# Financial Accounting, Reporting and Records Retention Requirements Under the Public Utility Holding Company Act of 2005

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URL: https://www.frixlaw.com/law-library/documents/fr%3A06-4043

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** May 16, 2006
- **Citation:** 71 FR 28464

## Text

DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Parts 366, 367, 368, 369 and 375
[Docket No. RM06-11-000]
Financial Accounting, Reporting and Records Retention Requirements Under the Public Utility Holding Company Act of 2005
Issued April 24, 2006.

AGENCY:

Federal Energy Regulatory Commission, DOE.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

In this Notice of Proposed Rulemaking, the Federal Energy Regulatory Commission (Commission) proposes to amend its regulations to further implement the Public Utility Holding Company Act of 2005 (PUHCA 2005). Specifically, the Commission is proposing to add a Uniform System of Accounts for Centralized Service Companies, to add preservation of records requirements for holding companies and service companies, to revise Form No. 60, Annual Report for Centralized Service Companies, to provide for financial reporting consistent with the proposed Uniform System of Accounts and to provide for electronic filing of Form No. 60. These changes are proposed to be made effective January 1, 2007. In addition, the Commission directs staff to hold a technical conference to provide interested entities an opportunity to discuss the proposed regulations.

DATES:

Comments must be filed on or before June 15, 2006.

ADDRESSES:

You may submit comments, identified by Docket No. RM06-11-000, by one of the following methods:

• Agency Web Site:
http://ferc.gov.
Follow the instructions for submitting comments via the eFiling link found in the Comment Procedures Section of the preamble.

• Mail: Commenters unable to file comments electronically must mail or hand deliver an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Office of the Secretary, 888 First Street, NE., Washington, DC 20426. Please refer to the Comment Procedures Section of the preamble for additional information on how to file paper comments.

FOR FURTHER INFORMATION CONTACT:

Rosemary Womack (Technical Information), Division of Audits and Accounting, Office of Market Oversight and Investigation, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426. Telephone: (202) 502-8989. E-mail:
rosemary.womack@ferc.gov.

Julia A. Lake (Legal Information), Office of the General Counsel—Energy Markets, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426. Telephone: (202) 502-8370. E-mail:
julia.lake@ferc.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

1. The Commission proposes to amend its regulations to further implement the Public Utility Holding Company Act of 2005 (PUHCA 2005). The Commission is proposing to add a new Uniform System of Accounts for Centralized Service Companies and new preservation of records requirements as new Parts 367 and 368, respectively, to the Commission's regulations; to add Form No. 60, Annual Report for Centralized Service Companies, as Part 369 to the Commission's regulations; to revise Form No. 60 to provide for financial reporting by centralized service companies,
i.e.
, service companies that are not special purpose companies, consistent with the proposed Uniform System of Accounts; and to provide for electronic filing of Form No. 60. The Commission also is proposing conforming changes to its regulations in Part 366 and corresponding changes to the Chief Accountant's delegations of authority in Part 375 of the Commission's regulations.
1

The Commission proposes to make the revised regulations effective January 1, 2007. In addition, the Commission directs staff to hold a technical conference to provide interested entities an opportunity to discuss the proposed regulations.

1

See
18 CFR Parts 366 and 375.

II. Background

2. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)
2

was signed into law. In relevant part, it repealed the Public Utility Holding Company Act of 1935 (PUHCA 1935)
3

and enacted the Public Utility Holding Company Act of 2005 (PUHCA 2005),
4

which, with one exception not relevant here, became effective on February 8, 2006 (six months from the date of enactment). On December 8, 2005, the Commission issued Order No. 667, adding a new Subchapter U and Part 366 to Title 18 of the
Code of Federal Regulations
to implement PUHCA 2005.
5

2
Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594 (2005).

3
15 U.S.C. 79a
et seq.
(2000).

4
EPAct 2005 at 1261
et seq.

5
Order No. 667, 70 FR 75592 (Dec. 20, 2005), FERC Stats. & Regs.; Regulations and Preambles 2001-2005 ¶ 31,197 (2005),
order on reh'g,
Order No. 667-A, published elsewhere in this issue of the
Federal Register
, FERC Stats. & Regs. ¶ 31,213 (2006).

3. Order No. 667 required that, unless otherwise exempted by Commission rule or order, holding companies
6

and service companies
7

must maintain and make available to the Commission their books and records.
8

In addition, Order No. 667 allowed holding companies and service companies that did not currently follow the Commission's records retention requirements to transition to the Commission's requirements by January 1, 2007. Order No. 667 further provided that holding companies would not be required to comply with a Uniform System of Accounts, but that centralized service companies would be required to do so as of January 1, 2007.

6
As defined in 18 CFR 366.1, holding company means (i) any company that directly or indirectly owns, controls, or holds, with power to vote, 10 percent or more of the outstanding voting securities of a public-utility company or of a holding company of any public-utility company; and (ii) any person, determined by the Commission, after notice and opportunity for hearing, to exercise directly or indirectly (either alone or pursuant to an arrangement or understanding with one or more persons) such a controlling influence over the management or policies of any public-utility company or holding company as to make it necessary or appropriate for the rate protection of utility customers with respect to rates that such person be subject to the obligations, duties, and liabilities imposed by this subtitle upon holding companies.

7
As defined in 18 CFR 366.1, service company means any associate company within a holding company system organized specifically for the purpose of providing non-power goods or services or the sale of goods or construction work to any public utility in the same holding company system.

8
Order No. 667 also required traditional, centralized service companies to file the newly created Form No. 60, Annual Report for Centralized Service Companies.

4. The Commission indicated in Order No. 667 that it would initiate a separate rulemaking proceeding to address how the Commission's Uniform Systems of Accounts and records retention requirements in Parts 101, 125, 201 and 225 of its regulations should be modified to adopt or otherwise integrate the relevant parts of the SEC's Uniform System of Accounts and records retention rules. The Commission indicated that it intended to issue a final rule on any appropriate accounting and records retention requirements modifications before January 1, 2007, so that service companies would be able to transition to the Commission's Uniform System of Accounts and records retention requirements and so that holding companies could transition to

the Commission's records retention requirements, by that date.

5. As discussed below, this Notice of Proposed Rulemaking proposes to adopt a Uniform System of Accounts for centralized service companies, and records retention requirements for holding companies and service companies, under PUHCA 2005.

