods.'' If a holding company that is also a public utility has a 
conflict between the retention period specified for a public utility 
and the retention period specified for a holding company, the longer of 
the retention periods must be observed. Therefore, we do not believe it 
is appropriate to specify that only one set of records retention 
requirements apply.
---------------------------------------------------------------------------

    \128\ See 18 CFR 125.2(a)(3) and 225.2(a)(3).
---------------------------------------------------------------------------

    141. We deny NARUC's request to amend the records retention 
instruction at Sec.  368.2(g) to include a requirement for companies to 
file a copy of a certified statement of records prematurely lost or 
destroyed with state commissions. We do not believe it is necessary for 
the Commission to establish filing requirements for state commissions. 
All filings of this nature are docketed by the Commission and can be 
viewed electronically by all interested parties. Accordingly, state 
commissions will be able to monitor the report of prematurely lost or 
destroyed records without imposing an additional reporting burden on 
companies. We note that this is the same treatment applied to public 
utilities, licensees, and natural gas companies under the Commission's 
regulations in parts 125 and 225.
    142. We agree with Southern's observation related to holding and 
service company property, and will tailor the schedule of records 
retention periods. Specifically, we will reduce the retention period 
for accumulated depreciation records reflecting the service life of 
property at Sec.  368.3--Item 24, Records of accumulated provisions for 
depreciation and depletion from 25

[[Page 65217]]

years to 3 years after retirement or disposition of property.\129\
---------------------------------------------------------------------------

    \129\ Most holding and service company property typically has a 
useful life significantly less than 25 years, for example office 
furniture and equipment and computer software have shorter useful 
lives than generating facilities or transmission towers. Therefore, 
establishing a shorter retention period for accumulated depreciation 
records that closely corresponds to the expected useful life of the 
related property is more reasonable.
---------------------------------------------------------------------------

9. FERC Form No. 60

(a) Use of GAAP Financial Statement Instead of Structured FERC Form No. 
60
    143. The Commission proposed a structured reporting format in 
proposed FERC Form No. 60 in the NOPR. Under the structured format, a 
centralized service company must report in specified data fields the 
financial information called for in the report.
Comments
    144. In its supplemental comments, in contrast to its initial 
comments,\130\ EEI suggests the FERC Form No. 60 be based on the 
original FERC Form No. 60 set out in the Commission's December 8, 2005 
Order No. 667 Final Rule (December 2005 FERC Form No. 60), with 
additional changes EEI requests to streamline the form. EEI believes a 
streamlined version of the December 2005 FERC Form No. 60, together 
with data the Commission receives directly from public utilities and 
the Commission's new FPA section 203 regulations,\131\ should suffice 
to enable the Commission to perform its regulatory 
responsibilities.\132\ In its supplemental comments, EEI further 
encourages the Commission to work with a streamlined version of the 
December 2005 FERC Form No. 60 with changes EEI has requested to 
further streamline the form.\133\ Southern, PHI Companies, and 
FirstEnergy support EEI's comments that the FERC Form No. 60 be a 
streamlined version of the December 2005 FERC Form No. 60. These 
commenters, together with EEI, believe this streamlined FERC Form No. 
60 provides the transparency and uniformity that the Commission desires 
without imposing undue burden. However, Southern also suggests that the 
Commission should allow companies the option of submitting their 
audited GAAP financial statements instead of FERC Form No. 60.\134\
---------------------------------------------------------------------------

    \130\ In its initial comments to the NOPR, EEI proposed the 
Commission rely on information provided in the SEC Forms 10-K and 
10-Q supplemented by selected additional information the Commission 
may need instead of the new FERC Form No. 60.
    \131\ See 18 CFR part 33.
    \132\ EEI Supplemental Comments at 2.
    \133\ Id.
    \134\ Southern at 2.
---------------------------------------------------------------------------

    145. Conversely, APPA thinks that the revised FERC Form No. 60 will 
be very useful in auditing and understanding centralized service 
company cost allocations to public utility operating companies.\135\
---------------------------------------------------------------------------

    \135\ APPA at 3.
---------------------------------------------------------------------------

Commission Determination
    146. The December 2005 FERC Form No. 60 is essentially the SEC's 
old Form U13-60 for service companies with certain streamlining changes 
adopted in Order No. 667. The December 2005 FERC Form No. 60, like the 
old SEC Form U13-60, is a non-structured reporting format that permits 
filers wide latitude and flexibility in how they report required 
financial information. While the Commission understands the centralized 
service companies'' desire to have flexibility in reporting, the 
Commission believes that it is necessary to have a structured reporting 
system. A structured report format results in disclosure and display of 
predetermined financial information in a uniform manner by all 
centralized service companies. This promotes comparability of the data 
not only between entities but also between accounts prescribed. 
Increasing the comparability of the data makes the information 
inherently more useful. Moreover, a structured report format allows for 
the creation of a financial database that can be used for more complex 
and sophisticated analysis of the information. These items are 
important to allow the Commission to perform its duties. It also will 
facilitate electronic submission using Commission-supplied software. 
This system will help ensure the integrity of the data and make 
completing the FERC Form No. 60 easier.
    147. In response to Southern's suggestion, we do not believe that 
audited GAAP financial statements would be sufficient for carrying out 
the Commission's regulatory responsibilities. GAAP financial statements 
are prepared primarily for investors, and do not provide information in 
enough detail to ensure that jurisdictional rates charged are just and 
reasonable or to review cost allocations under section 1275 of PUHCA 
2005 \136\ if called upon to do so. Therefore, the Commission will not 
modify the proposed requirement for a structured FERC Form No. 60.
---------------------------------------------------------------------------

    \136\ Supra note 5.
---------------------------------------------------------------------------

(b) FERC Form No. 60 Schedules
(1) Schedule II, Service Company Property
    148. Proposed Schedule II requires centralized service companies to 
report the amounts recorded in the service company primary property 
accounts and construction work in progress at the beginning of the 
year, changes to the accounts during the year, and the balance at the 
end of the year.
Comments
    149. Southern does not see the added value of the supplemental 
information provided in Instructions 2-4 \137\ and proposes their 
elimination. Southern comments the break out of the property by account 
gives sufficient information.\138\
---------------------------------------------------------------------------

    \137\ Instruction 2 requires a breakdown of each equipment 
subaccount for each class of equipment property owned. Instruction 3 
requires a description of other company property. Instruction 3 
requires a listing of construction work-in-progress projects and the 
beginning, additions and end-of-year balance for each.
    \138\ Southern at 2.
---------------------------------------------------------------------------

Commission Determination
    150. The Commission agrees that the information required by 
Instructions 2 and 3 is of little value to the Commission and will be 
deleted. However, we will continue to require centralized service 
companies to provide information about construction projects similar to 
the December 2005 current FERC Form No. 60, Instruction 4. Instead of 
providing the information in a footnote format, we are revising the 
schedule to provide for additional lines on the schedule for reporting 
this information.\139\
---------------------------------------------------------------------------

    \139\ The December 2005 FERC Form No. 60 requires this 
information to be reported in a footnote.
---------------------------------------------------------------------------

(2) Schedule III-A, Summary of Service Company Property and Accumulated 
Provisions for Depreciation and Amortization
    151. Schedule III-A would require companies to split out property 
devoted to utility versus non-utility services.
Comments
    152. EEI contends this reporting requirement should be deleted 
because company records do not differentiate service company property 
between utility related and non-utility services.\140\ FirstEnergy 
argues that assets devoted exclusively to the utility are on the books 
of the utility and not on the service company books.\141\
---------------------------------------------------------------------------

    \140\ EEI at 29.
    \141\ FirstEnergy Supplemental Comments at 3.

---------------------------------------------------------------------------

[[Page 65218]]

Commission Determination
    153. We agree with EEI and will eliminate this schedule from FERC 
Form No. 60. All service company property will be reported in Account 
101.
(3) Schedule IV, Investments and Schedule XII, Long-Term Debt
    154. Proposed Schedule IV provides detailed information on service 
company investments in associate companies and temporary cash 
investments. Proposed Schedule XII provides detailed information on 
long-term debt of the service company. Both schedules require the same 
information as in the current FERC Form No. 60.
Comments
    155. EEI proposes to eliminate schedules that include information 
already available on the face of the Balance Sheet or within the 
detailed footnotes. Examples include Schedule IV, Investments and 
Schedule XII, Long Term Debt.\142\
---------------------------------------------------------------------------

    \142\ EEI at 29.
---------------------------------------------------------------------------

Commission Determination
    156. We disagree with EEI that the information reported on Schedule 
IV and Schedule XII is available on the Balance Sheet. Long-term debt 
and investments are reported on the Balance Sheet as aggregate totals. 
Schedule IV and Schedule XII provide significant additional details 
that allow for a greater understanding of the aggregate totals reported 
on the Balance Sheet. For example, short-term investment schedules 
provide specific details on where centralized service companies have 
invested excess cash flows from operations and Schedule XII provides 
specific details on service company long-term capital. We do not agree 
that footnote disclosure is an adequate substitution for these 
supporting schedules because the format for footnotes is unstructured 
and does not allow for database archiving and retrieval. Therefore, the 
Commission will retain these schedules.
(4) Schedule V, Accounts Receivable From Associate Companies
    157. This schedule identifies accounts receivable for each 
associate company and reports convenience payments.
Comments
    158. EEI and Southern recommend the portion of this schedule 
identifying convenience payments \143\ should be eliminated. If 
retained, EEI recommends the Commission modify the schedule to report 
the total convenience payments made during the year, consistent with 
the December 2005 FERC Form No. 60 reporting. EEI states that service 
companies do not necessarily identify convenience payments separately, 
and this information would be time consuming to gather. Also, EEI does 
not understand the usefulness of this information to the Commission; 
beginning and ending convenience payment balances are not meaningful 
because convenience payments are Expense accounts, rather than Balance 
Sheet accounts.\144\
---------------------------------------------------------------------------

    \143\ Convenience payments represent payments such as benefits, 
outside legal, and consulting paid by service companies to outside 
vendors and others on behalf of associate companies.
    \144\ EEI at 33; Southern at 2-3.
---------------------------------------------------------------------------

Commission Determination
    159. We agree it is not necessary to require beginning and ending 
convenience payment balances. Consequently, we will not adopt that 
portion of the proposed Schedule V that would require reporting the 
beginning and ending balances of convenience payments. Instead, we will 
retain the December 2005 FERC Form No. 60 requirement of reporting 
total convenience payments by associate company.
(5) Schedule VI, Fuel Stock Expenses Undistributed
    160. Proposed Schedule VI requires centralized service companies to 
report labor and expenses incurred during the year with respect to fuel 
stock and the amounts attributable to each associate company. It also 
requires a summary of the fuel functions performed by the service 
company.
Comments
    161. Southern comments that Schedule VI requires extracting data 
from work order billings through an annual process to meet the annual 
report requirement. Southern recommends elimination of this schedule 
based on its limited value.\145\
---------------------------------------------------------------------------

    \145\ Southern at 3.
---------------------------------------------------------------------------

Commission Determination
    162. For centralized service companies performing fuel services for 
utilities, this is an important supporting schedule. Some companies 
report large amounts of labor and other expenses. The reported 
information includes amounts billed to each associate company including 
electric and gas utilities, which ultimately could be reflected in cost 
of service. Consequently we will retain this schedule.
(6) Schedule X, Research, Development or Demonstration Expenses
    163. Proposed Schedule X requires a description of all research, 
development and demonstration projects engaged in by the centralized 
service company and the related costs incurred during the year.
Comments
    164. EEI and Southern state project titles may not provide 
meaningful information to the Commission. EEI and Southern recommend 
that service companies have the option instead to list account balance 
by project partner, citing the U.S. Department of Energy, as an 
example.\146\
---------------------------------------------------------------------------

    \146\ EEI at 34; Southern at 3.
---------------------------------------------------------------------------

Commission Determination
    165. The Commission disagrees with EEI and Southern that Schedule X 
requires a project title. The schedule requires a description of the 
project, not the project title. Knowing the project partner alone does 
not provide useful information. More relevant information is a 
description of the nature of the project and not just who is the 
project partner. Therefore, the schedule will be retained the same as 
in the FERC Form No. 60.
(7) Schedule XI, Proprietary Capital
    166. Proposed Schedule XI discloses common and preferred stock 
shares authorized, outstanding, par or stated value, as well as 
information on miscellaneous paid-in capital, appropriated retained 
earnings and other comprehensive income. The second part of the 
schedule presents information similar to a statement of retained 
earnings.
Comments
    167. EEI and Southern state the first section of this schedule 
duplicates Schedule I, Comparative Balance Sheet except for shares 
outstanding.\147\ EEI argues the second section of this schedule is 
new, and generally not applicable to a service company.\148\ EEI and 
Southern recommend including the shares outstanding on Schedule I, 
Comparative Balance Sheet, and deleting this schedule.\149\
---------------------------------------------------------------------------

    \147\ EEI at 34; Southern at 3.
    \148\ EEI at 34.
    \149\ EEI 34; Southern at 3.
---------------------------------------------------------------------------

Commission Determination
    168. The Commission disagrees with commenters regarding what is 
reported on this schedule. Commenters indicate only outstanding shares 
of stock are reported. The schedule asks for class of

[[Page 65219]]

stock, number of shares authorized, par or stated value per share, and 
outstanding shares. Further, the schedule requests explanations about 
transactions which gave rise to miscellaneous paid-in capital and 
appropriated retained earnings. Additionally, the schedule requests 
information on changes in unappropriated retained earnings such as net 
income and dividends paid. This requirement is not new; it is part of 
the FERC Form No. 60. The requirements are not overly burdensome. 
Consequently, we will retain the current requirements. A statement of 
retained earnings is a basic financial statement. However, we agree 
with EEI's suggestion that a statement of retained earnings is not 
applicable to a service company; so, we will delete that portion of the 
schedule which includes the added statement of retained earnings.
(8) Schedule XIV, Notes to Financial Statements
    169. Instruction No. 3 of Schedule XIV states ``Furnish particulars 
as to any significant increase in services rendered or expenses 
incurred during the year.''
Comments
    170. EEI recommends the Commission not implement this reporting 
requirement in the notes section.\150\ EEI states this introduces an 
element of Management's Discussion and Analysis (MD&A) that is part of 
GAAP disclosure requirements, but has never been a requirement of the 
FERC Form No. 60, Form No. 1, or Form No. 2. EEI indicates that an 
explanation of service company expense variances is frequently 
scrutinized by state regulators and would unnecessarily add to the 
administrative burden of annual reporting. EEI contends this level of 
detail could be provided on an ad hoc basis as needed, and, when it is 
needed, companies would like the flexibility of attaching a Microsoft 
Word file rather than re-keying voluminous footnote data into the 
Commission's automated reporting application.
---------------------------------------------------------------------------

    \150\ EEI at 34.
---------------------------------------------------------------------------

Commission Determination
    171. Contrary to EEI's assertion, Instruction No. 3 is not a new 
reporting requirement. Instruction No. 3 is included in the December 
2005 FERC Form No. 60 under Schedule XVIII, Notes to the Statement of 
Income. Any large increase in services and expenses could impact cost 
allocations which would be useful information to the Commission and 
others. The disclosure of significant increases in services rendered or 
expenses incurred is particularly relevant to understanding the 
business operations of the centralized service company and the 
efficiency or inefficiency of providing services on a centralized basis 
to associated utilities. Furthermore, reporting this information should 
not be administratively burdensome. As EEI notes, this type of 
information is already part of the MD&A in its GAAP disclosures. The 
Commission's FERC Form No. 60 submission software will allow copy and 
paste of this information into the footnote page. Consequently, we will 
retain the instruction as proposed.\151\
---------------------------------------------------------------------------

    \151\ EEI at 34 and 35.
---------------------------------------------------------------------------

(9) Schedule XV, Comparative Income Statement
    172. Proposed Schedule XV requires centralized service companies to 
report revenues, expenses, gains and losses for the current and prior 
year by account.
Comments
    173. EEI states that the Commission should not require reporting of 
information broken down into accounts that do not make sense for a 
given service company. EEI states that there seems to be a presumption 
in the NOPR that the service company income statement can be presented 
in a ratemaking format, with an ``above the line'' and ``below the 
line'' character. EEI points out, that just as with the proposed use of 
the 500 and 800 series of operational and maintenance expense accounts, 
this presumption does not fit well with many service company 
operations, which typically consist primarily of labor services to 
other companies.\152\
---------------------------------------------------------------------------

    \152\ EEI at 30.
---------------------------------------------------------------------------

Commission Determination
    174. The Schedule XV, Comparative Income Statement, we are adopting 
for the revised FERC Form No. 60 will require centralized service 
companies to report the amounts entered in the income statement 
accounts adopted in this Final Rule. These accounts were developed to 
be of sufficient scope and breadth to allow for recording the economic 
effects of all transactions and events that could impact a centralized 
service company. As noted elsewhere in this Final Rule, not all service 
companies are engaged in all of the activities for which use of the new 
accounts would be required. This, however, does not mean that the 
accounts do not ``fit well'' or do not ``make sense'' for centralized 
service companies, as EEI seems to suggest. It means only that more 
accounts exist under the USofA than might be used by any particular 
centralized service company. If a centralized service company does not 
incur costs properly included in one of the new accounts adopted in 
this Final Rule, it simply would not record anything in that account.
(10) Schedule XV-A, Schedule of Utility Operating Expenses; Schedule 
XVI, Analysis of Charges for Service; Schedule XVII, Schedule of 
Expense Distribution by Department or Service Function
    175. Proposed Schedule XV-A requires centralized service companies 
to report all amounts entered in the 500 and 800 series of operation 
and maintenance expense accounts. Proposed Schedule XVI requires 
centralized service companies to report direct and indirect costs 
charged to associate utility companies, associate non-utility 
companies, non-associate utility companies and non-associate non-
utility companies. Proposed Schedule XVII requires centralized service 
companies to report service cost billed by department or service 
function and overhead costs.
Comments
    176. EEI recommends that the Commission consider deleting Schedule 
XV-A and either Schedule XVI or XVII.\153\ EEI states that, whichever 
of these schedules the Commission retains, the Commission should allow 
companies to report total amounts for each account or group of accounts 
listed rather than by direct and indirect or overhead costs. In EEI's 
opinion, the breakdown by direct, indirect, and use of capital would 
require companies to parse the information in each account or set of 
accounts to too fine a degree with no clear benefit. EEI indicates that 
if Schedule XVI is retained, the Commission should follow the SEC's 
past practice of having companies distinguish the information for 
associate and non-associate companies, ideally by group of accounts 
rather than by utility versus non-utility.\154\
---------------------------------------------------------------------------

    \153\ EEI at 36.
    \154\ Id.
---------------------------------------------------------------------------

    177. In addition, EEI encourages the Commission not to require 
information to be broken down as shown on Schedule XVII by service 
company department or service function.\155\ As presented, EEI states, 
the schedule would require companies to break down internal financials 
across the array of USofA accounts by department or

[[Page 65220]]

function, requiring far too much detail with no clear benefit.\156\ 
Southern states departmental/functional reporting by account adds 
difficulty and would not be consistent among companies.\157\
---------------------------------------------------------------------------

    \155\ EEI at 36.
    \156\ Id.
    \157\ Southern Supplemental Comments at 3.
---------------------------------------------------------------------------

    178. NARUC, on the other hand, states Schedule XVI is important 
since it allows a comparison of direct and indirect costs allocated to 
utility companies and non-utility companies while showing the 
allocation of 100 percent of these costs to the various billing 
groups.\158\ NARUC indicates this is needed to ensure utility companies 
are not treated differently from non-utility companies. NARUC suggests 
simplifying this schedule, at least for the 500 and 800 series of 
operation and maintenance expense accounts; NARUC contends it may be 
possible to allow companies to provide information by group of 
accounts.
---------------------------------------------------------------------------

    \158\ NARUC Supplemental Comments at 7.
---------------------------------------------------------------------------

    179. NARUC explains that Schedule XVII assists state regulators in 
classifying charges on the utility's records, helps in judging the 
reasonableness of service company charges and whether such charges 
duplicate what the utility incurs internally, and focuses attention on 
comparisons between what gets charged to the associated utility 
companies and non-utility companies. NARUC proposes expanding Schedule 
XVII to provide a breakdown by associate utilities and non-utilities, 
and by non-associate companies. NARUC states this is important to make 
a comparison of departmental costs allocated to associate utility and 
non-utility companies because these comparisons ensure that associate 
utility companies are not treated differently from associated non-
utility companies.\159\
---------------------------------------------------------------------------

    \159\ Id.
---------------------------------------------------------------------------

Commission Determination
    180. The Commission agrees with EEI that the information required 
in proposed Schedule XV-A is unnecessary, and will delete Schedule XV-
A. The same information is reported in Schedule XVI, Analysis of 
Charges for Services, except for comparable information for the prior 
year. Therefore, the Commission will delete Schedule XV-A.
    181. The Commission will also delete Schedule XVII. With regard to 
Schedule XVII, Southern notes that departmental/functional reporting 
would not be consistent among companies. Departments and functions are 
not standardized and, therefore, comparison across companies is not 
possible. While we agree with NARUC that Schedule XVII may provide some 
useful departmental/functional information, on a company by company 
basis, requiring the reporting on an annual basis may be an unnecessary 
burden. NARUC's proposal to expand Schedule XVII to include reporting 
by individual associate and non-associate utility companies, associate 
non-utility companies and non-associate companies points to a weakness 
in the current schedule. In fact, the schedule does not disclose 
information on charges to utility companies except through the 
department service or functional category. The additional expense 
accounts required under the new USofA will provide better functional 
information and lessen the need for this schedule. The information 
provided in Schedule XVI will enable the Commission to capture 
information about charges for services provided to utility companies. 
If departmental/functional information is needed, the information can 
be obtained from each centralized service company on a case-by-case 
basis without the need to be reported annually. Therefore, the 
Commission will delete Schedule XVII.
    182. The Commission will retain Schedule XVI, but modify the 
schedule to remove the utility versus non-utility expense separation, 
consistent with our decision concerning the service company revenue 
accounts discussed elsewhere in this Final Rule. While the utility 
versus non-utility expense separation is removed, the total amounts 
assigned to individual utility companies are available in the Analysis 
of Billing schedules. This will result in returning to the associate 
company/non-associate company expense separation contained in the 
December 2005 FERC Form No. 60. We also will revise Schedule XVI to 
roll up certain expense classifications suggested by EEI and NARUC to 
reduce the burden associated with completing this schedule.
(11) Analysis of Billing Schedules
    183. In the NOPR, the Commission proposed to modify the Analysis of 
Billing schedules that report billings to each company for services 
provided by the centralized service companies by breaking out the 
schedules into associate utility, non-associate utility and non-utility 
companies.
Comments
    184. EEI indicates the Commission should not require reporting of 
information broken down into utility and non-utility services, in 
particular for non-associate companies where the service company often 
will not have this information. Service companies currently report 
their services provided by individual company in the FERC Form No. 60, 
on schedules ``Analysis of Billing--Associate Companies'' and 
``Analysis of Billing--Non-associate Companies.'' EEI argues these 
schedules provide ample information of the sort being proposed and that 
no additional detail is necessary.\160\
---------------------------------------------------------------------------

    \160\ EEI at 29.
---------------------------------------------------------------------------

    185. Southern recommends the schedule, Analysis of Billing--Non-
associate Companies, be revised to request the names and amounts for 
non-associate companies only for those that exceed 10% of the total 
non-associate billings. Southern argues this would reduce the time 
spent in preparation of this schedule while still providing the 
Commission with the names of all non-associate companies of 
consequence.\161\
---------------------------------------------------------------------------

    \161\ Southern Supplemental Comments at 3.
---------------------------------------------------------------------------

Commission Determination
    186. We agree with EEI's comments that the Analysis of Billing 
schedules contained in the December 2005 FERC Form No. 60 provide 
sufficient information concerning the customers to whom amounts are 
billed, and a further separation of those customers into utility and 
non-utility classifications for purposes of this schedule is not needed 
by the Commission since specific information about utilities is already 
reported separately in the current Analysis of Billing schedules. 
Therefore, consistent with our decision above to eliminate Account 459, 
Services rendered to non-utility companies, we will also eliminate the 
proposed schedule ``Analysis of Billing Nonutility Companies--Account 
459.'' Also, we will revise the ``Analysis of Billing Schedules'' for 
Accounts 457, Services rendered to associate companies, and 458, 
Services rendered to non-associate companies to reflect only a 
separation of billings between associate and non-associate companies, 
consistent with our decision on the service company revenue accounts 
discussed elsewhere in this Final Rule. The Commission will not adopt 
Southern's proposal to reduce the reported number of non-associate 
companies. The requirement is not overly burdensome and allows the 
Commission to observe all billings to such companies.
(12) Departmental Analysis of Salaries Schedule; Methods of Allocation 
Schedule; and Organizational Chart Schedule
    187. The proposed Departmental Analysis of Salaries Schedule 
reports the amount of service company salaries

[[Page 65221]]

billed by department or service function to the parent holding company, 
associate companies, and non-associate companies and the number of 
employees. The Methods of Allocation Schedule reports the allocation 
factors used to allocate indirect costs to each associate company. The 
Organizational Chart schedule reports how the service company is 
organized.
Comments
    188. EEI states these schedules involve what it considers 
organizational reporting and recommends eliminating the schedules 
because adequate oversight can be accomplished without this level of 
detail, and accurate comparisons between companies would be very 
difficult.\162\ If the Methods of Allocation schedule is retained, EEI 
requests the Commission continue its current practice of allowing 
companies to list their allocation methods, as they currently do in the 
FERC Form No. 60, rather than having to elaborate on the methods in the 
form. EEI indicates companies should not be required to key voluminous 
formulas, by service rendered, into the automated reporting 
application.\163\
---------------------------------------------------------------------------

    \162\ EEI at 30.
    \163\ EEI at 31.
---------------------------------------------------------------------------

    189. Southern does not see the benefit to the Commission of 
providing a current Organizational Chart in the FERC Form No. 60 and 
proposes that this requirement be eliminated. Southern argues it is not 
required for FERC Form No. 1.\164\
---------------------------------------------------------------------------

    \164\ Southern at 3.
---------------------------------------------------------------------------

Commission Determination
    190. The Commission will eliminate the Departmental Analysis of 
Salaries Schedule. Consistent with our decision above regarding our 
decision to eliminate Schedule XVII, departmental or functional 
categories are difficult to compare because they are not standardized. 
If needed, the information can be obtained from centralized service 
companies on a case-by-case basis.
    191. The Commission will retain the Methods of Allocation schedule, 
however, because that is the only means readily available to determine 
how indirect costs are being allocated to services provided. The 
current schedule has no instructions and Staff's review of 2005 FERC 
Form No. 60s indicated poor reporting. The main purpose of the schedule 
is to disclose what allocation ratios are used and what numerator and 
denominator were used to create the ratio. We are revising the 
instruction, accordingly.
    192. The Commission will also continue to require submission of an 
Organization Chart in the FERC Form No. 60 as proposed. An Organization 
Chart provides basic information about the hierarchical structure of 
the service company. It provides useful information to the Commission 
about how the centralized service company deploys its resources and the 
relationship between organizational departments within the centralized 
service company and the allocation of costs to services, functions and 
projects. We recognize the FERC Form No. 1 does not require an 
Organization Chart. However, our need to know the organizational 
structure of a centralized service company is greater as opposed to the 
organizational structure of an electric utility company.
(13) Annual Statement of Compensation for Use of Capital Billed
    193. This schedule reports the amount of compensation for use of 
capital billed to each associate company.
Comments
    194. EEI proposes to eliminate the Annual Statement of Compensation 
for Use of Capital Billed, and the associated revenue Accounts 457.3, 
Compensation for use of capital-associate companies, 458.3, 
Compensation for use of capital--Non-associate companies, and 459.3, 
Compensation for use of capital--Non-associate non-utility companies. 
EEI argues compensation for use of capital is so minor that it does not 
warrant special treatment in reporting. Moreover, EEI states details of 
significant financial arrangements are included in the notes to the 
balance sheet, and total interest costs are disclosed in the income 
statement.\165\
---------------------------------------------------------------------------

    \165\ EEI at 31.
---------------------------------------------------------------------------

    195. Conversely, NARUC indicates the Annual Statement of 
Compensation for Use of Capital Billed should be required in FERC Form 
No. 60. NARUC argues this statement provides the calculation of the use 
of capital that will be billed to the centralized service companies' 
associate companies during the calendar year. In addition, NARUC 
indicates this statement in the FERC Form No. 60 is a resource for 
verifying and reconciling the costs that are included in centralized 
service company billings. NARUC notes the FERC Form No. 60 requires a 
separate statement for each associate company. However, NARUC claims, a 
separate statement for each associate company may not be necessary if 
the calculations are consistent.\166\
---------------------------------------------------------------------------

    \166\ NARUC Supplemental Comments at 8 and 9.
---------------------------------------------------------------------------

Commission Determination
    196. We agree with EEI that footnote disclosure would be a suitable 
substitute for this schedule, and so, we will delete the Annual 
Statement of Compensation for Use of Capital Billed. However, we will 
not delete Accounts 457.3 or 458.3. The amounts recorded in these 
accounts will continue to be reported on the Analysis of Billing 
Schedules for Accounts 457 and 458. Centralized service companies 
should disclose the basis of how the amounts are assigned to the 
associate and non-associate companies in a footnote to the Analysis of 
Billing Schedules for Accounts 457 and 458. As long as all companies 
are treated similarly, we believe this should satisfy NARUC's 
requirements.
(14) Miscellaneous General Expenses Schedule (Account 930.2)
    197. This schedule lists the items included in Account 930.2, 
Miscellaneous general expenses.
Comments
    198. EEI and Southern recommend deleting the schedule or only 
requiring disclosure of items that exceed $1 million. EEI and Southern 
contend this schedule requires considerable detailed analysis to 
complete.\167\
---------------------------------------------------------------------------

    \167\ EEI at 37; Southern at 3.
---------------------------------------------------------------------------

Commission Determination
    199. The Commission will retain this schedule. Many service 
companies report significant amounts in Account 930.2. This schedule 
provides the nature of the amounts included in a miscellaneous catchall 
account where the account title does not provide descriptive 
information of the amounts included in the account. This schedule 
currently has no threshold level. However, in response to EEI's and 
Southern's proposal, we will adopt a threshold requiring the separate 
reporting of items over $50,000.\168\ We believe a $1,000,000 threshold 
alternative suggested by commenters is unreasonably high and would not 
provide for adequate disclosure of the nature of the items included in 
this account.\169\
---------------------------------------------------------------------------

    \168\ Our staff review of FERC Form No. 60 submissions for 
calendar year 2005 indicates that $50,000 is a reasonable threshold 
that will provide sufficient information without eliminating 
necessary detail.
    \169\ The FERC Form No. 1 threshold for this account schedule is 
$5,000.
---------------------------------------------------------------------------

(c) General Instruction IX
    200. General Instruction IX states that prior period comparison 
figures must be the same as reported in the previous

[[Page 65222]]

report, or ``an appropriate explanation given as to why the different 
figures were used.''
Comments
    201. EEI states that in general, companies would like to follow the 
GAAP practice of reclassifying prior period amounts when necessary, 
with a footnote to the effect that ``certain prior amounts have been 
reclassified to conform to the current year presentation.'' \170\ EEI 
indicates any material reclassifications would include a footnote 
disclosure. Therefore, EEI recommends the Commission insert the word 
``materially'' before ``different figures were used.''
---------------------------------------------------------------------------

    \170\ EEI at 32-33.
---------------------------------------------------------------------------

Commission Determination
    202. As an initial matter, we note that instances in which prior 
year data in current reports is different than previously reported 
should be rare. The instances should be limited to such things as 
corrections of accounting errors and changes in accounting principles. 
The Commission and other users of the FERC Form No. 60 are particularly 
interested in understanding the economic effects of these types of 
occurrences, including the particular accounts affected and the related 
amounts. An explanation that ``certain prior amounts have been 
reclassified to conform to the current year presentation'' does not 
provide an adequate explanation. Footnote disclosure of only material 
amounts as EEI suggests also is insufficient because amounts below the 
material threshold could affect cost allocations or have rate 
implications. Consequently, we will adopt the proposed instruction 
unmodified.
(d) Raising the Threshold for Individually Itemized Items
    203. Some of the supporting schedules contained in the FERC Form 
No. 60 require reporting individual items when the amount for such 
items exceeds a specified threshold amount. For instance, some 
schedules list individual items and amounts less than a $5,000 
threshold can be grouped together rather than reported separately.
Comments
    204. EEI proposes the establishment of a higher threshold to apply 
to itemizations on schedules. Currently, when stated, the minimum for 
itemization is $5,000 or $10,000. EEI states that, due to the 
difference in company sizes, the establishment of a relative threshold 
(for example, five percent of total) would minimize unnecessary 
itemization and still provide meaningful data.\171\ EEI further 
recommends the Commission allow companies to set a materiality 
threshold, so that items less than some de minimis amount do not need 
to be broken out in the FERC Form No. 60.\172\ EEI suggests using as 
the de minimis amount $100,000, one to five percent of company 
billings, or 10 percent of the total amount on a particular schedule, 
whichever is higher. Further, EEI points out that the SEC's ``PUHCA 
Staff Examination Instructional Manual,'' section IV.A.3(c), which 
advised their staff to use a $50,000 or five percent threshold to 
determine if allocation methods should come to the attention of the SEC 
for approval.
---------------------------------------------------------------------------

    \171\ EEI at 30-31.
    \172\ EEI Supplemental Comments at 12.
---------------------------------------------------------------------------

Commission Determination
    205. We agree with EEI that the thresholds can be raised without 
losing appropriate detail. However, the thresholds suggested by EEI are 
extremely high and would eliminate needed disclosure.\173\ The SEC 
Staff manual threshold suggested by EEI addressed allocations, and did 
not apply to thresholds in individual schedules. The Commission will 
raise or add thresholds over the current FERC Form No. 60 schedules. We 
believe a threshold of $50,000 would reduce the reporting burden 
without the loss of appropriate detail. Therefore, we will establish a 
threshold of $50,000 for the following schedules: Schedules IV, VIII, 
IX, X, XIII, and XIX.
---------------------------------------------------------------------------

    \173\ For example, for one centralized service company, one 
percent of its billings represents a $9,000,000 threshold, at five 
percent, it would represent $45,000,000. These thresholds would 
eliminate reporting in most itemized schedules.
---------------------------------------------------------------------------

(e) Reporting in Whole Dollars or Alternatively in Thousands
    206. In the NOPR, the Commission proposed to require reporting 
companies to use whole dollars as the reported dollar amounts.
Comments
    207. EEI proposes that centralized service companies should have 
the option to report all dollars consistently in thousands, as opposed 
to whole dollars as proposed in the NOPR, as long as the companies 
indicate what they are doing. EEI indicates the added digits do not add 
significant information, but rather, make the schedules substantially 
harder to produce and read. EEI notes this is consistent with the way 
amounts were reported in the SEC Form U-13-60.\174\
---------------------------------------------------------------------------

    \174\ SEC instructions to SEC Form U-13-60, the predecessor to 
December 2005 FERC Form No. 60, allowed service companies to report 
in either whole dollars, thousands of dollars, hundreds of thousand 
of dollars, or millions of dollars.
---------------------------------------------------------------------------

