| (II) the filing date of the commission order in which
the ratemaking rate base is first approved by the commission as part
of the rate base set in a base rate proceeding.
(iii) For book and ratemaking purposes, depreciation
on any post-acquisition improvement to the ratemaking rate base will
be deferred and considered in the utility's next base rate proceeding.
(iv) Transaction and closing costs associated with
the acquisition will be reviewed in the acquiring utility's first
base rate proceeding after the transaction has been concluded.
(B) Original cost, less accumulated depreciation, of
utility plant, property, and equipment used by and useful to the utility
in providing service.
(C) Original cost, less net salvage and accumulated
depreciation at the date of retirement, of depreciable utility plant,
property and equipment retired by the utility.
(i) For original cost under this subparagraph or subparagraph
(B) of this paragraph, the commission may adjust rate base and the
rate of return on equity associated with the cost of plant and equipment
that has been estimated by trending studies or other methods not based
on or verified by historical records.
(ii) Original cost in this subparagraph or subparagraph
(B) of this paragraph is the actual money cost, or the actual money
value of any consideration paid other than money, of the property
at the time it was dedicated to public use, whether by the utility
that is the current owner or by a predecessor. Assets may be booked
in itemized or group accounting, but all accounting for assets and
their retirements must be supported by an approved accounting system.
(iii) On all assets retired from service, the original
cost of an asset must be the book cost less net salvage value. If
a utility calculates annual depreciation expense for an asset with
allowance for salvage value, then it must account for the actual salvage
amounts when the asset is actually retired. The utility must include
the actual salvage calculation in its net plant calculation in the
first full rate change application, excluding alternative rate method
applications as described in §24.75 of this title, relating to
Alternative Rate Methods, it files after the date on which the asset
was removed from service, even if it was not retired during the test
year. Recovery of investment on assets retired from service before
the estimated useful life or remaining life of the asset must be combined
with over-accrual of depreciation expense for those assets retired
after the estimated useful life or remaining life and the net amount
must be amortized over a reasonable period of time taking into account
prudent regulatory principles.
(iv) Accelerated depreciation is not allowed.
(v) For a utility that uses group accounting, all mortality
characteristics, both life and net salvage, must be supported by an
engineering or economic based depreciation study for which the test
year for the depreciation is no more than five years old in comparison
to the rate case test year. The engineering or economic based depreciation
study must include:
(I) investment by homogenous category;
(II) expected level of gross salvage by category;
(III) expected cost of removal by category;
(IV) the accumulated provision for depreciation as
appropriately reflected on the company's books by category;
(V) the average service life by category;
(VI) the remaining life by category;
(VII) the Iowa Dispersion Pattern by category; and
(VIII) a detailed narrative identifying the specific
factors, data, criteria and assumptions that were employed to arrive
at the specific mortality proposal for each homogenous group of property.
(vi) Reserve for depreciation under this subparagraph
or subparagraph (B) of this paragraph is the accumulation of recognized
allocations of original cost, representing recovery of initial investment,
over the estimated useful life or remaining life of the asset. Depreciation
must be computed on a straight-line basis over the expected useful
life or remaining life of the item or facility regardless of whether
the salvage value is zero or not zero.
(I) If individual accounting is used, the following
requirements apply to retirements:
(-a-) Accumulated depreciation must be calculated based
on book cost less net salvage value of the asset.
(-b-) The utility must provide evidence establishing
the original cost of the asset, the cost of removal, salvage value,
any other amounts recovered; the useful life of the asset, or remaining
life as may be appropriate; the date the asset was taken out of service;
and the accumulated depreciation up to the date it was taken out of
service.
(-c-) The utility must show that it used due diligence
in recovering maximum salvage value of a retired asset.
(-d-) The utility must continue booking depreciation
expense until the asset is actually retired, and the reserve for depreciation
must include any additional depreciation expense accrued past the
estimated useful or remaining life of the asset.
(-e-) The retirement of a plant asset from service
is accounted for by crediting the book cost to the utility plant account
in which it is included. Accumulated depreciation must also be debited
with the original cost and the cost of removal and credited with the
salvage value and any other amounts recovered.
(-f-) Retired assets must be specifically identified.
(-g-) The requirements relating to the accounting for
the reasonableness of retirement decisions for individual assets and
the net salvage value calculations for individual assets apply only
to a utility using itemized accounting.
(II) For a utility that uses group accounting, the
depreciation study must provide the information in subclause (I) except
that retirements may be accounted for by category. Retired assets
must be reported for the asset group in depreciation studies.
(III) TWC §13.185(e) applies to utility business
transactions with affiliated interests involved in the retirement,
removal, or recovery of assets.
(IV) For assets retired after June 19, 2009, the retired
assets must be included in the utility's first application for a rate
change after the date the asset was retired and must be specifically
identified if the utility uses itemized accounting.
(vii) the original cost of plant, property, and equipment
acquired from an affiliated interest may not be included in invested
capital except as provided in TWC §13.185(e);
(viii) utility property funded by written customer
agreements or customer contributions in aid of construction such as
surcharges must not be included in original cost or invested capital.
(D) Working capital allowance to be composed of, but
not limited to the following:
(i) reasonable inventories of materials and supplies
held specifically for purposes of permitting efficient operation of
the utility in providing normal utility service.
(ii) reasonable prepayments for operating expenses.
Prepayments to affiliated interests are subject to the standards set
forth in TWC §13.185(e); and
(iii) a reasonable allowance for cash working capital.
The following will apply in determining the amount to be included
in invested capital for cash working capital:
(I) Cash working capital for utilities must not exceed
one-eighth of total annual operations and maintenance expense, excluding
amounts charged to operations and maintenance expense for materials,
supplies, fuel, and prepayments.
(II) For Class C and Class D utilities, one-eighth
of operations and maintenance expense excluding amounts charged to
operations and maintenance expense for materials, supplies, expenses
recovered through a pass-through provision or through charges other
than base rate and gallonage charges, and prepayments will be considered
a reasonable allowance for cash working capital.
(III) For Class B utilities, one-twelfth of operations
and maintenance expense excluding amounts charged to operations and
maintenance expense for materials, supplies, expenses recovered through
a pass-through provision or charges other than base rate and gallonage
charges, and prepayments will be considered a reasonable allowance
for cash working capital.
(IV) For Class A utilities, a reasonable allowance
for cash working capital, including a request of zero, will be determined
by the use of a lead-lag study. A lead-lag study will be performed
in accordance with the following criteria:
(-a-) The lead-lag study will use the cash method.
All non-cash items, including but not limited to depreciation, amortization,
deferred taxes, prepaid items, and return, including interest on long-term
debt and dividends on preferred stock, will not be considered.
Cont'd... |