III. Discussion

6. In Order No. 667, the Commission prescribed uniform accounting requirements for centralized service companies,
i.e.
, service companies that are not special purpose companies, within holding company systems, and records retention requirements for both service companies and holding companies. In that order, the Commission announced its intention to modify the existing Uniform Systems of Accounts for public utilities and licensees and natural gas companies in Parts 101 and 201, respectively, of the Commission's regulations to accommodate centralized service companies' use of those systems. The Commission also announced its intention to similarly modify the existing records retention requirements contained in Parts 125 and 225 of the Commission's regulations.

7. Since the issuance of Order No. 667, we have examined in greater depth some of the implementation issues associated with revising the Commission's existing Uniform Systems of Accounts and records retention requirements for public utilities and licensees and for natural gas companies to cover service companies and holding companies. After taking into consideration the overall framework of the Commission's regulations and the range of changes that would be required to the Uniform Systems of Accounts and records retention requirements, we have concluded that modifying the existing accounting and records retention requirements to accommodate service companies and holding companies would make understanding and applying the accounting and records retention requirements difficult for users of the systems. Instead, the Commission proposes to adopt a separate Uniform System of Accounts for centralized service companies,
i.e.
, service companies that are not special purpose companies, and separate records retention requirements for service companies and holding companies. While these new regulations appear lengthy, we believe the detail will actually make it simpler and easier for service companies and holding companies to comply with our requirements.

8. In developing the proposed regulations, we were guided by three overarching objectives: (1) The new accounting and records retention requirements should mirror the existing requirements contained in Parts 101, 201, 125 and 225 of the Commission's regulations for public utilities and licensees and natural gas companies to the maximum extent practicable, but should exclude provisions that are not relevant; (2) the new accounting requirements should allow for the consolidation of service company financial information with the financial information of associate public utilities and licensees and natural gas companies as needed for stockholder and SEC reporting; and (3) the new Uniform System of Accounts for centralized service companies should include requirements that reflect aspects of business operations that are unique to such service companies.

A. Proposed Uniform System of Accounts

9. The Commission proposes to add as Part 367 of the Commission's regulations a Uniform System of Accounts for Centralized Service Companies. The proposed Uniform System of Accounts for Centralized Service Companies conforms, to the maximum extent practicable, to the Commission's existing Uniform Systems of Accounts for public utilities and licensees and for natural gas companies as set forth in Parts 101 and 201, respectively, of the Commission's regulations. As explained more fully below, however, there are a number of instances in which the existing requirements contained in Parts 101 and 201 of the Commission's regulations need to be revised or modified to reflect the unique business characteristics of centralized service companies. In some instances, the revisions simply change a word,
e.g.
, substituting “service company” property for “utility” property.
9

In other instances, the changes were more significant. The sections that follow identify and explain the basis for the more significant revisions and modifications to the accounting requirements contained in Parts 101 and 201 of the Commission's regulations that we believe are appropriate or necessary to reflect the unique business characteristics of centralized service companies in the proposed Uniform System of Accounts for Centralized Service Companies.

9
For purposes of discussion, when revisions to an instruction or account are limited to such word changes we consider it as adopting the affected instruction or account in total.

1. Definitions and Instructions

10. The Commission proposes to adopt most of the definitions contained in Parts 101 and 201 of the Commission's regulations. Additionally, the Commission proposes to adopt the definitions contained in the SEC's Uniform System of Accounts for direct cost, indirect cost, non-associate company, and work order system. The Commission also proposes to incorporate definitions for construction, electric utility company, gas utility company, goods, holding company system, natural gas company, public utility, public-utility company, service and service company from § 366.1 of the Commission's regulations. The definitions adopted from the SEC's Uniform System of Accounts and § 366.1 of the Commission's regulations are necessary to facilitate understanding other instructions not contained in Parts 101 and 201 of the Commission's regulations as they should be applied to centralized service companies,
i.e.
, service companies that are not special purpose companies.

11. Consistent with the instructions in Parts 101 and 201 of the Commission's regulations, we propose to adopt instructions grouped into four categories: General Instructions, Service Company Property Instructions, Operating Expense Instructions and Special Instructions. These instructions include most of the instructions contained in Parts 101 and 201 of the Commission's regulations and in the SEC's Uniform System of Accounts. We propose to adopt instructions in the SEC's Uniform System of Accounts because they provide instructions relevant to certain transactions and events of a centralized service company, that are not specifically addressed in the instructions for Parts 101 and 201 of the Commission's regulations. The instructions we propose to adopt in the Special Instructions category include many of the instructions for groups of accounts, which are embedded in the text to the accounts in Parts 101 and 201 of the Commission's regulations. Instructions not adopted from Parts 101 and 201 of the Commission's regulations and the SEC's Uniform System of Accounts are considered irrelevant to centralized service company operations or duplicative of other instructions. Additionally, many of the instructions from Parts 101 and 201 are modified for centralized service company operations. The more significant additions, deletions and modifications to the instructions contained in Parts 101 and 201 of the Commission's regulations are discussed below.

12. The instructions found in both Parts 101 and 201 of the Commission's regulations contain provisions for implementing the ratemaking principle of original cost. Under this principle, companies are required to record utility property in the plant in service accounts at the cost to the person who first devoted the property to public service. Although public utilities and natural gas companies frequently enter into property transactions in which the original cost concept is at issue, centralized service companies are expected to have few, if any, transactions in which that is the case. Moreover, centralized service companies can now provide centralized services to both utility and non-utility entities. In this context, the original cost accounting rules that exist for public utilities and natural gas companies would be difficult to apply to centralized service companies. Therefore, the proposed instructions in the Uniform System of Accounts for Centralized Service Companies do not contain the requirements that would otherwise be needed to implement the original cost concept. In proposed § 367.50,
10

Service company property to be recorded at cost, and § 367.53,
11

Service company property purchased or sold, we propose to modify Electric and Gas Plant Instructions Nos. 2 and 5, respectively, to require centralized service company property to be recorded at the cost of acquisition rather than its original cost. The instructions to proposed § 367.53 also require centralized service companies to file journal entries with the Commission when acquired property is at a purchase price of $10 million or more and has been previously devoted to public service.
12

This filing requirement provides the Commission and others the opportunity to monitor transactions involving property previously devoted to public service.

10
Proposed 18 CFR 367.50 is adopted from Electric Plant Instructions No. 2, Electric plant to be recorded at cost, and Gas Plant Instructions No. 2, Gas plant to be recorded at cost.

