FEDERAL ENERGY REGULATORY COMMISSION

Washington, D.C. 20426

In Reply Refer To:

Office of Enforcement

Docket No. AI18-1-000

December 28, 2017

TO ALL JURISDICTIONAL PUBLIC UTILITIES AND LICENSEES, NATURAL 

GAS COMPANIES, OIL PIPELINE COMPANIES AND CENTRALIZED SERVICE 

COMPANIES 

Subject: Accounting and Financial Reporting for Pensions and Post-retirement 

Benefits other than Pensions 

The Financial Accounting Standards Board (FASB) has issued Accounting 

Standards Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic 

Pension Cost and Net Periodic Postretirement Benefit Cost. ASU No. 2017-07 amends 

FASB Accounting Standards Codification (ASC), Topic 715, Compensation – Retirement 

Benefits, to specify how the amount of pension costs and costs for post-retirement 

benefits other than pensions (PBOP) should be presented on the income statement under 

Generally Accepted Accounting Principles (GAAP), and what components of those costs

are eligible for capitalization in assets. The Commission has received a number of 

inquiries from industry regarding clarification of whether and how to apply this ASU for 

purposes of regulatory accounting and reporting to the Commission. Accordingly, this 

accounting issuance is intended to provide clarity and certainty to industry on how they 

should apply the Commission’s accounting and reporting requirements over pension and 

PBOP costs.

Pension and PBOP costs are made up of several components that reflect different 

aspects of an employer’s financial arrangements as well as the cost of benefits earned by

employees. Prior to this ASU, companies typically reported all of these components on 

an aggregate basis, without separating the various components on the financial 

statements. The amendments in this ASU require that an employer report the service cost 

component of pension and PBOP costs with other compensation costs arising from 

services rendered by employees during the period. Additionally, based on this ASU, 

these costs generally fall under a subtotal of income from operations for GAAP financial 

reporting. The other components of pension and PBOP costs are required to be presented 

in the income statement separately from the service cost component and outside a 

subtotal of income from operations. The amendments in this ASU also allow only the 

service cost component to be eligible for capitalization when all of the other normal

criteria for capitalization under GAAP are met. 

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Based on the Commission’s Uniform System of Accounts, Commission 

jurisdictional public utilities and licensees, natural gas companies, and centralized service 

companies recognize pension and PBOP costs in Account 926, Employee Pensions and 

Benefits,1 while oil pipeline companies recognize pension and PBOP costs in Account 

550, Employee Benefits,2 if the pension and PBOP costs are not eligible for 

capitalization. The Commission’s longstanding policy is to view these expenses as part 

of a single line item on the income statement in the Form No. 1, Form No. 1-F, Form No. 

2, Form No. 2-A, Form No. 3-Q, Form No. 6, and Form No. 60 (collectively as FERC 

Forms), and that pension and PBOP costs in their entirety are attributable to the 

calculation of Net Utility Operating Income on the FERC Forms. The pension and PBOP 

expenses are recorded to the respective jurisdictional account without separation of the 

various components making up the pension and PBOP costs. 

Regarding capitalization of pension and PBOP costs when the costs are incurred as 

part of a capital project, the Uniform System of Accounts does not specify whether 

capitalization of pension and PBOP costs should include or exclude the non-service cost 

components that make up the pension and PBOP costs. The instructions to Account 926 

under the Uniform System of Accounts prescribed for public utilities and licensees, 

natural gas companies, and centralized service companies state that there shall be credited 

to this account the portion of pensions and benefits expenses which is charged to 

construction, and that records in support of this account shall be so kept that the amounts 

of pensions and benefits expenses transferred to construction or other accounts will be 

readily available. In practice, companies generally have capitalized both the service cost 

component and non-service cost components of the pension and PBOP costs in the past,

as long as the capitalization of those costs were in compliance with Electric Plant 

Instruction No. 4, Gas Plant Instruction No. 4, or Service Company Property Instruction 

No. 367.52, of the Uniform System of Accounts. The instructions for Account 550 under 

the Uniform System of Accounts prescribed for oil pipeline companies similarly do not 

discuss service or non-service components of pension and PBOP costs to be transferred 

to construction.