Commission Determination
    208. When centralized service companies filed with the SEC their 
filings were text based and did not allow for data retrieval and 
analysis. The Commission supports the use of submission software to 
ensure data integrity and permit ready analysis of forms data. The 
Commission plans to issue submission software for the FERC Form No. 60 
in the early part of 2007. The software would allow companies to reduce 
costs of completing FERC Form No. 60 and allow for data retrieval and 
analysis not currently possible in the hard copy FERC Form No. 60. 
However, electronic reporting requires selecting one common reporting 
basis. Comparability is important, and can not be achieved without one 
common reporting basis. Consequently, we will adopt reporting in whole 
dollars. However, during a transition period covering the 2006 and 2007 
reporting years, for the FERC Form No. 60s due May 1, 2007 and May 1, 
2008, respectively, we will allow centralized service companies that 
report in thousands to round to the nearest $1000 (reporting $123,000 
instead of $123,456).\175\
---------------------------------------------------------------------------

    \175\ Supra note 34.
---------------------------------------------------------------------------

(f) Comparative Information
    209. Some FERC Form No. 60 schedules present data from the current 
year along with the same data from the prior year.
Comments
    210. EEI states that comparative information provided in the 
revised FERC Form No. 60 should not be required until the following 
year, at least to the extent the information being compared is not 
already presented in the December 2005 FERC Form No. 60.\176\
---------------------------------------------------------------------------

    \176\ EEI at 49.
---------------------------------------------------------------------------

Commission Determination
    211. In response to EEI's proposal and in order to reduce the 
possible administrative burden that may be incurred by respondents 
during the initial reporting year for the FERC Form No. 60 adopted in 
this Final Rule, i.e., the FERC Form No. 60 for the 2008 reporting year 
due May 1, 2009, the Commission will only require current year data. 
Respondents will be required

[[Page 65223]]

to report prior year's amounts beginning with the second year the FERC 
Form No. 60 adopted in this Final Rule is required, i.e., the FERC Form 
No. 60 for the 2009 reporting year due May 1, 2010.
(g) Request To Expand Data Collection in FERC Form No. 60 Comments
    212. NARUC proposes adding a new schedule showing charges from 
affiliated companies to the service company. NARUC states the schedule 
would show the affiliate, the nature of the charges, and the basis of 
the charges--i.e., cost, market, or other. NARUC states this schedule 
is important, since an affiliate may charge the service company a 
marked-up price. Since this would become a cost to the service company, 
the marked-up item then could be charged to a public utility at a cost 
higher than if it had been directly charged to the utility. NARUC also 
proposes adding a new schedule showing goods and services provided by 
the service company both internally and externally. NARUC's concern is 
that, once a good or service becomes profitable, it will be moved from 
the service company and offered by another affiliate.\177\
---------------------------------------------------------------------------

    \177\ NARUC Supplemental Comments at 8.
---------------------------------------------------------------------------

    213. NARUC notes that in Order No. 667, the Commission deleted two 
supporting schedules concerning outside services employed (Account 923) 
and employee pensions and benefits (Account 926) from the FERC Form No. 
60.\178\ NARUC proposes to add these schedules back in the revised FERC 
Form No. 60. NARUC argues outside services and employee expenses are 
major components of expense (along with labor) incurred by a service 
company. According to NARUC, the detail in these schedules would 
provide an important tool for understanding service company costs and 
functions. As a result, according to NARUC, these schedules are 
essential in the evaluation of whether cross-subsidization exists 
within the holding company organization.
---------------------------------------------------------------------------

    \178\ NARUC Supplemental Comments at 9.
---------------------------------------------------------------------------

Commission Response
    214. We share NARUC's concerns about the possibility of 
inappropriate cross subsidization or other unfair results obtained 
through affiliate relationships and transactions. At this time, 
however, we are not convinced that it is necessary to require 
centralized service companies to report as extensively about its 
affiliated transactions as NARUC recommends. With regard to adding back 
schedules for outside services employed (Account 923) and employee 
pensions and benefits (Account 926) which we deleted in Order No. 667, 
we deleted the schedules because they are not required in the FERC Form 
No. 1. Our need to weigh centralized service company burden versus 
protecting the public interest is difficult. Our requirement to report 
services performed for public utilities in the 500 and 800 accounts 
should reduce the amounts reported in Account 923. Centralized service 
companies do report information on pensions and benefits in their notes 
to the financial statements. Therefore, the Commission will not adopt 
NARUC's recommendations to add Schedules for Account 923 and Account 
926 back in the revised FERC Form No. 60 in this Final Rule. However, 
as we gain additional knowledge about our needs for centralized service 
company information we may revisit these proposals.
(h) Schedule Numbering
Comments
    215. Southern notes that some of the schedules within the revised 
FERC Form No. 60 have a schedule number while others are referenced by 
the account number. Southern states that it would be helpful if the 
schedules were all labeled consistently with schedule numbers.\179\
---------------------------------------------------------------------------

    \179\ Southern at 3.
---------------------------------------------------------------------------

Commission Determination
    216. The Commission agrees that assigning schedule numbers to all 
schedules in the revised FERC Form No. 60 would be helpful for 
referencing purposes for both users and preparers. Therefore, we will 
label all schedules with schedule numbers.
(i) Chief Accountant's Delegated Authority
    217. The NOPR proposed to revise Sec.  375.303(c), (d), (e), (f), 
(g) and (h) to update the delegations to the Chief Accountant or the 
Chief Accountant's designee. These authorities are similar to those 
that the Chief Accountant has for public utilities and licensees, 
natural gas companies and oil pipeline companies.
Comments
    218. EEI and National Grid request clarification of proposed Sec.  
375.303(f), that authorizes the Chief Accountant or the Chief 
Accountant's designee to ``accept for filing'' FERC Form Nos. 60, 3-Q, 
and 6-Q. The commenters believe that the requirement appears to imply 
that the Commission, its Chief Accountant, or the Chief Accountant's 
designee would issue a formal order accepting such forms, which is not 
the current practice. They argue that because such a delegation could 
raise the expectation (especially on the part of auditors) that orders 
accepting Form Nos. 60, 3-Q and 6-Q would be issued, the Commission 
should clarify either that it will, in fact, issue such acceptance 
orders, or that the regulatory text is not intended to provide for the 
issuance of formal acceptance orders.\180\
---------------------------------------------------------------------------

    \180\ EEI at 43-44; National Grid at 13.
---------------------------------------------------------------------------

    219. EEI and National Grid also request that the Commission clarify 
proposed Sec.  375.303(g) that permits the Chief Accountant or the 
Chief Accountant's designee to grant or deny requests for waiver of 
various regulations including Sec.  366.23, which requires the filing 
of FERC Form No. 60. The commenters assert that the authority to act on 
motions for extensions of time is not explicitly provided for in the 
revisions in Sec.  375.303(g). The commenters ask that the Commission 
clarify that this delegated authority includes the authority to grant 
an extension of time.\181\
---------------------------------------------------------------------------

    \181\ National Grid at 13-14; EEI at 44.
---------------------------------------------------------------------------

    220. Southern asserts that, in the proposed Sec.  375.303(f), the 
reference to the Form Nos. 3-Q and 6-Q is erroneous for service 
companies.\182\
---------------------------------------------------------------------------

    \182\ Southern at 6.
---------------------------------------------------------------------------

Commission Determination
    221. We grant EEI and National Grid's request for clarification of 
Sec.  375.303(f), that the authorization granted to the Chief 
Accountant or designee to ``accept for filing'' FERC Form Nos. 60, 3-Q, 
and 6-Q is not intended to provide for the issuance of formal 
acceptance orders; the term ``accept for filing'' is merely a 
designation of the office or Commission officer responsible for the 
management and oversight of the applicable form.
    222. We acknowledge Southern's comment that the proposed Sec.  
375.303(f) reference to the Form Nos. 3-Q and 6&Q would be erroneous 
for centralized service companies. Form Nos. 3-Q and 6-Q are not filing 
requirements for centralized service companies. However, the delegation 
of authority to accept the financial forms filed with the Commission, 
including Form Nos. 3-Q and 6-Q, and, with this Final Rule, the revised 
FERC Form No. 60, is not directed solely to centralized service 
companies but to all regulated public utilities and licensees, natural 
gas pipelines, oil pipelines and with this Final Rule centralized 
service companies. In this Final Rule, the

[[Page 65224]]

Commission adopts the delegations to the Chief Accountant in Sec.  
375.303(f) as proposed in the NOPR with one modification, to include an 
additional form, FERC-61. Holding companies are required to file FERC-
61, Narrative description of service company functions, annually with 
the Commission those centralized for service companies that do not file 
FERC Form No. 60, and, similar to the other reporting Forms, included 
in this delegation should be handled under delegated authority by the 
Chief Accountant.\183\
---------------------------------------------------------------------------

    \183\ 18 CFR 366.23(a)(2) (2006).
---------------------------------------------------------------------------

    223. We will grant EEI and National Grid's request to clarify Sec.  
375.303(g) to include the authority to act on motions for extensions of 
time to file FERC Form No. 60. While the Commission has previously 
delegated the authority to grant extensions of time to file FERC Form 
No. 60 to the Chief Accountant in Sec.  366.23(a)(3), for ease of 
administration we will include this delegation in Sec.  375.303(g).

V. Information Collection Statement

    224. The following collections of information referenced in this 
Final Rule have been submitted to the Office of Management and Budget 
(OMB) for review under section 3507(d) of the Paperwork Reduction Act 
of 1995.\184\ OMB's regulations require OMB to approve certain 
information collection requirements imposed by agency rule.\185\ Upon 
approval of a collection of information, OMB will assign an OMB control 
number and expiration date. Respondents subject to the filing 
requirements of this Final Rule will not be penalized for failing to 
respond to these collections of information unless the collections of 
information display a valid OMB control number or the Commission had 
provided a justification as to why the control number should be 
displayed.
---------------------------------------------------------------------------

    \184\ See 44 U.S.C. 3507(d) (2000).
    \185\ 5 CFR 1320.11 (2006).
---------------------------------------------------------------------------

    225. In the NOPR, the Commission provided burden estimates for 
complying with the rule as follows:
    FERC Form No. 60: 38 Respondents, 38 Responses @ 10 hours per 
response = 380 Total Annual Hours; and
    FERC-555A (recordkeeping): 300 Respondents @ 1,080 hours per 
respondent = 324,000 Total Annual Hours.
    226. In response to comments the Commission received (see below), 
the Commission is revising its estimates as follows:

----------------------------------------------------------------------------------------------------------------
                                                     Number of       Number of       Hours per
                 Data collection                    respondents      responses       response          Total
----------------------------------------------------------------------------------------------------------------
1 FERC Form No. 60..............................              38              38              75           2,850
2 FERC-555A.....................................             300  ..............           1,080         324,000
                                                 ---------------------------------------------------------------
    Totals......................................  ..............  ..............  ..............         326,850
----------------------------------------------------------------------------------------------------------------

    Information Collection Costs: The Commission also projected (and 
has revised) the average annualized cost of all respondents to be the 
following:
    FERC Form No. 60 = 380 Hours at $120 an hour (an average of 3 staff 
@ $40 an hour) = $45,600. As revised, FERC Form No. 60 = 2,850 hours @ 
$120 (an average of 3 staff @ $40 an hour) = $342,000.
    FERC-555A = The Commission projected an annualized cost of all 
respondents as 324,000 hours @ $68 an hour ($17 an hour, an average of 
4 staff) = $22,032,000 (staffing) + $6,696,000 (storage) = $28,728,000. 
These costs assume that the average office storage space is $7,440 for 
retaining records on-site. (Usually after the initial year records are 
transferred to an off-site location where the storage costs drop to 
$925 (on average).) As these requirements are being approved for an 
initial three-year period, the assumption was made that during that 
period the records would be retained on-site). These cost estimates 
used as an example: 120 cubic feet (20 four-drawer file cabinets) and 
include the cubic feet of storage plus the cost of floor space plus the 
costs for records storage cartons. Greater saving can be accomplished 
if documents are stored electronically, i.e., one file cabinet (four-
drawer) (10,000 pages on average) = 500 MegaBytes (MByte) = one CD ROM.
    The Total Costs for reporting and recordkeeping ($342,000 + 
$28,728,000) = $29,070,000.
    227. As noted above, the Commission sought comments on both the 
burden estimates and corresponding costs: it should be noted that the 
Commission's initial estimates were based on its review of the SEC's 
burden estimates and its first year of experience in implementing the 
FERC Form No. 60 reporting requirement. The Commission received one 
comment specifically addressing the burden estimate for completing the 
revised FERC Form No. 60. This commenter, Southern, provided an 
estimate for completion of the revised FERC Form No. 60 prior to our 
adoption of the requirements contained in this Final Rule. The 
Commission notes that Southern has significant operations, and it is to 
be expected that its estimates would exceed the average projected by 
the Commission. Otherwise, the majority of the commenters, while not 
providing specific comments on the estimates, in general opposed the 
Commission's proposal of establishing new accounting and reporting 
requirements for centralized service companies. These objections were 
also repeated in the staff technical conference where some participants 
stated that the NOPR's proposed requirements would be burdensome and 
costly to implement as changes would have to be made to their 
accounting systems. The Commission did not receive any specific 
comments concerning the estimates for the recordkeeping requirements.
    228. The Commission has addressed commenters' substantive concerns 
elsewhere in this Final Rule and will not repeat its responses here. 
The actions taken in this Final Rule should ameliorate the concerns of 
a significant burden increase and any corresponding cost increase.
    229. Further, in Order No. 667, the Commission provided its initial 
estimate for completing the FERC Form No. 60, and did not receive any 
comments in response to that estimate. In Order No. 667-A, the 
Commission made offsetting changes to those reporting requirements and, 
in light of the changes and the absence of comments, let the original 
projected burden estimates stand. However, we went on to say that, with 
additional experience, including comments received in response to our 
initiatives, we would adjust the burden estimates. In view of the 
comments received specifically concerning the burden estimates and the 
implementation of the reporting requirements contained in this Final 
Rule, we are revising the estimates accordingly. On the other hand, as 
the Commission is adopting electronic submission of this information in 
a

[[Page 65225]]

separate rulemaking proceeding in Docket No. RM06-25-000, this will 
save time and resources for all parties since electronic filings 
require fewer personnel than paper filings by avoiding the need for 
paper processing and mailing and consequently reduce the burden.\186\
---------------------------------------------------------------------------

    \186\ Supra note 34.
---------------------------------------------------------------------------

    Title: FERC Form No. 60, ``Annual Report of Centralized Service 
Companies'' and FERC-555A, ``Preservation of Records for Service 
Companies Subject to PUHCA 2005.''
    Action: Proposed collections.
    OMB Control Nos.: 1902-0215 (FERC Form No. 60) and 1902-XXXX (to be 
determined) (FERC-555A).
    Respondents: Businesses or other for profit.
    Frequency of Responses: Annually and on occasion.
    Necessity of the Information: This Final Rule amends the 
Commission's regulations to implement PUHCA 2005 as enacted by the 
EPAct 2005. Specifically, the Commission is adopting a USofA for 
Centralized Service Companies, adding preservation of records 
requirements for holding companies and service companies, revising the 
FERC Form No. 60 in order to provide for financial reporting consistent 
with the new USofA, and providing for the electronic filing of revised 
FERC Form No. 60. In Order No. 667, the Commission also set forth its 
objective to prescribe uniform accounting requirements for centralized 
service companies, i.e., service companies that are not special purpose 
companies, within holding company systems, and records retention 
requirements for both service companies and holding companies. The 
addition of these accounts and related changes in the reporting, as 
well as uniform records retention requirements, provides uniformity and 
transparency for costs that are billed to regulated entities, allows 
for comparability of like costs across centralized service companies, 
provides for comparisons of year-to-year changes in a centralized 
service company's costs and billings, and facilitates the uniform 
compilation of consolidated financial statements. Without specific 
instructions and accounts for recording and reporting the above 
transactions and events, and retaining relevant records and 
information, inconsistent and incomplete accounting and reporting will 
result.
    230. Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 [Attention: 
Michael Miller, Office of the Executive Director, phone (202) 502-8415, 
fax: (202) 273-0873, e-mail: <a href="/cdn-cgi/l/email-protection#1974707a71787c7537747075757c6b597f7c6b7a377e766f"><span class="__cf_email__" data-cfemail="4d20242e252c28216320242121283f0d2b283f2e632a223b">[email protected]</span></a>]
    231. For submitting comments concerning the collection of 
information(s) and the associated burden estimates, please send your 
comments to the contact listed above and to the Office of Management 
and Budget, Office of Information and Regulatory Affairs, Washington, 
DC 20503, Attention: Desk Officer for the Federal Energy Regulatory 
Commission; Phone: (202) 395-4650, fax: (202) 395-7285.

VI. Environmental Analysis

    232. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\187\ No 
environmental consideration is necessary for the promulgation of a rule 
that addresses information gathering, analysis, and dissemination,\188\ 
and, also, that addresses accounting.\189\ This Final Rule addresses 
information gathering, analysis, and dissemination. In addition, this 
Final Rule involves accounting requirements. Therefore, the Final Rule 
falls within categorical exemptions provided in the Commission's 
regulations. Consequently, neither an Environmental Impact Statement 
nor an Environmental Assessment is required.
---------------------------------------------------------------------------

    \187\ See Regulations Implementing the National Environmental 
Policy Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. 
& Regs. ] 30,783 (1987).
    \188\ See 18 CFR 380.4(a)(5).
    \189\ See 18 CFR 380.4(c)(16).
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act

    233. The Regulatory Flexibility Act of 1980 (RFA) \190\ generally 
requires a description and analysis of the effect that a Final Rule 
will have on small entities or a certification that a rule will not 
have a significant economic impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \190\ See 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    234. The Commission concludes that this Final Rule will not have 
such an impact on a substantial number of small entities. Most holding 
companies to which this Final Rule would be applicable do not fall 
within the RFA's definition of a small entity.\191\ Moreover, the 
Commission also concludes that this Final Rule will not impose a 
significant burden since the information is already being captured by 
existing accounting systems and generally being reported at a 
consolidated business level.
---------------------------------------------------------------------------

    \191\ See 5 U.S.C. 601(3) citing to section 3 of the Small 
Business Act, 15 U.S.C. 632. Section 3 of the Small Business Act 
defines a ``small-business concern'' as a business which is 
independently owned and operated and which is not dominant in its 
field of operation. The Small Business Size Standards component of 
the North American Industry Classification System (NAICS) defines a 
small electric utility as one that, including its affiliates, is 
primarily engaged in generation, transmission, and/or distribution 
of electric energy for sale and whose total electric output for the 
preceding fiscal years did not exceed 4 million MWh. NAICS defines a 
small natural gas pipeline company as one that transports natural 
gas and whose annual receipts (total income including cost of goods 
sold) did not exceed $6.5 million dollars for the preceding years. 
13 CFR 121.201.
---------------------------------------------------------------------------

VIII. Document Availability

    235. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, 
Washington DC 20426.
    236. From the Commission's Home Page on the Internet, this document 
is available in the Commission's document management system, e-Library. 
The full text of this document is available on e-Library in PDF and 
Microsoft Word format for viewing, printing, and/or downloading. To 
access this document in e-Library, type the docket number excluding the 
last three digits of this document in the docket number field.
    237. User assistance is available for e-Library and the 
Commission's Web site during normal business hours. For assistance, 
please contact FERC Online Support at 1-866-208-3676 (toll free) or 
202-502-6652 (e-mail at <a href="/cdn-cgi/l/email-protection#3c7a796e7f735211505552596f494c4c534e487c5a594e5f125b534a"><span class="__cf_email__" data-cfemail="feb8bbacbdb190d39297909bad8b8e8e918c8abe989b8c9dd0999188">[email protected]</span></a>) or the Public 
Reference Room at 202-502-8371, TTY 202-502-8659 (e-mail at 
<a href="/cdn-cgi/l/email-protection#78080d1a14111b560a1d1e1d0a1d161b1d0a171715381e1d0a1b561f170e"><span class="__cf_email__" data-cfemail="acdcd9cec0c5cf82dec9cac9dec9c2cfc9dec3c3c1eccac9decf82cbc3da">[email protected]</span></a>).

IX. Effective Date and Congressional Notification

    238. This Final Rule will take effect January 8, 2007; however, the 
revised FERC Form No. 60 adopted herein will be implemented with the 
reporting year 2008 (due by May 1, 2009) and the accounting and records 
retention requirements adopted herein will be implemented January 1, 
2008.
    239. The Commission has determined with the concurrence of the 
Administrator of the Office of Information and Regulatory Affairs of

[[Page 65226]]

the Office of Management and Budget that this Final Rule is not a major 
rule within the meaning of section 251 of the Small Business Regulatory 
Enforcement Fairness Act of 1996.\192\ The Commission will submit the 
Final Rule to both houses of Congress and the General Accounting 
Office.
---------------------------------------------------------------------------

    \192\ 5 U.S.C. 801.
---------------------------------------------------------------------------

List of Subjects

18 CFR Part 366

    Electric power, Natural gas, Reporting and recordkeeping 
requirements.

18 CFR Part 367

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

18 CFR Part 368

    Electric power, Natural gas, Reporting and recordkeeping 
requirements.

18 CFR Part 369

    Electric power, Natural gas, Reporting and recordkeeping 
requirements.

18 CFR Part 375

    Authority delegations (Government agencies), Seals and insignia, 
Sunshine Act.

    By the Commission.
Magalie R. Salas,
Secretary.
    In consideration of the foregoing, under the authority of EPAct 
2005, the Commission amends parts 366, and 375 and adds parts 367, 368 
and 369, to Chapter I, Title 18 of the Code of Federal Regulations, as 
set forth below:

PART 366--PUBLIC UTILITY HOLDING COMPANY ACT OF 2005

0
1. The authority citation for part 366 is revised to read as follows:

    Authority: 42 U.S.C. 16451-16463.


0
2. In Sec.  366.21, paragraph (b) is revised to read as follows:


Sec.  366.21  Accounts and records of holding companies.

* * * * *
    (b) Unless otherwise exempted or granted a waiver by Commission 
rule or order pursuant to Sec. Sec.  366.3 and 366.4, beginning January 
1, 2008, all holding companies must comply with the Commission's 
records retention requirements for holding companies and service 
companies as prescribed in part 368 of this chapter. Until December 31, 
2007, holding companies registered under the Public Utility Holding 
Company Act of 1935 (15 U.S.C. 79a et seq.) may follow either the 
Commission's records retention rules for public utilities and licensees 
or for natural gas companies, as appropriate (parts 125 and 225 of this 
chapter), or the Securities and Exchange Commission's record retention 
rules in 17 CFR part 257.
* * * * *


0
3. In Sec.  366.22, paragraphs (a)(1), (a)(2) (b)(1) and (b)(2) are 
revised to read as follows:


Sec.  366.22  Accounts and records of service companies.

    (a) Records retention requirements--(1) General. Unless otherwise 
exempted or granted a waiver by Commission rule or order pursuant to 
Sec. Sec.  366.3 and 366.4, beginning January 1, 2008, every service 
company must maintain and make available to the Commission such books, 
accounts, memoranda, and other records in such manner and preserve them 
for such periods as the Commission prescribes in part 368 of this 
chapter, in sufficient detail to permit examination, audit, and 
verification, as necessary and appropriate for the protection of 
utility customers with respect to jurisdictional rates.
    (2) Transition period. Until December 31, 2007, service companies 
in holding company systems registered under the Public Utility Holding 
Company Act of 1935 (15 U.S.C. 79a et seq.) may follow either the 
Commission's records retention requirements in parts 125 and 225 of 
this chapter or the Securities and Exchange Commission's records 
retention rules in 17 CFR part 257.
* * * * *
    (b) Accounting requirements--(1) General. Unless otherwise exempted 
or granted a waiver by Commission rule or order pursuant to Sec. Sec.  
366.3 and 366.4, beginning January 1, 2008, every centralized service 
company (See Sec.  367.2 of this chapter) must maintain and make 
available to the Commission such books, accounts, memoranda, and other 
records as the Commission prescribes in part 367 of this chapter, in 
sufficient detail to permit examination, audit, and verification, as 
necessary and appropriate for the protection of utility customers with 
respect to jurisdictional rates. Every such service company must 
maintain and make available such books, accounts, memoranda, and other 
records in such manner as are prescribed in part 367 of this chapter, 
and must keep no other records with respect to the same subject matter 
except:
    (i) Records other than accounts;
    (ii) Records required by Federal or State law;
    (iii) Subaccounts or supporting accounts which are not inconsistent 
with the accounts required either by the Uniform System of Accounts for 
Centralized Service Companies in part 367 of this chapter; and
    (iv) Any other accounts that may be authorized by the Commission.
    (2) Transition period. Until December 31, 2007, service companies 
in holding company systems registered under the Public Utility Holding 
Company Act of 1935 (15 U.S.C. 79a et seq.), as described in paragraph 
(b)(1) of this section, may follow either the Commission's Uniform 
System of Accounts in parts 101 and 201 of this chapter or the 
Securities and Exchange Commission's Uniform System of Accounts in 17 
CFR part 256.
* * * * *


0
4. In Sec.  366.23, the section heading and paragraphs (a)(1) and (b) 
are revised to read as follows:


Sec.  366.23  FERC Form No. 60, Annual report of centralized service 
companies, and FERC-61, Narrative description of service company 
functions.

    (a) General.
    (1) FERC Form No. 60. Unless otherwise exempted or granted a waiver 
by Commission rule or order pursuant to Sec. Sec.  366.3 and 366.4, 
every centralized service company (See Sec.  367.2 of this chapter) in 
a holding company system must file an annual report, FERC Form No. 60, 
as provided in Sec.  369.1 of this chapter. Every report must be 
submitted on the FERC Form No. 60 then in effect and must be prepared 
in accordance with the instructions incorporated in that form.
* * * * *
    (b) Transition period. Service companies in holding company systems 
exempted from the requirements of the Public Utility Holding Company 
Act of 1935 (15 U.S.C. 79a et seq.) need not file an annual report, 
FERC Form No. 60, for calendar years 2005 through 2007, after which 
they must comply with the provisions of this section.
* * * * *

0
5. Part 367 is added to subchapter U to read as follows:

PART 367--UNIFORM SYSTEM OF ACCOUNTS FOR CENTRALIZED SERVICE 
COMPANIES SUBJECT TO THE PROVISIONS OF PUBLIC UTILITY HOLDING 
COMPANY ACT OF 2005

Subpart A--Definitions
Sec.
367.1 Definitions.

[[Page 65227]]

Subpart B--General Instructions
367.2 Companies for which this system of accounts is prescribed.
367.3 Records.
367.4 Numbering system.
367.5 Accounting period.
367.6 Submittal of questions.
367.7 Item list.
367.8 Extraordinary items.
367.9 Prior period items.
367.10 Unaudited items.
367.11 Distribution of pay and expenses of employees.
367.12 Payroll distribution.
367.13 Accounting to be on accrual basis.
367.14 Transactions with associate companies.
367.15 Contingent assets and liabilities.
367.16 Long-term debt: Premium, discount and expense, and gain or 
loss on reacquisition.
367.17 Comprehensive inter-period income tax allocation.
367.18 Criteria for classifying leases.
367.19 Accounting for leases.
367.20 Depreciation accounting.
367.22 Accounting for asset retirement obligations
367.23 Transactions with non-associate companies.
367.24 Construction and service contracts for other companies.
367.25 Determination of service cost.
367.26 Departmental classification.
367.27 Billing procedures.
367.28 Methods of allocation.
367.29 Compensation for use of capital.
367.30 Cost allocation system for associate companies.
Subpart C--Service Company Property Instructions
367.50 Service company property to be recorded at cost.
367.51 Components of construction.
367.52 Overhead construction costs.
367.53 Service company property purchased or sold.
367.54 Expenditures on leased property.
367.55 Land and land rights.
367.56 Structures and improvements.
367.57 Equipment.
367.58 Property record system required for service company property.
367.59 Additions and retirements of property.
Subpart D--Operating Expense Instructions
367.80 Supervision and engineering.
367.81 Maintenance.
367.82 Rents.
367.83 Training costs.
Subpart E--Special Instructions
367.100 Accounts 131-174, Current and accrued assets.
367.101 Accounts 231-243, Current and accrued liabilities.
367.102 Accounts 408.1 and 408.2, Taxes other than income taxes.
367.103 Accounts 409.1, 409.2, and 409.3, Income taxes.
367.104 Accounts 410.1, 410.2, 411.1, and 411.2, Provision for 
deferred income taxes.
367.105 Accounts 411.4, and 411.5, Investment tax credit 
adjustments.
367.106 Accounts 426.1, 426.2, 426.3, 426.4, and 426.5, 
Miscellaneous expense accounts.
Subpart F--Balance Sheet Chart of Accounts

Service Company Property

367.1010 Account 101, Service company property.
367.1011 Account 101.1, Property under capital leases.
367.1060 Account 106, Completed construction not classified.
367.1070 Account 107, Construction work in progress.
367.1080 Account 108, Accumulated provision for depreciation of 
service company property.
367.1110 Account 111, Accumulated provision for amortization of 
service company property.

Other Property and Investments

367.1230 Account 123, Investment in associate companies.
367.1240 Account 124, Other investments.
367.1280 Account 128, Other special funds.

Current and Accrued Assets

367.1310 Account 131, Cash.
367.1340 Account 134, Other special deposits.
367.1350 Account 135, Working funds.
367.1360 Account 136, Temporary cash investments.
367.1410 Account 141, Notes receivable.
367.1420 Account 142, Customer accounts receivable.
367.1430 Account 143, Other accounts receivable.
367.1440 Account 144, Accumulated provision for uncollectible 
accounts-Credit.
367.1450 Account 145, Notes receivable from associate companies.
367.1460 Account 146, Accounts receivable from associate companies.
367.1520 Account 152, Fuel stock expenses undistributed.
367.1540 Account 154, Materials and operating supplies.
367.1630 Account 163, Stores expense undistributed.
367.1650 Account 165, Prepayments.
367.1710 Account 171, Interest and dividends receivable.
367.1720 Account 172, Rents receivable.
367.1730 Account 173, Accrued revenues.
367.1740 Account 174, Miscellaneous current and accrued assets.
367.1750 Account 175, Derivative instrument assets.
367.1760 Account 176, Derivative instrument assets--Hedges.

Deferred Debits

367.1810 Account 181, Unamortized debt expense.
367.182.3 Account 182.3, Other regulatory assets.
367.1830 Account 183, Preliminary survey and investigation charges.
367.1840 Account 184, Clearing accounts.
367.1850 Account 185, Temporary facilities.
367.1860 Account 186, Miscellaneous deferred debits.
367.1880 Account 188, Research, development and demonstration 
expenditures.
367.1890 Account 189, Unamortized loss on reacquired debt.
367.1900 Account 190, Accumulated deferred income taxes.

Proprietary Capital

367.2010 Account 201, Common stock issued.
367.2040 Account 204, Preferred stock issued.
367.2110 Account 211, Miscellaneous paid-in-capital.
367.2150 Account 215, Appropriated retained earnings.
367.2160 Account 216, Unappropriated retained earnings.
367.2161 Account 216.1, Unappropriated undistributed subsidiary 
earnings.
367.2190 Account 219, Accumulated other comprehensive income.

Long-Term Debt

367.2230 Account 223, Advances from associate companies.
367.2240 Account 224, Other long-term debt.
367.2250 Account 225, Unamortized premium on long-term debt.
367.2260 Account 226, Unamortized discount on long-term debt--Debit.

Other Noncurrent Liabilities

367.2270 Account 227, Obligations under capital lease--Non-current.
367.2282 Account 228.2, Accumulated provision for injuries and 
damages.
367.2283 Account 228.3, Accumulated provision for pensions and 
benefits.
367.2300 Account 230, Asset retirement obligations.

Current and Accrued Liabilities

367.2310 Account 231, Notes payable.
367.2320 Account 232, Accounts payable.
367.2330 Account 233, Notes payable to associate companies.
367.2340 Account 234, Accounts payable to associate companies.
367.2360 Account 236, Taxes accrued.
367.2370 Account 237, Interest accrued.
367.2380 Account 238, Dividends declared.
367.2410 Account 241, Tax collections payable.
367.2420 Account 242, Miscellaneous current and accrued liabilities.
367.2430 Account 243, Obligations under capital leases-Current.
367.2440 Account 244, Derivative instrument liabilities.
367.245 Account 245, Derivative instrument liabilities--Hedges.

Deferred Credits

367.2530 Account 253, Other deferred credits.
367.2540 Account 254, Other regulatory liabilities.
367.2550 Account 255, Accumulated deferred investment tax credits.
367.2820 Account 282, Accumulated deferred income taxes--Other 
property.
367.2830 Account 283, Accumulated deferred income taxes--Other.