11
Proposed 18 CFR 367.53 is adopted from Electric Plant Instructions No. 5, Electric plant purchased or sold, and Gas Plant Instructions No. 5, Gas plant purchased or sold.

12
The $10 million threshold is consistent with the threshold for certain transactions subject to section 203 of the Federal Power Act, as amended by section 1289 of the Energy Policy Act of 2005.
See
Order No. 669, 71 FR 1348 (Jan. 6, 2006), FERC Stats. & Regs. ¶ 31,200 (2005).

13. We propose to adopt in § 367.23 an instruction for transactions with non-associate companies from the SEC's Uniform System of Accounts (17 CFR § 265.01-2). This instruction requires that profits and losses on transactions with non-associate companies be recorded in Account 458.4, Excess or deficiency on servicing non-associate utility companies (§ 367.4584), and Account 459.4, Excess or deficiency on servicing non-associate non-utility companies (§ 367.4594), as appropriate. The instruction also requires centralized service companies to determine the sum of the closing balances, at the end of each calendar year, in Account 458.4 (§ 367.4584) and Account 459.4 (§ 367.4594). If the sum of the closing balances of these accounts combine to a net credit, the amount of the net credit must be deducted from amounts reimbursable by associate companies as compensation for use of capital invested in the centralized service company. By following this instruction, service companies will be required to channel net profits from transactions with non-associate companies to the associate companies within the holding company system. The Commission believes this requirement is appropriate and reasonable because centralized service companies should be not-for-profit in nature and provide services to associate companies at cost.
13

Therefore, profits received outside of the holding company system should be used to reduce the cost of providing service to associate companies within the holding company system.

13
Not-for-profit as used here does not preclude a reasonable return on equity capital. In addition, in Order No. 667, the Commission allowed centralized service companies to continue to sell non-power goods and services to affiliated utilities “at-cost.” Order No. 667, FERC Stats. & Regs. ¶ 31,197 at P 14.

14. We propose to adopt instructions from Parts 101 and 201 of the Commission's regulations on extraordinary items
14

with certain modifications in proposed § 367.8. Under the instructions contained in Parts 101 and 201, an item can be accounted for as extraordinary, without prior Commission approval if the item is more than five percent of income before extraordinary items. We do not view this stipulation as practical for centralized service companies because service companies typically have little or no income. Therefore, we propose to eliminate this threshold requirement to recognize an extraordinary item, but will require centralized service companies to seek Commission approval to record all extraordinary items.

14

See
General Instructions No. 7, Extraordinary items, in Parts 101 and 201 of the Commission's regulations.

15. In proposed § 367.16, we propose to adopt, in part, instructions for accounting for long-term debt from Parts 101 and 201 of the Commission's regulations.
15

We are not adopting instructions pertaining to the rate principle of amortizing gains and losses on the reacquisition of long-term debt because centralized service companies are not rate regulated and such gains and losses should be recognized immediately in income.

15

See
General Instructions No. 17, Long-term debt: Premium, discount and expense and gain or loss on reacquisition, in Parts 101 and 201 of the Commission's regulations.

16. In proposed § 367.58, we propose to adopt instructions for maintaining a work order system for all construction and retirements of service company property from Parts 101 and 201 of the Commission's regulations.
16

Additionally, in proposed § 367.31, the Commission proposes to adopt instructions from the SEC's Uniform System of Accounts for maintaining work order systems for accumulating reimbursable costs and charges to customers.
17

The Commission believes it is necessary to adopt this additional instruction from the SEC's Uniform System of Accounts because this specific instruction is appropriate for this proposed Uniform System of Accounts and is not provided for in the instructions contained in Parts 101 and 201 of the Commission's regulations.

16

See
Electric (Gas) Plant Instructions No. 11, Work order and property record system required in Parts 101 and 201 of the Commission's regulations.

17

See
17 CFR 256.00-1(f), 256.03(c).

17. We note that there appears to be a regulatory gap vis-á-vis Commission jurisdiction as it relates to service companies with electric utility company affiliates and natural gas company affiliates in PUHCA 2005. As a result of the definitions for holding company, holding company system, natural gas company, public-utility company, electric utility company and gas utility company in PUHCA 2005 section 1262, it appears that the Commission can regulate holding companies with electric utility company affiliates as to their books, accounts, memoranda, and other records. On the other hand, it appears that PUHCA 2005 would not grant the Commission authority to require service companies that have only natural gas company affiliates to comply with the Commission's financial accounting and reporting and records retention requirements; this is in contrast to holding companies with gas utility company affiliates,
i.e.
, holding companies with natural gas local distribution company affiliates.
18

Companies with only natural gas company affiliates would not be a holding company under PUHCA 2005. The Commission is seeking comments on how we should deal with this apparent regulatory gap under PUHCA 2005,
e.g.
, what, if any, action the Commission might take under the Natural Gas Act. Commenters are invited to address (1) whether there is, in fact, a regulatory gap, (2) if there is a regulatory gap, whether there is a need to address the gap, and, (3) if so, how the Commission should address this gap under the Natural Gas Act.

18
In PUHCA 2005 section 1262, a holding company is any company that directly or indirectly owns, controls, or holds, with power to vote, 10 percent or more of the outstanding voting securities of a public-utility company or of a holding

company of any public utility company. A public-utility company is an electric utility company or a gas utility company. An electric utility company is any company that owns or operates facilities used for the generation, transmission, or distribution of electric energy for sale. A gas utility company is any company that owns or operates facilities used for distribution at retail of natural or manufactured gas,
i.e.
, a natural gas local distribution company.

2. Balance Sheet Accounts

18. The Commission proposes to adopt in the new Uniform Systems of Accounts for Centralized Service Companies most of the balance sheet accounts contained in Parts 101 and 201 of the Commission's regulations, and primary property Accounts 301 (§ 367.3010), 303 (§ 367.3030) and 389 to 399.1 (§§ 367.3890 to 367.3991). Accounts not adopted are considered not applicable to centralized service companies. In most instances, the non-applicability of those accounts to centralized service companies is apparent from the account instructions and further discussion as to the reason for not adopting them is not necessary. However, a few warrant comment.

19. The Commission does not propose to adopt Accounts 102, Electric and Gas plant purchased or sold, 114, Electric and Gas plant acquisition adjustments, and 116, Other electric and gas plant acquisition adjustments, because, as discussed above, property acquired will be included in Account 101, Service company property (§ 367.1010), at acquisition cost as opposed to original cost. As a result, these accounts are not necessary for centralized service companies.

