Opinion ID: 1720100
Heading Depth: 1
Heading Rank: 3

Heading: Accounting for Post Retirement Benefits Other Than Pensions

Text: GSU argues that the commission erred in failing to recognize the accrual method of accounting for post retirement benefits other than pensions, known as OPEBs. GSU contends that since it is now required to account for OPEBs on an accrual basis for financial reporting purposes, it should be allowed to do so for ratemaking purposes. OPEBs have traditionally been accounted for by utilities on a pay-as-you-go basis. Under this method, the payment of OPEBs (such as medical, dental and insurance costs) were recorded as expenses when the utility actually made the payment to the retiree. In 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 106 (SFAS 106) which required utilities to change to the accrual method of accounting for OPEBs for financial reporting purposes. Under this method, utilities were required to accrue and record OPEB expenses during the period of time in which the retiree is providing services to the employer. The amount of expense booked in a given year is based on the present value of an estimate of future post retirement benefits attributable to service provided in that year. In early 1993, the commission conducted an industry-wide investigation to determine whether SFAS 106 should be followed by Louisiana utilities for ratemaking purposes. GSU, along with other utilities, actively participated in this proceeding. Subsequently, the commission issued Order No. U-20181 in which it ordered the utilities to remain on the pay-as-you go accounting methodology for OPEBs for ratemaking purposes. The commission found that the accrual method had numerous negative consequences, since the estimates were speculative. It pointed out that the switch from pay-as-you-go accounting to the accrual method would dramatically affect rates, amounting to more than a $20 million increase in the first year alone for estimates of future costs. It found that continued use of the pay-as-you-go method would not impact the financial strength of the utilities. Although it recognized that the pay-as-you-go method may have a negative impact on the utilities' book earnings, it stated that the utilities may apply to the Commission for approval of the use of a regulatory asset to bridge the gap between ratemaking and accounting, to be amortized on a pay-as-you-go basis to alleviate the negative impact on the utilities' book earnings. In the instant proceeding, GSU asked the commission to reconsider its decision in Order No. U-20181. It presented the testimony of its expert witness, Kenneth F. Gallagher, who testified that the use of the pay-as-you-go treatment for ratemaking purposes has caused GSU to suffer a reduction of earnings for financial reporting purposes. He indicated that SFAS 106 had been adopted by a number of regulatory agencies around the country. In order to alleviate concerns about the reliability of estimates, he testified that GSU was prepared to deposit amounts for OPEBs into an external trust fund and dedicate these funds to payment of future OPEB costs. The commission's consultant, Lane Kollen, recommended that the commission continue the pay-as-you-go method ordered in the previous proceeding. The commission adopted this recommendation: Notwithstanding the action that may have been taken by other commissions, the Louisiana Commission has already resolved the treatment to be afforded to OPEB expenses. The Commission conducted an extensive investigation into the SFAS No. 106 issue in Docket No. U-20181. The docket was conducted as a generic docket in order to avoid litigating the issue repeatedly for each utility within the Commission's jurisdiction. The Company did not appeal Order No. U-20181. Mr. Gallagher acknowledged that he presented in Docket U-20181 the same arguments that he presented here. Neither GSU nor Mr. Gallagher present any arguments that were not already addressed in the generic docket. Consistent with Order No. U-20181 the Commission adopts Mr. Kollen's adjustment. GSU argues that the commission acted in an arbitrary and capricious manner in failing to reconsider its position on recognizing the accrual method of accounting for OPEBs. We find no merit to this argument. A review of Order No. U-20181 shows that the commission extensively considered the same arguments now raised by GSU and rejected them, based on concerns that the accrual method was speculative and would adversely affect rates. The commission recognized that the use of the pay-as-you-go method may have a negative impact on the utilities' book earnings, but suggested a method to alleviate this problem. Based on these findings, we are unable to conclude the commission was arbitrary and capricious in failing to reconsider its position on recognizing the accrual method of accounting for OPEBs.