[[Page 65228]]

Subpart G--Service Company Property Chart of Accounts
367.3010 Account 301, Organization.
367.3030 Account 303, Miscellaneous intangible property.
367.3060 Account 306, Leasehold improvements.
367.3890 Account 389, Land and land rights.
367.3900 Account 390, Structures and improvements.
367.3910 Account 391, Office furniture and equipment.
367.3920 Account 392, Transportation equipment.
367.3930 Account 393, Stores equipment.
367.3940 Account 394, Tools, shop and garage equipment.
367.3950 Account 395, Laboratory equipment.
367.3960 Account 396, Power operated equipment.
367.3970 Account 397, Communication equipment.
367.3980 Account 398, Miscellaneous equipment.
367.3990 Account 399, Other tangible property.
367.3991 Account 399.1, Asset retirement costs for service company 
property.
Subpart H--Income Statement Chart of Accounts

Service Company Operating Income

367.4000 Account 400, Operating revenues.
367.4010 Account 401, Operation expense.
367.4020 Account 402, Maintenance expense.
367.4030 Account 403, Depreciation expense.
367.4031 Account 403.1, Depreciation expense for asset retirement 
costs.
367.4040 Account 404, Amortization of limited-term property.
367.4050 Account 405, Amortization of other property.
367.4073 Account 407.3, Regulatory debits.
367.4074 Account 407.4, Regulatory credits.
367.4081 Account 408.1, Taxes other than income taxes, operating 
income.
367.4082 Account 408.2, Taxes other than income taxes, other income 
and deductions.
367.4091 Account 409.1, Income taxes, operating income.
367.4092 Account 409.2, Income taxes, other income and deductions.
367.4093 Account 409.3, Income taxes, extraordinary items.
367.4101 Account 410.1, Provision for deferred income taxes, 
operating income.
367.4102 Account 410.2, Provision for deferred income taxes, other 
income and deductions.
367.4111 Account 411.1, Provision for deferred income taxes--Credit, 
operating income.
367.4112 Account 411.2, Provision for deferred income taxes--Credit, 
other income and deductions.
367.4114 Account 411.4, Investment tax credit adjustments, service 
company property.
367.4115 Account 411.5, Investment tax credit adjustments, other.
367.4116 Account 411.6, Gains from disposition of service company 
plant.
367.4117 Account 411.7, Losses from disposition of service company 
plant.
367.4118 Account 411.10, Accretion expense.
367.4120 Account 412, Costs and expenses of construction or other 
services.
367.4160 Account 416, Costs and expenses of merchandising, jobbing 
and contract work.
367.4180 Account 418, Non-operating rental income.
367.4181 Account 418.1, Equity in earnings of subsidiary companies.
367.4190 Account 419, Interest and dividend income.
367.4191 Account 419.1, Allowance for other funds used during 
construction.
367.4210 Account 421, Miscellaneous income or loss.
367.4211 Account 421.1, Gain on disposition of property.
367.4212 Account 421.2, Loss on disposition of property.
367.4250 Account 425, Miscellaneous amortization.
367.4261 Account 426.1, Donations.
367.4262 Account 426.2, Life insurance.
367.4263 Account 426.3, Penalties.
367.4264 Account 426.4, Expenditures for certain civic, political 
and related activities.
367.4265 Account 426.5, Other deductions.
367.4270 Account 427, Interest on long-term debt.
367.4280 Account 428, Amortization of debt discount and expense.
367.4290 Account 429, Amortization of premium on debt--Credit.
367.4300 Account 430, Interest on debt to associate companies.
367.4310 Account 431, Other interest expense.
367.4320 Account 432, Allowance for borrowed funds used during 
construction--Credit.
Subpart I--Retained Earnings Accounts
367.4330 Account 433, Balance transferred from income.
367.4340 Account 434, Extraordinary income.
367.4350 Account 435, Extraordinary deductions.
367.4360 Account 436, Appropriations of retained earnings.
367.4370 Account 437, Dividends declared--Preferred stock.
367.4380 Account 438, Dividends declared--Common stock.
367.4390 Account 439, Adjustments to retained earnings.
Subpart J--Operating Revenue Chart of Accounts
367.4570 Account 457, Services rendered to associate companies.
367.4571 Account 457.1, Direct costs charged to associate companies.
367.4572 Account 457.2, Indirect costs charged to associate 
companies.
367.4573 Account 457.3, Compensation for use of capital-associate 
companies.
367.4580 Account 458, Services rendered to non-associate companies.
367.4581 Account 458.1, Direct costs charged to non-associate 
companies.
367.4582 Account 458.2, Indirect costs charged to non-associate 
companies.
367.4583 Account 458.3, Compensation for use of capital--Non-
associate companies.
367.4584 Account 458.4, Excess or deficiency on servicing non-
associate utility companies.
Subpart K--Operation and Maintenance Expense Chart of Accounts
367.5000 Accounts 500-598, Electric operation and maintenance 
accounts.
367.8000 Accounts 800-894, Gas operation and maintenance accounts.
367.9010 Account 901, Supervision.
367.9020 Account 902, Meter reading expenses.
367.9030 Account 903, Customer records and collection expenses.
367.9040 Account 904, Uncollectible accounts.
367.9050 Account 905, Miscellaneous customer accounts expenses.
367.9070 Account 907, Supervision.
367.9080 Account 908, Customer assistance expenses.
367.9090 Account 909, Informational and instructional advertising 
expenses.
367.9100 Account 910, Miscellaneous customer service and 
informational expenses.
367.9110 Account 911, Supervision.
367.9120 Account 912, Demonstrating and selling expenses.
367.9130 Account 913, Advertising expenses.
367.9160 Account 916, Miscellaneous sales expenses.
367.9200 Account 920, Administrative and general salaries.
367.9210 Account 921, Office supplies and expenses.
367.9230 Account 923, Outside services employed.
367.9240 Account 924, Property insurance.
367.9250 Account 925, Injuries and damages.
367.9260 Account 926, Employee pensions and benefits.
367.9280 Account 928, Regulatory commission expenses.
367.9301 Account 930.1, General advertising expenses for associated 
companies.
367.9302 Account 930.2, Miscellaneous general expenses.
367.9310 Account 931, Rents.
367.9350 Account 935, Maintenance of structures and equipment.

    Authority: 42 U.S.C. 16451-16463.

Subpart A--Definitions


Sec.  367.1  Definitions.

    (a) When used in this system of accounts:
    (1) Accounts mean the accounts prescribed by this Uniform System of 
Accounts.
    (2) Actually issued, as applied to securities issued or assumed by 
the service companies, means those which have been sold to bona fide 
purchasers

[[Page 65229]]

for a valuable consideration, those issued as dividends on stock, and 
those which have been issued in accordance with contractual 
requirements direct to trustees of sinking funds.
    (3) Actually outstanding, as applied to securities issued or 
assumed by the service company, means those which have been actually 
issued and are neither retired nor held by or for the service company; 
provided, however, that securities held by trustees must be considered 
as actually outstanding.
    (4) Amortization means the gradual extinguishment of an amount in 
an account by distributing such amount over a fixed period, over the 
life of the asset or liability to which it applies, or over the period 
during which it is anticipated the benefit will be realized.
    (5) Associate company means any company in the same holding company 
system with such company.
    (6) Book cost means the amount at which property is recorded in 
these accounts without deduction of related provisions for accrued 
depreciation, amortization, or for other purposes.
    (7) Centralized service company means a service company that 
provides services such as administrative, managerial, financial, 
accounting, recordkeeping, legal or engineering services, which are 
sold, furnished, or otherwise provided (typically for a charge) to 
other companies in the same holding company system. Centralized service 
companies are different from other service companies that only provide 
a discrete good or service.
    (8) Commission means the Federal Energy Regulatory Commission.
    (9) Company, when not otherwise indicated in the context, means a 
service company.
    (10) Construction, when used in the context of a service provided 
to other companies, means any construction, extension, improvement, 
maintenance, or repair of the facilities or any part thereof of a 
company, which is performed for a charge.
    (11) Cost means the amount of money actually paid for property or 
services. When the consideration given is other than cash in a purchase 
and sale transaction, as distinguished from a transaction involving the 
issuance of common stock in a merger, the value of such consideration 
must be determined on a cash basis.
    (12) Cost accumulation system means a system for the accumulation 
of service company costs on a job, project, or functional basis. It 
includes schedules and worksheets used to account for charges billed to 
single and groups of associate and non-associate companies. It can be a 
variety of systems, including but not limited to, a work order system 
or an activity-based accounting software system.
    (13) Cost of removal means the cost of demolishing, dismantling, 
tearing down or otherwise removing service property, including the cost 
of transportation and handling incidental thereto. It does not include 
the cost of removal activities associated with asset retirement 
obligations that are capitalized as part of the tangible long-lived 
assets that give rise to the obligation (See General Instructions in 
Sec.  367.22).
    (14) Debt expense means all expenses in connection with the 
issuance and initial sale of evidences of debt, such as fees for 
drafting mortgages and trust deeds; fees and taxes for issuing or 
recording evidences of debt; cost of engraving and printing bonds and 
certificates of indebtedness; fees paid trustees; specific costs of 
obtaining governmental authority; fees for legal services; fees and 
commissions paid underwriters, brokers, and salesmen for marketing such 
evidences of debt; fees and expenses of listing on exchanges; and other 
like costs.
    (15) Depreciation, as applied to depreciable service company 
property, means the loss in service value not restored by current 
maintenance. Among the causes to be used as consideration for causes of 
loss in service value are wear and tear, decay, action of the elements, 
inadequacy, obsolescence, changes in the art, changes in demand and 
requirements of public authorities.
    (16) Direct cost means the labor costs and expenses which can be 
identified through a cost allocation system as being applicable to 
services performed for a single or group of associate and non-associate 
companies. Cost incidental to or related to a directly charged item 
must be classified as direct costs.
    (17) Discount, as applied to the securities issued or assumed by 
the service company, means the excess of the par (stated value of no-
par stocks) or face value of the securities plus interest or dividends 
accrued at the date of the sale over the cash value of the 
consideration received from their sale.
    (18) Electric utility company means any company that owns or 
operates facilities used for the generation, transmission, or 
distribution of electric energy for sale. For the purposes of this 
subchapter, ``electric utility company'' shall not include entities 
that engage only in marketing of electric energy.
    (19) Gas utility company means any company that owns or operates 
facilities used for distribution at retail (other than the distribution 
only in enclosed portable containers or distribution to tenants or 
employees of the company operating such facilities for their own use 
and not for resale) of natural or manufactured gas for heat, light, or 
power. For the purposes of this subchapter, ``gas utility company'' 
shall not include entities that engage only in marketing of natural and 
manufactured gas.
    (20) Goods means any goods, equipment (including machinery), 
materials, supplies, appliances, or similar property (including coal, 
oil, or steam, but not including electric energy, natural or 
manufactured gas, or utility assets) which is sold, leased, or 
furnished, for a charge.
    (21) Holding company.
    (i) In general. The term ``holding company'' means--
    (A) Any company that directly or indirectly owns, controls, or 
holds, with power to vote, 10 percent or more of the outstanding voting 
securities of a public-utility company or of a holding company of any 
public-utility company; and
    (B) Any person, determined by the Commission, after notice and 
opportunity for hearing, to exercise directly or indirectly (either 
alone or pursuant to an arrangement or understanding with one or more 
persons) such a controlling influence over the management or policies 
of any public-utility company or holding company as to make it 
necessary or appropriate for the rate protection of utility customers 
with respect to rates that such person be subject to the obligations, 
duties, and liabilities imposed by this subchapter upon holding 
companies.
    (ii) Exclusions. The term ``holding company'' does not include--
    (A) A bank, savings association, or trust company, or their 
operating subsidiaries that own, control, or hold, with the power to 
vote, public utility or public utility holding company securities so 
long as the securities are--
    (1) Held as collateral for a loan;
    (2) Held in the ordinary course of business as a fiduciary; or
    (3) Acquired solely for purposes of liquidation and in connection 
with a loan previously contracted for and owned beneficially for a 
period of not more than two years; or
    (B) A broker or dealer that owns, controls, or holds with the power 
to vote public utility or public utility holding company securities so 
long as the securities are--
    (1) Not beneficially owned by the broker or dealer and are subject 
to any voting instructions which may be given by customers or their 
assigns; or

[[Page 65230]]

    (2) Acquired in the ordinary course of business as a broker, 
dealer, or underwriter with the bona fide intention of effecting 
distribution within 12 months of the specific securities so acquired.
    (22) Holding company system means a holding company, together with 
its subsidiary companies.
    (23) Indirect cost means the costs of a general overhead nature 
such as general services, housekeeping costs, and other support cost 
which cannot be separately identified to a single or group of associate 
and non-associate companies and, therefore, must be allocated. Costs 
incidental to or related to indirect items should also be classified as 
an indirect cost.
    (24) Investment advances means advances, represented by notes or by 
book accounts only, with respect to which it is mutually agreed or 
intended between the creditor and debtor that they must be settled by 
the issuance of securities or must not be subject to current 
settlement.
    (25) Lease, capital means a lease of property used by the service 
company, which meets one or more of the criteria stated in General 
Instructions in Sec.  367.18.
    (26) Lease, operating means a lease of property used by a service 
company, which does not meet any of the criteria stated in General 
Instructions in Sec.  367.18.
    (27) Minor items of property means the associated parts or items of 
which retirement units are composed.
    (28) Natural gas company means a person engaged in the 
transportation of natural gas in interstate commerce or the sale of 
such gas in interstate commerce for resale.
    (29) Net salvage value means the salvage value of property retired 
less the cost of removal.
    (30) Nominally issued, as applied to securities issued or assumed 
by the service company, means those which have been signed, certified, 
or otherwise executed, and placed with the proper officer for sale and 
delivery, or pledged, or otherwise placed in some special fund of the 
service company, but which have not been sold, or issued direct to 
trustees of sinking funds in accordance with contractual requirements.
    (31) Nominally outstanding, as applied to securities issued or 
assumed by the service company, means those which, after being actually 
issued, have been reacquired by or for the service company under 
circumstances which require them to be considered as held alive and not 
retired, provided, however, that securities held by trustees must be 
considered as actually outstanding.
    (32) Non-associate company means a person, partnership, 
organization, government body or company which is not a member of the 
holding company system.
    (33) Non-utility company means a company that is not a utility 
company.
    (34) Person means an individual or company.
    (35) Premium, as applied to securities issued or assumed by the 
service company, means the excess of the cash value of the 
consideration received from their sale over the sum of their par 
(stated value of no-par stocks) or face value and interest or dividends 
accrued at the date of sale.
    (36) Public utility means any person who owns or operates 
facilities used for transmission of electric energy in interstate 
commerce or sales of electric energy at wholesale in interstate 
commerce.
    (37) Public-utility company means an electric utility company or 
gas utility company.
    (38) Regulatory assets and liabilities are the assets and 
liabilities that result from rate actions for regulatory agencies. 
Regulatory assets and liabilities arise from specific revenues, 
expenses, gains, or losses that would have been included in net income 
determination in one period under the general requirements of the 
Uniform System of Accounts but for it being probable:
    (i) That such items will be included in a different period(s) for 
purposes of developing rates the service company is authorized to 
charge for its services; or
    (ii) In the case of regulatory liabilities, that refunds to 
customers, not provided for in other accounts, will be required.
    (39) Replacing or replacement, when not otherwise indicated in the 
context, means the construction or installation of service property in 
place of property retired, together with the removal of the property 
retired.
    (40) Research, development, and demonstration (RD&D) means 
expenditures incurred by a service company, for the service company or 
on behalf of others, either directly or through another person or 
organization (such as research institute, industry association, 
foundation, university, engineering company or similar contractor) in 
pursuing research, development, and demonstration activities including 
experiment, design, installation, construction, or operation. This 
definition includes expenditures for the implementation or development 
of new and/or existing concepts until technically feasible and 
commercially feasible operations are verified. When conducted on behalf 
of an associate or non-associate utility company such research, 
development, and demonstration costs should be reasonably related to 
the existing or future business of such company. The term includes, but 
is not limited to: All the costs incidental to the design, development 
or implementation of an experimental facility, a plant process, a 
product, a formula, an invention, a system or similar items, and the 
improvement of already existing items of a like nature; amounts 
expended in connection with the proposed development and/or proposed 
delivery of alternate sources of electricity or substitute or synthetic 
gas supplies (alternate fuel sources, for example, an experimental coal 
gasification plant or an experimental plant synthetically producing gas 
from liquid hydrocarbons); and the costs of obtaining its own patent, 
such as attorney's fees expended in making and perfecting a patent 
application. The term includes preliminary investigations and detailed 
planning of specific projects for securing for customers' non-
conventional electric power or pipeline gas supplies that rely on 
technology that has not been verified previously to be feasible. The 
term does not include expenditures for efficiency surveys; studies of 
management, management techniques and organization; consumer surveys, 
advertising, promotions, or items of a like nature.
    (41) Retained earnings means the accumulated net income of the 
service company less distribution to stockholders and transfers to 
other capital accounts.
    (42) Retirement units means those items of property which, when 
retired, with or without replacement, are accounted for by crediting 
the book cost of the retirement units to the property account in which 
it is included.
    (43) Salvage value means the amount received for property retired, 
less any expenses incurred in connection with the sale or in preparing 
the property for sale; or, if retained, the amount at which the 
material recoverable is chargeable to materials and supplies, or other 
appropriate account.
    (44) Service means any managerial, financial, legal, engineering, 
purchasing, marketing, auditing, statistical, advertising, publicity, 
tax, research, or any other service (including supervision or 
negotiation of construction or of sales), information or data, which is 
sold or furnished for a charge.
    (45) Service company means any associate company within a holding 
company system organized specifically

[[Page 65231]]

for the purpose of providing non-power goods or services or the sale of 
goods or construction work to any public utility in the same holding 
company system.
    (46) Service cost means the total of direct and indirect costs 
incurred to provide a service to an associate or non-associate company 
which are properly charged to expense by the service company.
    (47) Service life means the time between the date property is 
placed in service, or property is leased to others, and the date of its 
retirement. If depreciation is accounted for on a production basis 
rather than on a time basis, then service life should be measured in 
terms of the appropriate unit of production.
    (48) Service value means the difference between the cost and net 
salvage value of service property.
    (49) State commission means any commission, board, agency, or 
officer, by whatever name designated, of a State, municipality, or 
other political subdivision of a State that, under the laws of such 
State, has jurisdiction to regulate public-utility companies.
    (50) Uniform System of Accounts (USofA) means the Uniform System of 
Accounts for Centralized Service Companies prescribed in this part, as 
amended from time to time.
    (51) Utility company means a public-utility company or natural gas 
company whose rates are regulated by the Commission, state commission 
or other similar regulatory body.
    (b) [Reserved]

Subpart B--General Instructions


Sec.  367.2  Companies for which this system of accounts is prescribed.

    (a) Unless otherwise exempted or granted a waiver by Commission 
rule or order pursuant to Sec. Sec.  366.3 and 366.4 of this chapter, 
this Uniform System of Accounts applies to any centralized service 
company operating, or organized specifically to operate, within a 
holding company system for the purpose of providing non-power services 
to any public utility in the same holding company system.
    (b) This Uniform System of Accounts is not applicable to:
    (1) Service companies that are specifically organized as a special-
purpose company such as a fuel supply company or a construction 
company.
    (2) Electric or gas utility companies.
    (3) Companies primarily engaged:
    (i) In the production of goods, including exploration and 
development of fuel resources,
    (ii) In the provision of water, telephone, or similar services, the 
sale of which is normally subject to public rate regulation,
    (iii) In the provision of transportation, whether or not regulated, 
or
    (iv) In the ownership of property, including leased property and 
fuel reserves, for the use of associate companies.
    (4) A service company that provides services exclusively to a local 
gas distribution company.
    (5) Holding companies.
    (c) To the extent that the term service company is used in this 
Uniform System of Accounts, it applies only to centralized service 
companies.


Sec.  367.3  Records.

    (a) Each service company must keep its books of account, and all 
other books, records, and memoranda that support the entries in the 
books of account, so as to be able to furnish full information on any 
item included in any account. Each entry must be supported by 
sufficient detailed information that will permit ready identification, 
analysis, and verification of all facts relevant and related to the 
records.
    (b) The books and records referred to in this part include not only 
accounting records in a limited technical sense, but all other records, 
such as minutes books, stock books, reports, correspondence, and 
memoranda, that may be useful in developing the history of or facts 
regarding any transaction.
    (c) No service company may destroy any books or records unless the 
destruction is permitted by the rules and regulations of the 
Commission.
    (d) In addition to prescribed accounts, clearing accounts, 
temporary or experimental accounts, and subaccounts of any accounts may 
be kept, provided the integrity of the prescribed accounts is not 
impaired.
    (e) The arrangement or sequence of the accounts prescribed in this 
part must not be controlling as to the arrangement or sequence in 
report forms that may be prescribed by the Commission.


Sec.  367.4  Numbering system.

    (a) The account numbering plan used in this part consists of a 
system of three-digit whole numbers as follows:
    (1) 100-199, Assets and other debits.
    (2) 200-299, Liabilities and other credits.
    (3) 300-399, Property accounts.
    (4) 400-432 and 434-435, Income accounts.
    (5) 433, 436 and 439, Retained earnings accounts.
    (6) 457-458, Revenue accounts.
    (7) 500-599, Electric operating expenses.
    (8) 800-894, Gas operating expenses.
    (9) 900-949, Customer accounts, customer service and informational, 
sales, and general and administrative expenses.
    (b) The numbers prefixed to account titles are to be considered as 
parts of the titles. Each service company, however, may adopt for its 
own purposes a different system of account numbers (See also General 
Instructions in Sec.  367.3(d)) provided that the numbers prescribed in 
this part must appear in the descriptive headings of the ledger 
accounts and in the various sources of original entry; however, if a 
service company uses a different system of account numbers and it is 
not practicable to show the prescribed account numbers in the various 
sources of original entry, the reference to the prescribed account 
numbers may be omitted from the various sources of original entry. Each 
service company using different account numbers for its own purposes 
must keep readily available a list of the account numbers that it uses 
and a reconciliation of those account numbers with the account numbers 
provided in this part. It is intended that the service company's 
records must be kept so as to permit ready analysis by prescribed 
accounts (by direct reference to sources of original entry to the 
extent practicable) and to permit preparation of financial and 
operating statements directly from the records at the end of each 
accounting period according to the prescribed accounts.


Sec.  367.5  Accounting period.

    Each service company must keep its books on a monthly basis so that 
for each month all transactions applicable to the account, as nearly as 
may be ascertained, must be entered in the books of the service 
company. Amounts applicable or assignable to a single or group of 
associate and non-associate companies must be segregated monthly. Each 
service company must close its books at the end of each calendar year 
unless otherwise authorized by the Commission.


Sec.  367.6  Submittal of questions.

    To maintain uniformity of accounting, service companies must submit 
questions of doubtful interpretation to the Commission for 
consideration and decision.


Sec.  367.7  Item list.

    Lists of items appearing in the texts of the accounts or elsewhere 
in this part are for the purpose of indicating clearly the application 
of the prescribed accounting. The lists are intended to be

[[Page 65232]]

representative, but not exhaustive. The appearance of an item in a list 
warrants the inclusion of the item in the account mentioned only when 
the text of the account also indicates inclusion inasmuch as the same 
item frequently appears in more than one list. The proper entry in each 
instance must be determined by the texts of the accounts.


Sec.  367.8  Extraordinary items.

    Extraordinary items are to be recognized according to the rules 
which are considered generally accepted accounting principles. These 
items are related to the effects of events and transactions that have 
occurred during the current period and that are of an unusual nature 
and infrequent occurrence. Each item recognized as extraordinary must 
be disclosed in the notes to financial statements (See Accounts 434 and 
435 in Sec. Sec.  367.4340 and 367.4350).


Sec.  367.9  Prior period items.

    (a) Items of profit and loss related to the following must be 
accounted for as prior period adjustments and excluded from the 
determination of net income for the current year:
    (1) Correction of an error in the financial statements of a prior 
year.
    (2) Adjustments that result from realization of income tax benefits 
of pre-acquisition operating loss carry forwards of purchased 
subsidiaries.
    (b) All other items of profit and loss recognized during the year 
must be included in the determination of net income for that year.


Sec.  367.10  Unaudited items.

    Whenever a financial statement is required by the Commission, if it 
is known that a transaction has occurred that affects the accounts but 
the amount involved in the transaction and its effect upon the accounts 
cannot be determined with absolute accuracy, the amount must be 
estimated and the estimated amount included in the proper accounts. The 
service company is not required to anticipate minor items that would 
not appreciably affect the accounts.


Sec.  367.11  Distribution of pay and expenses of employees.

    The charges to property, operating expense and other accounts for 
services and expenses of employees engaged in activities chargeable to 
various accounts, such as construction, maintenance, and operations, 
must be based upon the actual time engaged in the respective classes of 
work, or an appropriate allocation method.


Sec.  367.12  Payroll distribution.

    Underlying accounting data must be maintained so that the 
distribution of the cost of labor charged direct to the various 
accounts will be readily available. The underlying data must permit a 
reasonably accurate distribution to be made of the cost of labor 
charged initially to clearing accounts so that the total labor cost may 
be classified among construction, cost of removal, or operating 
functions.


Sec.  367.13  Accounting to be on accrual basis.

    (a) The service company is required to keep its accounts on the 
accrual basis. This requires the inclusion in its accounts of all known 
transactions of appreciable amount that affect the accounts. If bills 
covering the transactions have not been received or rendered, the 
amounts must be estimated and appropriate adjustments made when the 
bills are received. When the amount is ascertained, the necessary 
adjustments must be made through the accounts in which the estimate was 
recorded. If it is determined during the interval that a material 
adjustment will be required, the estimate must be adjusted through the 
current accounts. The service company is not required to anticipate 
minor items which would not appreciably affect these accounts.
    (b) When payments are made in advance for items such as insurance, 
rents, taxes or interest, the amount applicable to future periods must 
be charged to account 165, Prepayments (Sec.  367.1650), and spread 
over the periods to which they are applicable by credits to account 165 
(Sec.  367.1650), and charges to the accounts appropriate for the 
expenditure.


Sec.  367.14  Transactions with associate companies.

    Each service company must keep its accounts and records so as to be 
able to furnish accurately and expeditiously statements of all 
transactions with associate companies. The statements may be required 
to show the general nature of the transactions, the amounts involved in 
the transactions and the amounts included in each account prescribed in 
this part with respect to such transactions. Transactions with 
associate companies must be recorded in the appropriate accounts for 
transactions of the same nature. Nothing contained in this part, 
however, must be construed as restraining the service company from 
subdividing accounts for the purpose of recording separately 
transactions with associate companies.


Sec.  367.15  Contingent assets and liabilities.

    Contingent assets represent a possible source of value to the 
service company contingent upon the fulfillment of conditions regarded 
as uncertain. Contingent liabilities include items that, under certain 
conditions, may become obligations of the service company but that are 
neither direct nor assumed liabilities at the date of the balance 
sheet. The service company must be prepared to give a complete 
statement of significant contingent assets and liabilities (including 
cumulative dividends on preference stock) in its annual report and at 
such other times as may be requested by the Commission.


Sec.  367.16  Long-term debt: Premium, discount and expense, and gain 
or loss on reacquisition.

    (a) A separate premium, discount and expense account must be 
maintained for each class and series of long-term debt (including 
receivers' certificates) issued or assumed by the service company. The 
premium must be recorded in account 225, Unamortized premium on long-
term debt (Sec.  367.2250), the discount must be recorded in account 
226, Unamortized discount on long-term debt--Debit (Sec.  367.2260), 
and the expense of issuance must be recorded in account 181, 
Unamortized debt expense (Sec.  367.1810). The premium, discount and 
expense must be amortized over the life of the respective issues under 
a plan that will distribute the amounts equitably over the life of the 
securities. The amortization must be on a monthly basis, and the 
amounts relating to discounts and expenses must be charged to account 
428, Amortization of debt discount and expense (Sec.  367.4280). The 
amounts relating to premiums must be credited to account 429, 
Amortization of premium on debt--Credit (Sec.  367.4290).
    (b) When long-term debt is reacquired the difference between the 
amount paid upon reacquisition of any long-term debt and the face 
value, adjusted for unamortized discount, expenses or premium, as the 
case may be, applicable to the debt redeemed must be recognized 
currently in income and recorded in account 421, Miscellaneous income 
or loss (Sec.  367.4210), or account 426.5, Other deductions (Sec.  
367.4265).


Sec.  367.17  Comprehensive inter-period income tax allocation.

    (a) Where there are timing differences between the periods in which 
transactions affect taxable income and the periods in which they enter 
into the determination of pretax accounting income, the income tax 
effects of such transactions are to be recognized in the periods in 
which the differences

[[Page 65233]]

between book accounting income and taxable income arise and in the 
periods in which the differences reverse using the deferred tax method. 
In general, comprehensive inter-period tax allocation should be 
followed whenever transactions enter into the determination of pretax 
accounting income for the period even though some transactions may 
affect the determination of taxes payable in a different period, as 
further qualified in this section.
    (b) Once comprehensive inter-period tax allocation has been 
initiated, either in whole or in part, it must be practiced on a 
consistent basis and must not be changed or discontinued without prior 
Commission approval.
    (c) Tax effects deferred currently will be recorded as deferred 
debits or deferred credits in accounts 190, Accumulated deferred income 
taxes (Sec.  367.1900), 282, Accumulated deferred income taxes--Other 
property (Sec.  367.2820), and 283, Accumulated deferred income taxes--
Other (Sec.  367.2830), as appropriate. The resulting amounts recorded 
in these accounts must be disposed of as prescribed in this system of 
accounts or as otherwise authorized by the Commission.


Sec.  367.18  Criteria for classifying leases.

    (a) If, at its inception, a lease meets one or more of the 
following criteria, the lease must be classified as a capital lease. 
Otherwise, it must be classified as an operating lease.
    (1) The lease transfers ownership of the property to the lessee by 
the end of the lease term.
    (2) The lease contains a bargain purchase option.
    (3) The lease term is equal to 75 percent or more of the estimated 
economic life of the leased property. However, if the beginning of the 
lease term falls within the last 25 percent of the total estimated 
economic life of the leased property, including earlier years of use, 
this criterion must not be used for purposes of classifying the lease.
    (4) The present value at the beginning of the lease term of the 
minimum lease payments, excluding that portion of the payments 
representing executory costs such as insurance, maintenance, and taxes 
to be paid by the lessor, including any related profit, equals or 
exceeds 90 percent of the excess of the fair value of the leased 
property to the lessor at the inception of the lease over any related 
investment tax credit retained by the lessor and expected to be 
realized by the lessor. However, if the beginning of the lease term 
falls within the last 25 percent of the total estimated economic life 
of the leased property, including earlier years of use, this criterion 
must not be used for purposes of classifying the lease. The lessee must 
compute the present value of the minimum lease payments using its 
incremental borrowing rate, unless:
    (i) It is practicable for the company to learn the implicit rate 
computed by the lessor, and
    (ii) The implicit rate computed by the lessor is less than the 
lessee's incremental borrowing rate.
    (iii) If both of those conditions are met, the lessee must use the 
implicit rate.
    (b) If, at any time, the lessee and lessor agree to change the 
provisions of the lease, other than by renewing the lease or extending 
its term, in a manner that would have resulted in a different 
classification of the lease under the criteria in paragraph (a) of this 
section had the changed terms been in effect at the inception of the 
lease, the revised agreement must be considered as a new agreement over 
its term, and the criteria in paragraph (a) of this section must be 
applied for purposes of classifying the new lease. Likewise, any action 
that extends the lease beyond the expiration of the existing lease 
term, such as the exercise of a lease renewal option other than those 
already included in the lease term, must be considered as a new 
agreement and must be classified according to the criteria in paragraph 
(a) of this section. Changes in estimates (for example, changes in 
estimates of the economic life or of the residual value of the leased 
property) or changes in circumstances (for example, default by the 
lessee) must not give rise to a new classification of a lease for 
accounting purposes.


Sec.  367.19  Accounting for leases.

    (a) All leases must be classified as either capital or operating 
leases.
    (b) The service company must record a capital lease as an asset in 
account 101.1, Property under capital leases (Sec.  367.1011) and an 
obligation in account 227, Obligations under capital leases--Non-
current (Sec.  367.2270), or account 243, Obligations under capital 
leases--Current (Sec.  367.2430), at an amount equal to the present 
value at the beginning of the lease term of minimum lease payments 
during the lease term, excluding that portion of the payments 
representing executory costs such as insurance, maintenance, and taxes 
to be paid by the lessor, together with any related profit. However, if 
the determined amount exceeds the fair value of the leased property at 
the inception of the lease, the amount recorded as the asset and 
obligation must be the fair value.
    (c) The service company, as a lessee, must recognize an asset 
retirement obligation (See General Instructions in Sec.  367.22) 
arising from the property under a capital lease unless the obligation 
is recorded as an asset and liability under a capital lease. The 
service company must record the asset retirement cost by debiting 
account 101.1, Property under capital leases (Sec.  367.1011), and 
crediting the liability for the asset retirement obligation in account 
230, Asset retirement obligations (Sec.  367.2300). Asset retirement 
costs recorded in account 101.1 (Sec.  367.1011) must be amortized by 
charging rent expense (see Operating Expense Instructions in Sec.  
367.82) or account 421, Miscellaneous income or loss (Sec.  367.4210), 
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 
(Sec.  367.2300), must be recorded by a charge to account 411.10, 
Accretion expense (Sec.  367.4118), for service company property, and 
account 421, Miscellaneous income or loss (Sec.  367.4210), for non-
service company property and a credit to account 230, Asset retirement 
obligations (Sec.  367.2300).
    (d) Rental payments on all leases must be charged to rent expense, 
fuel expense, construction work in progress, or other appropriate 
accounts as they become payable.
    (e) For a capital lease, for each period during the lease term, the 
amounts recorded for the asset and obligation must be reduced by an 
amount equal to the portion of each lease payment that would have been 
allocated to the reduction of the obligation, if the payment had been 
treated as a payment on an installment obligation (liability) and 
allocated between interest expense and a reduction of the obligation so 
as to produce a constant periodic rate of interest on the remaining 
balance.


Sec.  367.20  Depreciation accounting.

    (a) Method. Service companies 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.
    (b) Service lives. Estimated useful service lives of depreciable 
property must be supported by objective evidence and analysis, 
including where appropriate engineering, economic, or other 
depreciation studies.

[[Page 65234]]

    (c) Rate. Service companies must use percentage rates of 
depreciation that are based on a method of depreciation that allocates 
the service value of depreciable property over the service life of the 
property. Where composite depreciation rates are used, they must be 
based on the weighted average estimated useful service lives of the 
depreciable property comprising the composite group.


Sec.  367.22  Accounting for asset retirement obligations.

    (a) An asset retirement obligation represents a liability for the 
legal obligation associated with the retirement of a tangible, long-
lived asset that a service 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 must be stated at the 
fair value of the asset retirement obligation in the period in which 
the obligation is incurred.
    (b) The service company must initially record a liability for an 
asset retirement obligation in account 230, Asset retirement 
obligations (Sec.  367.2300), and charge the associated asset 
retirement costs to service company property (including account 101.1 
in Sec.  367.1011) related to the property that gives rise to the legal 
obligation. The asset retirement cost must be depreciated over the 
useful life of the related asset that gives rise to the obligations. 
For periods subsequent to the initial recording of the asset retirement 
obligation, a service company must 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 (Sec.  367.2300), 
as follows:
    (1) The service company must record the accretion of the liability 
by debiting account 411.10, Accretion expense (Sec.  367.4118); and
    (2) The service company must recognize any subsequent measurement 
changes of the liability initially recorded in account 230, Asset 
retirement obligations (Sec.  367.2300), for each specific asset 
retirement obligation as an adjustment of that liability in account 230 
with the corresponding adjustment to service company property. The 
service company must on a timely basis monitor any measurement changes 
of the asset retirement obligations.
    (c) Gains or losses resulting from the settlement of asset 
retirement obligations associated with service company property 
resulting from the difference between the amount of the liability for 
the asset retirement obligation included in account 230, Asset 
retirement obligations (Sec.  367.2300), and the actual amount paid to 
settle the obligation shall be accounted for as follows:
    (1) Gains shall be credited to account 421, Miscellaneous income or 
loss (Sec.  367.4210), and;
    (2) Losses shall be charged to account 426.5, Other deductions 
(Sec.  367.4265).
    (d) Separate subsidiary records must be maintained for each asset 
retirement obligation showing the initial liability and associated 
asset retirement cost, any incremental amounts of the liability 
incurred in subsequent reporting periods for additional layers of the 
original liability and related asset retirement cost, the accretion of 
the liability, the subsequent measurement changes to the asset 
retirement obligation, the depreciation and amortization of the asset 
retirement costs and related accumulated depreciation, and the 
settlement date and actual amount paid to settle the obligation. For 
purposes of analysis, a service company must 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.


Sec.  367.23  Transactions with non-associate companies.

    When a service or construction is performed for non-associate 
companies at an amount other than cost, the amount of revenues in 
excess or deficiency of the cost on servicing the non-associate 
companies must be charged to account 458.4, Excess or deficiency on 
servicing non-associate utility companies (Sec.  367.4584). A 
deficiency incurred in a project deemed beneficial to the associate 
companies may be charged to associate companies subject to disallowance 
by a State Commission or Federal Commission having jurisdiction over 
the rates or services of the associate companies. To the extent not 
charged, or if disallowed, the deficiency will be charged to account 
458.4 (Sec.  367.4584). In computing charges to associate companies for 
any calendar year, any net credit in this account must be deducted from 
amounts reimbursable by associate companies as compensation for use of 
capital invested in the service company.