20. In addition, we are not adopting Accounts 118, Other utility plant, and 121, Non-utility property. These accounts are used by public utilities and natural gas companies to record the cost of property used exclusively in providing other utility services,
e.g.
, water, railway, etc., or non-utility services. In the Commission's view, the corollary use of these accounts by centralized service companies would be to record in these accounts the cost of property used exclusively in providing services to non-utility customers or a non-service business activity. While we believe it is important that such investments be identified and disclosed, we feel that it can be done more appropriately by the use of a schedule as opposed to adopting a separate account. Therefore, we propose to include Schedule III-A, Summary of Service Company Property and Accumulated Provision for Depreciation and Amortization, in revised Form No. 60.

3. Income Statement Accounts

21. The Commission proposes to incorporate income statement accounts contained in Parts 101 and 201 of the Commission's regulations. We modified the accounts related to expenses for non-utility companies
19

and revenue accounts. The additions, deletions and modifications to the income statement accounts contained in Parts 101 and 201 that are proposed for inclusion in the Uniform System of Accounts for Centralized Service Companies are discussed further below.

19
A non-utility company is defined in proposed 18 CFR § 367.1 as “a company that is not a utility company.”

22. The Commission is proposing to include in the Uniform System of Accounts for Centralized Service Companies the same instructions covering income tax accounting presently contained in Parts 101 and 201 of the Commission's regulations. We are aware that those instructions need to be revised to reflect the liability method of accounting for income taxes that all other Commission jurisdictional companies now follow.
20

However, the changes needed to integrate the liability method of accounting for income taxes into the Uniform Systems of Accounts and other Commission regulations are expected to be complex and should be taken up in a separate proceeding.
21

Until that proceeding can be undertaken, centralized service companies and all other Commission jurisdictional companies should account for income taxes using the same rules as modified by an Accounting Guidance Letter dated April 23, 1993. This will, in our view, facilitate the preparation of consolidated financial statements.

20

See
Accounting Guidance Letter AI93-50-000, Accounting for Income Taxes, (April 23, 1993).

21

Regulations Implementing Tax Normalization for Certain Items Reflecting Timing Differences in the Recognition of Expenses or Revenues for Ratemaking and Income Tax Purposes,
Order No. 144, FERC Stats. & Regs. ¶ 30,254 (1981).

23. We do not propose to include the following accounts, as contained in Parts 101 and 201 of the Commission's regulations, because we do not anticipate centralized service companies having transactions that give rise to the use of these accounts:

• Account 404.1, Amortization and depletion of producing natural gas land and land rights.

• Account 404.2, Amortization of underground storage land and land rights.

• Account 406, Amortization of electric plant acquisition adjustments.

• Account 407, Amortization of property losses, unrecovered plant and regulatory study costs.

• Account 407.2, Amortization of conversion expense.

• Account 407.3, Regulatory debits.

• Account 407.4, Regulatory credits.

• Account 411.6, Gains from disposition of utility plant.

• Account 411.7, Losses from disposition of utility plant.

• Account 411.8, Gains from disposition of allowances.

• Account 411.9, Losses from disposition of allowances.

• Account 412, Revenues from electric plant leased to others.

• Account 413, Expenses of electric plant leased to others.

• Account 414, Other utility operating income.

• Account 417, Revenues from non-utility operations.

• Account 418, Non-operating rental income.

• Account 420, Investment tax credits.

• Account 428.1, Amortization of loss on reacquired debt.

• Account 429.1, Amortization of gain on reacquired debt—Credit.

24. We propose to add Account 417.1, Expenses of non-utility company related operations (§ 367.4171). This account will include expenses incurred in providing services to non-utility companies where the revenues from which are included in Account 459, Services rendered to non-utility companies (§ 367.4590). Expenses related to providing customer, sales or administrative and general services to non-utility companies will initially be recorded in the 900 series of accounts and transferred to Account 417.1 (§ 367.4171), through credits to Account 922, Administrative expenses transferred—Credit (§ 367.9220). The cost of other services provided to non-utility companies will be charged directly to Account 417.1 (§ 367.4171).

25. We propose to add the following retained earnings accounts:

• Account 433, Balance transferred from income (§ 367.4330).

• Account 436, Appropriations of retained earnings (§ 367.4360).

• Account 437, Dividends declared-preferred stock (§ 367.4370).

• Account 438, Dividends declared—common stock (§ 367.4380).

• Account 439, Adjustments to retained earnings (§ 367.4390).

26. We propose to adopt retained earnings Accounts 215, Appropriated retained earnings (§ 367.2150), and 216, Unappropriated retained earnings (§ 367.2160), as balance sheet accounts to track changes in the retained earnings accounts. We also propose to revise Form No. 60 to reflect the use of these accounts.

27. We do not propose adopting the following operating revenue accounts, contained in Parts 101 and 201 of the Commission's regulations:

• Account 440, Residential sales.

• Account 442, Commercial and industrial sales.

• Account 444, Public street and highway lighting.

• Account 445, Other sales to public authorities (Major only).

• Account 446, Sales to railroads and railways (Major only).

• Account 447, Sales for resale.

• Account 448, Interdepartmental sales.

• Account 449, Other sales (Non-major only).

• Account 449.1, Provision for rate refunds.

• Account 450, Forfeited discounts.

• Account 451, Miscellaneous service revenues.

• Account 453, Sales of water and water power.

• Account 454, Rent from electric property.

• Account 455, Interdepartmental rents.

• Account 456, Other electric revenues.

• Account 480, Residential sales.

• Account 481, Commercial and industrial sales.

• Account 482, Other sales to public authorities.

• Account 483, Sales for resale.

• Account 484, Interdepartmental sales.

• Account 485, Intracompany transfers.