 1

 See 18 C.F.R. Part 101, Uniform System of Accounts Prescribed for Public 

Utilities and Licensees Subject to the Provisions of the Federal Power Act; 18 C.F.R. Part 

201, Uniform System of Accounts Prescribed for Natural Gas Companies Subject to the 

Provisions of the Natural Gas Act; and 18 C.F.R. Part 367, Uniform System of Accounts 

for Centralized Service Companies Subject to the Provisions of the Public Utility Holding 

Company Act of 2005.

2

 See 18 C.F.R. Part 352, Uniform System of Accounts Prescribed for the Oil 

Pipeline Companies Subject to the Provisions of the Interstate Commerce Act.

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The focus of the Commission’s accounting regulations is to ensure that the 

Commission and other stakeholders have available to them financial information about 

jurisdictional entities that is useful for the development and monitoring of rates. The 

uniform application of the Commission’s accounting regulations is essential in providing 

comparability and decision-useful information to the Commission and stakeholders to 

reach informed rate decisions and conclusions. Accordingly, the objective of this 

guidance is to provide clarification as to how all jurisdictional entities should account for 

and report pension and PBOP costs, in response to ASU No. 2017-07. 

The guidance is being provided to all jurisdictional entities to ensure proper and 

consistent application of the Commission’s accounting requirements over pension and 

PBOP costs in response to ASU No. 2017-07 for Commission financial reporting

purposes. This guidance is for Commission accounting and reporting purposes only and 

is without prejudice to the ratemaking practice or treatment that should be afforded the 

items addressed herein. 

1. ACCOUNTING FOR PENSION AND PBOP COSTS ON THE INCOME 

STATEMENT

Question: How should jurisdictional entities account for pension and PBOP costs

on the income statement for Commission accounting and reporting purposes?

Response: Jurisdictional public utilities and licensees, natural gas companies, and 

centralized service companies should record pension and PBOP costs in their entirety in 

Account 926, while oil pipeline companies should record pension and PBOP costs in 

their entirety in Account 550, provided the costs are not transferred to construction. 

Pension and PBOP costs are made up of several components: service cost, interest 

cost, actual return on plan assets, gain or loss, amortization of prior service cost or credit, 

and amortization of any transition asset or obligation existing at the date of initial 

application of ASC Subtopic 715-30. Though pension and PBOP costs are computed 

using the aggregate total of these various components, the Commission’s longstanding 

policy is to consider the amount as a singular cost to the employer. This cost is 

calculated based on Statement of Financial Accounting Standards (SFAS) No. 1063 and 

reported as an accrued expense under net income from continuing operations. 

 3

 SFAS No. 106 was superseded for GAAP reporting purposes by ASC Topic 715 

in 2009 when FASB codified all of the former accounting statements into ASC topics, 

but the calculations under both SFAS No. 106 and ASC 715 to arrive at the pension and 

PBOP costs remained the same.

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Accordingly, there is one account designated for pension and PBOP costs under each 

respective Uniform System of Accounts for public utilities and licensees, natural gas 

companies, centralized service, and oil pipeline companies. This accounting is consistent 

with the rate treatment of pension and PBOP costs to most jurisdictional entities with 

cost-of-service rates. While there are some varying rate schemes approved by the 

Commission and other regulatory bodies to calculate recoverable pension and PBOP 

costs in cost-of-service rates, the Commission has determined that a uniform requirement 

for how jurisdictional entities should account for and report pension and PBOP costs are

most conducive to promoting comparability and decision-usefulness of the information.4

 

As such, we will continue to require all jurisdictional entities to recognize pension and 

PBOP costs on the income statement, in its entirety without disaggregation of its various 

components, in the currently existing account designated for pension and PBOP costs

under each respective Uniform System of Accounts. 

 

2. CAPITALIZATION OF PENSION AND PBOP COSTS

Question: Is it appropriate for jurisdictional entities to capitalize pension and 

PBOP costs using the method prescribed under ASU No. 2017-07?

Response: Provided that the pension and PBOP costs are based on appropriate 

labor costs and have a definite relation to construction as required under Electric Plant 

Instruction No. 4, Gas Plant Instruction No. 4, and Service Company Property Instruction 

No. 367.52, jurisdictional entities may continue to capitalize the service cost component 

and non-service cost components of pension and PBOP costs as it has traditionally been 

the widely accepted practice, or they may elect to capitalize only the service cost 

component of pension and PBOP costs, as prescribed by ASU No. 2017-07. Both 

methods are appropriate and are not precluded by the Commission’s accounting 

requirements.

