Section 5.0: Power Marketing Administration Financial Reporting, RA 6120.2

Purpose: This section provides an overview of Department of Energy Order RA 6120.2, Power Marketing Administration Financial Reporting, dated September 20, 1979, as modified. This section also identifies areas pertinent to Western’s power repayment activity.

Scope: Western-wide.

Overview: RA 6120.2 establishes financial reporting policies, procedures, and methodology for the PMAs. RA 6120.2 provides definitions, identifies the policy and requirements for routine accounting and preparation of power system financial statements, specifies requirements for power repayment studies, establishes interest rate formula, and provides cost recovery criteria.

Paragraphs 1 through 6 define the purpose, cancellation, scope, references, authority, and policy for the PMA financial reporting. Paragraph 7, Definitions, defines the terms used in RA 6120.2. Public Utilities Specialists endeavor to stay within the parameters of the definitions, as set forth in this paragraph, when preparing rate documentation.

Paragraph 8, The Accounting System, defines the requirements for books of account and identifies those accounting concepts and accounting matters, which are pertinent to PMA practices.

The specific accounting matters defined are interest rates, unpaid or deferred annual expense, and priority of revenue application.

The PMA books of accounts are maintained in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission for public utilities and in accordance with accounting systems approved by the General Accounting Office. The PMAs establish proper cutoff at the beginning and end of accounting periods to ensure that revenues and expenses are not overstated or understated and that expenses are appropriately matched to revenues.

Interest rates to be used in computing interest expense on power investment and deficits are either established by law; or established administratively. For investments made through January 29, 1970, interest rates are established pursuant to paragraph 8 c (1) of RA 6120.2; or for investments made after January 29, 1970, established by paragraph 11 of RA 6120.2.

The basic priority of revenue application to expense is operation and maintenance (O&M), purchase power and wheeling, interest, and principal payments on investment. Section 10.2, Repayment Priority, of this policy guideline addresses the application of revenues in more detail.

Paragraph 9, Financial Statements, defines the requirements for financial statements. Financial statements include, but are not limited to, the following schedules: (1) Statement of Revenues and Expenses or Income Statement; (2) Statement of Assets and Liabilities or Balance Sheet;
(3) Statement of Source and Application of Funds or Statement of Changes in Financial Position; (4) Statement of Changes in Proprietary Capital (this statement may be incorporated in either the Statement of Revenues and Expenses or the Statement of Assets and Liabilities); and (5) the appropriate notes to financial statements. However, a financial statement is not limited to the schedules defined in RA 6120.2. Schedules not listed in paragraph 9 that are incorporated into Western’s financial statements are Plant-in-Service, Construction Work in Progress, Retirement Work in Progress, and Interest Accrued on Investment. Section 11, Financial Guidelines and Interface, of this policy guideline addresses financial statements in more detail.

Paragraph 10 of RA 6120.2, PRSs, identifies general requirements, rate adjustment planning, and PRSs. The PMAs are required to prepare and annually publish a PRS for each project. The PRS contains such items as historic and future data, cost evaluation period (5 years) data, allowable unamortized investment, and repayment periods. They also contain revenue projections, O&M expense forecasts, interest expenses, replacements, and the status of repayment. Section 10, Policies and Procedures for PRSs, of this policy guideline addresses these requirements in more detail. Tabulation showing topic, general policy, and cross-reference follows in Table 3.

Paragraph 11, Interest Rate Formula, sets the interest rate on Federal power investment constructed after September 30, 1983, to the yield rate, except as provided by law.

Paragraph 12, Cost Recovery Criteria, sets guidelines to determine if the current rate(s) for power sales is (are) adequate to repay the project costs. A Current rate yields adequate revenue if revenues are sufficient to recover annually the costs of operating and maintaining the power system, the costs of acquiring power, the costs for transmission services, interest, and the timely payment of Federal investment and other costs. The other costs may include payments to irrigation assistance, basin funds, participating projects, or States.

Table 3