Sec.  367.24  Construction and service contracts for other companies.

    (a) Expenditures made in the performance of construction or service 
contracts, under which the service company undertakes projects to 
construct physical property for associate or non-associate companies 
must be recorded in Account 412, Cost and expenses of construction or 
other services (Sec.  367.4120). The service company must keep records 
pursuant to its cost allocation system indicating the cost of each 
contract or project, the amount of service costs allocated to the 
contracts, and the additional classification of expenditures relating 
to projects that will meet the accounting requirements of the company 
for which the work is performed.
    (b) Account 412 (Sec.  367.4120) will include:
    (1) The cost of materials, construction payrolls, outside services, 
and other expenses which are directly attributable to the performance 
of service or construction contracts for other companies.
    (2) The cost of goods procured directly attributable to the 
performance of service or construction contracts for other companies.
    (3) The related salaries, expense of officers and employees, pay of 
employees on the service company's regular staff specifically assigned 
to construction work, and other expenses of maintaining the service 
company's organization and equipment.
    (4) The support services performed by the service company in 
connection with the procurement of goods for associate companies.


Sec.  367.25  Determination of service cost.

    A service must be deemed at cost and fair allocation of costs 
requires an accurate accounting for the elements that makes up the 
aggregate expense of conducting the business of the service company. In 
the accounts prescribed in this part, the total amounts included in the 
expense accounts during any period plus the amount that appropriately 
may be added as compensation for the use of capital constitute cost 
during that period.

[[Page 65235]]

Sec.  367.26  Departmental classification.

    Salaries and wages and all other costs must be classified by 
departmental or other functional category in accordance with the 
departmental organization of the service company to provide a readily 
available basis for analysis.


Sec.  367.27  Billing procedures.

    Charges for services to associate public-utility companies must be 
made monthly with sufficient information and in sufficient detail to 
permit such company, where applicable, to identify and classify the 
charge in terms of the system of accounts prescribed by the regulatory 
authorities to which it is subject. The information provided to 
associate public-utility companies must provide a summary of the 
accounts by service provided and showing the charges, classified as 
direct cost, indirect cost, and compensation for use of capital.


Sec.  367.28  Methods of allocation.

    Indirect costs and compensation for use of capital must be 
allocated to projects in accordance with the service company's 
applicable and currently effective methods of allocation. Both direct 
and allocated indirect costs on projects must be assigned among those 
companies in the same manner. The cost accumulation system must 
identify the methods of allocation and the accounts to be charged. 
Companies must be notified in writing of any change in the methods of 
allocation.


Sec.  367.29  Compensation for use of capital.

    A servicing transaction is deemed to be performed at no more than 
cost if the price of the service does not exceed a fair and equitable 
allocation of expenses plus reasonable compensation for necessary 
capital procured through the issuance of capital stock. Interest on 
borrowed capital and compensation for the use of capital must only 
represent a reasonable return on the amount of capital reasonably 
necessary for the performance of services or construction work for, or 
the sale of goods to, associate companies. The compensation may be 
estimated and must be computed monthly. The amount of compensation must 
be stated separately in each billing to the associate companies. An 
annual statement to support the amount of compensation for use of 
capital billed for the previous 12 months and how it was calculated 
must be supplied to each associate company at the end of the calendar 
year.


Sec.  367.30  Cost accumulation system for associate companies.

    Service companies must maintain a detailed classification of 
service costs, that permits costs to be identified with the functional 
processes of the associate companies served. To permit the 
classification, each service company must maintain a cost accumulation 
system, as described in Definitions Sec.  367.1(a)(12), for 
accumulating reimbursable costs and charges to the associate companies 
served, and maintain time records for all service company employees in 
order to support the accounting allocation of all expenses assignable 
to the types of services performed and chargeable to the associate 
companies served. Service company employee records must permit a ready 
identification of the hours worked, account numbers charged, and other 
code designations that facilitate proper classification.

Subpart C--Service Company Property Instructions


Sec.  367.50  Service company property to be recorded at cost.

    (a) All amounts included in the accounts for service company 
property must be stated at the cost incurred by the service company, 
except for property acquired by lease which qualifies as capital lease 
property under General Instructions in Sec.  367.18, Criteria for 
classifying leases, and is recorded in Account 101.1, Property under 
capital leases (Sec.  367.1011).
    (b) When the consideration given for property is other than cash, 
the value of the consideration must be determined on a cash basis (See, 
however, Definitions Sec.  367.1(a)(11)). In the entry recording the 
transaction, the actual consideration must be described with sufficient 
particularity to identify it. The service company must be prepared to 
furnish the Commission the particulars of its determination of the cash 
value of the consideration, if other than cash.
    (c) When property is purchased under a plan involving deferred 
payments, no charge must be made to the service company property 
accounts for interest, insurance, or other expenditures occasioned 
solely by such form of payment.
    (d) The service company property accounts must not include the cost 
or other value of service company property contributed to the company. 
Contributions in the form of money or its equivalent toward the 
construction of property must be credited to accounts charged with the 
cost of such construction. Property constructed from contributions of 
cash or its equivalent must be shown as a reduction to gross property 
constructed when assembling cost data for posting to property ledgers 
of accounts. The accumulated gross costs of property must be recorded 
as a debit in the plant ledger of accounts along with the related 
amount of contributions concurrently recorded as a credit.


Sec.  367.51  Components of construction.

    (a) For service companies, the cost of construction properly 
included in the service company property accounts must include, where 
applicable, the direct and overhead costs as listed and defined as 
follows:
    (1) Contract work includes amounts paid for work performed under 
contract by other companies, firms, or individuals, costs incident to 
the award of such contracts, and the inspection of the work.
    (2) Labor includes the pay and expenses of employees of the service 
company engaged in construction work, and related workmen's 
compensation insurance, payroll taxes and similar items of expense. It 
does not include the pay and expenses of employees that are distributed 
to construction through clearing accounts nor the pay and expenses 
included in other items in this section.
    (3)(i) Materials and supplies includes the purchase price at the 
point of free delivery plus customs duties, excise taxes, the cost of 
inspection, loading and transportation, the related stores expenses, 
and the cost of fabricated materials from the service company's shop. 
In determining the cost of materials and supplies used for 
construction, proper allowance must be made for unused materials and 
supplies, for materials recovered from temporary structures used in 
performing the work involved, and for discounts allowed and realized in 
the purchase of materials and supplies.
    (ii) The cost of individual items of equipment of small value (for 
example, $500 or less) or of short life, including small portable tools 
and implements, must not be charged to service company property 
accounts unless the correctness of the accounting is verified by 
current inventories. The cost must be charged to the appropriate 
operating expense or clearing accounts, according to the use of the 
items, or, if the items are consumed directly in construction work, the 
cost must be included as part of the cost of the construction.
    (4) Transportation includes the cost of transporting employees, 
materials and supplies, tools, purchased equipment, and other work 
equipment (when not under own power) to and from points of 
construction. It includes amounts paid to others as well as the cost of 
operating the service company's own

[[Page 65236]]

transportation equipment. (See paragraph (a)(5) of this section.)
    (5) Special machine service includes the cost of labor (optional), 
materials and supplies, depreciation, and other expenses incurred in 
the maintenance, operation and use of special machines, such as steam 
shovels, pile drivers, derricks, ditchers, scrapers, material 
unloaders, and other labor saving machines; also expenditures for 
rental, maintenance and operation of machines of others. It does not 
include the cost of small tools and other individual items of small 
value or short life which are included in the cost of materials and 
supplies. (See paragraph (a)(3) of this section.) When a particular 
construction job requires the use for an extended period of time of 
special machines, transportation or other equipment, the associated net 
book cost, less the appraised or salvage value at time of release from 
the job, must be included in the cost of construction.
    (6) Shop service includes the proportion of the expense of the 
service company's shop department assignable to construction work 
except that the cost of fabricated materials from the service company's 
shop must be included in materials and supplies.
    (7) Protection includes the cost of protecting the service 
company's property from fire or other casualties and the cost of 
preventing damages to others, or to the property of others, including 
payments for discovery or extinguishment of fires, cost of apprehending 
and prosecuting incendiaries, related witness fees, amounts paid to 
municipalities and others for fire protection, and other analogous 
items of expenditures in connection with construction work.
    (8) Injuries and damages includes expenditures or losses in 
connection with construction work on account of injuries to persons and 
damages to the property of others; also the cost of investigation of, 
and defense against, actions for the injuries and damages. Insurance 
recovered or recoverable on account of compensation paid for injuries 
to persons incident to construction must be credited to the account or 
accounts to which such compensation is charged. Insurance recovered or 
recoverable on account of property damages incident to construction 
must be credited to the account or accounts charged with the cost of 
the damages.
    (9) Privileges and permits includes payments for and expenses 
incurred in securing temporary privileges, permits or rights in 
connection with construction work, such as for the use of private or 
public property, streets, or highways, but it does not include rents.
    (10) Rents include amounts paid for the use of construction 
quarters and office space occupied by construction forces and amounts 
properly includible in construction costs for the facilities jointly 
used.
    (11) Engineering and supervision includes the portion of the pay 
and expenses of engineers, surveyors, draftsmen, inspectors, 
superintendents and their assistants applicable to construction work.
    (12) General administration capitalized includes the portion of the 
pay and expenses of the general officers and administrative and general 
expenses applicable to construction work.
    (13) Engineering services includes amounts paid to other companies, 
firms, or individuals engaged by the service company to plan, design, 
prepare estimates, supervise, inspect, or give general advice and 
assistance in connection with construction work.
    (14) Insurance includes premiums paid or amounts provided or 
reserved as self-insurance for the protection against loss and damages 
in connection with construction, by fire or other casualty injuries to 
or death of persons other than employees, damages to property of 
others, defalcation of employees and agents, and the nonperformance of 
contractual obligations of others. It does not include workmen's 
compensation or similar insurance on employees included as labor in 
paragraph (a)(2) of this section.
    (15) Law expenditures includes the general law expenditures 
incurred in connection with construction and the directly related court 
and legal costs, other than law expenses included in protection in 
paragraph (a)(7) of this section, and in injuries and damages in 
paragraph (a)(8) of this section.
    (16) Taxes include taxes on physical property (including land) 
during the period of construction and other taxes properly includible 
in construction costs before the facilities become available for 
service.
    (17) Interest cost on funds used during construction which are 
allowed to be capitalized following generally accepted accounting 
principles.
    (18) Earnings and expenses during construction. The earnings and 
expenses during construction must constitute a component of 
construction costs.
    (19) Training costs. When it is necessary that employees be trained 
to operate or maintain property that is being constructed and the 
property is not conventional in nature, or is new to the company's 
operations, these costs may be capitalized as a component of 
construction cost. Once property is placed in service, the 
capitalization of training costs must cease and subsequent training 
costs must be expensed. (See Operating Expense Instructions in Sec.  
367.83.)
    (20) Studies include the costs of studies such as safety or 
environmental studies mandated by regulatory bodies relative to 
property under construction. Studies relative to facilities in service 
must be charged to account 183, Preliminary survey and investigation 
charges (Sec.  367.1830).
    (21) Asset retirement costs. The costs recognized as a result of 
asset retirement obligations incurred during the construction and 
testing of service company property must constitute a component of 
construction costs.
    (b) [Reserved]


Sec.  367.52  Overhead construction costs.

    (a) All overhead construction costs, such as engineering, 
supervision, general office salaries and expenses, construction 
engineering and supervision by others than the service company, law 
expenses, insurance, injuries and damages, relief and pensions, taxes 
and interest, must be charged to particular jobs or units on the basis 
of the amounts of the reasonably applicable overheads.
    (b) As far as practicable, the determination of payroll charges 
includible in construction overheads must be based on the related time 
card distributions. Where this procedure is impractical, special 
studies must be made periodically of the time of supervisory employees 
devoted to construction activities to the end that only the overhead 
costs that have a definite relation to construction must be 
capitalized.
    (c) The records supporting the entries for overhead construction 
costs must be kept so as to show the total amount of each overhead for 
each year, the nature and amount of each overhead expenditure charged 
to each construction project and to each property account, and the 
bases of distribution of such costs.


Sec.  367.53  Service company property purchased or sold.

    (a) When service company property is acquired by purchase, merger, 
consolidation, liquidation, or otherwise, after the effective date of 
this system of accounts, the costs of acquisition, including related 
incidental expenses, must be charged to the appropriate service company 
property accounts and

[[Page 65237]]

account 107, Construction work in progress (Sec.  367.1070), as 
appropriate.
    (b) If property acquired is in a physical condition so that it is 
necessary to rehabilitate it substantially in order to bring the 
property up to the standards of the service company, the cost of the 
work, except replacements, must be accounted for as a part of the 
purchase price of the property.
    (c) Unless otherwise authorized by the Commission, all service 
company property acquired from an affiliate company must be recorded at 
its book value. Additionally, if property is acquired that is in excess 
of $10 million and has been previously devoted to public service at a 
price above book value, the service company must file with the 
Commission the proposed journal entries associated with the acquisition 
within six months from the date of acquisition of the property.
    (d) When service company property is sold, conveyed, or transferred 
to another by sale, merger, consolidation, or otherwise, the book cost 
of the property sold or transferred to another must be credited to the 
appropriate service company property accounts. The amounts (estimated, 
if not known) carried with respect the accounts for accumulated 
provision for depreciation and amortization must be charged to those 
accounts. The difference, if any, between the net amount of debits and 
credits and the consideration received for the property (less 
commissions and other expenses of making the sale) must be included in 
account 421.1, Gain on disposition of property (Sec.  367.4211), or 
account 421.2, Loss on disposition of property (Sec.  367.4212).
    (e) In connection with the acquisition of service company property 
previously devoted to service company operations or acquired from an 
associate company, the service company must procure, if possible, all 
existing records relating to the property acquired or related certified 
copies, and must preserve the records in conformity with regulations or 
practices governing the preservation of records of its own 
construction.


Sec.  367.54  Expenditures on leased property.

    (a) The cost of substantial initial improvements (including 
repairs, rearrangements, additions, and betterments) made to prepare 
service company property leased to be used for a period of more than 
one year, and the cost of subsequent substantial additions, 
replacements, or betterments to the property, must be charged to the 
service company property account appropriate for the class of property 
leased. If the service life of the improvements is terminable by action 
of the lease, the cost, less net salvage, of the improvements must be 
spread over the life of the lease by charges to account 404, 
Amortization of limited-term service property (Sec.  367.4040). 
However, if the service life is not terminated by action of the lease 
but by depreciation proper, the cost of the improvements, less net 
salvage, must be accounted for as depreciable property. The provisions 
of this paragraph are applicable to property leased under either 
capital leases or operating leases.
    (b) If improvements made to property leased for a period of more 
than one year are of relatively minor cost, or if the lease is for a 
period of not more than one year, the cost of the improvements must be 
charged to the account in which the rent is included, either directly 
or by amortization.


Sec.  367.55  Land and land rights.

    (a) The accounts for land and land rights must include the cost of 
land owned in fee by the service company and rights. Interests, and 
privileges held by the service company in land owned by others, such as 
leaseholds, easements, water and water power rights, diversion rights, 
submersion rights, rights-of-way, and other like interests in land. Do 
not include in the accounts for land and land rights and rights-of-way 
costs incurred in connection with first clearing and grading of land 
and rights-of-way and the damage costs associated with the construction 
and installation of property. The costs must be included in the 
appropriate property accounts directly benefited.
    (b) Where special assessments for public improvements provide for 
deferred payments, the full amount of the assessments must be charged 
to the appropriate land account and the unpaid balance must be carried 
in an appropriate liability account. Interest on unpaid balances must 
be charged to the appropriate interest account. If any part of the cost 
of public improvements is included in the general tax levy, the related 
amount must be charged to the appropriate tax account.
    (c) The net profit from the sale of timber, cord wood, sand, 
gravel, other resources or other property acquired with the rights-of-
way or other lands must be credited to the appropriate property account 
to which it is related. Where land is held for a considerable period of 
time and timber and other natural resources on the land at the time of 
purchase increases in value, the net profit (after giving effect to the 
cost of the natural resources) from the sales of timber or its products 
or other natural resources must be credited to the appropriate 
operating income account when the land has been recorded in account 
101, Service company property (Sec.  367.1010), otherwise to account 
421, Miscellaneous income or loss (Sec.  367.4210).
    (d) Separate entries must be made for the acquisition, transfer, or 
retirement of each parcel of land, and each land right (except rights 
of way for distribution lines), or water right, having a life of more 
than one year. A record must be maintained showing the nature of 
ownership, full legal description, area, map reference, purpose for 
which used, city, county, and tax district on which situated, from whom 
purchased or to whom sold, payment given or received, other costs, 
contract date and number, date of recording of deed, and book and page 
of record. Entries transferring or retiring land or land rights must 
refer to the original entry recording its acquisition.
    (e) Any difference between the amount received from the sale of 
land or land rights, less agents' commissions and other costs incident 
to the sale, and the book cost of such land or rights, must be included 
in account 421.1, Gain on disposition of property (Sec.  367.4211), or 
account 421.2, Loss on disposition of property (Sec.  367.4212), when 
the property has been recorded in account 101, Service company property 
(Sec.  367.1010). Appropriate adjustments of the accounts must be made 
with respect to any structures or improvements located on the land 
sold.
    (f) The cost of buildings and other improvements (other than public 
improvements) must not be included in the land accounts. If, at the 
time of acquisition of an interest in land the interest extends to 
buildings or other improvements (other than public improvements) that 
are then devoted to operations, the land and improvements must be 
separately appraised and the cost allocated to land and buildings or 
improvements on the basis of the appraisals. If the improvements are 
removed or wrecked without being used in operations, the cost of 
removing or wrecking must be charged and the salvage credited to the 
account in which the cost of the land is recorded.
    (g) Provisions must be made for amortizing amounts carried in the 
accounts for limited-term interests in land so as to apportion 
equitably the cost of each interest over the life thereof. (See account 
111, Accumulated provision for amortization of service company property 
in Sec.  367.1110, and account 404, Amortization of limited-term 
property in Sec.  367.4040.)

[[Page 65238]]

    (h) The items of cost to be included in the accounts for land and 
land rights are as follows:
    (1) Bulkheads, buried, not requiring maintenance or replacement.
    (2) Cost, first, of acquisition including mortgages and other liens 
assumed (but not the related subsequent interest).
    (3) Condemnation proceedings, including court and counsel costs.
    (4) Consents and abutting damages, payment for.
    (5) Conveyancers' and notaries' fees.
    (6) Fees, commissions, and salaries to brokers, agents and others 
in connection with the acquisition of the land or land rights.
    (7) Leases, cost of voiding upon purchase to secure possession of 
land.
    (8) Removing, relocating, or reconstructing, property of others, 
such as buildings, highways, railroads, bridges, cemeteries, churches, 
telephone and power lines, in order to acquire quiet possession.
    (9) Retaining walls unless identified with structures.
    (10) Special assessments levied by public authorities for public 
improvements on the basis of benefits for new roads, new bridges, new 
sewers, new curbing, new pavements, and other public improvements, but 
not taxes levied to provide for the maintenance of such improvements.
    (11) Surveys in connection with the acquisition, but not amounts 
paid for topographical surveys and maps where the costs are 
attributable to structures or plant equipment erected or to be erected 
or installed on the land.
    (12) Taxes assumed, accrued to date of transfer of title.
    (13) Title, examining, clearing, insuring and registering in 
connection with the acquisition and defending against claims relating 
to the period prior to the acquisition.
    (14) Appraisals prior to closing title.
    (15) Cost of dealing with distributees or legatees residing outside 
of the state or county, such as recording power of attorney, recording 
will or exemplification of will, recording satisfaction of state tax.
    (16) Filing satisfaction of mortgage.
    (17) Documentary stamps.
    (18) Photographs of property at acquisition.
    (19) Fees and expenses incurred in the acquisition of water rights 
and grants.
    (20) Cost of fill to extend bulkhead line over land under water, 
where riparian rights are held, which is not occasioned by the erection 
of a structure.
    (21) Sidewalks and curbs constructed by the service company on 
public property.
    (22) Labor and expenses in connection with securing rights of way, 
where performed by company employees and company agents.


Sec.  367.56  Structures and improvements.

    (a) The accounts for structures and improvements must include the 
cost of all buildings and facilities to house, support, or safeguard 
property or persons, including all fixtures permanently attached to and 
made a part of buildings and that cannot be removed from the buildings 
and facilities without cutting into the walls, ceilings, or floors, or 
without in some way impairing the buildings, and improvements of a 
permanent character on, or to, land. Also include those costs incurred 
in connection with the first clearing and grading of land and rights-
of-way and the damage costs associated with construction and 
installation of property.
    (b) The cost of specially-provided foundations not intended to 
outlast the machinery or apparatus for which provided, and associated 
costs, such as angle irons, castings, and other items installed at the 
base of an item of equipment, must be charged to the same account as 
the cost of the machinery, apparatus, or equipment.
    (c) Where the structure of a dam also forms the foundation of the 
service company building, the foundation must be considered a part of 
the dam.
    (d) The cost of disposing of materials excavated in connection with 
construction of structures must be considered as a part of the cost of 
that work, except as follows:
    (1) When the material is used for filling, the cost of loading, 
hauling, and dumping must be equitably apportioned between the work in 
connection with which the removal occurs and the work in connection 
with which the material is used.
    (2) When the material is sold, the net amount realized from the 
sales must be credited to the work in connection with which the removal 
occurs. If the amount realized from the sale of excavated materials 
exceeds the removal costs and the costs in connection with the sale, 
the excess must be credited to the land account in which the site is 
carried.
    (e) Lighting or other fixtures temporarily attached to buildings 
for purposes of display or demonstration must not be included in the 
cost of the building but in the appropriate equipment account.
    (f) This account must include the following items:
    (1) Architects'' plans and specifications including supervision.
    (2) Ash pits (when located within the building).
    (3) Athletic field structures and improvements.
    (4) Boilers, furnaces, piping, wiring, fixtures, and machinery for 
heating, lighting, signaling, ventilating, and air-conditioning 
systems, plumbing, vacuum cleaning systems, incinerator and smoke pipe, 
flues and similar items.
    (5) Bulkheads, including dredging, riprap fill, piling, decking, 
concrete, fenders, and similar items when exposed and subject to 
maintenance and replacement.
    (6) Chimneys.
    (7) Coal bins and bunkers.
    (8) Commissions and fees to brokers, agents, architects, and 
others.
    (9) Conduit (not to be removed) with its contents.
    (10) Damages to abutting property during construction.
    (11) Docks.
    (12) Door checks and door stops.
    (13) Drainage and sewerage systems.
    (14) Elevators, cranes, hoists, and the machinery for operating 
them.
    (15) Excavation, including shoring, bracing, bridging, refill and 
disposal of excess excavated material, cofferdams around foundation, 
pumping water from cofferdams during construction, and test borings.
    (16) Fences and fence curbs (not including protective fences 
isolating items of equipment, which must be charged to the appropriate 
equipment account).
    (17) Fire protection systems when forming a part of a structure.
    (18) Flagpole.
    (19) Floor covering (permanently attached).
    (20) Foundations and piers for machinery, constructed as a 
permanent part of a building or other item listed in this paragraph 
(f).
    (21) Grading and clearing when directly occasioned by the building 
of a structure.
    (22) Intrasite communication system, poles, pole fixtures, wires, 
and cables.
    (23) Landscaping, lawns, shrubbery and similar items.
    (24) Leases, voiding upon purchase to secure possession of 
structures.
    (25) Leased property, expenditures on.
    (26) Lighting fixtures and outside lighting system.
    (27) Mail chutes when part of a building.
    (28) Marquee, permanently attached to building.
    (29) Painting, first cost.
    (30) Permanent paving, concrete, brick, flagstone, asphalt, within 
the property lines.

[[Page 65239]]

    (31) Partitions, including movable.
    (32) Permits and privileges.
    (33) Platforms, railings, and gratings when constructed as a part 
of a structure.
    (34) Power boards for services to a building.
    (35) Refrigerating systems for general use.
    (36) Retaining walls except when identified with land.
    (37) Roadways, railroads, bridges, and trestles intrasite except 
railroads provided for in equipment accounts.
    (38) Roofs.
    (39) Scales, connected to and forming a part of a structure.
    (40) Screens.
    (41) Sewer systems, for general use.
    (42) Sidewalks, culverts, curbs and streets constructed by the 
service company on its property.
    (43) Sprinkling systems.
    (44) Sump pumps and pits.
    (45) Stacks--brick, steel, or concrete, when set on foundation 
forming part of general foundation and steelwork of a building.
    (46) Steel inspection during construction.
    (47) Storage facilities constituting a part of a building.
    (48) Storm doors and windows.
    (49) Subways, areaways, and tunnels, directly connected to and 
forming part of a structure.
    (50) Tanks, constructed as part of a building or as a distinct 
structural unit.
    (51) Temporary heating during construction (net cost).
    (52) Temporary water connection during construction (net cost).
    (53) Temporary shanties and other facilities used during 
construction (net cost).
    (54) Topographical maps.
    (55) Tunnels, intake and discharge, when constructed as part of a 
structure, including sluice gates, and those constructed to house 
mains.
    (56) Vaults constructed as part of a building.
    (57) Watchmen's sheds and clock systems (net cost when used during 
construction only).
    (58) Water basins or reservoirs.
    (59) Water front improvements.
    (60) Water meters and supply system for a building or for general 
company purposes.
    (61) Water supply piping, hydrants and wells.
    (62) Wharves.
    (63) Window shades and ventilators.
    (64) Yard drainage system.
    (65) Yard lighting system.
    (66) Yard surfacing, gravel, concrete, or oil. (First cost only.)
    (g) Structures and Improvements accounts must be credited with the 
cost of structures created to house, support, or safeguard equipment, 
the use of which has terminated with the removal of the equipment with 
which they are associated even though they have not been physically 
removed.


Sec.  367.57  Equipment.

    (a) The cost of equipment chargeable to the service company 
property accounts, unless otherwise indicated in the text of an 
equipment account, includes the related net purchase price, sales 
taxes, investigation and inspection expenses necessary to such 
purchase, expenses of transportation when borne by the service company, 
labor employed, materials and supplies consumed, and expenses incurred 
by the service company in unloading and placing the equipment in 
readiness to operate. Also include those costs incurred in connection 
with the first clearing and grading of land and rights-of-way and the 
damage costs associated with construction and installation of property.
    (b) Exclude from equipment accounts hand and other portable tools, 
that are likely to be lost or stolen or that have relatively small 
value (for example, $500 or less) or short life, unless the correctness 
of the related accounting as service company property is verified by 
current inventories. Special tools acquired and included in the 
purchase price of equipment must be included in the appropriate 
property account. Portable drills and similar tool equipment when used 
in connection with the operation and maintenance of a particular plant 
or department, such as production, transmission, distribution, or 
similar items, or in stores, must be charged to the property account 
appropriate for their use.
    (c) The equipment accounts must include angle irons and similar 
items that are installed at the base of an item of equipment, but piers 
and foundations that are designed to be as permanent as the buildings 
that house the equipment, or that are constructed as a part of the 
building and that cannot be removed without cutting into the walls, 
ceilings or floors or without in some way impairing the building, must 
be included in the building accounts.
    (d) The cost of efficiency or other tests made subsequent to the 
date equipment becomes available for service must be charged to the 
appropriate expense accounts, except that tests to determine whether 
equipment meets the specifications and requirements as to efficiency, 
performance, and similar items, guaranteed by manufacturers, made after 
operations have commenced and within the period specified in the 
agreement or contract of purchase may be charged to the appropriate 
service company property account.


Sec.  367.58  Property record system required for service company 
property.

    (a) Each service company must keep its cost allocation system so as 
to show the nature of each addition to or retirement of service company 
property, the related total cost, the source or sources of costs, and 
the property account or accounts to which charged or credited. Records 
covering jobs of short duration may be cleared monthly.
    (b) Each service company must maintain records in which, for each 
property account, the amounts of the annual additions and retirements 
are classified so as to show the number and cost of the various record 
units or retirement units.


Sec.  367.59  Additions and retirements of property.

    (a) For the purpose of avoiding undue refinement in accounting for 
additions to and retirements and replacements of service company 
property, all property will be considered as consisting of retirement 
units and minor items of property. Each company must maintain a written 
property units listing for use in accounting for additions and 
retirements of property and apply the listing consistently.
    (b) The addition and retirement of retirement units must be 
accounted for as follows:
    (1) When a retirement unit is added, the related cost must be added 
to the appropriate service company property account.
    (2) When a retirement unit is retired, with or without replacement, 
the related book cost must be credited to the property account in which 
it is included, determined in the manner provided in paragraph (d) of 
this section. If the retirement unit is of a depreciable class, the 
book cost of the unit retired and credited to service company property 
must be charged to the accumulated provision for depreciation 
applicable to the property. The cost of removal and the salvage must be 
charged or credited, as appropriate, to the depreciation account.
    (c) The addition and retirement of minor items of property must be 
accounted for as follows:
    (1) When a minor item of property that did not previously exist is 
added to service company property, the related cost must be accounted 
for in the same manner as for the addition of a retirement unit, as 
provided in paragraph (b)(1) of this section, if a

[[Page 65240]]

substantial addition results, otherwise the charge must be to the 
appropriate maintenance expense account.
    (2) When a minor item of property is retired and not replaced, the 
related book cost must be credited to the property account in which it 
is included; and, in the event the minor item is a part of depreciable 
property, the account for accumulated provision for depreciation must 
be charged with the book cost and cost of removal and credited with the 
salvage. If, however, the book cost of the minor item retired and not 
replaced has been or will be accounted for by its inclusion in the 
retirement unit of which it is a part when the unit is retired, no 
separate credit to the property account is required when the minor item 
is retired.
    (3) When a minor item of depreciable property is replaced 
independently of the retirement unit of which it is a part, the cost of 
replacement must be charged to the maintenance account appropriate for 
the item. However, if the replacement effects a substantial betterment 
(the primary aim of which is to make the property affected more useful, 
more efficient, of greater durability, or of greater capacity), the 
excess cost of the replacement over the estimated cost at current 
prices of replacing without betterment must be charged to the 
appropriate property account.
    (d) The book cost of service company property retired must be the 
amount at which the property is included in the property accounts, 
including all components of construction costs. The book cost must be 
determined from the service company's records and, if this cannot be 
done, it must be estimated. Service companies must furnish the 
particulars of the estimates to the Commission, if requested. When it 
is impracticable to determine the book cost of each unit, due to the 
relatively large number or related small cost, an appropriate average 
book cost of the units, with due allowance for any differences in size 
and character, must be used as the book cost of the units retired.
    (e) The book cost of land retired must be credited to the 
appropriate land account. If the land is sold, the difference between 
the book cost (less any accumulated provision for related depreciation 
or amortization that has been authorized and provided) and the sale 
price of the land (less commissions and other expenses of making the 
sale) must be recorded in accounts 421.1, Gain on disposition of 
property (Sec.  367.4211) or 421.2, Loss on disposition of property 
(Sec.  367.4212), as appropriate.
    (f) The book cost less net salvage of depreciable service company 
property retired must be charged in its entirety to account 108, 
Accumulated provision for depreciation of service company property 
(Sec.  367.1080).
    (g) The accounting for the retirement of amounts included in 
account 303, Miscellaneous intangible property (Sec.  367.3030), and 
the items of limited-term interest in land included in the accounts for 
land and land rights, must be as provided for in the text of account 
111, Accumulated provision for amortization of service company property 
(Sec.  367.1110), account 404, Amortization of limited-term property 
(Sec.  367.4040), and account 405, Amortization of other property 
(Sec.  367.4050).

Subpart D--Operating Expense Instructions


Sec.  367.80  Supervision and engineering.

    (a) The supervision and engineering includible in the operating 
expense accounts must consist of the pay and expenses of 
superintendents, engineers, clerks, other employees and consultants 
engaged in supervising and directing the operation and maintenance of 
each service company function. Wherever allocations are necessary in 
order to arrive at the amount to be included in any account, the method 
and basis of allocation must be reflected by underlying records.
    (b) This account must include the following labor items:
    (1) Special tests to determine efficiency of equipment operation.
    (2) Preparing or reviewing budgets, estimates, and drawings 
relating to operation or maintenance for departmental approval.
    (3) Preparing instructions for operations and maintenance 
activities.
    (4) Reviewing and analyzing operating results.
    (5) Establishing organizational setup of departments and executing 
related changes.
    (6) Formulating and reviewing routines of departments and executing 
related changes.
    (7) General training and instruction of employees by supervisors 
whose pay is chargeable to the training and instruction. Specific 
instruction and training in a particular type of work is chargeable to 
the appropriate functional expense account (See Service Company 
Property in Sec.  367.51(a)(19)).
    (8) Secretarial work for supervisory personnel, but not general 
clerical and stenographic work chargeable to other accounts.
    (c) This account must include the following expense items:
    (1) Consultants' fees and expenses.
    (2) Meals, traveling and incidental expenses.


Sec.  367.81  Maintenance.

    (a) The cost of maintenance chargeable to the various operating 
expense and clearing accounts includes labor, materials, overheads and 
other expenses incurred in maintenance work. A list of work operations 
applicable generally to service company property is included in 
paragraph (d) of this section. Other work operations applicable to 
specific classes of property are listed in functional maintenance 
expense accounts.
    (b) Materials recovered in connection with the maintenance of 
property must be credited to the same account to which the maintenance 
cost was charged.
    (c) Maintenance of property leased from others must be treated as 
provided in operating expense instruction in Sec.  367.82.
    (d) This account must include the following items:
    (1) Direct field supervision of maintenance.
    (2) Inspecting, testing, and reporting on condition of property 
specifically to determine the need for repairs, replacements, 
rearrangements and changes and inspecting and testing the adequacy of 
repairs which have been made.
    (3) Work performed specifically for the purpose of preventing 
failure, restoring serviceability or maintaining life of property.
    (4) Rearranging and changing the location of property.
    (5) Repairing for reuse materials recovered from property.
    (6) Testing for locating and clearing trouble.
    (7) Net cost of installing, maintaining, and removing temporary 
facilities to prevent interruptions in service.
    (8) Replacing or adding minor items of plant which do not 
constitute a retirement unit. (See Service Company Property Instruction 
in Sec.  367.59.)


Sec.  367.82  Rents.

    (a) The rent expense accounts provided under the several functional 
groups of expense accounts must include all rents, including taxes paid 
by the lessee on leased property, for property used in the operations 
of the service company, except:
    (1) Minor amounts paid for occasional or infrequent use of any 
property or equipment and all amounts paid for use of equipment that, 
if owned, would be includible in property accounts 391 to 398 
(Sec. Sec.  367.3910 to 367.3980),

[[Page 65241]]

inclusive, that must be treated as an expense item and included in the 
appropriate functional account, and
    (2) Rents that are chargeable to clearing accounts, and distributed 
from the clearing accounts to the appropriate account. If rents cover 
property used for more than one function, such as production and 
transmission, or by more than one department, the rents must be 
apportioned to the appropriate rent expense or clearing accounts of 
each department on an actual, or, if necessary, an estimated basis.
    (b) When a portion of property or equipment rented from others for 
use in connection with service company operations is subleased, the 
revenue derived from the subleasing must be credited to the rent 
revenue account in operating revenues. However, if the rent was charged 
to a clearing account, amounts received from subleasing the property 
must be credited to the clearing account.
    (c) The cost, when incurred by the lessee, of operating and 
maintaining leased property, must be charged to the accounts 
appropriate for the expense if the property were owned.
    (d) The cost incurred by the lessee of additions and replacements 
to property leased from others must be accounted for as provided in 
Service Company Property Instruction in Sec.  367.54.


