FEDERAL ENERGY REGULATORY COMMISSION
WASHINGTON D.C. 20426
In Reply Refer To:
Docket No. AI93-4-000
TO ALL JURISDICTIONAL PUBLIC UTILITIES, LICENSEES
AND NATURAL GAS COMPANIES
SUBJECT: ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
INTRODUCTION
The following accounting guidance is provided to public utilities, licensees, and natural gas companies to obtain uniformity in the accounting for and financial reporting of the cost of postretirement benefits other than pensions (PBOP) under the Commission's Uniform Systems of Accounts (UsofA).
In December 1990, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions
(SFAS 106). SFAS 106, essentially finds that PBOP plans are deferred compensation arrangements whereby an employer promises to exchange future benefits for employees' current service. Consistent wit that view, SFAS 106 requires that, for fiscal years beginning after December 15, 1992, employers reflect in current expense an accrual for PBOP during the working lives of the covered employees. SFAS 106, however, encourage earlier application of the standard prior to the issuance of SFAS 106, most employers accounted for PBOP costs on a pay-as-you-go for cash basis.
On December 17, 1992, the FERC issued a Statement of Policy on PBOP premised upon SFAS 106.
The Commission stated that it shall be its policy to recognize as a component of jurisdictional cost-based rates of natural gas pipeline companies and public utilities allowance for prudently incurred PBOP benefits when determined on an accrual basis consistent with the accounting principles of SFAS 106 provided that certain conditions were met.
The Statement of Policy was made effective for all natural gas pipeline companies and public utilities under the jurisdiction of the Commission for fiscal years beginning after December 15, 1992.
The Commission delegated authority to the Chief Accountant under 18 C.F.R. § 375.303 to issue interpretations of the UsofA for public utilities, licensees and natural gas companies and to sign correspondence on behalf of the Commission relating to Annual Report Nos. 1, 1-F, 2, and 2-A. This letter constitutes final agency action. Requests for rehearing by the Commission may be filed within 30 days of the date of issuance of this letter, pursuant to 18 C.F.R. § 385.713.
1. Question: When should an entity subject to the accounting jurisdiction of the FERC adopt the principles of SFAS 106 in its books of account and in financial statements prepared for regulatory purposes (i.e. FERC Form Nos. 1, 1-F, 2, 2-A, etc.)?
Response: A jurisdictional entity shall adopt the provisions of SFAS 106 for FERC accounting and reporting purposes in the same accounting period an through use of the same method (i.e. immediate or delayed recognition of the transition obligation or asset discussed infra) that was used to adopt SFAS 106 in its general purpose financial statements.
2. Question: In the year of adoption, SFAS 106 provides for two options for recognizing the PBOP transition obligation or asset. SFAS 106 permits an entity to either: (1) immediately recognize the transition obligation or asset; or (2) recognize the transition obligation or asset on a delayed basis over the plan participants' future service
periods,
with disclosure of the unrecognized amount. May an entity choose either of the two options permitted by SFAS 106?
Response: Yes. An entity may use either of the options provided in SFAS 106.
3. Question: If an entity elects to implement SFAS 106 by immediately recognizing the transition obligation or asset, how should it recognize the transition obligation or asset in its books of account on a basis that is consistent with the Commission's UsofA?
Response: To the extent that an entity has a regulatory asset or liability resulting from the immediate recognition of the transition obligation or asset, it shall record the amount directly in Account 254, Other Regulatory Liabilities or Account 182.3, Other Regulatory Assets, as appropriate. In the event the recognition of the transition obligation or asset has an effect on net income,
the entity shall report the net income effect of the accounting change as the cumulative effect of a change in accounting principle.
4. Question: What income statement and balance sheet accounts shall an entity use to record the amounts required by SFAS 106?
Response: An entity shall follow the text of Account 926, Employee Pensions and Benefits, to record net periodic PBOP cost, with appropriate recognition of the amount of net periodic PBOP cost applicable to nonutility operations and construction work in progress. The amount of net periodic PBOP cost representing a regulatory asset or liability shall be recorded in Account 182.3, Other Regulatory Assets, or Account 254, Other Regulatory Liabilities.
An entity shall record the PBOP liability in Account 228.3, Accumulated Provision for Pensions and Benefits. In the event an entity's PBOP plan assets do not qualify for offset under SFAS 106, they shall be recorded in Account 128, Other Special Funds.
5. Question: What portion of the annual BPOP cost may be charged to Account 107, Construction Work in Progress?
Response: The amount of the net periodic PBOP costs properly recordable in Account 107 shall be the amount of net periodic PBOP cost determined on a basis consistent with SFAS 106 that has a provable relationship to construction. If an entity immediately recognizes its transition obligation when it adopts SFAS 106, none of the net cost related to the transition obligation at the adoption date is eligible for capitalization as a component of construction.
6. Question: Will an entity be permitted to immediately recognize in income a gain or loss related to either: (1) a settlement of a PBOP obligation; (2) a plan curtailment; or (3) a plan termination?
Response: An entity shall account for these gains or losses consistent with the requirements of Commission Order No. 552 for regulatory assets and liabilities.
7. Question: Paragraph 74 of SFAS 106 requires certain disclosures in an employer's financial statements about its obligation to provide PBOPs and the cost of providing those benefits. What PBOP disclosures should an entity include with financial statements filed with the FERC?
Response: An entity shall include the disclosures required by paragraph 74 of SFAS 106 with any financial statements filed with the FERC.
Russell E. Faudree, Jr.
Chief Accountant