These accounts are for recording revenues from the sale of electricity or gas and transmission or transportation service. Transactions of this nature would not be entered into by centralized service companies. However, we propose to adopt new revenue control Accounts 457, Services rendered to associate utility companies (§ 367.4570), 458, Services rendered to non-associate utility companies (§ 367.4580) and 459, Services rendered to non-utility companies (§ 367.4590).
22

Each of these revenue control accounts will have a corresponding subaccount or direct labor account (Accounts 457.1, 458.1 and 459.1 in §§ 367.4571, 367.4581 and 367.4591), indirect labor account (Accounts 457.2, 458.2 and 459.2 in §§ 367.4572, 367.4582 and 367.4592) and an account for compensation for use of capital (Accounts 457.3, 458.3 and 459.3 in §§ 367.4573, 367.3593 and 367.4593). This differs slightly from the SEC's Uniform System of Accounts, which provided control accounts for aggregating revenues between associate and non-associate companies only. However, the SEC's requirements were developed under PUHCA 1935, which restricted registered holding companies and their associated companies to utility operations or directly related business interests. With the repeal of the PUHCA 1935 and the elimination of the distinction between registered and exempt holding companies,
23

these restrictions no longer apply. As a consequence, we expect that centralized service companies may provide an increasing amount of services to non-utility companies. As an aid to monitoring the potential for cross subsidization, we believe that it is important to have accounts that aggregate financial information in a way that separately identifies and measures this activity. We propose including revenue Accounts 458.4, Excess or deficiency on servicing non-associate utility companies (§ 367.4584, and 459.4, Excess or deficiency on servicing non-associate non-utility companies (§ 367.4594). These accounts are necessary to monitor and ensure that centralized service companies comply with the requirements that profits from services provided to non-associate companies are used to reduce the billings of associate companies and to ensure that losses are not automatically passed on to associate companies.

22
A control account includes the total of the related subaccounts.

23
Order No. 667 states, “[a]lthough, as also discussed below, we will provide certain exemptions from PUHCA 2005, we will not re-create the PUHCA 1935 distinction between “exempt” and “registered” holding companies.” Order No. 667, FERC Stats. & Regs. ¶ 31,197 at P 10.

28. We propose to include in the Uniform System of Accounts for Centralized Service Companies all of the 500 series of electric operation and maintenance expense accounts presently contained in Part 101 of the Commission's regulations and all of the 800 series of gas operation and maintenance accounts contained in Part 201 of the Commission's regulations. Service companies use these accounts when providing utility-related services to utility companies. However, to avoid unnecessary duplication and to ensure that symmetry is maintained between the Uniform Systems of Accounts, we propose to direct service companies to use the 500 and 800 series of accounts contained in Parts 101 and 201 of the Commission's regulations instead of including all of the 500 and 800 series of accounts in the Uniform System of Accounts for Centralized Service Companies.

29. We propose to include in the Uniform System of Accounts for CentralizedService Companies all of the 900 series of expense accounts presently contained in Parts 101 and 201 of the Commission's regulations, except the following accounts:

• Account 906, Customer service and informational expenses (Non-major only).

• Account 917, Sales expenses (Non-major only).

• Account 927, Franchise requirements.

• Account 929, Duplicate charges—Credit.

• Account 933, Transportation expenses (Non-major)

Accounts 906, 917 and 933 are non-major. Accounts 927 and 929 relate to utility sales of electricity. We could not cross reference the 900 series accounts as we did for the 500 or 800 series of accounts because the individual account instructions in Part 101 differ from the counterpart instructions in Part 201. In order to eliminate confusion that might be caused by the differences, we modified the text of these accounts and propose to adopt them, as modified, as part of the Uniform System of Accounts for Centralized Service Companies.

B. Proposed Records Retention Requirements

30. The Commission proposes to establish, as Part 368 of the Commission's regulations, records retention requirements for holding companies and service companies. We stress that, consistent with Order No. 667, while the proposed Uniform System of Accounts applies only to centralized service companies,
i.e.
, service companies that are not special purpose companies, the proposed records retention requirements apply to all holding companies and service companies. The records retention requirements proposed generally are based on the requirements contained in §§ 125.3 and 225.3 of the Commission's regulations, with certain modifications considered appropriate for holding companies and service companies.

These modifications implement reduced retention periods for certain holding company and service company records where the retention periods were longer under the SEC's requirements than the retention periods applicable to similar records in §§ 125.3 and 225.3 of the Commission's regulations. In addition, the modifications incorporate certain records retention requirements that were not part of the Commission's regulations in §§ 125.3 and 225.3 of the Commission's regulations.

31. To the extent that the Commission's retention periods differ from other regulatory agency requirements, holding companies and service companies should retain records for the longer of the required retention periods.

C. Proposed Statements of Reports (Schedules)

32. The Commission proposes to add as Part 369 of the Commission's regulations instructions for filing the Form No. 60. The instructions propose to require centralized service companies to prepare and file electronically with the Commission an annual report by April 18 for the previous calendar year. Also, the instructions require service companies that do not file Form No. 60 to file annually a narrative description of their functions.

D. Proposed Revised FERC Form No. 60

33. The proposed changes, if adopted, will require revising the existing schedules in the Form No. 60 filed with the Commission. Revised Form No. 60 is included in Appendix A to this Notice of Proposed Rulemaking. We plan to develop submission software to provide for electronic filing of revised Form No. 60 similar to the software used for electronic filing of the Commission's other annual reporting forms,
i.e.
, Form No. 1 and Form No. 2.

34. The proposed revisions to revised Form No. 60 include:

(1) The title of the form is changed to “Annual Report of Centralized Service Companies”.

(2) The format of the schedules is revised consistent with Annual Report Form Nos. 1 and 2 (Form Nos. 1 and 2). Instructions have been added to schedules, where necessary, because they are non-existent in the current Form No. 60. A new cover page is added similar to the cover page for Form Nos. 1 and 2.

(3) Two instructional pages are added to replace existing instructions. This is consistent with Form Nos. 1 and 2. General Information Item No. III is added to indicate how Form No. 60 is to be submitted. General Instruction No. II is added to indicate that amounts should be reported in whole dollars. The current Form No. 60 instruction allows reporting in whole dollars, thousands of dollars and millions of dollars. This revision is necessary for consistency. General Instruction No. IV is added consistent with the adoption of submission software. General Instruction No. VII is added to indicate the process of how resubmissions are to be filed.

(4) Page 1 is revised consistent with Form Nos. 1 and 2 and a telephone number and an e-mail address for contact person designated to respond to questions about Form No. 60 has been added. There currently is no contact information except for a correspondence address. A Corporate Officer Certification has been added the same as for Forms 1 and 2 and the Signature Clause page has been deleted.

(5) The filing date for Form No. 60 is changed to April 18 from May 1. April 18 filing date is consistent with the due date for most of the Commission's annual report forms that contain financial information.

