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Accounting for Postretirement Benefits Other than Pensions
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
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