Sec.  367.83  Training costs.

    When it is necessary that employees be trained to specifically 
operate or maintain facilities that are being constructed, the related 
costs must be accounted for as a current operating and maintenance 
expense. These expenses must be charged to the appropriate functional 
accounts currently as they are incurred. However, when the training 
costs involved relate to facilities that are not conventional in 
nature, or are new to the service company's operations, these costs may 
be capitalized until the time that the facilities are ready for 
functional use.

Subpart E--Special Instructions


Sec.  367.100  Accounts 131-174, Current and accrued assets.

    Current and accrued assets are cash, those assets which are readily 
convertible into cash or are held for current use in operations or 
construction, current claims against others, payment of which is 
reasonably assured, and amounts accruing to the service company that 
are subject to current settlement, except those items for which 
accounts other than those designated as current and accrued assets are 
provided. There must not be included in the group of accounts 
designated as current and accrued assets any item, the amount or 
collectibility of which is not reasonably assured, unless an adequate 
provision for the related possible loss has been made. Items of current 
character but of doubtful value may be written down and for record 
purposes carried in these accounts at nominal value.


Sec.  367.101  Accounts 231-243, Current and accrued liabilities.

    Current and accrued liabilities are those obligations which have 
either matured or which become due within one year from the date of 
issuance or assumption, except for: bonds, receivers' certificates and 
similar obligations which must be classified as long-term debt until 
date of maturity; accrued taxes, such as income taxes, which must be 
classified as accrued liabilities even though payable more than one 
year from date; compensation awards, which must be classified as 
current liabilities regardless of date due; and minor amounts payable 
in installments which may be classified as current liabilities. If a 
liability is due more than one year from date of issuance or assumption 
by the service company, it shall be credited to a long-term debt 
account appropriate for the transaction, except, however, the current 
liabilities previously mentioned.


Sec.  367.102  Accounts 408.1 and 408.2, Taxes other than income taxes.

    (a) These accounts must include the amounts of ad valorem, gross 
revenue or gross receipts taxes, state unemployment insurance, 
franchise taxes, Federal excise taxes, social security taxes, and all 
other taxes assessed by Federal, state, county, municipal, or other 
local governmental authorities, except income taxes.
    (b) These accounts shall be charged in each accounting period with 
the amounts of taxes which are applicable to each account, with 
concurrent credits to account 236, Taxes accrued (Sec.  367.2360), or 
account 165, Prepayments (Sec.  367.1650), as appropriate. When it is 
not possible to determine the exact amounts of taxes, the amounts shall 
be estimated and adjustments made in current accruals as the actual tax 
levies become known.
    (c) Special assessments for street and similar improvements must be 
included in the appropriate service company property account.
    (d) Taxes specifically applicable to construction must be included 
in the cost of construction.
    (e) Gasoline and other sales taxes must be charged as far as 
practicable to the same account as the materials on which the tax is 
levied.
    (f) Social security and other forms of so-called payroll taxes must 
be distributed to utility and non-utility functions on a basis related 
to payroll. Amounts applicable to construction must be charged to the 
appropriate plant account.
    (g) Interest on tax refunds or deficiencies must not be included in 
these accounts but in accounts 419, Interest and dividend income (Sec.  
367.4190), or 431, Other interest expense (Sec.  367.4310), as 
appropriate.


Sec.  367.103  Accounts 409.1, 409.2, and 409.3, Income taxes.

    (a) These accounts must include the amounts of local, state and 
Federal income taxes on income properly accruable during the period 
covered by the income statement to meet the actual liability for such 
taxes. Concurrent credits for the tax accruals must be made to account 
236, Taxes accrued (Sec.  367.2360), and as the exact amounts of taxes 
become known, the current tax accruals must be adjusted by charges or 
credits to these accounts, so that these accounts include the actual 
taxes payable by the service company.
    (b) The accruals for income taxes shall be apportioned to Operating 
Income, Other Income and Deductions, and Extraordinary Items so that, 
as nearly as practicable, each tax will be included in the appropriate 
account based on the income which gave rise to the tax.
    (c) Taxes assumed by the service company on interest must be 
charged to account 431, Other interest expense (Sec.  367.4310).
    (d) Interest on tax refunds or deficiencies must not be included in 
these accounts but in account 419, Interest and dividend income (Sec.  
367.4190), or account 431, Other interest expense (Sec.  367.4310), as 
appropriate.


Sec.  367.104  Accounts 410.1, 410.2, 411.1, and 411.2, Provision for 
deferred income taxes.

    (a) Accounts 410.1 (Sec.  367.4101) and 410.2 (Sec.  367.4102) must 
be debited, and Accumulated Deferred Income Taxes must be credited, 
with amounts equal to any current deferrals of taxes on income or any 
allocations of deferred taxes originating in prior periods, as provided 
by the texts of accounts 190 (Sec.  367.1900), 282 (Sec.  367.2820), 
and 283 (Sec.  367.2830). There must not be netted against entries 
required to be made to these accounts any credit amounts appropriately 
includible in accounts 411.1 (Sec.  367.4111) or 411.2 (Sec.  
367.4112).
    (b) Accounts 411.1 (Sec.  367.4111) and 411.2 (Sec.  367.4112) must 
be credited, and

[[Page 65242]]

Accumulated Deferred Income Taxes must be debited, with amounts equal 
to any allocations of deferred taxes originating in prior periods or 
any current deferrals of taxes on income, as provided by the texts of 
accounts 190 (Sec.  367.1900), 282 (Sec.  367.2820), and 283 (Sec.  
367.2830). There must not be netted against entries required to be made 
to these accounts any debit amounts appropriately includible in account 
410.1 (Sec.  367.4101) or 410.2 (Sec.  367.4102).


Sec.  367.105  Accounts 411.4, and 411.5, Investment tax credit 
adjustments.

    (a) Account 411.4 (Sec.  367.4114) must be debited with the amounts 
of investment tax credits related to service company property that are 
credited to account 255, Accumulated deferred investment tax credits 
(Sec.  367.2550), by companies which do not apply the entire amount of 
the benefits of the investment credit as a reduction of the overall 
income tax expense in the year in which such credit is realized (See 
account 255 in Sec.  367.2550).
    (b) Account 411.4 (Sec.  367.4114) must be credited with the 
amounts debited to account 255 (Sec.  367.2550) for proportionate 
amounts of tax credit deferrals allocated over the average useful life 
of service company property to which the tax credits relate or such 
lesser period of time as may be adopted and consistently followed by 
the company.
    (c) Account 411.5 (Sec.  367.4115) must also be debited and 
credited as directed in paragraphs (a) and (b), for investment tax 
credits related to other income and deductions.


Sec.  367.106  Accounts 426.1, 426.2, 426.3, 426.4, and 426.5, 
Miscellaneous expense accounts.

    These accounts must include miscellaneous expense items which are 
nonoperating in nature but which are properly deductible before 
determining total income before interest charges.

Subpart F--Balance Sheet Chart of Accounts

Service Company Property


Sec.  367.1010  Account 101, Service company property.

    (a) This account must include the cost of service company property, 
included in accounts 301 (Sec.  367.3010), 303 (Sec.  367.3030) and 389 
to 399.1 (Sec. Sec.  376.3890 to 367.3991), owned and used by the 
service company in its operations, and having an expectation of life in 
service of more than one year from date of installation.
    (b) The cost of additions to, and betterments of, property leased 
from others, that are includible in this account, must be recorded in 
subaccounts separate and distinct from those relating to owned 
property. (See Service Company Property Instruction in Sec.  367.54.)


Sec.  367.1011  Account 101.1, Property under capital leases.

    (a) This account must include the amount recorded under capital 
leases for property leased from others and used by the service company 
in its operations.
    (b) The property included in this account must be classified 
separately according to detailed accounts 301 (Sec.  367.3010), 303 
(Sec.  367.3030) and 389 to 399.1 (Sec. Sec.  367.3890 to 367.3991) 
prescribed for service company property.
    (c) Records must be maintained with respect to each capital lease 
reflecting:
    (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.


Sec.  367.1060  Account 106, Completed construction not classified.

    At the end of the year or such other date as a balance sheet may be 
required by the Commission, this account must include the total of the 
balances of construction projects for service company property which 
has been completed and placed in service but have not been classified 
for transfer to the detailed service company property accounts.


Sec.  367.1070  Account 107, Construction work in progress.

    (a) This account must include the total of the balances of 
construction projects for service company property in process of 
construction.
    (b) Construction projects must be cleared from this account as soon 
as practicable after completion of the job. Further, if a project is 
designed to consist of two or more units that may be placed in service 
at different dates, any expenditures that are common to and that will 
be used in the operation of the project as a whole must be included in 
service company property upon the completion and the readiness for 
service of the first unit. Any expenditures that are identified 
exclusively with units of property not yet in service must be included 
in this account.
    (c) Expenditures on research, development, and demonstration 
projects for construction of facilities are to be included in a 
separate subaccount in this account. Records must be maintained to show 
separately each project along with complete detail of the nature and 
purpose of the research, development, and demonstration project 
together with the related costs.


Sec.  367.1080  Account 108, Accumulated provision for depreciation of 
service company property.

    (a) This account must be credited with the following:
    (1) Amounts charged to account 403, Depreciation expense (Sec.  
367.4030), or to clearing accounts for current depreciation expense for 
service company property.
    (2) Amounts charged to account 416, Costs and expenses of 
merchandising, jobbing, and contract work (Sec.  367.4160), or to 
clearing accounts for current depreciation expense.
    (3) Amounts of depreciation applicable to properties acquired. (See 
Service Company Property Instruction in Sec.  367.53.)
    (4) Amounts of depreciation applicable to service company property 
donated to the service company.
    (b) The service company must maintain separate subaccounts for 
depreciation applicable to service company property.
    (c) At the time of retirement of depreciable service company 
property, this account must be charged with the book cost of the 
property retired and the cost of removal, and must be credited with the 
salvage value and any other amounts recovered, such as insurance.
    (d) The subsidiary records for this account must reflect the 
current credits and debits to this account in sufficient detail to show 
the following separately:
    (1) The amount of accrual for depreciation,
    (2) The book cost of property retired,
    (3) Cost of removal,
    (4) Salvage, and
    (5) Other items, including recoveries from insurance.
    (e) The service company is restricted in its use of the accumulated 
provision for depreciation to the purposes identified in paragraphs (a) 
through (d) of this section. It must not transfer any portion of this 
account to retained earnings or make any other use of the depreciation 
without authorization by the Commission.


Sec.  367.1110  Account 111, Accumulated provision for amortization of 
service company property.

    (a) This account must be credited with the following:

[[Page 65243]]

    (1) Amounts charged to account 404, Amortization of limited-term 
property (Sec.  367.4040), for the current amortization of limited-term 
service company property investments.
    (2) Amounts charged to account 405, Amortization of other property 
(Sec.  367.4050).
    (3) Amounts charged to account 425, Miscellaneous amortization 
(Sec.  367.4250), for the amortization of intangible or other property, 
that does not have a definite or terminable life and is not subject to 
charges for depreciation expense, with Commission approval.
    (b) The service company must maintain subaccounts of this account 
for the amortization applicable to service company property and 
property leased to others.
    (c) When any property to which this account applies is sold, 
relinquished, or otherwise retired from service, this account must be 
charged with the amount previously credited in respect to the property. 
The book cost of the retired property less the amount chargeable to 
this account and less the net proceeds realized at retirement must be 
included in account 421.1, Gain on disposition of property (Sec.  
367.4211), or account 421.2, Loss on disposition of property (Sec.  
367.4212), as appropriate.
    (d) For general ledger and balance sheet purposes, this account 
must be regarded and treated as a single composite provision for 
amortization. The subsidiary records must reflect the current credits 
and debits to this account in sufficient detail to show the following 
separately:
    (1) The amount of accrual for amortization,
    (2) The book cost of property retired,
    (3) Cost of removal,
    (4) Salvage, and
    (5) Other items, including recoveries from insurance.
    (e) The service company is restricted in its use of the accumulated 
provision for amortization to the purposes provided in paragraphs (a) 
through (d) of this section. It must not transfer any portion of this 
account to retained earnings or make any other use of the amortization 
without authorization by the Commission.

Other Property and Investments


Sec.  367.1230  Account 123, Investment in associate companies.

    (a) This account must include the book cost of investments in 
securities issued or assumed by associate companies and investment 
advances to the companies, including related accrued interest when the 
interest is not subject to current settlement, provided that the 
investment does not relate to a subsidiary company. (If the investment 
relates to a subsidiary company, it must be included in account 123.1, 
Investment in subsidiary companies (Sec.  367.1231).) Include in this 
account the offsetting entry to the recording of amortization of 
discount or premium on interest bearing investments. (See account 419, 
Interest and dividend income (Sec.  367.4190).)
    (b) This account must be maintained in a manner so as to show the 
investment in securities of, and advances to, each associate company 
together with full particulars regarding any of the investments that 
are pledged.
    (c) Securities and advances of associate companies owned and 
pledged must be included in this account, but the securities, if held 
in special deposits or in special funds, must be included in the 
appropriate deposit or fund account. A complete record of securities 
pledged must be maintained.
    (d) Securities of associate companies held as temporary cash 
investments are includible in account 136, Temporary cash investments 
(Sec.  367.1360).
    (e) Balances in open accounts with associate companies that are 
subject to current settlement are includible in account 146, Accounts 
receivable from associate companies (Sec.  367.1460).
    (f) The service company must write down the cost of any security in 
recognition of a decline in the related value. Securities must be 
written off or written down to a nominal value if there is no 
reasonable prospect of substantial value. Fluctuations in market value 
must not be recorded but a permanent impairment in the value of 
securities must be recognized in the accounts. When securities are 
written off or written down, the amount of the adjustment must be 
charged to account 426.5, Other deductions (Sec.  367.4265), or to an 
appropriate account for accumulated provisions for loss in value 
established as a separate subdivision of this account.


Sec.  367.1240  Account 124, Other investments.

    (a) This account must include the book cost of investments in 
securities issued or assumed by non-associate companies, investment 
advances to these companies, and any investments not accounted for 
elsewhere. This account must also include 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 (Sec.  367.4190).)
    (b) The records must be maintained in a manner so as to show the 
amount of each investment and the investment advances to each person.


Sec.  367.1280  Account 128, Other special funds.

    (a) This account must include the amount of cash and book cost of 
investments that have been segregated in special funds for insurance, 
employee pensions, savings, relief, hospital, and other purposes not 
provided for elsewhere. This account must also include unrealized 
holding gains and losses on trading and available-for-sale types of 
security investments. A separate account with appropriate title, must 
be kept for each fund.
    (b) Amounts deposited with a trustee under the terms of an 
irrevocable trust agreement for pensions or other employee benefits 
must not be included in this account.

Current and Accrued Assets


Sec.  367.1310  Account 131, Cash.

    This account must include the amount of current cash funds except 
working funds.


Sec.  367.1340  Account 134, Other special deposits.

    (a) This account must include deposits with fiscal agents or others 
for special purposes other than the payment of interest and dividends. 
The special deposits may include, among other things, cash deposited 
with federal, state, or municipal authorities as a guaranty for the 
fulfillment of obligations; cash deposited with trustees to be held 
until mortgaged property sold, destroyed, or otherwise disposed of is 
replaced; cash realized from the sale of the accounting service 
company's securities and deposited with trustees to be held until 
invested in property of the service company. Entries to this account 
must specify the purpose for which the deposit is made.
    (b) Assets available for general corporate purposes must not be 
included in this account. Further, deposits for more than one year, 
that are not offset by current liabilities, must be charged to account 
128, Other special funds (Sec.  367.1280).


Sec.  367.1350  Account 135, Working funds.

    This account must include cash advanced to officers, agents, 
employees, and others as petty cash or working funds.

[[Page 65244]]

Sec.  367.1360  Account 136, Temporary cash investments.

    (a) This account must include the book cost of investments, such as 
demand and time loans, bankers' acceptances, United States Treasury 
certificates, marketable securities, and other similar investments, 
acquired for the purpose of temporarily investing cash.
    (b) This account must be maintained so as to show separately 
temporary cash investments in securities of associate companies and of 
others. Records must be kept of any pledged investments.


Sec.  367.1410  Account 141, Notes receivable.

    (a) This account must include the book cost, not includible 
elsewhere, of all collectible obligations in the form of notes 
receivable and similar evidences (except interest coupons) of money due 
on demand or within one year from the date of issue, except, however, 
notes receivable from associate companies. (See account 136,Temporary 
cash investments (Sec.  367.1360), and account 145, Notes receivable 
from associate companies (Sec.  367.1450).)
    (b) The face amount of notes receivable discounted, sold, or 
transferred without releasing the service company from liability as a 
related endorser, must be credited to a separate subaccount of this 
account and appropriate disclosure must be made in financial statements 
of any contingent liability arising from the transactions.


Sec.  367.1420  Account 142, Customer accounts receivable.

    (a) This account must include amounts due from customers for 
service, and for merchandising, jobbing and contract work. This account 
must not include amounts due from associate companies.
    (b) This account must be maintained so as to permit ready 
segregation of the amounts due for merchandising, jobbing and contract 
work.


Sec.  367.1430  Account 143, Other accounts receivable.

    (a) This account must include amounts due the service company upon 
open accounts, other than amounts due from associate companies and from 
customers for services and merchandising, jobbing and contract work.
    (b) This account must be maintained so as to show separately 
amounts due on subscriptions to capital stock and from officers and 
employees, but the account must not include amounts advanced to 
officers or others as working funds. (See account 135, Working funds 
(Sec.  367.1350).)


Sec.  367.1440  Account 144, Accumulated provision for uncollectible 
accounts--Credit.

    (a) This account must be credited with amounts provided for losses 
on accounts receivable that may become uncollectible, and also with 
collections on related previously charged accounts. Concurrent charges 
must be made to account 904, Uncollectible accounts (Sec.  367.9040), 
for amounts applicable to service company operations, and to 
corresponding accounts for other operations. Records must be maintained 
so as to show the write-offs of account receivable for each service 
company department.
    (b) This account must be subdivided to show the provision 
applicable to the following classes of accounts receivable:
    (1) Service company customers.
    (2) Merchandising, jobbing and contract work.
    (3) Officers and employees.
    (4) Others.
    (c) Accretions to this account must not be made in excess of a 
reasonable provision against losses of the related character.
    (d) If provisions for uncollectible notes receivable or for 
uncollectible receivables from associate companies are necessary, 
separate related subaccounts must be established under the account in 
which the receivable is carried.


Sec.  367.1450  Account 145, Notes receivable from associate companies.

    (a) This account must include notes and drafts upon which associate 
companies are liable, and that mature and are expected to be paid in 
full not later than one year from the date of issue, together with any 
related interest, and debit balances subject to current settlement in 
open accounts with associate companies. Items that do not bear a 
specified due date but that have been carried for more than twelve 
months and items that are not paid within twelve months from due date 
must be transferred to account 123, Investment in associate companies 
(Sec.  367.1230).
    (b) On the balance sheet, accounts receivable from an associate 
company may be set off against accounts payable to the same company.
    (c) The face amount of notes receivable discounted, sold or 
transferred without releasing the service company from liability as 
endorser thereon, must be credited to a separate subaccount of this 
account and appropriate disclosure must be made in financial statements 
of any contingent liability arising from such transactions.


Sec.  367.1460  Account 146, Accounts receivable from associate 
companies.

    (a) This account must include notes and drafts upon which associate 
companies are liable, and that mature and are expected to be paid in 
full not later than one year from the date of issue, together with any 
related interest thereon, and debit balances subject to current 
settlement in open accounts with associate companies. Items that do not 
bear a specified due date but that have been carried for more than 
twelve months and items that are not paid within twelve months from due 
date must be transferred to account 123, Investment in associate 
companies (Sec.  367.1230).
    (b) On the balance sheet, accounts receivable from an associate 
company may be set off against accounts payable to the same company.
    (c) The face amount of notes receivable discounted, sold or 
transferred without releasing the service company from liability as the 
related endorser, must be credited to a separate subaccount of this 
account and appropriate disclosure must be made in financial statements 
of any contingent liability arising from the transactions.


Sec.  367.1520  Account 152, Fuel stock expenses undistributed.

    The service company must utilize this account, where appropriate, 
to include the cost of service company labor and of office supplies 
used and operating expenses incurred with respect to the review, 
analysis and management of fuel supply contracts or agreements, the 
accumulation of fuel information and its interpretation, the logistics 
and handling of fuel, and other related support functions, as a service 
to the company engaged in the procurement and transportation of fuel. 
This account must be maintained to show the expenses attributable to 
each company through its cost allocation system. All expenses of a 
service company's fuel department or functions must be cleared through 
this account.


Sec.  367.1540  Account 154, Materials and operating supplies.

    (a) This account must include the cost of materials purchased 
primarily for use in the service company business for construction, 
operation and maintenance purposes. It must include the book cost of 
materials recovered in connection with construction, maintenance or the 
retirement of service company property, the materials being credited to 
construction, maintenance or accumulated depreciation provision, 
respectively. This account must include the following items:

[[Page 65245]]

    (1) Reusable materials consisting of large individual items must be 
included in this account at original cost, estimated if not known. The 
cost of repairing the items must be charged to the maintenance account 
appropriate for the previous use.
    (2) Reusable materials consisting of relatively small items, the 
identity of which (from the date of original installation to the 
related final abandonment or sale) cannot be ascertained without undue 
refinement in accounting, must be included in this account at current 
prices new for the items. The cost of repairing the items must be 
charged to the appropriate expense account as indicated by previous 
use.
    (3) Scrap and non-usable materials included in this account must be 
carried at the estimated net amount realizable. The difference between 
the amounts realized for scrap and non-usable materials sold and the 
net amount at which the materials were carried in this account, as far 
as practicable, must be adjusted to the accounts credited when the 
materials were charged to this account.
    (b) Materials and supplies issued must be credited in this account 
and charged to the appropriate construction, operating expense, or 
other account on the basis of a unit price determined by the use of 
cumulative average, first-in-first-out, or any other method of 
inventory accounting that conforms with accepted accounting standards 
consistently applied.
    (c) This account must include the following items:
    (1) Invoice price of materials less cash or other discounts.
    (2) Freight, switching or other transportation charges when 
practicable to include as part of the cost of particular materials to 
which they relate.
    (3) Customs duties and excise taxes.
    (4) Costs of inspection and special tests prior to acceptance.
    (5) Insurance and other directly assignable charges.
    (d) Where expenses applicable to materials purchased cannot be 
directly assigned to particular purchases, they may be charged to a 
stores expense clearing account (account 163, Stores expense 
undistributed (Sec.  367.1630)), and distributed from there to the 
appropriate account.
    (e) When materials and supplies are purchased for immediate use, 
they need not be carried through this account, but may be charged 
directly to the appropriate service company property or expense 
account.


Sec.  367.1630  Account 163, Stores expense undistributed.

    (a) This account must include the cost of supervision, labor and 
expenses incurred in the operation of general storerooms, including 
purchasing, storage, handling and distribution of materials and 
supplies.
    (b) This account must be cleared by adding to the cost of materials 
and supplies issued a suitable loading charge that will distribute the 
expense equitably over stores issues. The balance in the account at the 
close of the calendar year must not exceed the amount of stores 
expenses reasonably attributable to the inventory of materials and 
supplies exclusive of fuel, as any amount applicable to fuel costs 
should be included in account 152, Fuel stock expenses undistributed 
(Sec.  367.1520).
    (c) This account must include the following labor items:
    (1) Inspecting and testing materials and supplies when not 
assignable to specific items.
    (2) Unloading from shipping facility and putting in storage.
    (3) Supervision of purchasing and stores department to extent 
assignable to materials handled through stores.
    (4) Getting materials from stock and in readiness to go out.
    (5) Inventorying stock received or stock on hand by stores 
employees but not including inventories by general department employees 
as part of internal or general audits.
    (6) Purchasing department activities in checking material needs, 
investigating sources of supply, analyzing prices, preparing and 
placing orders, and related activities to extent applicable to 
materials handled through stores. (Optional. Purchasing department 
expenses may be included in administrative and general expenses.)
    (7) Maintaining stores equipment.
    (8) Cleaning and tidying storerooms and stores offices.
    (9) Keeping stock records, including recording and posting of 
material receipts and issues and maintaining inventory record of stock.
    (10) Collecting and handling scrap materials in stores.
    (d) This account must include the following supplies and expenses 
items:
    (1) Adjustments of inventories of materials and supplies, but not 
including large differences that can readily be assigned to important 
classes of materials and equitably distributed among the accounts to 
which the classes of materials have been charged since the previous 
inventory.
    (2) Cash and other discounts not practically assignable to specific 
materials.
    (3) Freight, express, and similar items, when not assignable to 
specific items.
    (4) Heat, light and power for storerooms and store offices.
    (5) Brooms, brushes, sweeping compounds and other supplies used in 
cleaning and tidying storerooms and stores offices.
    (6) Injuries and damages.
    (7) Insurance on materials and supplies and on stores equipment.
    (8) Losses due to breakage, leakage, evaporation, fire or other 
causes, less credits for amounts received from insurance, 
transportation companies or others in compensation of the losses.
    (9) Postage, printing, stationery and office supplies.
    (10) Rent of storage space and facilities.
    (11) Communication service.
    (12) Excise and other similar taxes not assignable to specific 
materials.
    (13) Transportation expense on inward movement of stores and on 
transfer between storerooms, but not including charges on materials 
recovered from retirements that must be accounted for as part of cost 
of removal.
    (e) A physical inventory of each class of materials and supplies 
must be made at least every two years.


Sec.  367.1650  Account 165, Prepayments.

    This account must include amounts representing prepayments of 
insurance, rents, taxes, interest and miscellaneous items, and must be 
kept or supported in a manner so as to disclose the amount of each 
class of prepayment.


Sec.  367.1710  Account 171, Interest and dividends receivable.

    (a) This account must include the amount of interest on bonds, 
mortgages, notes, commercial paper, loans, open accounts, deposits, and 
other similar items, the payment of which is reasonably assured, and 
the amount of dividends declared or guaranteed on stocks owned.
    (b) Interest that is not subject to current settlement must not be 
included in this account, but in the account in which is carried the 
principal on which the interest is accrued.
    (c) Interest and dividends receivable from associate companies must 
be included in account 146, Accounts receivable from associate 
companies (Sec.  367.1460).


Sec.  367.1720  Account 172, Rents receivable.

    (a) This account must include rents receivable or accrued on 
property rented or leased by the service company to others.
    (b) Rents receivable from associate companies must be included in 
account

[[Page 65246]]

146, Accounts receivable from associate companies (Sec.  367.1460).


Sec.  367.1730  Account 173, Accrued revenues.

    At the option of the service company, the estimated amount accrued 
for service rendered, but not billed at the end of any accounting 
period, may be included in this account. In case accruals are made for 
unbilled revenues, they must be made likewise for unbilled expenses, 
such as for the purchase of energy.


Sec.  367.1740  Account 174, Miscellaneous current and accrued assets.

    This account must include the book cost of all other current and 
accrued assets, appropriately designated and supported so as to show 
the nature of each asset included in the account.


Sec.  367.1750  Account 175, Derivative instrument assets.

    This account must include the amounts paid for derivative 
instruments, and the change in the fair value of all derivative 
instrument assets not designated as cash flow or fair value hedges. 
Account 421, Miscellaneous income or loss (Sec.  367.4210), must be 
credited or debited, as appropriate, with the corresponding amount of 
the change in the fair value of the derivative instrument.


Sec.  367.1760  Account 176, Derivative instrument assets--Hedges.

    (a) This account must include the amounts paid for derivative 
instruments, and the change in the fair value of derivative instrument 
assets designated by the service company as cash flow or fair value 
hedges.
    (b) When a service company 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 219, Accumulated other comprehensive income (Sec.  367.2190), 
with the effective portion of the gain or loss. The ineffective portion 
of the cash flow hedge must 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 service company designates a derivative instrument as a 
fair value hedge it must record the change in the fair value of the 
derivative instrument in this account with a concurrent charge to a 
subaccount of the asset or liability that carries the item being 
hedged. The ineffective portion of the fair value hedge must be charged 
to the same income or expense account that will be used when the hedged 
item enters into the determination of net income.

Deferred Debits


Sec.  367.1810  Account 181, Unamortized debt expense.

    This account must include expenses related to the issuance or 
assumption of debt securities. Amounts recorded in this account must be 
amortized over the life of each respective issue under a plan that will 
distribute the amount equitably over the life of the security. The 
amortization must be on a monthly basis, and the related amounts must 
be charged to account 428, Amortization of debt discount and expense 
(Sec.  367.4280). Any unamortized amounts outstanding at the time that 
the related debt is prematurely reacquired must be accounted for as 
indicated in General Instructions in Sec.  367.16.


Sec.  367.1823  Account 182.3, Other regulatory assets.

    (a) This account must include the amounts of regulatory-created 
assets, not includible in other accounts, resulting from the ratemaking 
actions of regulatory agencies. (See Definitions Sec.  367.1(a)(38).)
    (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 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 (Sec.  367.4074), 
must 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 (Sec.  367.4074) must be charged to account 407.3, 
Regulatory debits (Sec.  367.4073), concurrent with the recovery in 
rates.
    (c) If rate recovery of all or part of an amount included in this 
account is disallowed, the disallowed amount must be charged to Account 
426.5, Other deductions (Sec.  367.4265), or Account 435, Extraordinary 
deductions (Sec.  367.4350), in the year of the disallowance.
    (d) The records supporting the entries to this account must be kept 
so that the service company can furnish full information as to the 
nature and amount of each regulatory asset included in this account, 
including justification for inclusion of such amounts in this account.


Sec.  367.1830  Account 183, Preliminary survey and investigation 
charges.

    (a) This account must be charged with all expenditures for 
preliminary surveys, plans, investigations, and other similar items, 
made for the purpose of determining the feasibility of service company 
projects under contemplation. If construction results, this account 
must be credited and the appropriate service company property account 
charged. If the work is abandoned, the charge must be made to account 
426.5, Other deductions (Sec.  367.4265), or to the appropriate 
operating expense account.
    (b) The records supporting the entries to this account must be kept 
so that the service company can furnish complete information as to the 
nature and the purpose of the survey, plans, or investigations and the 
nature and amounts of the several charges.
    (c) The amount of preliminary survey and investigation charges 
transferred to service company property must not exceed the 
expenditures that may reasonably be determined to contribute directly 
and immediately and without duplication to service company property.


Sec.  367.1840  Account 184, Clearing accounts.

    This account must include undistributed balances in clearing 
accounts at the date of the balance sheet. Balances in clearing 
accounts must be substantially cleared not later than the end of the 
calendar year unless the items held relate to a future period.


Sec.  367.1850  Account 185, Temporary facilities.

    This account must include amounts shown by project for property 
installed for temporary use for a period of less than one year. Each 
project must be charged with the cost of temporary facilities and 
credited with payments received from customers and net salvage realized 
on removal of the temporary facilities. Any net credit or debit 
resulting must be cleared to the construction or service project to 
which the facilities relate.


Sec.  367.1860  Account 186, Miscellaneous deferred debits.

    (a) This account must include all debits not provided for 
elsewhere, such as miscellaneous work in progress, and

[[Page 65247]]

unusual or extraordinary expenses, not included in other accounts, that 
are in the process of amortization and items the proper final 
disposition of which is uncertain.
    (b) The records supporting the entries to this account must be kept 
so that the service company can furnish full information as to each 
deferred debit included in this account.


Sec.  367.1880  Account 188, Research, development, or demonstration 
expenditures.

    (a) This account must be charged with the cost of all expenditures 
coming within the meaning of research, development and demonstration 
(RD&D) of this Uniform System of Accounts (See Definitions Sec.  
367.1(a)(40)), except those expenditures properly chargeable to account 
107, Construction work in progress (Sec.  367.1070).
    (b) Costs that are minor or of a general or recurring nature must 
be transferred from this account to the appropriate operating expense 
function or, if the costs are common to the overall operations or 
cannot be feasibly allocated to the various operating accounts, then 
the costs must be recorded in account 930.2, Miscellaneous general 
expenses (Sec.  367.9302).
    (c) In certain instances, a service company may incur large and 
significant research, development, and demonstration expenditures that 
are nonrecurring and that would distort the annual research, 
development, and demonstration charges for the period. In such a case, 
the portion of such amounts that causes the distortion may be amortized 
to the appropriate operating expense account over a period not to 
exceed five years, unless otherwise authorized by the Commission.
    (d) The entries in this account must be maintained so as to show 
separately each project along with complete detail of the nature and 
purpose of the research, development, and demonstration project 
together with the related costs.


Sec.  367.1890  Account 189, Unamortized loss on reacquired debt.

    This account must include the losses on long-term debt reacquired 
or redeemed. The amounts in this account must be amortized in 
accordance with General Instruction Sec.  367.16.


Sec.  367.1900  Account 190, Accumulated deferred income taxes.

    (a) This account must be debited and account 411.1, Provision for 
deferred income taxes--Credit, operating income (Sec.  367.4111), or 
account 411.2, Provision for deferred income taxes--Credit, other 
income and deductions (Sec.  367.4112), as appropriate, must be 
credited with an amount equal to that by which income taxes payable for 
the year are higher because of the inclusion of certain items in income 
for tax purposes, which items for general accounting purposes will not 
be fully reflected in the service company's determination of annual net 
income until subsequent years.
    (b) This account must be credited and account 410.1, Provision for 
deferred income taxes, operating income (Sec.  367.4101), or account 
410.2, Provision for deferred income taxes, other income and deductions 
(Sec.  367.4102), as appropriate, must be debited with an amount equal 
to that by which income taxes payable for the year are lower because of 
prior payment of taxes as provided by paragraph (a) of this section, 
because of difference in timing for tax purposes of particular items of 
income or income deductions from that recognized by the utility for 
general accounting purposes. The credit to this account and debit to 
account 410.1 (Sec.  367.4101), or 410.2 (Sec.  367.4102) must, in 
general, represent the effect on taxes payable in the current year of 
the smaller amount of book income recognized for tax purposes as 
compared to the amount recognized in the service company's current 
accounts with respect to the item or class of items for which deferred 
tax accounting by the service company was authorized by the Commission.
    (c) The service company is restricted in its use of this account to 
the purpose provided in paragraphs (a) and (b) of this section. The 
service company must not make use of the balance in this account or any 
related portion except as provided in the text of this account, without 
prior approval of the Commission. Any remaining deferred tax account 
balance with respect to an amount for any prior year's tax deferral, 
the amortization of which or other recognition in the service company's 
income accounts has been completed, or other disposition made, must be 
debited to account 410.1, Provision for deferred income taxes, 
operating income (Sec.  367.4101), or account 410.2, Provision for 
deferred income taxes, other income and deductions (Sec.  367.4102), as 
appropriate, or otherwise disposed of as the Commission may authorize 
or direct. (See General Instructions in Sec.  367.17.)