(6) Schedule I, Comparative Balance Sheet, is revised to include the balance sheet accounts proposed to be adopted herein.

(7) Schedule II, Service Company Property, is revised to include the property accounts proposed to be adopted in this NOPR.

(8) Schedule III-A, Summary of Service Company Property and Accumulated Provision for Depreciation and Amortization, is added to distinguish service company property devoted exclusively to utility-related operations and property devoted exclusively to non-utility operations.

(9) Schedule XI, Proprietary Capital, is revised to include a statement of retained earnings.

(10) Schedule XV, Comparative Income Statement, is revised to include the income statement accounts proposed to be adopted herein.

(11) Schedule XV-A, Schedule of Utility Company Operating Expenses is added to disclose operating expenses which were only summarized in Schedule XV, Comparative Income Statement.

(12) Schedule, Analysis of Billing Associate Companies—Account 457, is revised to only include associate utility companies. This is consistent with proposed Account 457.

(13) Schedule, Analysis of Billing Non-associate Companies—Account 458, is revised to only include non-associate utility companies. This is consistent with proposed Account 458.

(14) A new schedule, Analysis of Billing Non-Utility Companies—Account 459, is added to Form No. 60. This is consistent with proposed Account 459.

(15) Schedule XVI—Analysis of Charges for Service—Associate and Non-associate Companies, is revised to reflect the breakdown of utility companies and non-utility companies proposed for Accounts 457, 458 and 459.

(16) Schedule XVII, Expense Distribution by Department or Service Function, is revised by adding all income statement accounts.

D. Proposed Conforming Revisions to Parts 366 and 375

35. The Commission proposes to revise §§ 366.21(b), 366.22(a)(1) and (b)(1) and 366.23(a) of the Commission's regulations to conform to the new accounting, and records retention and reporting requirements proposed in this notice of proposed rulemaking.

36. The Commission also proposes to revise § 375.303(c), (d), (e), (f), (g) and (h) of the Commission's regulations to update the delegations to give to the Chief Accountant or the Chief Accountant's designee certain authorities related to service company financial accounting and reporting matters. These authorities are similar to those that the Chief Accountant has for public utilities and licensees, natural gas companies and oil pipeline companies.

E. Technical Conference

37. In addition to providing an opportunity to comment on the regulations proposed in this Notice of Proposed Rulemaking, the Commission directs staff to hold a technical conference regarding the proposed Uniform System of Accounts, the records retention requirements and revised Form No. 60 to provide interested entities an opportunity to discuss the proposed regulations following the close of the comment period for this Notice of Proposed Rulemaking. Entities are invited to include a separate list of subjects they would like discussed at this technical conference in their comments.
24

24
This technical conference is distinct from the technical conference announced in Order No. 667. This technical conference will address the specific details associated with the proposed Uniform System of Accounts, records retention requirements and revised Form No. 60. The conference announced in Order No. 667, on the other hand, will address other issues identified in the PUHCA 2005 and FPA section 203 final rules and rehearing orders on those rules.

IV. Information Collection Statement

38. The following collections of information contained in this proposed rule have been submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the Paperwork Reduction Act of 1995.
25

The Commission solicits comments on the Commission's need for this information, whether the information will have practical utility, the accuracy of the provided burden estimates, ways to enhance the quality, utility and clarity of the information to be collected or retained, and any suggested methods for minimizing respondents' burden, including the use of automated information techniques.

25
44 U.S.C. 3507(d).

Estimated Annual Burden

Data collection

Number of
respondents

Number of
responses

Number of
hours per
response

Total annual
hours

FERC form No. 60
38
38
10
380

FERC-555A (new)
300

1,080
324,000

Totals

324,380

Total Annual Hours for Collection (Reporting and Recordkeeping) = 324,380.

Information Collection Costs: The Commission seeks comments on the costs to comply with the requirements. It has projected the average annualized costs for all respondents to be the following:

FERC Form 60 = 380 hours at $120 an hour (an average of 3 staff at $40 an hour) = $45,600.

FERC-555A = The Commission projects an annualized average cost of all respondents as 324,000 hours at $68 an hour ($17 an hour, an average of 4 staff) = $22,032,000 (staffing) + $6,696,000 (storage) = $28,728,000. These costs assume that the average office storage space cost is $7,440 for retaining records on-site. (Usually records after the initial years are transferred to off-site where the storage costs drop to $925 (on average). As these requirements are being approved for an initial three year period, the assumption was made that during that period the records would be retained on-site.) These costs used as an example 120 cubic feet (20 four drawer file cabinets) and include the cubic feet of storage plus the cost of floor space plus the costs for records storage cartons. Greater savings can be accomplished if documents are stored electronically,
i.e.
, one file cabinet (four drawer) (10,000 pages on average) = 500 MegaBytes (MByte) = one CD ROM. The Commission seeks comments on the costs to comply with these requirements. Total costs (reporting and recordkeeping) = $9,908,880.

OMB regulations
26

require OMB to approve certain information collection requirements imposed by agency rule. The Commission is submitting notification of this proposed rule to OMB. These information collection requirements are mandatory requirements.

26
5 CFR 1320.11.

Title:
Annual Report for Centralized Service Companies (Form No. 60) and Preservation of Records for Service Companies Subject to PUHCA 2005 (555A).

Action:
Proposed Collections.

OMB Control Nos.:
1902-0215 (Form No. 60) and new FERC-555A (To Be Determined).

Respondents:
Businesses or other for profit.

Frequency of Responses:
Annually (Form No. 60) and recordkeeping (555A).

Necessity of the Information:
This proposed rule implements certain provisions of Title XII of the Energy Policy Act of 2005, by adding financial accounting requirements and reporting by centralized service companies and the establishment of recordkeeping requirements for both holding companies and service companies. Section 1275(b) provides for Commission review and authorization of cost allocations for non-power goods or services provided by service companies. In Order No. 667, the Commission prescribed, for an initial transition period, uniform financial accounting and reporting requirements for centralized service companies' requirements within holding companies and record retention requirements for both service companies and holding companies and that the modification of the Commission's Uniform System of Accounts and records retention requirements would be implemented later. However, upon further review, the decision was made to implement a new Uniform System of Accounts and records retention requirements to ensure a smoother transition for service companies and holding companies. The Commission has developed standardized accounting rules. These rules, contained in the new Uniform System of Accounts for Centralized Service Companies, are generally consistent with the accounting standards that must be followed by commercial enterprises. Timely reporting of the information is critical to monitoring the industry to ensure that practices are not discriminatory and that appropriate rates are charged. The official records maintained by the regulated companies are in accordance with schedules already set by the Commission in its regulations and already used by companies as the basis for required filings and reports with the Commission. In addition, the records will be used by the Commission's audit staff during compliance reviews and special analyses as deemed necessary by the Commission. The additional financial transparency required by these requirements will aid the Commission in meeting its oversight and market monitoring obligations and will benefit the public both as ratepayers and investors.