The Commission’s Uniform System of Accounts prescribed for public utilities and 

licensees, natural gas companies, and centralized service companies do not require any 

specific method to determine the components of pension and PBOP costs to be included 

or excluded from capitalization, as long as the capitalization is based on labor costs and 

have a definite relation to construction. The instructions to Account 926 only requires 

that records in support of this account shall be so kept that the amounts of pensions and 

benefits expenses transferred to construction or other accounts will be readily available. 

Additionally, Electric Plant Instruction No. 4, Gas Plant Instruction No. 4, and Service 

 4

 See California Independent System Operator Corporation, 126 FERC ¶ 61,263

(2009), order on reh’g.

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Company Property Instruction No. 367.52 require overhead costs allocated to 

construction and capitalized to have a definite relation to the construction, either based on 

direct charges using employee time tracking or special studies. The Uniform System of 

Accounts prescribed for oil pipeline companies similarly do not discuss the service or 

non-service components of pension and PBOP costs to be included or excluded from 

capitalization.

Because there is no definitive requirement under the Uniform Systems of 

Accounts requiring specific identification of pension and PBOP cost components to be 

capitalized, outside of the requirement for the capitalization to be based on appropriate 

labor costs and to have a definite relation to construction, jurisdictional entities may elect 

to follow the capitalization required under ASU No. 2017-07. It is also acceptable to 

continue capitalizing all of the pension and PBOP costs, as companies have done so prior 

to the issuance of the ASU. Either approach will not conflict with the existing 

requirements under the Uniform System of Accounts, provided that the method of 

capitalization adheres to Electric Plant Instruction No. 4, Gas Plant Instruction No. 4, and 

Service Company Property Instruction No. 367.52.

Question: How should jurisdictional entities account for deferred income taxes 

related to property, plant, and equipment which include capitalized pension and PBOP 

costs, if those amounts of pension and PBOP costs capitalized for regulatory accounting 

and reporting to the Commission differ from the amounts capitalized for GAAP reporting 

purposes?

Response: Jurisdictional entities must account for and report deferred income 

taxes to the Commission based on the temporary differences between the basis of assets 

reported to the Internal Revenue Service (IRS) and the basis of assets reported to the 

Commission. Similarly, the amount of deferred income tax reversals in subsequent 

periods must be based on the difference between the revenues and expenses used for 

reporting to the IRS and the revenues and expenses recognized for reporting to the 

Commission. Balances used in GAAP reporting should not be a factor in determining the 

deferred income tax balances reported to the Commission. Jurisdictional entities must be 

able to reconcile deferred income tax balances reported on the financial statements filed 

with the Commission with the respective asset and liability balances on those same set of 

financial statements.

3. DISCLOSURES AND FUTURE FILINGS TO THE COMMISSION

Question: What are the required disclosures or filings to the Commission related 

to changes made to a jurisdictional entity’s accounting practice in response to ASU No. 

2017-07?

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Response: Jurisdictional entities should disclose any changes in accounting 

practice in response to ASU No. 2017-7 in their respective FERC Forms filed to the 

Commission quarterly and annually, within the Notes to the Financial Statements. 

Disclosures should include potential rate impacts resulting from these changes, including 

the effects on rate base and current period expenses. Jurisdictional entities should also 

make similar disclosures on future rate filings, as applicable. 

Question: What are the required procedures for jurisdictional entities that want to 

change its capitalization policy over pension and PBOP costs after the 2018 reporting 

period?

Response: While either approach to capitalization of pension and PBOP costs as 

discussed herein is acceptable, there is a risk that the approach elected by companies will 

change from one period to the next in order to influence rate outcomes. Accordingly, 

jurisdictional entities are required to be consistent in all future periods using the 

capitalization approach elected after effectuation of ASU No. 2017-07 or during the 2018 

reporting period. They must write in to the Commission for approval if there is any 

change of capitalization policy for pension and PBOP costs in the future. 

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The Commission delegated authority to act on this matter to the Director of the 

Office of Enforcement or his designee under 18 C.F.R. § 375.311 (2017). The Director 

has designated this authority to the Chief Accountant. This letter constitutes final agency 

action. Your company may file a request for rehearing with the Commission within 30 

days of the date of this order under 18 C.F.R. § 385.713 (2017).

Sincerely,

Bryan K. Craig

Chief Accountant and Director

Division of Audits and Accounting

Office of Enforcement

 

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