Proprietary Capital


Sec.  367.2010  Account 201, Common stock issued.

    This account must include the par or stated value of all common 
capital stock issued and outstanding.


Sec.  367.2040  Account 204, Preferred stock issued.

    This account must include the par or stated value of all preferred 
stock issued and outstanding.


Sec.  367.2110  Account 211, Miscellaneous paid-in capital.

    This account must include the balance of all other credits for 
paid-in capital that is not properly included in proprietary capital 
accounts. This account may include all commissions and expenses 
incurred in connection with the issuance of capital stock.


Sec.  367.2150  Account 215, Appropriated retained earnings.

    This account must include the amount of retained earnings that has 
been appropriated or set aside for special purposes. Separate 
subaccounts must be maintained under titles that will designate the 
purpose for which each appropriation was made.


Sec.  367.2160  Account 216, Unappropriated retained earnings.

    This account must include the balances, either debit or credit, of 
unappropriated retained earnings arising from earnings of the service 
company. This account must not include any amounts representing the 
undistributed earnings of subsidiary companies.


Sec.  367.2161  Account 216.1, Unappropriated undistributed subsidiary 
earnings.

    This account must include the balances, either debit or credit, of 
undistributed retained earnings of subsidiary companies since their 
acquisition. When dividends are received from subsidiary companies 
relating to amounts included in this account, this account must be 
debited and account 216, Unappropriated retained earnings (Sec.  
367.2160), credited.


Sec.  367.2190  Account 219, Accumulated other comprehensive income.

    (a) This account must include revenues, expenses, gains, and losses 
that are properly includable in other comprehensive income during the 
period. Examples of other comprehensive income include, but are not 
limited to, minimum pension liability adjustments, and unrealized gains 
and losses on certain investments in debt and equity securities. 
Records supporting the entries to this account

[[Page 65248]]

must be maintained so that the service company can furnish the amount 
of other comprehensive income for each item included in this account.
    (b) This account also must 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 must be maintained to identify the 
amount of the reclassification adjustments from accumulated other 
comprehensive income to earnings made during the period.

Long-Term Debt


Sec.  367.2230  Account 223, Advances from associate companies.

    (a) This account must include the face value of notes payable to 
associate companies and the amount of open book accounts representing 
advances from associate companies. It does not include notes and open 
accounts representing indebtedness subject to current settlement that 
are includible in account 233, Notes payable to associate companies 
(Sec.  367.2330), or account 234, Accounts payable to associate 
companies (Sec.  367.2340).
    (b) The records supporting the entries to this account must be kept 
so that the service company can furnish complete information concerning 
each note and open account.


Sec.  367.2240  Account 224, Other long-term debt.

    (a) This account must include, until maturity, all long-term debt 
not otherwise provided for. This covers items such as receivers' 
certificates, real estate mortgages executed or assumed, assessments 
for public improvements, notes and unsecured certificates of 
indebtedness not owned by associate companies, receipts outstanding for 
long-term debt, and other obligations maturing more than one year from 
date of issue or assumption.
    (b) Separate accounts must be maintained for each class of 
obligation, and records must be maintained to show for each class all 
details as to date of obligation, date of maturity, interest dates and 
rates, security for the obligation, and other similar items.


Sec.  367.2250  Account 225, Unamortized premium on long-term debt.

    (a) This account must include the excess of the cash value of 
consideration received over the face value upon the issuance or 
assumption of long-term debt securities.
    (b) Amounts recorded in this account must be amortized over the 
life of each respective issue under a plan that will distribute the 
amount equitably over the life of the security. The amortization must 
be on a monthly basis, with the related amounts credited to account 
429, Amortization of premium on debt--Credit (Sec.  367.4290) (see 
General Instructions in Sec.  367.16).


Sec.  367.2260  Account 226, Unamortized discount on long-term debt--
Debit.

    (a) This account must include the excess of the face value of long-
term debt securities over the related cash value of consideration 
received, related to the issue or assumption of all types and classes 
of debt.
    (b) Amounts recorded in this account must be amortized over the 
life of the respective issues under a plan that will distribute the 
amount equitably over the life of the securities. The amortization must 
be on a monthly basis, with the related amounts charged to account 428, 
Amortization of debt discount and expense (Sec.  367.4280). (see 
General Instructions in Sec.  367.16.)

Other Noncurrent Liabilities


Sec.  367.2270  Account 227, Obligations under capital lease--Non-
current.

    This account must include the portion not due within one year, of 
the obligations recorded for the amounts applicable to leased property 
recorded as assets in account 101.1, Property under capital leases 
(Sec.  367.1011).


Sec.  367.2282  Account 228.2, Accumulated provision for injuries and 
damages.

    (a) This account must be credited with amounts charged to account 
925, Injuries and damages (Sec.  367.9250), or other appropriate 
accounts, to meet the probable liability, not covered by insurance, for 
deaths or injuries to employees and others and for damages to property 
neither owned nor held under lease by the service company.
    (b) When liability for any injury or damage is admitted by the 
service company, either voluntarily or because of the decision of a 
court or other lawful authority, such as workmen's compensation board, 
the admitted liability must be charged to this account and credited to 
the appropriate current liability account. Details of these charges 
must be maintained according to the year the casualty occurred which 
gave rise to the loss.
    (c) Recoveries or reimbursements for losses charged to this account 
must be credited to this account; the cost of repairs to property of 
others if provided for in this account must be charged to this account.


Sec.  367.2283  Account 228.3, Accumulated provision for pensions and 
benefits.

    (a) This account must include provisions made by the service 
company and amounts contributed by employees for pensions, accident and 
death benefits, savings, relief, hospital and other provident purposes, 
where the funds are included in the assets of the service company 
either in general or in segregated fund accounts.
    (b) Amounts paid by the service company for the purposes for which 
this liability is established must be charged to this account.
    (c) A separate account must be kept for each kind of provision 
included in this account.
    (d) If employee pension or benefit plan funds are not included 
among the assets of the service company but are held by outside 
trustees, payments into such funds, or accruals therefore, must be 
included in this account.


Sec.  367.2300  Account 230, Asset retirement obligations.

    (a) This account must include the amount of liabilities for the 
recognition of asset retirement obligations related to service company 
property. This account must be credited for the amount of the 
liabilities for asset retirement obligations with amounts charged to 
the appropriate property account to record the related asset retirement 
costs.
    (b) The service company must charge the accretion expense to 
account 411.10, Accretion expense (Sec.  367.4118), and credit account 
230, Asset retirement obligations (Sec.  367.2300).
    (c) This account must be debited with amounts paid to settle the 
asset retirement obligations recorded in this account.
    (d) The service company must clear from this account any gains or 
losses resulting from the settlement of asset retirement obligations in 
accordance with the instructions prescribed in the General Instructions 
in Sec.  367.22.

Current and Accrued Liabilities


Sec.  367.2310  Account 231, Notes payable.

    This account must include the face value of all notes, drafts, 
acceptances, or other similar evidences of indebtedness, payable on 
demand or within a time not exceeding one year from date of issue, to 
other than associate companies.


Sec.  367.2320  Account 232, Accounts payable.

    This account must include all amounts payable by the service 
company within one year that are not provided for in other accounts.

[[Page 65249]]

Sec.  367.2330  Account 233, Notes payable to associate companies.

    (a) This account must include amounts owing to associate companies 
on notes, drafts, acceptances, or other similar evidences of 
indebtedness, and open accounts payable on demand or not more than one 
year from date of issue or creation.
    (b) Exclude from this account notes and accounts that are 
includible in account 223, Advances from associate companies (Sec.  
367.2230).


Sec.  367.2340  Account 234, Accounts payable to associate companies.

    This account must include all amounts payable to associate 
companies by the service company within one year, which are not 
provided for in other accounts.


Sec.  367.2360  Account 236, Taxes accrued.

    (a) This account must be credited with the amount of taxes accrued 
during the accounting period, corresponding debits being made to the 
appropriate accounts for tax charges. The credits may be based upon 
estimates, but from time to time during the year as the facts become 
known, the amount of the periodic credits must be adjusted so as to 
include as nearly as can be determined in each year the related 
applicable taxes. Any amount representing a prepayment of taxes 
applicable to the period subsequent to the date of the balance sheet, 
must be shown under account 165, Prepayments (Sec.  367.1650).
    (b) If accruals for taxes are found to be insufficient or 
excessive, corrections must be made through current tax accruals.
    (c) Accruals for taxes must be based upon the net amounts payable 
after credit for any discounts, and must not include any amounts for 
interest on tax deficiencies or refunds. Interest received on refunds 
must be credited to account 419, Interest and dividend income (Sec.  
367.4190), and interest paid on deficiencies must be charged to account 
431, Other interest expense (Sec.  367.4310).
    (d) The records supporting the entries to this account must be kept 
so as to show for each class of taxes, the amount accrued, the basis 
for the accrual, the accounts to which charged, and the amount of tax 
paid.


Sec.  367.2370  Account 237, Interest accrued.

    This account must include the amount of interest accrued but not 
matured on all liabilities of the service company not including, 
however, interest that is added to the principal of the debt on which 
it is incurred. Supporting records must be maintained so as to show the 
amount of interest accrued on each obligation.


Sec.  367.2380  Account 238, Dividends declared.

    This account must include the amount of dividends that have been 
declared but not paid. Dividends must be credited to this account when 
they become a liability.


Sec.  367.2410  Account 241, Tax collections payable.

    (a) This account must include the amount of taxes collected by the 
service company through payroll deductions or otherwise pending 
transmittal of the taxes to the proper taxing authority.
    (b) Do not include liability for taxes assessed directly against 
the service company that is accounted for as part of the service 
company's own tax expense.


Sec.  367.2420  Account 242, Miscellaneous current and accrued 
liabilities.

    This account must include the amount of all other current and 
accrued liabilities not provided for elsewhere, appropriately 
designated and supported so as to show the nature of each liability.


Sec.  367.2430  Account 243, Obligations under capital leases--Current.

    This account must include the portion, due within one year, of the 
obligations recorded for the amounts applicable to leased property 
recorded as assets in account 101.1, Property under capital leases 
(Sec.  367.1011).


Sec.  367.2440  Account 244, Derivative instrument liabilities.

    This account must include the change in the fair value of all 
derivative instrument liabilities not designated as cash flow or fair 
value hedges. Account 426.5, Other deductions (Sec.  367.4265), must be 
debited or credited as appropriate with the corresponding amount of the 
change in the fair value of the derivative instrument.


Sec.  367.2450  Account 245, Derivative instrument liabilities--Hedges

    (a) This account must include the change in the fair value of 
derivative instrument liabilities designated by the service company as 
cash flow or fair value hedges.
    (b) A service company must 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 219, Accumulated other 
comprehensive income (Sec.  367.2190), with the effective portion of 
the derivative's gain or loss. The ineffective portion of the cash flow 
hedge must 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 service company must 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 
of the fair value hedge must be charged to the same income or expense 
account that will be used when the hedged item enters into the 
determination of net income.

Deferred Credits


Sec.  367.2530  Account, 253, Other deferred credits.

    This account must include advance billings and receipts and other 
deferred credit items, not provided for elsewhere, including amounts 
which cannot be entirely cleared or disposed of until additional 
information has been received.


Sec.  367.2540  Account 254, Other regulatory liabilities.

    (a) This account must include the amounts of regulatory 
liabilities, not includible in other accounts, imposed on the service 
company by the ratemaking actions of regulatory agencies. (See 
Definitions Sec.  367.1(a)(38).)
    (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 USofA but for it being 
probable that: Such items will be included in a different period(s) for 
purposes of developing the rates that the service company is authorized 
to charge for its services; or refunds to customers, not provided for 
in other accounts, will be required. When specific identification of 
the particular source of the regulatory liability cannot be made or 
when the liability arises from revenues collected pursuant to tariffs 
on file at a regulatory agency, account 407.3, Regulatory debits (Sec.  
367.4073), must 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: All regulatory 
liabilities established through the use of account 407.3 (Sec.  
367.4073) must be credited to account 407.4, Regulatory credits (Sec.  
367.4074); and in the case of refunds, a cash account or other 
appropriate account should be credited when the obligation is 
satisfied.

[[Page 65250]]

    (c) If it is later determined that the amounts recorded in this 
account will not be returned to customers through rates or refunds, 
such amounts must be credited to Account 421, Miscellaneous income or 
loss (Sec.  367.4210), or Account 434, Extraordinary income (Sec.  
367.4340), as appropriate, in the year such determination is made.
    (d) The records supporting the entries to this account must be so 
kept that the service company can furnish full information as to the 
nature and amount of each regulatory liability included in this 
account, including justification for inclusion of such amounts in this 
account.


Sec.  367.2550  Account 255, Accumulated deferred investment tax 
credits.

    This account must be credited with all investment tax credits 
deferred by companies that have elected to follow deferral accounting, 
partial or full, rather than recognizing in the income statement the 
total benefits of the tax credit as realized. After this election, a 
company may not transfer amounts from this account, except as 
authorized in this account and in accounts 411.4, Investment tax credit 
adjustments, service company property (Sec.  367.4114) or 411.5, 
Investment tax credit adjustments, other income and deductions (Sec.  
367.4115), or with approval of the Commission.


Sec.  367.2820  Account 282, Accumulated deferred income taxes--Other 
property.

    (a) This account must include the tax deferrals resulting from 
adoption of the principle of comprehensive inter-period income tax 
allocation described in the General Instructions in Sec.  367.17 that 
are related to all property other than accelerated amortization 
property.
    (b) This account must be credited and accounts 410.1, Provision for 
deferred income taxes, operating income (Sec.  367.4101), or 410.2, 
Provision for deferred income taxes, Other income and deductions (Sec.  
367.4102), as appropriate, must be debited with tax effects related to 
property described in paragraph (a) of this section where taxable 
income is lower than pretax accounting income due to differences 
between the periods in which revenue and expense transactions affect 
taxable income and the periods in which they enter into the 
determination of pretax accounting income.
    (c) This account must be debited, and accounts 411.1, Provision for 
deferred income taxes--Credit, operating income (Sec.  367.4111), or 
411.2, Provision for deferred income taxes--Credit, other income and 
deductions (Sec.  367.4112), as appropriate, must be credited with tax 
effects related to property described in paragraph (a) of this section 
where taxable income is higher than pretax accounting income due to 
differences between the periods in which revenue and expense 
transactions affect taxable income and the periods in which they enter 
into the determination of pretax accounting income.
    (d) The service company is restricted in its use of this account to 
the purposes described in paragraphs (a) through (c) of this section. 
It must not transfer the balance in this account or any related portion 
to retained earnings or make any other use of the balance except as 
provided in paragraph (a) through (c) of this section without prior 
approval of the Commission. Upon the disposition by sale, exchange, 
transfer, abandonment or premature retirement of property on which 
there is a related balance, this account must be charged with an amount 
equal to the related income tax expense, if any, arising from the 
disposition and accounts 411.1, Income taxes deferred in prior years--
Credit, operating income (Sec.  367.4111), or 411.2, Income taxes 
deferred in prior years--Credit, other income and deductions (Sec.  
367.4112), must be credited. When property is disposed of by transfer 
to a wholly-owned subsidiary, the related balance in this account also 
must be transferred. When the disposition relates to retirement of an 
item or items under a group method of depreciation where there is no 
tax effect in the year of retirement, no entries are required in this 
account if it can be determined that the related balance must be 
retained to offset future group item tax deficiencies.


Sec.  367.2830  Account 283, Accumulated deferred income taxes--Other.

    (a) This account must include all credit tax deferrals resulting 
from the adoption of the principles of comprehensive inter-period 
income tax allocation described in the General Instructions in Sec.  
367.17 other than those deferrals that are includible in account 282, 
Accumulated deferred income taxes--Other property (Sec.  367.2820).
    (b) This account must be credited, and accounts 410.1 Provision for 
deferred income taxes, operating income (Sec.  367.4101), or 410.2 
Provision for deferred income taxes, other income and deductions (Sec.  
367.4102), as appropriate, must be debited with tax effects related to 
items described in paragraph (a) of this section where taxable income 
is lower than pretax accounting income due to differences between the 
periods in which revenue and expense transactions affect taxable income 
and the periods in which they enter into the determination of pretax 
accounting income.
    (c) This account must be debited, and accounts 411.1, Provision for 
deferred income taxes-Credit, operating income (Sec.  367.4111), or 
411.2, Provision for deferred income taxes-Credit, other income and 
deductions (Sec.  367.4112), as appropriate, must be credited with tax 
effects related to items described in paragraph (a) of this account 
where taxable income is higher than pretax accounting income due to 
differences between the periods in which revenue and expense 
transactions affect taxable income and the periods in which they enter 
into the determination of pretax accounting income.
    (d) Records with respect to entries to this account, as described 
in paragraphs (a) through (c) of this section, and the account balance, 
must be maintained so as to show the factors of calculation with 
respect to each annual amount of the item or class of items.
    (e) The service company is restricted in its use of this account to 
the purposes described in paragraphs (a) through (c) of this section. 
It must not transfer the balance in the account or any portion of the 
account to retained earnings or to any other account or make any use of 
the account except as provided in the text of this account, without 
prior approval of the Commission. Upon the disposition by sale, 
exchange, transfer, abandonment or premature retirement of items on 
which there is a related balance herein, this account must be charged 
with an amount equal to the related income tax effect, if any, arising 
from the disposition and accounts 411.1, Provision for deferred income 
taxes-Credit, operating income (Sec.  367.4111), or 411.2, Provision 
for deferred income taxes--Credit, other income and deductions (Sec.  
367.4112), as appropriate, must be credited.
    (f) When property is disposed of by transfer to a wholly-owned 
subsidiary, the related balance in this account also must be 
transferred. When the disposition relates to retirement of an item or 
items under a group method of depreciation where there is no tax effect 
in the year of retirement, no entries are required in this account if 
it can be determined that the related balance must be retained to 
offset future group item tax deficiencies.

Subpart G--Service Company Property Chart of Accounts


Sec.  367.3010  Account 301, Organization.

    (a) This account must include all fees paid to federal or state 
governments for the privilege of incorporation and expenditures 
incident to organizing the

[[Page 65251]]

corporation, partnership, or other enterprise and putting it into 
readiness to do business.
    (b) This account must include the following items:
    (1) Cost of obtaining certificates authorizing the service company 
to engage in its business.
    (2) Fees and expenses for incorporation.
    (3) Fees and expenses for mergers or consolidations.
    (4) Office expenses incident to organizing the service company.
    (5) Stock and minute books and corporate seal.
    (c) This account must not include any discounts upon securities 
issued or assumed; nor may it include any costs incident to negotiating 
loans, selling bonds or other evidences of debt or expenses in 
connection with the authorization, issuance or sale of capital stock.
    (d) Exclude from this account and include in the appropriate 
expense account, the cost of preparing and filing papers in connection 
with the extension of the term of incorporation unless the first 
organization costs have been written off. When charges are made to this 
account for expenses incurred in mergers, consolidations, or 
reorganizations, amounts previously included in this account or in 
similar accounts in the books of the companies concerned must be 
excluded from this account.


Sec.  367.3030  Account 303, Miscellaneous intangible property.

    (a) This account must include the cost of patent rights, licenses, 
privileges, and other intangible property necessary or valuable in the 
conduct of service company operations and not specifically chargeable 
to any other account.
    (b) When any item included in this account is retired or expires, 
the related book cost must be credited to this account and charged to 
account 426.5, Other deductions (Sec.  367.4265), or account 111, 
Accumulated provision for amortization of property (Sec.  367.1110).
    (c) This account must be maintained in a manner so that the service 
company can furnish full information with respect to the amounts 
included in this account.


Sec.  367.3060  Account 306, Leasehold improvements.

    This account must include all costs incurred by the service company 
in improvements of, remodeling of, or installation of additional 
facilities in rented offices or buildings to suit tenant's needs, 
placed in service prior to January 1, 2008.


Sec.  367.3890  Account 389, Land and land rights.

    This account must include the cost of land and land rights used for 
service company purposes, the cost of which is not properly includible 
in other land and land rights accounts (See Service Company Property 
Instructions in Sec.  367.55).


Sec.  367.3900  Account 390, Structures and improvements.

    This account must include the cost in place of structures and 
improvements used for service company purposes, the cost of which is 
not properly includible in other structures and improvements accounts 
(See Service Company Property Instructions in Sec.  367.56).


Sec.  367.3910  Account 391, Office furniture and equipment.

    (a) This account must include the cost of office furniture and 
equipment owned by the service company and devoted to service company 
operations, and not permanently attached to buildings, except the cost 
of the furniture and equipment that the service company elects to 
assign to other property accounts on a functional basis.
    (b) This account must include the following items:
    (1) Bookcases and shelves.
    (2) Desks, chairs, and desk equipment.
    (3) Drafting-room equipment.
    (4) Filing, storage, and other cabinets.
    (5) Floor covering.
    (6) Library and library equipment.
    (7) Mechanical office equipment, such as accounting machines, 
typewriters, and other similar items.
    (8) Safes.
    (9) Tables.


Sec.  367.3920  Account 392, Transportation equipment.

    (a) This account must include the cost of transportation vehicles 
used for service company purposes.
    (b) This account must include the following items:
    (1) Airplanes.
    (2) Automobiles.
    (3) Bicycles.
    (4) Electrical vehicles.
    (5) Motor trucks.
    (6) Motorcycles.
    (7) Repair cars or trucks.
    (8) Tractors and trailers.
    (9) Other transportation vehicles.


Sec.  367.3930  Account 393, Stores equipment.

    (a) This account must include the cost of equipment used for the 
receiving, shipping, handling, and storage of materials and supplies.
    (b) This account must include the following items:
    (1) Chain falls.
    (2) Counters.
    (3) Cranes (portable).
    (4) Elevating and stacking equipment (portable).
    (5) Hoists.
    (6) Lockers.
    (7) Scales.
    (8) Shelving.
    (9) Storage bins.
    (10) Trucks, hand and power driven.
    (11) Wheelbarrows.


Sec.  367.3940  Account 394, Tools, shop and garage equipment.

    (a) This account must include the cost of tools, implements, and 
equipment used in construction, repair work, general shops and garages 
and not specifically provided for or includible in other accounts.
    (b) This account must include the following items:
    (1) Air compressors.
    (2) Anvils.
    (3) Automobile repair shop equipment.
    (4) Battery charging equipment.
    (5) Belts, shafts and countershafts.
    (6) Boilers.
    (7) Cable pulling equipment.
    (8) Concrete mixers.
    (9) Drill presses.
    (10) Derricks.
    (11) Electric equipment.
    (12) Engines.
    (13) Forges.
    (14) Furnaces.
    (15) Foundations and settings specially constructed for equipment 
in this account and not expected to outlast the equipment for which 
provided.
    (16) Gas producers.
    (17) Gasoline pumps, oil pumps and storage tanks.
    (18) Greasing tools and equipment.
    (19) Hoists.
    (20) Ladders.
    (21) Lathes.
    (22) Machine tools.
    (23) Motor-driven tools.
    (24) Motors.
    (25) Pipe threading and cutting tools.
    (26) Pneumatic tools.
    (27) Pumps.
    (28) Riveters.
    (29) Smithing equipment.
    (30) Tool racks.
    (31) Vises.
    (32) Welding apparatus.
    (33) Work benches.


Sec.  367.3950  Account 395, Laboratory equipment.

    (a) This account must include the cost installed of laboratory 
equipment used for general laboratory purposes.
    (b) This account must include the following items:

[[Page 65252]]

    (1) Ammeters.
    (2) Balances and scales.
    (3) Barometers.
    (4) Calorimeters-bomb, flow, recording types, and other similar 
items.
    (5) Current batteries.
    (6) Electric furnaces.
    (7) Frequency changers.
    (8) Galvanometers.
    (9) Gas burning equipment.
    (10) Gauges.
    (11) Glassware, beakers, burettes, and other similar items.
    (12) Humidity testing apparatus.
    (13) Inductometers.
    (14) Laboratory hoods.
    (15) Laboratory standard millivolt meters.
    (16) Laboratory standard volt meters.
    (17) Laboratory tables and cabinets.
    (18) Meter-testing equipment.
    (19) Millivolt meters.
    (20) Motor generator sets.
    (21) Muffles.
    (22) Oil analysis apparatus.
    (23) Panels.
    (24) Phantom loads.
    (25) Piping.
    (26) Portable graphic ammeters, voltmeters, and wattmeters.
    (27) Portable loading devices.
    (28) Potential batteries.
    (29) Potentiometers.
    (30) Rotating standards.
    (31) Specific gravity apparatus.
    (32) Standard bottles for meter prover testing.
    (33) Standard cell, reactance, resistor, and shunt.
    (34) Stills.
    (35) Sulphur and ammonia apparatus.
    (36) Switchboards.
    (37) Synchronous timers.
    (38) Tar analysis apparatus.
    (39) Testing panels.
    (40) Testing resistors.
    (41) Thermometers--indicating and recording.
    (42) Transformers.
    (43) Voltmeters.
    (44) Other testing, laboratory, or research equipment not provided 
for elsewhere.
    (45) Other items of equipment for testing gas, fuel, flue gas, 
water, residuals, and other similar items.


Sec.  367.3960  Account 396, Power operated equipment.

    (a) This account must include the cost of power operated equipment 
used in construction or repair work exclusive of equipment includible 
in other accounts. Include, also, the tools and accessories acquired 
for use with the equipment and the vehicle on which the equipment is 
mounted.
    (b) This account must include the following items:
    (1) Air compressors, including driving unit and vehicle.
    (2) Back filling machines.
    (3) Boring machines.
    (4) Bulldozers.
    (5) Cranes and hoists.
    (6) Diggers.
    (7) Engines.
    (8) Pile drivers.
    (9) Pipe cleaning machines.
    (10) Pipe coating or wrapping machines.
    (11) Tractors--Crawler type.
    (12) Trenchers.
    (13) Other power operated equipment.
    (c) It is intended that this account include only the large units 
that are generally self-propelled or mounted on movable equipment.


Sec.  367.3970  Account 397, Communication equipment.

    (a) This account must include the cost installed of telephone, 
telegraph, and wireless equipment for general use in connection with 
service company operations.
    (b) This account must include the following items:
    (1) Amplifiers.
    (2) Antennae.
    (3) Booths.
    (4) Cables.
    (5) Carrier terminal equipment.
    (6) Conductors.
    (7) Distributing boards.
    (8) Extension cords.
    (9) Gongs.
    (10) Hand sets, manual and dial.
    (11) Insulators.
    (12) Intercommunicating sets.
    (13) Loading coils.
    (14) Microwave equipment.
    (15) Operators' desks.
    (16) Paraboloids.
    (17) Poles and fixtures used wholly for telephone or telegraph 
wire.
    (18) Power supply equipment.
    (19) Radio transmitting and receiving sets.
    (20) Reflectors.
    (21) Repeaters.
    (22) Remote control equipment and lines.
    (23) Sending keys.
    (24) Storage batteries.
    (25) Switchboards.
    (26) Telautograph circuit connections.
    (27) Telegraph receiving sets.
    (28) Telephone and telegraph circuits.
    (29) Testing instruments.
    (30) Towers.
    (31) Underground conduit used wholly for telephone or telegraph 
wires and cable wires.


Sec.  367.3980  Account 398, Miscellaneous equipment.

    (a) This account must include the cost of equipment, apparatus, and 
other similar items, used in the service company's operations that are 
not included in any other account of this system of accounts.
    (b) This account must include the following items:
    (1) Hospital and infirmary equipment.
    (2) Kitchen equipment.
    (3) Employees' recreation equipment.
    (4) Radios.
    (5) Restaurant equipment.
    (6) Soda fountains.
    (7) Operators' cottage furnishings.
    (8) Other miscellaneous equipment.


Sec.  367.3990  Account 399, Other tangible property.

    This account must include the cost of tangible service company 
property not provided for elsewhere.


Sec.  367.3991  Account 399.1, Asset retirement costs for service 
company property.

    This account must include asset retirement costs on service company 
property.

Subpart H--Income Statement Chart of Accounts

Service Company Operating Income


Sec.  367.4000  Account 400, Operating revenues.

    There must be shown under this caption the total amount included in 
the service company operating revenue accounts 457 through 459 
(Sec. Sec.  367.4570 through 367.4590).


Sec.  367.4010  Account 401, Operation expense.

    There must be shown under this caption the total amount included in 
the service company operation expense accounts 500 through 589 
(Sec. Sec.  367.5000 through 367.5890), 800 through 881 (Sec. Sec.  
367.8000 through 367.8810) and 901 through 931 (Sec. Sec.  367.9010 
through 367.9310).


Sec.  367.4020  Account 402, Maintenance expense.

    There must be shown under this caption the total amount included in 
the service company maintenance expense accounts 500 through 598 
(Sec. Sec.  367.5000 through 367.5890), 800 through 894 (Sec. Sec.  
367.8000 through 367.8810), and 935 (Sec.  367.9350).


Sec.  367.4030  Account 403, Depreciation expense.

    (a) This account must include the amount of depreciation for all 
service company property, the cost of which is included in accounts 390 
through 399.1 (Sec. Sec.  367.3900 through 367.3991). Provide 
subaccounts by each class of service company property owned or leased

[[Page 65253]]

except the depreciation expense that is charged to clearing accounts or 
to account 416, Costs and expenses of merchandising, jobbing and 
contract work (Sec.  367.4160).
    (b) The service company must keep the records of property and 
property retirements that will reflect the service life of property 
that has been retired and aid in estimating probable service life by 
mortality, turnover, or other appropriate methods; and also the records 
that will reflect the percentage of salvage and costs of removal for 
property retired from each account, or related subaccount, for 
depreciable property.
    (c) Depreciation expenses applicable to transportation equipment, 
shop equipment, tools, work equipment, power operated equipment and 
other general equipment may be charged to clearing accounts as 
necessary in order to obtain a proper distribution of expenses between 
construction and operation.


Sec.  367.4031  Account 403.1, Depreciation expense for asset 
retirement costs.

    This account must include the depreciation expense for asset 
retirement costs included in service company property.


Sec.  367.4040  Account 404, Amortization of limited-term property.

    This account must include amortization charges applicable to 
amounts included in the service company property accounts for limited-
term franchises, licenses, patent rights, limited-term interests in 
land, and expenditures on leased property where the service life of the 
improvements is terminable by action of the lease. The charges to this 
account must be sufficient to distribute the book cost of each 
investment as evenly as may be over the period of its benefit (See 
account 111, Accumulated provision for amortization of service company 
property (Sec.  367.1110)).


Sec.  367.4050  Account 405, Amortization of other property.

    (a) When authorized by the Commission, this account must include 
charges for amortization of intangible or other property that does not 
have a definite or terminable life and that is not subject to charges 
for depreciation expense.
    (b) This account must be supported in sufficient detail to show the 
amortization applicable to each investment being amortized, together 
with the book cost of the investment and the period over which it is 
being written off.


Sec.  367.4073  Account 407.3, Regulatory debits.

    This account shall be debited, when appropriate, with amounts 
credited to Account 254, Other Regulatory Liabilities, to record 
regulatory liabilities imposed on the service company by the ratemaking 
actions of regulatory agencies. This account shall also be debited, 
when appropriate, with the amounts credited to Account 182.3, Other 
Regulatory Assets, concurrent with the recovery of such amounts in 
rates.


Sec.  367.4074  Account 407.4, Regulatory credits.

    This account shall be credited, when appropriate, with amounts 
debited to Account 182.3, Other Regulatory Assets, to establish 
regulatory assets. This account shall also be credited, when 
appropriate, with the amounts debited to Account 254, Other Regulatory 
Liabilities, concurrent with the return of such amounts to customers 
through rates.


Sec.  367.4081  Account 408.1, Taxes other than income taxes, operating 
income.

    This account must include those taxes, other than income taxes, 
that relate to service company operating income. This account must be 
maintained so as to allow ready identification of the various classes 
of taxes.


Sec.  367.4082  Account 408.2, Taxes other than income taxes, other 
income and deductions.

    This account must include those taxes, other than income taxes, 
that relate to other income and deductions.


Sec.  367.4091  Account 409.1, Income taxes, operating income.

    This account must include the amount of those local, state and 
Federal income taxes that relate to service company operating income.


Sec.  367.4092  Account 409.2, Income taxes, other income and 
deductions.

    This account must include the amount of those local, state and 
Federal income taxes (both positive and negative), that relate to other 
income and deductions.


Sec.  367.4093  Account 409.3, Income taxes, extraordinary items.

    This account must include the amount of those local, state and 
Federal income taxes (both positive and negative), that relate to 
extraordinary items.


Sec.  367.4101  Account 410.1, Provision for deferred income taxes, 
operating income.

    This account must include the amounts of those deferrals of taxes 
and allocations of deferred taxes that relate to service company 
operating income.


Sec.  367.4102  Account 410.2, Provision for deferred income taxes, 
other income and deductions.

    This account must include the amounts of those deferrals of taxes 
and allocations of deferred taxes that relate to other income and 
deductions.


Sec.  367.4111  Account 411.1, Provision for deferred income taxes--
Credit, operating income.

    This account must include the amounts of those allocations of 
deferred taxes and deferrals of taxes, credit, that relate to service 
company operating income.


Sec.  367.4112  Account 411.2, Provision for deferred income taxes--
Credit, other income and deductions.

    This account must include the amounts of those allocations of 
deferred taxes and deferrals of taxes, credit, that relate to other 
income and deductions.


Sec.  367.4114  Account 411.4, Investment tax credit adjustments, 
service company property.

    This account must include the amount of those investment tax credit 
adjustments that relate to service company property.


Sec.  367.4115  Account 411.5, Investment tax credit adjustments, 
other.

    This account must include the amount of those investment tax credit 
adjustments not properly included in other accounts.


Sec.  367.4116  Account 411.6, Gains from disposition of service 
company plant.

    (a) The service company must record in this account gains resulting 
from the settlement of asset retirement obligations related to service 
company plant in accordance with the accounting prescribed in General 
Instructions in Sec.  367.22.
    (b) Income taxes relating to losses, recorded in this account must 
be recorded in Account 409.1, Income Taxes, operating income (Sec.  
367.4091).


Sec.  367.4117  Account 411.7, Losses from disposition of service 
company plant.

    (a) The service company must record in this account losses 
resulting from the settlement of asset retirement obligations related 
to service company plant in accordance with the accounting prescribed 
in General Instructions in Sec.  367.22.
    (b) Income taxes relating to losses, recorded in this account must 
be

[[Page 65254]]

recorded in Account 409.1, Income Taxes, operating income (Sec.  
367.4091).


Sec.  367.4118  Account 411.10, Accretion expense.

    This account must be charged for accretion expense on the 
liabilities associated with asset retirement obligations included in 
account 230, Asset retirement obligations (Sec.  367.2300), related to 
service company property.


Sec.  367.4120  Account 412, Cost and expenses of construction or other 
services.

    This account must include expenditures related to the performance 
of construction or service contracts, under which the service company 
undertakes projects to construct physical property for associate or 
non-associate companies (see General Instructions Sec.  367.24, 
Construction and service contracts for other companies) and the cost of 
services performed for others not provided for elsewhere.