Internal Review:
The Commission has reviewed the proposed accounting and records retention requirements and made a preliminary determination that these requirements are necessary to implement Title XII of the Energy Policy Act of 2005. By adapting relevant parts of the SEC's Uniform System of Accounts and records retention rules to the Commission's Uniform System of Accounts and records retention requirements, facilitates the Commission's need to conduct examinations, audits and verification of this information for the protection of utility customers with respect to jurisdictional rates. These requirements conform to the Commission's plan for efficient information collection, communication and management within

the energy industry. The Commission has assured itself, by means of internal review, that there is specific, objective support for the burden estimates associated with the information requirements.

Interested persons may obtain information on the reporting requirements by contacting the following: Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426 [Attention: Michael Miller, Office of the Executive Director, Phone (202) 502-8415, fax: (202) 273-0873, e-mail:
michael.miller@ferc.gov
].

For submitting comments concerning the collection(s) of information and the associated burden estimate(s), please send your comments to the contact listed above and to the Office of Management and Budget, Office of Information and Regulatory Affairs, Washington, DC 20503 [Attention: Desk Officer for the Federal Energy Regulatory Commission, phone (202) 395-4650, fax: (202) 295-7285, e-mail:
oira_submission@omb.eop.gov
].

V. Environmental Analysis

39. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment.
27

The Commission has categorically excluded certain actions from this requirement as not having a significant effect on the human environment. Included in the exclusion are rules that carry out legislation, involve information gathering, analyses and dissemination, and involve accounting.
28

These proposed rules, if finalized, carry out EPAct 2005, involve information gathering and analysis, and involve accounting, and, therefore, fall under these exclusions. Consequently, no environmental consideration is necessary.

27

Regulations Implementing the National Environmental Policy Act
, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. 1986-1990 ¶ 30,783 (1987).

28
18 CFR 380.4(a)(3), (a)(5), (a)(16).

VI. Regulatory Flexibility Act Certification

40. The Regulatory Flexibility Act of 1980 (RFA) requires rulemakings to contain either a description and analysis of the effect that the rule will have on small entities or a certification that the rule will not have a significant economic impact on a substantial number of small entities.
29

Most holding companies to which the rules proposed herein, if finalized, would not fall within the RFA's definition of small entity.
30

Consequently, the rules proposed herein, if finalized, will not have a “significant economic impact on a substantial number of small entities.”

29
5 U.S.C. 603 (2000).

30
5 U.S.C. 601(3)(2000),
citing
to section 3 of the Small Business Act, 15 U.S.C. 632 (2000). Section 3 of the Small Business Act defines a “small business concern” as a business that is independently owned and operated and that is not dominant in its field of operation. 15 U.S.C. 632 (2000). The Small Business Size Standards component of the North American Industry Classification System (NAICS) defines, for example, a small electric utility as one that, including its affiliates, is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and whose total electric output for the preceding fiscal year did not exceed four million MWh. NAICS defines a natural gas pipeline company as one that transports natural gas and whose annual receipts (total income plus cost of goods sold) did not exceed $6.5 million dollars for the preceding year. 13 CFR 121.201.

VII. Comment Procedures

41. The Commission invites interested persons to submit comments on the matters and issues proposed in this notice to be adopted, including any related matters or alternative proposals that commenters may wish to discuss. Comments are due on or before June 15, 2006. Comments must refer to Docket No. RM06-11-000, and must include the commenter's name, the organization he or she represents, if applicable, and his or her address.

42. Comments may be filed electronically via the eFiling link on the Commission's website at
http://www.ferc.gov
. The Commission accepts most standard word processing formats, and commenters may attach additional files with supporting information in certain other file formats. Commenters filing electronically do not need to make a paper filing.

43. Commenters who are not able to file comments electronically must send an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Office of the Secretary, 888 First Street, NE., Washington, DC 20426.

44. All comments will be placed in the Commission's public files and may be viewed, printed, or downloaded remotely as described in the Document Availability section below. Commenters on this notice of proposed rulemaking are not required to serve copies of their comments on other commenters.

VIII. Document Availability

45. In addition to publishing the full text of this document in the
Federal Register
, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through the Commission's home page
http://www.ferc.gov
and in the Commission's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.

46. From the Commission's home page on the Internet, this information is available in the Commission's document management system, eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.

47. User assistance is available for eLibrary and the Commission's website during normal business hours. For assistance, please contact FERC Online Support at 1-866-208-3676 (toll free) or 202-502-6652 (e-mail at
FERCOn-lineSupport@ferc.gov
), or the Public Reference Room at 202-502-8371, TTY 202-502-8659 (e-mail at
public.referenceroom@ferc.gov
).

List of Subjects

18 CFR Part 366
Electric power, Natural gas, Reporting and recordkeeping requirements.

18 CFR Part 367
Electric power, Natural gas, Uniform System of Accounts, Reporting and recordkeeping requirements.

18 CFR Part 368
Electric power, Natural gas, Reporting and recordkeeping requirements.

18 CFR Part 369
Electric power, Natural gas, Reporting and recordkeeping requirements.

18 CFR Part 375
Authority delegations (Government agencies), Seals and insignia, Sunshine Act.

By direction of the Commission.

Magalie R. Salas,
Secretary.

In consideration of the foregoing, the Commission proposes to amend parts 366 and 375 and to add parts 367, 368 and 369, Chapter I, Title 18 of the
Code of Federal Regulations
, as follows:

PART 366—PUBLIC UTILITY HOLDING COMPANY ACT OF 2005

1. The authority citation for part 366 continues to read as follows:

Authority:

Pub. L. 109-58, 1261
et seq.
, 119 Stat. 594, 972
et seq.

2. In § 366.21, paragraph (b) is revised to read as follows:

§ 366.21
Accounts and records for holding companies.