Sec.  367.4160  Account 416, Costs and expenses of merchandising, 
jobbing and contract work.

    (a) This account must include the following labor items for 
services provided:
    (1) Canvassing and demonstrating appliances in homes and other 
places for the purpose of selling appliances.
    (2) Demonstrating and selling activities in sales rooms.
    (3) Installing appliances on customer premises where the work is 
done only for purchasers of appliances from the associated company.
    (4) Installing wiring, piping, or other property work, on a jobbing 
or contract basis.
    (5) Preparing advertising materials for appliance sales purposes.
    (6) Receiving and handling customer orders for merchandise or for 
jobbing services.
    (7) Cleaning and tidying sales rooms.
    (8) Maintaining display counters and other equipment used in 
merchandising.
    (9) Arranging merchandise in sales rooms and decorating display 
windows.
    (10) Reconditioning repossessed appliances.
    (11) Bookkeeping and other clerical work in connection with 
merchandise and jobbing activities.
    (12) Supervising merchandise and jobbing operations.
    (b) This account must include the following materials and expenses 
items:
    (1) Advertising in newspapers, periodicals, radio, television, and 
other similar items.
    (2) Cost of merchandise sold and of materials used in jobbing work.
    (3) Stores expenses on merchandise and jobbing stocks.
    (4) Fees and expenses of advertising and commercial artists' 
agencies.
    (5) Printing booklets, dodgers, and other advertising data.
    (6) Premiums given as inducement to buy appliances.
    (7) Light, heat and power.
    (8) Depreciation on equipment used primarily for merchandise and 
jobbing operations.
    (9) Rent of sales rooms or of equipment.
    (10) Transportation expense in delivery and pick-up of appliances 
by the associated company's facilities.
    (11) Stationery and office supplies and expenses.
    (12) Losses from uncollectible merchandise and jobbing accounts.
    (c) Records in support of this account shall be so kept as to 
permit ready summarization of costs and expenses by such major items as 
are feasible.
    (d) Related taxes must be recorded in account 408.2, Taxes other 
than income taxes, other income and deductions (Sec.  367.4082), or 
account 409.2, Income taxes, other income and deductions (Sec.  
367.4092), as appropriate.


Sec.  367.4180  Account 418, Non-operating rental income.

    (a) The expenses shall include all elements of costs incurred in 
the ownership and rental of property and the accounts shall be 
maintained so as to permit ready summarization of operation, 
maintenance, rents, depreciation, and amortization.
    (b) Related taxes shall be recorded in Account 408.2, Taxes other 
than income taxes, other income and deductions (Sec.  367.4082) or 
Account 409.2, Income taxes, other income and deductions (Sec.  
367.4092), as appropriate.


Sec.  367.4181  Account 418.1, Equity in earnings of subsidiary 
companies.

    This account must include the service company's equity in the 
earnings or losses of subsidiary companies for the year.


Sec.  367.4190  Account 419, Interest and dividend income.

    (a) This account must include interest revenues on securities, 
loans, notes, advances, special deposits, tax refunds and all other 
interest-bearing assets, and dividends on stocks of other companies, 
whether the securities on which the interest and dividends are received 
are carried as investments or included in sinking or other special fund 
accounts.
    (b) This account may include the pro rata amount necessary to 
extinguish (during the interval between the date of acquisition and the 
date of maturity) the difference between the cost to the service 
company and the face value of interest-bearing securities. The amounts 
credited or charged must be concurrently included in the accounts in 
which the securities are carried.
    (c) Where significant in amount, expenses, excluding operating 
taxes and income taxes, applicable to security investments and to 
interest and dividend revenues on the account must be charged in this 
account.
    (d) Related taxes must be recorded in account 408.2, Taxes other 
than income taxes, other income and deductions (Sec.  367.4082), or 
account 409.2, Income taxes, other income and deductions (Sec.  
367.4092).
    (e) Interest accrued, the payment of which is not reasonably 
assured, dividends receivable that have not been declared or 
guaranteed, and interest or dividends upon reacquired securities issued 
or assumed by the service company must not be credited to this account.


Sec.  367.4191  Account 419.1, Allowance for other funds used during 
construction.

    This account must include concurrent credits for allowance for 
other funds used during construction.


Sec.  367.4210  Account 421, Miscellaneous income or loss.

    This account must include all revenue and expense items except 
taxes properly includible in the income account and not provided for 
elsewhere. Related taxes must be recorded in account 408.2, Taxes other 
than income taxes, other income and deductions (Sec.  367.4082), or 
account 409.2, Income taxes, other income and deductions (Sec.  
367.4092).


Sec.  367.4211  Account 421.1, Gain on disposition of property.

    This account must be credited with the gain on the sale, 
conveyance, exchange, or transfer of service or other property to 
another. Income taxes on gains recorded in this account must be 
recorded in account 409.2, Income taxes, other income and deductions 
(Sec.  367.4092).


Sec.  367.4212  Account 421.2, Loss on disposition of property.

    This account must be charged with the loss on the sale, conveyance, 
exchange or transfer of service or other property to another. The 
reduction in income taxes relating to losses recorded in this account 
must be recorded in account 409.2, Income taxes, other income and 
deductions (Sec.  367.4092).


Sec.  367.4250  Account 425, Miscellaneous amortization.

    (a) This account must include amortization charges not includible 
in

[[Page 65255]]

other accounts which are properly deductible in determining the income 
of the service company before interest charges. Charges included in 
this account, if significant in amount, must be in accordance with an 
orderly and systematic amortization program.
    (b) This account must include the following items:
    (1) Amortization of intangibles included in service company 
property.
    (2) Other miscellaneous amortization charges authorized to be 
included in this account by the Commission.


Sec.  367.4261  Account 426.1, Donations.

    This account must include all payments or donations for charitable, 
social or community welfare purposes.


Sec.  367.4262  Account 426.2, Life insurance.

    This account must include all payments for life insurance of 
officers and employees where the service company is beneficiary (net 
premiums less increase in cash surrender value of policies).


Sec.  367.4263  Account 426.3, Penalties.

    This account must include payments by the service company for 
penalties or fines for violation of any regulatory statutes by the 
service company or its officials.


Sec.  367.4264  Account 426.4, Expenditures for certain civic, 
political and related activities.

    (a) This account must include expenditures for the purpose of 
influencing public opinion with respect to the election or appointment 
of public officials, referenda, legislation, or ordinances (either with 
respect to the possible adoption of new referenda, legislation or 
ordinances or repeal or modification of existing referenda, legislation 
or ordinances) or approval, modification, or revocation of franchises; 
or for the purpose of influencing the decisions of public officials.
    (b) This account must not include expenditures that are directly 
related to appearances before regulatory or other governmental bodies 
in connection with an associate utility company's existing or proposed 
operations.


Sec.  367.4265  Account 426.5, Other deductions.

    This account must include other miscellaneous expenses that are not 
properly included in service company operations.


Sec.  367.4270  Account 427, Interest on long-term debt.

    (a) This account must include the amount of interest on outstanding 
long-term debt issued or assumed by the service company, the liability 
for which is included in account 224, Other long-term debt (Sec.  
367.2240).
    (b) This account must be kept or supported so as to show the 
interest accruals on each class and series of long-term debt.
    (c) This account must not include interest on nominally issued or 
nominally outstanding long-term debt, including securities assumed.


Sec.  367.4280  Account 428, Amortization of debt discount and expense.

    (a) This account must include the amortization of unamortized debt 
discount and expense on outstanding long-term debt. Amounts charged to 
this account must be credited concurrently to accounts 181, Unamortized 
debt expense (Sec.  367.1810), and 226, Unamortized discount on long-
term debt--Debit (Sec.  367.2260).
    (b) This account must be kept or supported so as to show the debt 
discount and expense on each class and series of long-term debt.


Sec.  367.4290  Account 429, Amortization of premium on debt--Credit.

    (a) This account must include the amortization of unamortized net 
premium on outstanding long-term debt. Amounts credited to this account 
must be charged concurrently to account 225, Unamortized premium on 
long-term debt (Sec.  367.2250).
    (b) This account must be kept or supported so as to show the 
premium on each class and series of long-term debt.
    (c) This account must include the following items:
    (1) Loss relating to investments in securities written-off or 
written-down.
    (2) Loss on sale of investments.
    (3) Loss on reacquisition, resale or retirement of service 
company's debt securities.
    (4) Preliminary survey and investigation expenses related to 
abandoned projects, when not written-off to the appropriate operating 
expense account.


Sec.  367.4300  Account 430, Interest on debt to associate companies.

    This account must include interest accrued on amounts included in 
account 223, Advances from associate companies (Sec.  367.2230), and 
account 233, Notes payable to associate companies (Sec.  367.2330). The 
records supporting the entries to this account must be kept so as to 
show to who the interest is to be paid, the period covered by the 
accrual, the rate of interest and the principal amount of the advances 
or other obligations on which the interest is accrued. Separate 
subaccounts must be maintained for each related debt account.


Sec.  367.4310  Account 431, Other interest expense.

    This account must include all interest charges not provided for 
elsewhere.


Sec.  367.4320  Account 432, Allowance for borrowed funds used during 
construction--Credit.

    This account must include concurrent credits for allowance for 
borrowed funds used during construction.

Subpart I--Retained Earnings Accounts


Sec.  367.4330  Account 433, Balance transferred from income.

    This account must include the net credit or debit transferred from 
income for the year.


Sec.  367.4340  Account 434, Extraordinary income.

    This account must be credited with gains of unusual nature and 
infrequent occurrence that would significantly distort the current 
year's income computed before extraordinary items, if reported other 
than as extraordinary items. Income tax relating to the amounts 
recorded in this account must be recorded in account 409.3, Income 
taxes, extraordinary items (Sec.  367.4093) (See General Instructions 
in Sec.  367.8).


Sec.  367.4350  Account 435, Extraordinary deductions.

    This account must be debited with losses of unusual nature and 
infrequent occurrence that would significantly distort the current 
year's income computed before extraordinary items, if reported other 
than as extraordinary items. Income tax relating to the amounts 
recorded in this account must be recorded in account 409.3, Income 
taxes, extraordinary items (Sec.  367.4093) (See General Instructions 
in Sec.  367.8).


Sec.  367.4360  Account 436, Appropriations of retained earnings.

    This account must include appropriations of retained earnings as 
follows:
    (a) Appropriations required under terms of mortgages, orders of 
courts, contracts, or other agreements.
    (b) Appropriations required by action of regulatory authorities.
    (c) Other appropriations made at option of the service company for 
specific purposes.


Sec.  367.4370  Account 437, Dividends declared--preferred stock.

    (a) This account must include amounts declared payable out of

[[Page 65256]]

retained earnings as dividends on actually outstanding preferred or 
prior lien capital stock issued by the service company.
    (b) Dividends must be segregated for each class and series of 
preferred stock as to those payable in cash, stock, and other forms. If 
not payable in cash, the medium of payment must be described with 
sufficient detail to identify it.


Sec.  367.4380  Account 438, Dividends declared--common stock.

    (a) This account must include amounts declared payable out of 
retained earnings as dividends on actually outstanding common capital 
stock issued by the service company.
    (b) Dividends must be segregated for each class of common stock as 
to those payable in cash, stock and other forms. If not payable in 
cash, the medium of payment must be described with sufficient detail to 
identify it.


Sec.  367.4390  Account 439, Adjustments to retained earnings.

    (a) This account must, with prior Commission approval, include 
significant non-recurring transactions accounted for as prior period 
adjustments, as follows:
    (1) Correction of an error in the financial statements of a prior 
year.
    (2) Adjustments that result from realization of income tax benefits 
of reacquisition operating loss carry forwards of purchased 
subsidiaries. All other items of profit and loss recognized during a 
year must be included in the determination of net income for that year.
    (b) Adjustments, charges, or credits due to losses on 
reacquisition, resale or retirement of the company's own capital stock 
must be included in this account.

Subpart J--Operating Revenue Chart of Accounts


Sec.  367.4570  Account 457, Services rendered to associate companies.

    This account must include amounts billed to associate companies for 
services rendered at cost (See accounts 457.1 through 457.3 in 
Sec. Sec.  367.4571 through 367.4573). Overbillings or underbillings 
arising from adjustments of estimated costs to actual costs must be 
cleared through this account and concurrent adjustments made to other 
accounts involved.


Sec.  367.4571  Account 457.1, Direct costs charged to associate 
companies.

    This account must include those direct costs that can be identified 
through a cost allocation system as being applicable to services 
performed for associate companies. This account must not include any 
compensation for use of equity capital or inter-company interest on 
indebtedness.


Sec.  367.4572  Account 457.2, Indirect costs charged to associate 
companies.

    This account must include recovery of those indirect costs that 
cannot be separately identified to a single or group of associate 
companies and therefore must be allocated. Only journal or memorandum 
entries should be prepared monthly, by departments, for all such cost 
accumulated and billed to customers. Amounts billed to associate 
companies must be included in this account. This account must not 
include any compensation for use of equity capital or inter-company 
interest on indebtedness.


Sec.  367.4573  Account 457.3, Compensation for use of capital-
associate companies.

    This account must include only the portion of compensation for use 
of equity capital and inter-company interest on indebtedness before 
income taxes that is properly allocable to services rendered to each 
associate company.


Sec.  367.4580  Account 458, Services rendered to non-associate 
companies.

    This account must include amounts billed for services rendered to 
non-associate companies (See accounts 458.1 through 458.4 (Sec. Sec.  
367.4581 through 367.4584)).


Sec.  367.4581  Account 458.1, Direct costs charged to non-associate 
companies.

    This account must include those direct costs that can be identified 
through a cost allocation system as being applicable to services 
performed for non-associate companies. This account must not include 
any compensation for use of equity capital or interest on indebtedness.


Sec.  367.4582  Account 458.2, Indirect costs charged to non-associate 
companies.

    This account must include recovery of those indirect costs of 
services performed for non-associate companies that cannot be 
specifically assigned and therefore must be allocated. This account 
must not include any compensation for use of equity capital or inter-
company interest on indebtedness.


Sec.  367.4583  Account 458.3, Compensation for use of capital--Non-
associate companies.

    This account must include only the portion of compensation for use 
of equity capital and inter-company interest on indebtedness before 
income taxes that is properly allocable to services rendered to non-
associate utility companies. A statement to support the basis for the 
compensation and how it was calculated must be attached to a separate 
journal entry, ledger system, or memorandum file.


Sec.  367.4584  Account 458.4, Excess or deficiency on servicing non-
associate utility companies.

    This account must include the amount by which the aggregate price 
received for services rendered to non-associate utility companies 
differs from the sum of the total direct and indirect costs and 
compensation for use of capital which are properly allocable to such 
services (See accounts 458.1 through 458.3 (Sec. Sec.  367.4581 through 
367.4583) and General Instructions in Sec.  367.23).

Subpart K--Operation and Maintenance Expense Chart of Accounts


Sec.  367.5000  Accounts 500-598, Electric operation and maintenance 
accounts.

    Service companies must use accounts 500 through 598 in part 101 of 
this chapter.


Sec.  367.8000  Accounts 800-894, Gas operation and maintenance 
accounts.

    Service companies must use accounts 800 through 894 in part 201 of 
this chapter.


Sec.  367.9010  Account 901, Supervision.

    This account must include the cost of labor and expenses incurred 
in the general direction and supervision of customer accounting and 
collecting activities. Direct supervision of a specific activity must 
be charged to account 902, Meter reading expenses (Sec.  367.9020), or 
account 903, Customer records and collection expenses (Sec.  367.9030), 
as appropriate (See Operating Expense Instructions in Sec.  367.80).


Sec.  367.9020  Account 902, Meter reading expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in reading customer meters, and determining 
consumption when performed by employees engaged in reading meters.
    (b) This account must include the following labor items:
    (1) Addressing forms for obtaining meter readings by mail.
    (2) Changing and collecting meter charts used for billing purposes.
    (3) Inspecting time clocks, checking seals, and other similar 
items, when performed by meter readers and the work represents a minor 
activity incidental to regular meter reading routine.

[[Page 65257]]

    (4) Reading meters, including demand meters, and obtaining load 
information for billing purposes. Exclude and charge to account 586, 
Meter expenses (Sec.  367.5000), account 878, Meter and house regulator 
expenses (Sec.  367.8000), or to account 903, Customer records and 
collection expenses (Sec.  367.9030), as applicable, the cost of 
obtaining meter readings, first and final, if incidental to the 
operation of removing or resetting, sealing, or locking, and 
disconnecting or reconnecting meters.
    (5) Computing consumption from meter reader's book or from reports 
by mail when done by employees engaged in reading meters.
    (6) Collecting from prepayment meters when incidental to meter 
reading.
    (7) Maintaining record of customers'' keys.
    (8) Computing estimated or average consumption when performed by 
employees engaged in reading meters.
    (c) This account must include the following materials and expenses 
items:
    (1) Badges, lamps, and uniforms.
    (2) Demand charts, meter books and binders and forms for recording 
readings, but not the cost of preparation.
    (3) Postage and supplies used in obtaining meter readings by mail.
    (4) Transportation, meals, and incidental expenses.


Sec.  367.9030  Account 903, Customer records and collection expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in work on customer applications, contracts, orders, 
credit investigations, billing and accounting, collections and 
complaints.
    (b) This account must include the following labor items:
    (1) Receiving, preparing, recording and handling routine orders for 
service, disconnections, transfers or meter tests initiated by the 
customer, excluding the cost of carrying out the orders, that is 
chargeable to the account appropriate for the work called for by the 
orders.
    (2) Investigations of customers'' credit and keeping of records 
pertaining to the investigations, including records of uncollectible 
accounts written off.
    (3) Receiving, refunding or applying customer deposits and 
maintaining customer deposit, line extension, and other miscellaneous 
records.
    (4) Checking consumption shown by meter readers'' reports where 
incidental to preparation of billing data.
    (5) Preparing address plates and addressing bills and delinquent 
notices.
    (6) Preparing billing data.
    (7) Operating billing and bookkeeping machines.
    (8) Verifying billing records with contracts or rate schedules.
    (9) Preparing bills for delivery, and mailing or delivering bills.
    (10) Collecting revenues, including collection from prepayment 
meters unless incidental to meter-reading operations.
    (11) Balancing collections, preparing collections for deposit, and 
preparing cash reports.
    (12) Posting collections and other credits or charges to customer 
accounts and extending unpaid balances.
    (13) Balancing customer accounts and controls.
    (14) Preparing, mailing, or delivering delinquent notices and 
preparing reports of delinquent accounts.
    (15) Final meter reading of delinquent accounts when done by 
collectors incidental to regular activities.
    (16) Disconnecting and reconnecting service because of nonpayment 
of bills.
    (17) Receiving, recording, and handling of inquiries, complaints, 
and requests for investigations from customers, including preparation 
of necessary orders, but excluding the cost of carrying out such 
orders, which is chargeable to the account appropriate for the work 
called for by the orders.
    (18) Statistical and tabulating work on customer accounts and 
revenues, but not including special analyses for sales department, rate 
department, or other general purposes, unless incidental to regular 
customer accounting routines.
    (19) Preparing and periodically rewriting meter reading sheets.
    (20) Determining consumption and computing estimated or average 
consumption when performed by employees other than those engaged in 
reading meters.
    (c) This account must include the following materials and expenses 
items:
    (1) Address plates and supplies.
    (2) Cash overages and shortages.
    (3) Commissions or fees to others for collecting.
    (4) Payments to credit organizations for investigations and 
reports.
    (5) Postage.
    (6) Transportation expenses (Major only), including transportation 
of customer bills and meter books under centralized billing procedure.
    (7) Transportation, meals, and incidental expenses.
    (8) Bank charges, exchange, and other fees for cashing and 
depositing customers' checks.
    (9) Forms for recording orders for services removals, and other 
similar forms.
    (10) Rent of mechanical equipment.
    (d) The cost of work on meter history and meter location records is 
chargeable to account 586, Meter expenses (Sec.  367.5000) or account 
878, Meter and house regulator expenses (Sec.  367.8000).


Sec.  367.9040  Account 904, Uncollectible accounts.

    This account must be charged with amounts sufficient to provide for 
losses from uncollectible service company revenues. Concurrent credits 
must be made to account 144, Accumulated provision for uncollectible 
accounts--Credit (Sec.  367.1440). Losses from uncollectible accounts 
also must be charged to account 144 (Sec.  367.1440).


Sec.  367.9050  Account 905, Miscellaneous customer accounts expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred not provided for in other accounts.
    (b) This account must include the following labor items:
    (1) General clerical and stenographic work.
    (2) Miscellaneous labor.
    (c) This account must include the following materials and expenses 
items:
    (1) Communication service.
    (2) Miscellaneous office supplies and expenses and stationery and 
printing other than those specifically provided for in accounts 902 and 
903 (Sec. Sec.  367.9020 and 367.9030).


Sec.  367.9070  Account 907, Supervision.

    This account must include the cost of labor and expenses incurred 
in the general direction and supervision of customer service 
activities, the object of which is to encourage safe, efficient and 
economical use of the associate utility company's service. Direct 
supervision of a specific activity within customer service and 
informational expense classification must be charged to the account 
wherein the costs of such activity are included (See Operating Expense 
Instructions in Sec.  367.80).


Sec.  367.9080  Account 908, Customer assistance expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in providing instructions or assistance to customers, 
the object of which is to encourage safe, efficient and economical use 
of the associate utility company's service.
    (b) This account must include the following labor items:
    (1) Direct supervision of department.
    (2) Processing customer inquiries relating to the proper use of 
electric equipment, the replacement of such equipment and information 
related to the equipment.

[[Page 65258]]

    (3) Advice directed to customers as to how they may achieve the 
most efficient and safest use of electric equipment.
    (4) Demonstrations, exhibits, lectures, and other programs designed 
to instruct customers in the safe, economical or efficient use of 
electric service, and/or oriented toward conservation of energy.
    (5) Engineering and technical advice to customers, the object of 
which is to promote safe, efficient and economical use of the associate 
utility company's service.
    (c) This account must include the following materials and expenses 
items:
    (1) Supplies and expenses pertaining to demonstrations, exhibits, 
lectures, and other programs.
    (2) Loss in value on equipment and appliances used for customer 
assistance programs.
    (3) Office supplies and expenses.
    (4) Transportation, meals, and incidental expenses.
    (d) Do not include in this account expenses that are provided for 
elsewhere, such as accounts 416, Costs and expenses of merchandising, 
jobbing and contract work (Sec.  367.4160), 587, Customer installations 
expenses (Sec.  367.5870), 879, Customer installations expenses (Sec.  
367.8790), and 912, Demonstrating and selling expenses (Sec.  
367.9120).


Sec.  367.9090  Account 909, Informational and instructional 
advertising expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in activities which primarily convey information as 
to what the associate utility company urges or suggests customers 
should do in utilizing service to protect health and safety, to 
encourage environmental protection, to utilize their equipment safely 
and economically, or to conserve energy.
    (b) This account must include the following labor items:
    (1) Direct supervision of informational activities.
    (2) Preparing informational materials for newspapers, periodicals, 
billboards, and other similar forms of advertisement, and preparing and 
conducting informational motion pictures, radio and television 
programs.
    (3) Preparing informational booklets, bulletins, and other similar 
forms of advertisement, used in direct mailings.
    (4) Preparing informational window and other displays.
    (5) Employing agencies, selecting media and conducting negotiations 
in connection with the placement and subject matter of information 
programs.
    (c) This account must include the following materials and expenses 
items:
    (1) Use of newspapers, periodicals, billboards, radio, and other 
similar forms of advertisement, for informational purposes.
    (2) Postage on direct mailings to customers exclusive of postage 
related to billings.
    (3) Printing of informational booklets, dodgers, bulletins, and 
other similar items.
    (4) Supplies and expenses in preparing informational materials for 
the associate utility company.
    (5) Office supplies and expenses.
    (d) Exclude from this account and charge to account 930.2, 
Miscellaneous general expenses, the cost of publication of stockholder 
reports, dividend notices, bond redemption notices, financial 
statements, and other notices of a general corporate character. Also 
exclude all expenses of a promotional, institutional, goodwill or 
political nature, that are included in accounts 913, Advertising 
expenses (Sec.  367.9130), 930.1, General advertising expenses (Sec.  
367.9301), and 426.4, Expenditures for certain civic, political, and 
related expenses (Sec.  367.4264).
    (e) Entries relating to informational advertising included in this 
account must contain or refer to supporting documents that identify the 
specific advertising message. If references are used, copies of the 
advertising message must be readily available.


Sec.  367.9100  Account 910, Miscellaneous customer service and 
informational expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in connection with customer service and informational 
activities that are not includible in other customer information 
expense accounts.
    (b) This account must include the following labor items:
    (1) General clerical and stenographic work not assigned to specific 
customer service and informational programs.
    (2) Miscellaneous labor.
    (c) This account must include the following materials and expenses 
items:
    (1) Communication service.
    (2) Printing, postage and office supplies expenses.


Sec.  367.9110  Account 911, Supervision.

    This account must include the cost of labor and expenses incurred 
in the general direction and supervision of sales activities, except 
merchandising. Direct supervision of a specific activity, such as 
demonstrating, selling, or advertising, must be charged to the account 
wherein the costs of such activity are included (See Operating Expense 
Instructions in Sec.  367.80).


Sec.  367.9120  Account 912, Demonstrating and selling expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in promotional, demonstrating, and selling 
activities, except by merchandising, the object of which is to promote 
or retain the business of present and prospective customers of the 
service company and the companies within the holding company system 
that is not recorded in Accounts 416, Costs and expenses of 
merchandising, jobbing and contract work (Sec.  367.4160), or 930.1, 
General advertising expenses for associated companies (Sec.  367.9301).
    (b) This account must include the following labor items:
    (1) Demonstrating uses of services provided by companies within the 
holding company system.
    (2) Conducting cooking schools, preparing recipes, and related home 
service activities.
    (3) Exhibitions, displays, lectures, and other programs to promote 
the services provided by the service company or the companies within 
the holding company system.
    (4) Experimental and development work in connection with new and 
improved appliances and equipment, prior to general public acceptance.
    (5) Solicitation of new customers or of additional business from 
old customers, including commissions paid employees.
    (6) Engineering and technical advice to present or prospective 
customers in connection with promoting or retaining the use of 
services.
    (7) Special customer canvasses when their primary purpose is the 
retention of business or the promotion of new business.
    (c) This account must include the following materials and expenses 
items:
    (1) Supplies and expenses pertaining to demonstration and 
experimental and development activities.
    (2) Booth and temporary space rental.
    (3) Loss in value on equipment and appliances used for 
demonstration purposes.
    (4) Transportation, meals, and incidental expenses.


Sec.  367.9130  Account 913, Advertising expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in advertising designed to promote or retain the use 
of services provided by the service company or the companies within the 
holding company system, except advertising the sale of merchandise.
    (b) This account must include the following labor items:
    (1) Direct supervision of department.

[[Page 65259]]

    (2) Preparing advertising material for newspapers, periodicals, 
billboards, and other similar forms of advertisement, and preparing and 
conducting motion pictures, radio and television programs.
    (3) Preparing booklets, bulletins, and other similar forms of 
advertisement, used in direct mail advertising.
    (4) Preparing window and other displays.
    (5) Clerical and stenographic work.
    (6) Investigating advertising agencies and media and conducting 
negotiations in connection with the placement and subject matter of 
sales advertising.
    (c) This account must include the following materials and expenses 
items:
    (1) Advertising in newspapers, periodicals, billboards, radio, and 
other similar forms of advertisement, for sales promotion purposes, but 
not including institutional or goodwill advertising included in account 
930.1, General advertising expenses (Sec.  367.9301).
    (2) Materials and services given as prizes or otherwise in 
connection with civic lighting contests, canning, or cooking contests, 
bazaars, and other similar materials and services, in order to 
publicize and promote the use of utility services.
    (3) Fees and expenses of advertising agencies and commercial 
artists.
    (4) Novelties for general distribution.
    (5) Postage on direct mail advertising.
    (6) Premiums distributed generally, such as recipe books, and other 
similar items, when not offered as inducement to purchase appliances.
    (7) Printing booklets, dodgers, bulletins, and other similar forms 
of advertisement.
    (8) Supplies and expenses in preparing advertising material.
    (9) Office supplies and expenses.
    (d) The cost of advertisements which set forth the value or 
advantages of offered services without reference to specific appliances 
or the promotion of appliances must be considered sales promotion 
advertising and charged to this account. However, advertisements that 
are limited to specific makes of appliances sold by any company and 
prices, terms, and other similar items, without referring to the value 
or advantages of offered services, must be considered as merchandise 
advertising and the cost must be charged to account 416, Costs and 
expenses of merchandising, jobbing and contract work (Sec.  367.4160).
    (e) Advertisements that substantially mention or refer to the value 
or advantages of offered services, together with specific reference to 
makes of appliances sold by any company and the price, terms, and other 
similar items, and designed for the joint purpose of increasing the use 
of offered services and the sales of appliances, must be considered as 
a combination advertisement and the costs must be distributed between 
this account and account 416 (Sec.  367.4160) on the basis of space, 
time, or other proportional factors.
    (f) Exclude from this account and charge to account 930.2, 
Miscellaneous general expenses (Sec.  367.9302), the cost of 
publication of stockholder reports, dividend notices, bond redemption 
notices, financial statements, and other notices of a general corporate 
character. Exclude also all institutional or goodwill advertising (See 
account 930.1, General advertising expenses (Sec.  367.9301)).


Sec.  367.9160  Account 916, Miscellaneous sales expenses.

    (a) This account must include the cost of labor, materials used and 
expenses incurred in connection with sales activities, except 
merchandising, which are not includible in other sales expense 
accounts.
    (b) This account must include the following labor items:
    (1) General clerical and stenographic work not assigned to specific 
functions.
    (2) Special analysis of customer accounts and other statistical 
work for sales purposes not a part of the regular customer accounting 
and billing routine.
    (3) Miscellaneous labor.
    (c) This account must include the following materials and expenses 
items:
    (1) Communication service.
    (2) Printing, postage, and office supplies and expenses applicable 
to sales activities, except those chargeable to account 913, 
Advertising expenses (Sec.  367.9130).


Sec.  367.9200  Account 920, Administrative and general salaries.

    (a) This account must include salaries, wages, bonuses and other 
consideration for services, with the exception of director's fees paid 
directly to officers and employees of the service company.
    (b) This account must be supported by time records and 
appropriately referenced to detailed records subdividing salaries and 
wages by departments or other functional organization units.


Sec.  367.9210  Account 921, Office supplies and expenses.

    (a) This account must include office supplies and expenses incurred 
in connection with the general administration of service company 
operations assignable to specific administrative or general departments 
and not specifically provided for in other accounts. This includes the 
expenses of the various administrative and general departments, the 
salaries and wages of which are included in account 920, Administrative 
and general salaries (Sec.  367.9200).
    (b) This account may be subdivided in accordance with a 
classification appropriate to the departmental or other functional 
organization of the service company. The following items must be 
included in this account:
    (1) Automobile service, including charges through clearing account.
    (2) Bank messenger and service charges.
    (3) Books, periodicals, bulletins and subscriptions to newspapers, 
newsletters, tax service, and other similar items.
    (4) Building service expenses for customer accounts, sales, and 
administrative and general purposes.
    (5) Communication service expenses to include telephone, telegraph, 
wire transfer, micro-wave, and other similar items.
    (6) Cost of individual items of office equipment used by general 
departments which are of small value or short life.
    (7) Membership fees and dues in trade, technical, and professional 
associations paid by a utility for employees. (Company memberships must 
be included in account 930.2 in Sec.  367.9302.)
    (8) Office supplies and expenses.
    (9) Payment of court costs, witness fees, and other expenses of 
legal department.
    (10) Postage, printing and stationery.
    (11) Meals, traveling, entertainment and incidental expenses.
    (c) Records must be so maintained to permit ready analysis by item 
showing the nature of the expense and identity of the person furnishing 
the service.


Sec.  367.9230  Account 923, Outside services employed.

    (a) This account must include the fees and expenses of professional 
consultants and others for general services with the exception of fees 
and expenses for outside services of account 928, Regulatory commission 
expenses (Sec.  367.9280), and account 930.1, General advertising 
expenses (Sec.  367.9301). Separate subaccounts must be provided for 
auditing, legal, engineering, management consulting fees and any other 
fees for professional or outside services.
    (b) Records must be maintained so as to permit ready analysis 
showing the nature of service, identity of the person furnishing the 
service, affiliation to the service company, and, if allocated to

[[Page 65260]]

more than one company, the specific method of allocation.


Sec.  367.9240  Account 924, Property insurance.

    (a) This account must include the cost of insurance or reserve 
accruals to protect the service company against losses and damages to 
owned or leased property used in service company operations. It also 
must include the cost of labor and related supplies and expenses 
incurred in property insurance activities.
    (b) Recoveries from insurance companies or others for property 
damages must be credited to the account charged with the cost of the 
damage. If the damaged property has been retired, the credit must be to 
the appropriate account for accumulated provision for depreciation.
    (c) Records must be kept so as to show the amount of coverage for 
each class of insurance carried, the property covered, and the 
applicable premiums. Any dividends distributed by mutual insurance 
companies must be credited to the accounts to which the insurance 
premiums were charged. The following items must be included in this 
account:
    (1) Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    (2) Special costs incurred in procuring insurance.
    (3) Insurance inspection service.
    (4) Insurance counsel, brokerage fees, and expenses.
    (d) The cost of insurance or reserve accruals capitalized must be 
charged to construction either directly or by transfer to construction 
projects from this account.
    (e) The cost of insurance or reserve accruals for the following 
classes of property must be charged as indicated.
    (1) Materials and supplies and stores equipment, to account 163, 
Stores expense undistributed (Sec.  367.1630), or appropriate materials 
account.
    (2) Transportation and other general equipment to appropriate 
clearing accounts that may be maintained.
    (3) Merchandise and jobbing property, to account 416, Costs and 
expenses of merchandising, jobbing and contract work (Sec.  367.4160).
    (f) The cost of labor and related supplies and expenses of 
administrative and general employees who are only incidentally engaged 
in property insurance work may be included in accounts 920 and 921 
(Sec. Sec.  367.9200 and 367.9210), as appropriate.


Sec.  367.9250  Account 925, Injuries and damages.

    (a) This account must include the cost of insurance or reserve 
accruals to protect the service company against injuries and damages 
claims of employees or others, losses of such character not covered by 
insurance, and expenses incurred in settlement of injuries and damages 
claims. It also must include the cost of labor and related supplies and 
expenses incurred in injuries and damages activities.
    (b) Reimbursements from insurance companies or others for expenses 
charged to this account because of injuries and damages and insurance 
dividends or refunds must be credited to this account. The following 
items must be included in this account:
    (1) Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, and other 
similar items.
    (2) Losses not covered by insurance or reserve accruals on account 
of injuries or deaths to employees or others and damages to the 
property of others.
    (3) Fees and expenses of claim investigators.
    (4) Payment of awards to claimants for court costs and attorneys' 
services.
    (5) Medical and hospital service and expenses for employees as the 
result of occupational injuries, or resulting from claims of others.
    (6) Compensation payments under workmen's compensation laws.
    (7) Compensation paid while incapacitated as the result of 
occupational injuries (See paragraph (c) of this section).
    (8) Cost of safety, accident prevention and similar educational 
activities.
    (c) Payments to or on behalf of employees for accident or death 
benefits, hospital expenses, medical supplies or for salaries while 
incapacitated for service or on leave of absence beyond periods 
normally allowed, when not the result of occupational injuries, must be 
charged to account 926, Employee pensions and benefits (Sec.  367.9260) 
(See also paragraph (e) of account 926 (Sec.  367.9260)).
    (d) The cost of injuries and damages or reserve accruals 
capitalized must be charged to construction directly or by transfer to 
construction projects from this account.
    (e) Exclude the time and expenses of employees (except those 
engaged in injuries and damages activities) spent in attendance at 
safety and accident prevention educational meetings, if occurring 
during the regular work period.
    (f) The cost of labor and related supplies and expenses of 
administrative and general employees who are only incidentally engaged 
in injuries and damages activities may be included in accounts 920 and 
921 (Sec. Sec.  367.9200 and 367.9210), as appropriate.


Sec.  367.9260  Account 926, Employee pensions and benefits.

    (a) This account must include pensions paid to, or on behalf of, 
retired employees, or accruals to provide for pensions, or payments for 
the purchase of annuities for this purpose, when the service company 
has definitely, by contract, committed itself to a pension plan under 
which the pension funds are irrevocably devoted to pension purposes, 
and payments for employee accident, sickness, hospital, and death 
benefits, or insurance related to this account. Include, also, expenses 
incurred in medical, educational or recreational activities for the 
benefit of employees, and administrative expenses in connection with 
employee pensions and benefits.
    (b) The service company must maintain a complete record of accruals 
or payments for pensions and be prepared to furnish full information to 
the Commission of the plan under which it has created or proposes to 
create a pension fund and a copy of the declaration of trust or 
resolution under which the pension plan is established.
    (c) Records in support of this account must be kept so that the 
total pensions expense, the total benefits expense, the administrative 
expenses included in this account, and the amounts of pensions and 
benefits expenses transferred to construction or other accounts will be 
readily available. The following items must be included in this 
account:
    (1) Payment of pensions under a non-accrual or non-funded basis.
    (2) Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    (3) Group and life insurance premiums (credit dividends received).
    (4) Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    (5) Payments for accident, sickness, hospital, and death benefits 
or insurance.
    (6) Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed, when not the result of 
occupational injuries, or in excess of statutory awards.

[[Page 65261]]

    (7) Expenses in connection with educational and recreational 
activities for the benefit of employees.
    (d) The cost of labor and related supplies and expenses of 
administrative and general employees who are only incidentally engaged 
in employee pension and benefit activities may be included in accounts 
920 and 921 (Sec. Sec.  367.9200 and 367.9210), as appropriate.
    (e) Salaries paid to employees during periods of non-occupational 
sickness may be charged to the appropriate labor account rather than to 
employee benefits.


Sec.  367.9280  Account 928, Regulatory commission expenses.

    (a) This account must include all expenses, properly included in 
service company operating expenses, incurred by the service company in 
connection with formal cases before regulatory commissions, or other 
regulatory bodies, on its own behalf or on behalf of associate 
companies, including payments made to a regulatory commission for fees 
assessed to the service company for pay and expenses of such 
commission, its officers, agents and employees, and for filings or 
reports made under regulations of regulatory commissions. The service 
company must be prepared to show the cost of each formal case. The 
following items must be included in this account:
    (1) Salaries, fees, retainers, and expenses of counsel, solicitors, 
attorneys, accountants, engineers, clerks, attendants, witnesses, and 
others engaged in the prosecution of, or defense against petitions or 
complaints presented to regulatory bodies.
    (2) Office supplies and expenses, payments to public service or 
other regulatory commissions, stationery and printing, traveling 
expenses, and other expenses incurred directly in connection with 
formal cases before regulatory commissions.
    (b) Exclude from this account and include in other appropriate 
operating expense accounts, expenses incurred in the improvement of 
service, additional inspection, or rendering reports, which are made 
necessary by the rules and regulations, or orders, of regulatory 
bodies.


Sec.  367.9301  Account 930.1, General advertising expenses for 
associated companies.

    (a) This account must include the cost of labor, materials used, 
and expenses incurred in advertising and related activities, the cost 
of which by their content and purpose are not provided for elsewhere.
    (b) This account must include the following labor items:
    (1) Supervision.
    (2) Preparing advertising material for newspapers, periodicals, 
billboards, and other similar items, and preparing or conducting motion 
pictures, radio and television programs.
    (3) Preparing booklets, bulletins, and other similar forms of 
advertisement, used in direct mail advertising.
    (4) Preparing window and other displays.
    (5) Clerical and stenographic work.
    (6) Investigating and employing advertising agencies, selecting 
media and conducting negotiations in connection with the placement and 
subject matter of advertising.
    (c) This account must include the following materials and expenses 
items:
    (1) Advertising in newspapers, periodicals, billboards, radio, and 
other similar forms of advertisement.
    (2) Advertising matter such as posters, bulletins, booklets, and 
related items.
    (3) Fees and expenses of advertising agencies and commercial 
artists.
    (4) Postage and direct mail advertising.
    (5) Printing of booklets, dodgers, bulletins, and other related 
items.
    (6) Supplies and expenses in preparing advertising materials.
    (7) Office supplies and expenses.
    (d) Properly includible in this account is the cost of advertising 
activities on a local or national basis of a good will or institutional 
nature, which is primarily designed to improve the image of the 
associate utility company or the industry, including advertisements 
which inform the public concerning matters affecting the associate 
utility company's operations, such as, the cost of providing service, 
the associate utility company's efforts to improve the quality of 
service, the company's efforts to improve and protect the environment, 
and other similar forms of advertisement. Entries relating to 
advertising included in this account must contain or refer to 
supporting documents which identify the specific advertising message. 
If references are used, copies of the advertising message must be 
readily available.
    (e) Exclude from this account and include in account 426.4, 
Expenditures for certain civic, political and related activities (Sec.  
367.4264), expenses for advertising activities that are designed to 
solicit public support or the support of public officials in matters of 
a political nature.


Sec.  367.9302  Account 930.2, Miscellaneous general expenses.

    (a) This account must include the cost of expenses incurred in 
connection with the general management of the service company not 
provided for elsewhere.
    (b) This account must include labor items including miscellaneous 
labor not elsewhere provided for.
    (c) This account must include the following expenses items:
    (1) Industry association dues for company memberships.
    (2) Contributions for conventions and meetings of the industry.
    (3) Research, development, and demonstration expenses not charged 
to other operation and maintenance expense accounts on a functional 
basis.
    (4) Communication service not chargeable to other accounts.
    (5) Trustee, registrar, and transfer agent fees and expenses.
    (6) Stockholders meeting expenses.
    (7) Dividend and other financial notices.
    (8) Printing and mailing dividend checks.
    (9) Directors' fees and expenses.
    (10) Publishing and distributing annual reports to stockholders.
    (11) Public notices of financial, operating and other data required 
by regulatory statutes, not including, however, notices required in 
connection with security issues or acquisitions of property.
    (d) Records must be maintained so as to permit ready analysis by 
item showing the nature of the expense and identity of the person 
furnishing the service.


Sec.  367.9310  Account 931, Rents.

    This account must include rents, including taxes, paid for the 
property of others used, occupied or operated in connection with 
service company functions. Provide subaccounts for major groupings such 
as office space, warehouses, other structure, office furniture, 
fixtures, computers, data processing equipment, microwave and 
telecommunication equipment, airplanes, automobiles, and other similar 
groupings of property. The cost, when incurred by the lessee, of 
operating and maintaining leased property, must be charged to the 
accounts appropriate for the expense as if the property were owned.


Sec.  367.9350  Account 935, Maintenance of structures and equipment.

    This account must include materials used and expenses incurred in 
the maintenance of property owned, the cost of which is included in 
accounts 390 through 399 (Sec. Sec.  367.3900 through 367.3990), and of 
property leased from others. Provide subaccounts by major classes of 
structures and equipment, owned and leased.

[[Page 65262]]


0
6. Part 368 is added to subchapter U to read as follows:

PART 368--PRESERVATION OF RECORDS OF HOLDING COMPANIES AND SERVICE 
COMPANIES

Sec.
368.1 Promulgation.
368.2 General instructions.
368.3 Schedule of records and periods of retention.

    Authority: 42 U.S.C. 16451-16463.


Sec.  368.1  Promulgation.

    This part is prescribed and promulgated as the regulations 
governing the preservation of records by any holding company and by any 
service company within a holding company system subject to the 
jurisdiction of the Commission under the Public Utility Holding Company 
Act of 2005 (42 U.S.C. Sec. Sec.  16451 et seq.).


Sec.  368.2  General instructions.

    (a) Scope of this part. (1) The regulations in this part apply to 
all books of account and other records prepared, maintained or held by 
any agent or employee on behalf of the company. The specification in 
the schedule in Sec.  368.3 of a record related to a type of 
transaction includes all documents and correspondence, not redundant or 
duplicative of other records retained, needed to explain or verify the 
transaction.
    (2) Company means a service company or a holding company as defined 
in Sec.  367.1 of this chapter. Public utilities, licensees, and 
natural gas companies must continue to use parts 125 and 225 of this 
chapter.
    (3) Any company subject to this regulation, that, as agent, 
operator, lessor or otherwise, maintains or has possession of any 
records relating to the operation, property or obligations of a public 
utility, licensee, or natural gas company, as defined in the Federal 
Power Act (16 U.S.C. Sec. Sec.  824 et seq.), the Natural Gas Act (15 
U.S.C. Sec. Sec.  717 et seq.), or the laws of any state within which 
the public utility, licensee, or natural gas company operates, must 
comply with the laws or regulations as to record retention and 
destruction which would apply to the records if they were records of 
the public utility, licensee, or natural gas company as codified in 
parts 125 and 225 of this chapter.
    (4) The regulations in this part should not be construed as 
excusing compliance with other lawful requirements of any other 
governmental body, Federal or State, prescribing other record keeping 
requirements or for preservation of records longer than those 
prescribed in this part.
    (5) To the extent that any Commission regulations may provide for a 
different record retention period, the records must be retained for the 
longer of the retention periods.
    (6) Records, other than those listed in the schedule, may be 
destroyed at the option of the company. However, records that are used 
in lieu of those listed must be preserved for the periods prescribed 
for the records used for substantially similar purposes. Additionally, 
retention of records pertaining to added services, functions, plant, 
and other similar service, the establishment of which cannot be 
presently foreseen, must conform to the principles embodied in this 
section.
    (7) Notwithstanding the provisions of the records retention 
schedule in this section, the Commission may, upon the request of the 
company, authorize a shorter period of retention for any record listed 
in the schedule upon a showing by the company that preservation of the 
record for a longer period is not necessary or appropriate, in the 
public interest or for the protection of investors or consumers.
    (b) Designation of supervisory official. Each company subject to 
these record retention regulations must designate one or more officials 
to supervise the preservation or authorized destruction of its records.
    (c) Protection and storage of records. The company must provide 
reasonable protection from damage by fire, flood, and other hazards for 
records required by these record retention regulations to be preserved 
and, in the selection of storage space, safeguard such records from 
unnecessary exposure to deterioration from excessive humidity, dryness, 
or lack of proper ventilation.
    (d) Index of records. At each site or location where company 
records are kept or stored, the records must be arranged, filed, and 
currently indexed so that records may be readily identified and made 
available for inspection by authorized representatives of any 
regulatory agency concerned, including the Commission.
    (e) Record storage media. Each company has the flexibility to 
select its own storage media subject to the following conditions.
    (1) The storage media must have a life expectancy at least equal to 
the applicable record retention period provided in Sec.  368.3 of this 
chapter unless there is a quality transfer from one media to another 
with no loss of data.
    (2) Each company is required to implement internal control 
procedures that assure the reliability of, and ready access to, data 
stored on machine readable media. Internal control procedures must be 
documented by a responsible supervisory official.
    (3) Each transfer of data from one media to another must be 
verified for accuracy and documented. Software and hardware required to 
produce readable records must be retained for the same period the media 
format is used.
    (f) Destruction of records. At the expiration of the retention 
period, the company may use any appropriate method to destroy records. 
Precautions should be taken, however, to macerate or otherwise destroy 
the legibility of records, the content of which is forbidden by law to 
be divulged to unauthorized persons.
    (g) Premature destruction or loss of records. When records are 
destroyed or lost before the expiration of the prescribed period of 
retention, a certified statement listing, as far as may be determined, 
the records destroyed and describing the circumstances of accidental or 
other premature destruction or loss must be filed with the Commission 
within 90 days from the date of discovery of the destruction.
    (h) Schedule of records and periods of retention. The schedule of 
records retention periods constitutes a part of these records retention 
regulations. The schedule prescribes the periods of time that 
designated records must be preserved. Plant records related to public 
utilities and licensees and natural gas companies must be retained in 
accordance with Sec. Sec.  125.3 and 225.3 of this chapter.
    (i) Retention periods designated ``Destroy at option.'' ``Destroy 
at option'' constitutes authorization for destruction of records at 
managements' discretion if the destruction does not conflict with other 
legal retention requirements or usefulness of the records in satisfying 
pending regulatory actions or directives. ``Destroy at option after 
audit'' requires retention until the company has received an opinion 
from its independent accountants with respect to the financial 
statements including the transactions to which the records relate.
    (j) Records of services performed by associate companies. Holding 
companies and service companies must assure the availability of records 
of services performed by and for public utilities and licensees and 
natural gas companies with supporting cost information for the periods 
indicated in Sec. Sec.  125.3 and 225.3 of this chapter as necessary to 
be able to readily furnish detailed information as to the nature of the 
transaction, the amounts involved,

[[Page 65263]]

and the accounts used to record the transactions.
    (k) Rate case. Notwithstanding the minimum retention periods 
provided in these regulations, the company must retain the appropriate 
records to support the costs and adjustments proposed in any rate case.
    (l) Pending complaint litigation or governmental proceedings. 
Notwithstanding the minimum requirements, if a company is involved in 
pending litigation, complaint procedures, proceedings remanded by the 
court, or governmental proceedings, it must retain all relevant 
records.
    (m) Life or mortality study data. Life or mortality study data for 
depreciation purposes must be retained for 25 years or for 10 years 
after property is retired, whichever is longer.


Sec.  368.3  Schedule of records and periods of retention.

              Schedule of Records and Periods of Retention
------------------------------------------------------------------------
        Item No. and description                 Retention period
------------------------------------------------------------------------
                          Corporate and General
------------------------------------------------------------------------
1. Reports to stockholders: Annual       5 years.
 reports or statements to stockholders.
2. Organizational documents:
    (a) Minute books of stockholders,    5 years or termination of the
     directors' and directors'            corporation's existence,
     committee meetings.                  whichever occurs first.
    (b) Title, franchises, and           6 years after final non-
     licenses: Copies of formal orders    appealable order.
     of regulatory commissions served
     upon the company.
        (1) Certificates of              Life of corporation.
         incorporation, or equivalent
         agreements and amendments
         thereto.
        (2) Deeds, leases and other      6 years after property or
         title papers (including          investment is disposed of
         abstracts of title and           unless delivered to
         supporting data), and            transferee.
         contracts and agreements
         related to the acquisition or
         disposition of property or
         investments.
3. Contracts and agreements: Contracts,
 including amendments and agreements
 (except contracts provided for
 elsewhere):
    (a) Service contracts, such as for   All contracts, related
     management, consulting,              memoranda, and revisions
     accounting, legal, financial or      should be retained for 4 years
     engineering services.                after expiration or until the
                                          conclusion of any contract
                                          disputes pertaining to such
                                          contracts, whichever is later.
    (b) Memoranda essential to clarify   For same period as contract to
     or explain provisions of contracts   which they relate.
     and agreements.
    (c) Card or book records of          For the same periods as
     contracts, leases, and agreements    contracts to which they
     made, showing dates of expirations   relate.
     and of renewals, memoranda of
     receipts, and payments under such
     contracts.
    (d) Contracts and other agreements   All contracts, related
     relating to services performed in    memoranda, and revisions
     connection with construction of      should be retained for 4 years
     property (including contracts for    after expiration or until the
     the construction of property by      conclusion of any contract
     others for the company and for       disputes or governmental
     supervision and engineering          proceedings pertaining to such
     relating to construction work).      contracts, whichever is later.
4. Accountants' and auditors' reports:
    (a) Reports of examinations and      5 years after the date of the
     audits by accountants and auditors   report.
     not in the regular employ of the
     company (such as reports of public
     accounting firms and commission
     accountants).
    (b) Internal audit reports and       5 years after the date of the
     working papers.                      report.
------------------------------------------------------------------------
                    Information Technology Management
------------------------------------------------------------------------
5. Automatic data processing records     Retain as long as it represents
 (retain original source data used as     an active viable program or
 input for data processing and data       for periods prescribed for
 processing report printouts for the      related output data, whichever
 applicable periods prescribed            is shorter.
 elsewhere in the schedule): Software
 program documentation and revisions
 thereto.
------------------------------------------------------------------------
                       General Accounting Records
------------------------------------------------------------------------
6. General and subsidiary ledgers:
    (a) Ledgers:
        (1) General ledgers............  10 years.
        (2) Ledgers subsidiary or        10 years.
         auxiliary to general ledgers
         except ledgers provided for
         elsewhere.
    (b) Indexes:
        (1) Indexes to general ledgers.  10 years.
        (2) Indexes to subsidiary        10 years.
         ledgers except ledgers
         provided for elsewhere.
    (c) Trial balance sheets of general  2 years
     and subsidiary ledgers.
7. Journals: General and subsidiary....  10 years.
8. Journal vouchers and journal entries
 including supporting detail:
    (a) Journal vouchers and journal     10 years.
     entries.
    (b) Analyses, summarization,
     distributions, and other
     computations which support journal
     vouchers and journal entries:
        (1) Charging property accounts.  25 years. See Sec.  Sec.
                                          125.2(g) and 225.2(g) of this
                                          chapter for public utilities
                                          and licensees and natural gas
                                          companies.
        (2) Charging all other accounts  6 years.

[[Page 65264]]

 
9. Cash books: General and subsidiary    5 years after close of fiscal
 or auxiliary books.                      year.
10. Voucher registers: Voucher           5 years. See Sec.  Sec.
 registers or similar records when used   125.2(g) and 225.2(g) of this
 as a source document.                    chapter for public utilities
                                          and licensees and natural gas
                                          companies.
11. Vouchers:
    (a) Paid and canceled vouchers (one  5 years. See Sec.  Sec.
     copy-analysis sheets showing         125.2(g) and 225.2(g) of this
     detailed distribution of charges     chapter for public utilities
     on individual vouchers and other     and licensees and natural gas
     supporting papers.                   companies.
    (b) Original bills and invoices for  5 years. See Sec.  Sec.
     materials, services, etc., paid by   125.2(g) and 225.2(g) of this
     vouchers.                            chapter for public utilities
                                          and licensees and natural gas
                                          companies.
    (c) Paid checks and receipts for     5 years.
     payments of specific vouchers.
    (d) Authorization for the payment    5 years. See Sec.  Sec.
     of specific vouchers.                125.2(g) and 225.2(g) of this
                                          chapter for public utilities
                                          and licensees and natural gas
                                          companies.
    (e) Lists of unaudited bills         Destroy at option.
     (accounts payable), list of
     vouchers transmitted, and
     memoranda regarding changes in
     audited bills.
    (f) Voucher indexes................  Destroy at option.
    (g) Purchases and stores records     5 years.
     related to disbursement vouchers.
------------------------------------------------------------------------
                                Insurance
------------------------------------------------------------------------
12. Insurance records:
    (a) Records of insurance policies    Destroy at option after
     in force, showing coverage,          expiration of such policies.
     premiums paid, and expiration
     dates.
    (b) Records of amounts recovered     6 years. See Sec.  Sec.
     from insurance companies in          125.2(g) and 225.2(g) of this
     connection with losses and of        chapter for public utilities
     claims against insurance             and licensees and natural gas
     companies, including reports of      companies.
     losses, and supporting papers.
    (c) Records of self-insurance
     against:
        (1) losses from fire and         6 years after date of last
         casualty,.                       accounting entry with respect
                                          thereto.
        (2) damage to property of        6 years after date of last
         others, and.                     accounting entry with respect
                                          thereto.
        (3) personal injuries..........  6 years after date of last
                                          accounting entry with respect
                                          thereto.
    (d) Inspectors' reports and reports  Destroy when superseded.
     of condition of property.
------------------------------------------------------------------------
                               Maintenance
------------------------------------------------------------------------
13. Maintenance project and work
 orders:
    (a) Authorizations for expenditures  5 years.
     for maintenance work to be covered
     by project or work orders,
     including memoranda showing the
     estimates of costs to be incurred.
    (b) Project or work order sheets to  5 years.
     which are posted in detail the
     entries for labor, material, and
     other charges in connection with
     maintenance, and other work
     pertaining to company operations.
    (c) Summaries of expenditures on     5 years.
     maintenance and job orders and
     clearances to operating other
     accounts (exclusive of property
     accounts).
����������������������������������������
                 Property, Depreciation and Investments
------------------------------------------------------------------------
14. Property records, excluding
 documents included in Item 2(a)(2):
    (a) Ledgers of property accounts     25 years. See Sec.  Sec.
     including land and other detailed    125.2(g) and 225.2(g) of this
     ledgers showing the cost of          chapter for public utilities
     property by classes.                 and licensees and natural gas
                                          companies.
    (b) Continuing property inventory    25 years. See Sec.  Sec.
     ledger, book or card records         125.2(g) and 225.2(g) of this
     showing description, location,       chapter for public utilities
     quantities, cost, etc., of           and licensees and natural gas
     physical units (or items) of         companies.
     property owned.
    (c) Operating equipment records....  3 years after disposition,
                                          termination of lease, or write-
                                          off of property or investment.
    (d) Office furniture and equipment   3 years after disposition,
     records.                             termination of lease or write-
                                          off of property or investment.
    (e) Automobiles, other vehicles and  3 years after disposition,
     related garage equipment records.    termination of lease or write-
                                          off of property or investment.
    (f) Aircraft and airport equipment   3 years after disposition,
     records.                             termination of lease or write-
                                          off of property or investment.
    (g) Other property records not       3 years after disposition,
     defined elsewhere.                   termination of lease or write-
                                          off of property or investment.
15. Construction work in progress
 ledgers, project or work orders, and
 supplemental records:
    (a) Construction work in progress    5 years after clearance to
     ledgers.                             property account, provided
                                          continuing inventory records
                                          are maintained; otherwise 5
                                          years after property is
                                          retired.
    (b) Project or work orders sheets    5 years after clearance to
     to which are posted in summary       property account, provided
     form or in detail the entries for    continuing inventory records
     labor, materials, and other          are maintained; otherwise 5
     charges for property additions and   years after property is
     the entries closing the project or   retired.
     work orders to property records at
     completion.

[[Page 65265]]

 
    (c) Authorizations for expenditures  5 years after clearance to
     for additions to property,           property account.
     including memoranda showing the
     detailed estimates of cost, and
     the bases therefore (including
     original and revised or subsequent
     authorizations).
    (d) Requisitions and registers of    5 years after clearance to
     authorizations for property          property account.
     expenditures.
    (e) Completion or performance        5 years after clearance to
     reports showing comparison between   property account.
     authorized estimates and actual
     expenditures for property
     additions.
    (f) Analysis or cost reports         5 years after clearance to
     showing quantities of materials      property account.
     used, unit costs, number of man-
     hours etc., in connection with
     completed construction project.
    (g) Records and reports pertaining   Destroy at option.
     to progress of construction work,
     the order in which jobs are to be
     completed, and similar records
     which do not form a basis of
     entries to the accounts.
16. Retirement work in progress
 ledgers, project or work orders, and
 supplemental records:
    (a) Project or work order sheets to  5 years after the property is
     which are posted the entries for     retired.
     removal costs, materials
     recovered, and credits to property
     accounts for cost of property
     retirement.
    (b) Authorizations for retirement    5 years after the property is
     of property, including memoranda     retired.
     showing the basis for
     determination to be retired and
     estimates of salvage and removal
     costs.
    (c) Registers of retirement work...  5 years.
17. Summary sheets, distribution         5 years.
 sheets, reports, statements, and
 papers directly supporting debits and
 credits to property accounts not
 covered by construction or retirement
 project or work orders and their
 supporting records.
18. Appraisals and valuations:
    (a) Appraisals and valuations made   3 years after appraisal.
     by the company of its properties
     or investments or of the
     properties or investments of any
     associated companies. (Includes
     all records essential thereto.).
    (b) Determinations of amounts by
     which properties or investments of
     the company or any of its
     associated companies will be
     either written up or written down
     as a result of:
        (1) Mergers or acquisitions....  10 years after completion of
                                          transaction or as ordered by
                                          the Commission.
        (2) Asset impairments..........  10 years after recognition of
                                          asset impairment.
        (3) Other bases................  10 years after the asset was
                                          written up or down.
19. Production maps, geological maps,    6 years after completion of
 reproductions, including aerial          project or work order.
 photographs, showing the location of
 all facilities the subject matter of
 which falls within the project or work
 orders of the company.
20. Engineering records, drawings,       6 years after completion of
 supporting data to include diagrams,     project or work order.
 profiles, photographs, field-survey
 notes, plot plans, detail drawings,
 and records of engineering studies
 that are part of or performed by the
 company within the project or work
 order system.
21. Records of building space occupied   6 years.
 by various departments of the company.
22. Contracts relating to property:
    (a) Contracts relating to            6 years after property is
     acquisition or sale of property.     retired or sold
    (b) Contracts and other agreements   6 years after property is
     relating to services performed in    retired or sold.
     connection with construction of
     property (including contracts for
     the construction of property by
     others for the company and for
     supervision and engineering
     relating to construction work).
23. Records pertaining to                6 years.
 reclassification of property accounts
 to conform to prescribed systems of
 accounts including supporting papers
 showing the bases for such
 reclassifications.
24. Records of accumulated provisions
 for depreciation and depletion of
 property and amortization of
 intangible property and supporting
 computation of expense:
    (a) Detailed records or analysis     3 years after retirement or
     sheets segregating the accumulated   disposition of property
     depreciation according to the
     classification of property.
    (b) Records reflecting the service   3 years after retirement or
     life of property and the             disposition of property
     percentage of salvage and cost of
     removal for property retired from
     each account for depreciable
     company property.
25. Investment records:
    (a) Records of investment in         3 years after disposition of
     associate companies.                 investment.
    (b) Records of other investments,    3 years after disposition of
     including temporary investments of   investment.
     cash.
------------------------------------------------------------------------

[[Page 65266]]

 
                           Purchase and Stores
------------------------------------------------------------------------
26. Procurement:
    (a) Agreements entered into for the
     acquisition of goods or the
     performance of services. Includes
     all forms of agreements such as
     but not limited to: Letters of
     intent, exchange of
     correspondence, master agreements,
     term contracts, rental agreements,
     and the various types of purchase
     orders:
        (1) For goods or services        6 years. See Sec.  Sec.
         relating to property             125.2(g) and 225.2(g) of this
         construction.                    chapter for public utilities
                                          and licensees and natural gas
                                          companies.
        (2) For other goods or services  6 years.
    (b) Supporting documents including   6 years. See Sec.  Sec.
     accepted and unaccepted bids or      125.2(g) and 225.2(g) of this
     proposals (summaries of unaccepted   chapter for public utilities
     bids or proposals may be kept in     and licensees and natural gas
     lieu of originals) evidencing all    companies.
     relevant elements of the
     procurement.
27. Material ledgers: Ledger sheets of   6 years after the date the
 materials and supplies received,         records/ledgers were created.
 issued, and on hand.
28. Materials and supplies received and  6 years. See Sec.  Sec.
 issued: Records showing the detailed     125.2(g) and 225.2(g) of this
 distribution of materials and supplies   chapter for public utilities
 issued during accounting periods.        and licensees and natural gas
                                          companies).
------------------------------------------------------------------------
                           Revenue Accounting
------------------------------------------------------------------------
29. Miscellaneous billing data: Billing  5 years.
 department's copies of contracts with
 customers (other than contracts in
 general files).
30. Revenue summaries: Summaries of      5 years.
 monthly revenues according to classes
 of service. Including summaries of
 forfeited discounts and penalties.
------------------------------------------------------------------------
                                   Tax
------------------------------------------------------------------------
31. Tax records:
    (a) Copies of tax returns and
     supporting schedules filed with
     taxing authorities, supporting
     working papers, records of appeals
     of tax bills, and receipts for
     payment. See Item 11 for vouchers
     evidencing disbursements:
        (1) Income tax returns.........  2 years after final tax
                                          liability is determined.
        (2) Agreements between and       2 years after final tax
         schedule of allocation by        liability is determined.
         associate companies of
         consolidated Federal income
         taxes.
     (b) Other taxes, including State
     or local property or income taxes.
        (1) Property tax returns.......  2 years after final tax
                                          liability is determined.
        (2) Sales and other use taxes..  2 years.
        (3) Other Taxes................  2 years after final tax
                                          liability is determined.
    (c) Filings with taxing authorities  5 years after discontinuance of
     to qualify employee benefit plans.   plan.
    (d) Information returns and reports  3 years after final tax
     to taxing authorities.               liability is determined.
------------------------------------------------------------------------
                                Treasury
------------------------------------------------------------------------
32. Statements of funds and deposits:
    (a) Summaries and periodic           Destroy at option after
     statements of cash balances on       completion of audit by
     hand and with depositories for       independent accountants.
     company or associate.
    (b) Requisitions and receipts for    Destroy at option after funds
     funds furnished associates and       have been returned or
     others.                              accounted for.
    (c) Statements of periodic deposits  Retain records for the most
     with external fund administrators    recent 3 years.
     or trustees.
    (d) Statements of periodic           Retain records for the most
     withdrawals from external fund.      recent 3 years.
33. Records of deposits with banks and
 others:
    (a) Statements from depositories     Destroy at option after
     showing the details of funds         completion of audit by
     received, disbursed, transferred,    independent accountants.
     and balances on deposit, bank
     reconcilement papers and
     statements of interest credits.
    (b) Check stubs, registers, or       6 years.
     other records of checks issued.
------------------------------------------------------------------------
                             Payroll Records
------------------------------------------------------------------------
34. Payroll records:
    (a) Payroll sheets or registers of   6 years.
     payments of salaries and wages,
     pensions and annuities paid by
     company or by contractors of its
     account.
    (b) Records showing the              6 years.
     distribution of salaries and wages
     paid for each payroll period and
     summaries or recapitulations of
     such distribution.
------------------------------------------------------------------------

[[Page 65267]]

 
                              Miscellaneous
------------------------------------------------------------------------
35. Financial, operating and             5 years.
 statistical annual reports regularly
 prepared in the course of business for
 internal administrative or operating
 purposes.
36. Budgets and other forecasts          3 years.
 (prepared for internal administrative
 or operating purposes) of estimated
 future income, receipts and
 expenditures in connection with
 financing, construction and
 operations, including acquisitions and
 disposals of properties or investments.
37. Periodic or special reports filed
 by the company on its own behalf with
 the Commission or with any other
 Federal or State rate-regulatory
 agency, including exhibits or
 amendments to such reports:
    (a) Reports to Federal and State     5 years.
     regulatory commissions including
     annual financial, operating and
     statistical reports.
    (b) Monthly and quarterly reports    5 years.
     of operating revenues, expenses,
     and statistics.
38. Advertising: Copies of               2 years.
 advertisements by or for the company
 on behalf of itself or any associate
 company in newspapers, magazines, and
 other publications, including costs
 and other records relevant thereto
 (excluding advertising of appliances,
 employment opportunities, routine
 notices, and invitations for bids all
 of which may be destroyed at option).
------------------------------------------------------------------------


0
7. Part 369 is added to Subchapter U to read as follows:

PART 369--STATEMENTS AND REPORTS (SCHEDULES)

    Authority: 42 U.S.C. 16451-16463.


Sec.  369.1  FERC Form No. 60, Annual report of centralized service 
company.

    (a) Prescription. The form of annual report for centralized service 
companies, designated as FERC Form No. 60, is prescribed for the 
reporting year 2008 and each subsequent year.
    (b) Filing requirements. (1) Who must file. Unless the holding 
company system is exempted or granted a waiver by Commission rule or 
order pursuant to Sec. Sec.  366.3 and 366.4, every centralized service 
company (See Sec.  367.2 of this chapter) in a holding company system 
must prepare and file electronically with the Commission the FERC Form 
No. 60 then in effect pursuant to the General Instructions set out in 
the form.
    (2) When to file and what to file.
    (i) The annual report for the year ending December 31, 2008 must be 
filed by May 1, 2009. The annual report for each year thereafter must 
be filed by May 1 of the following years.
    (ii) The annual report in effect must be filed with the Commission 
as prescribed in Sec.  385.2011 of this chapter and as indicated in the 
General Instructions set out in the form, and must be properly 
completed and verified. Filing on electronic media pursuant to Sec.  
385.2011 of this chapter is required.

PART 375--THE COMMISSION

0
8. The authority citation for part 375 continues to read as follows:

    Authority: 5 U.S.C. 551-557; 15 U.S.C. 717-717w, 3301-3432; 16 
U.S.C. 791-825r, 2601-2645; 42 U.S.C. 7101-7352; 42 U.S.C. 16451-
16463.


0
9. In Sec.  375.303, paragraphs (c), (d), (e), (f), (g) and (h) are 
revised to read as follows:


Sec.  375.303  Delegations to the Chief Accountant.

* * * * *
    (c) Issue interpretations of the Uniform Systems of Accounts for 
public utilities and licensees, centralized service companies, natural 
gas companies and oil pipeline companies.
    (d) Pass upon any proposed accounting matters submitted by or on 
behalf of jurisdictional companies that require Commission approval 
under the Uniform Systems of Accounts, except that if the proposed 
accounting matters involve unusually large transactions or unique or 
controversial features, the Chief Accountant must present the matters 
to the Commission for consideration.
    (e) Pass upon applications to increase the size or combine property 
units of jurisdictional companies.
    (f) Accept for filing FERC Form No. 60, FERC-61, and Quarterly 
Financial Report Form Nos. 3-Q and 6-Q if such filings are in 
compliance with Commission orders or decisions, and when appropriate, 
notify the party of such acceptance. Issue and sign deficiency letters 
if the filing fails to comply with applicable statutory requirements, 
and with all applicable Commission rules, regulations, and orders for 
which a waiver has not been granted.
    (g) Deny or grant, in whole or in part, requests for waiver of the 
reporting requirements for and requests for extensions of time for the 
filing of the forms under Sec. Sec.  141.400, 260.300, 357.4, 366.23 
and part 369 of this chapter and the filing of these forms on 
electronic media under Sec.  385.2011 of this chapter.
    (h) Deny or grant, in whole or in part, requests for waiver of the 
requirements of parts 352, 356, 367 and 368 of this chapter, except 
that, if the matters involve unusually large transactions or unique or 
controversial features, the Chief Accountant must present the matters 
to the Commission for consideration.
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[FR Doc. 06-9003 Filed 11-6-06; 8:45 am]
BILLING CODE 6717-01-C


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