(b) Unless otherwise exempted or granted a waiver by Commission rule or order pursuant to §§ 366.3 and 366.4 of this chapter, beginning January 1, 2007, all holding companies must comply with the Commission's records retention requirements for holding companies and service companies as prescribed in part 368 of this chapter. Until December 31, 2006, holding companies registered under the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a
et seq.
) may follow either the Commission's records retention rules for public utilities and licensees or for natural gas companies, as appropriate (parts 125 and 225 of this chapter), or the Securities and Exchange Commission's record retention rules in 17 CFR part 257.

3. In § 366.22, paragraphs (a)(1) and (b)(1) are revised to read as follows:

§ 366.22
Accounts and records of service companies.

(a)
Records retention requirements
—(1)
General
. Unless otherwise exempted or granted a waiver by Commission rule or order pursuant to §§ 366.3 and 366.4 of this chapter, beginning January 1, 2007, every service company must maintain and make available to the Commission such books, accounts, memoranda, and other records in such manner and preserve them for such periods as the Commission prescribes in part 368 of this chapter, in sufficient detail to permit examination, audit, and verification, as necessary and appropriate for the protection of utility customers with respect to jurisdictional rates.

(b)
Accounting requirements
—(1)
General
. Unless otherwise exempted or granted a waiver by Commission rule or order pursuant to §§ 366.3 and 366.4 of this chapter, beginning January 1, 2007, every centralized service company (See § 367.2 of this chapter) must maintain and make available to the Commission such books, accounts, memoranda, and other records as the Commission prescribes in part 367 of this chapter, in sufficient detail to permit examination, audit, and verification, as necessary and appropriate for the protection of utility customers with respect to jurisdictional rates. Every such service company must maintain and make available such books, accounts, memoranda, and other records in such manner as are prescribed in part 367 of this chapter, and must keep no other records with respect to the same subject matter except:

(i) Records other than accounts;

(ii) Records required by federal or state law;

(iii) Subaccounts or supporting accounts which are not inconsistent with the accounts required either by the Uniform System of Accounts for Centralized Service Companies in part 367 of this chapter; and

(iv) Any other accounts that may be authorized by the Commission.

4. In § 366.23, the section heading and paragraph (a) are revised to read as follows:

§ 366.23
FERC Form No. 60, Annual report of service companies, and FERC-61, Narrative description of service company functions.

(a)
General
. (1) FERC Form No. 60. Unless otherwise exempted or granted a waiver by Commission rule or order pursuant to §§ 366.3 and 366.4 of this chapter, every centralized service company (
See
§ 367.2 of this chapter) in a holding company system must file with the Commission by May 1, 2006 and May 1, 2007, and by April 18 each year thereafter, an annual report, FERC Form No. 60, for the prior calendar year. Every report must be submitted on the FERC Form No. 60 then in effect and shall be prepared in accordance with the instructions incorporated in that form.

(2) FERC-61. Unless otherwise exempted or granted a waiver by Commission rule or order pursuant to §§ 366.3 and 366.4 of this chapter, every service company in a holding company system, including a special-purpose company (e.g., a fuel supply company or a construction company), that does not file a FERC Form No. 60 shall instead file with the Commission by April 18, 2007 and by April 18 each year thereafter, a narrative description, FERC-61, of the service company's functions during the prior calendar year. In complying with this section, a holding company may make a single filing on behalf of all such service company subsidiaries.

(3) For good cause shown, the Commission may extend the time within which any such report or narrative description required to be filed pursuant to paragraphs (a)(1) or (2) of this chapter is to be filed or waive the requirements applicable to any such report or narrative description.

5. Part 367 is added to read as follows:

PART 367—UNIFORM SYSTEM OF ACCOUNTS FOR CENTRALIZED SERVICE COMPANIES SUBJECT TO THE PROVISIONS OF PUCHA 2005

Subpart A—Definitions

Sec.
367.1
Definitions.

Subpart B—General Instructions

367.2
Companies for which this system of accounts is prescribed.
367.3
Records.
367.4
Numbering system.
367.5
Accounting period.
367.6
Submittal of questions.
367.7
Item list.
367.8
Extraordinary items.
367.9
Prior period items.
367.10
Unaudited items.
367.11
Distribution of pay and expenses of employees.
367.12
Payroll distribution.
367.13
Accounting to be on accrual basis.
367.14
Transactions with associate companies.
367.15
Contingent assets and liabilities.
367.16
Long-term debt: Premium, discount and expense, and gain or loss on reacquisition.
367.17
Comprehensive inter-period income tax allocation.
367.18
Criteria for classifying leases.
367.19
Accounting for leases.
367.20
Depreciation accounting.
367.22
Accounting for asset retirement obligations
367.23
Transactions with non-associate companies.
367.24
Construction and service contracts for other companies.
367.25
Determination of service cost.
367.26
Departmental classification.
367.27
Billing procedures.
367.28
Methods of allocation.
367.29
Compensation for use of capital.
367.30
Work order system for associate companies.

Subpart C—Service Company Property Instructions

367.50
Service company property to be recorded at cost.
367.51
Components of construction.
367.52
Overhead construction costs.
367.53
Service Company property purchased or sold.
367.54
Expenditures on leased property.
367.55
Land and land rights.
367.56
Structures and improvements.
367.57
Equipment.
367.58
Work order and property record system required for service company property.
367.59
Additions and retirements of property.

Subpart D—Operating Expense Instructions

367.80
Supervision and engineering.
367.81
Maintenance.
367.82
Rents.
367.83
Training costs.

Subpart E—Special Instructions

367.100

Accounts 131-174, Current and accrued assets.

367.101
Accounts 231-243, Current and accrued liabilities.
367.102
Accounts 408.1 and 408.2, Taxes other than income taxes.
367.103
Accounts 409.1, 409.2, and 409.3, Income taxes.
367.104
Accounts 410.1, 410.2, 411.1, and 411.2, Provision for deferred income taxes.
367.105
Accounts 411.4, and 411.5, Investment tax credit adjustments.
367.106
Accounts 426.1, 426.2, 426.3, 426.4, and 426.5, Miscellaneous expense accounts.

Subpart F—Balance Sheet Chart of Accounts

Service Company Property

367.1010
Account 101, Service company property.
367.1011
Account 101.1, Property under capital leases.
367.1070
Account 107, Construction work in progress.
367.1080
Account 108, Accumulated provision for depreciation of service company property.
367.1110
Account 111, Accumulated provision for amortization of service company property.
367.1230
Account 123, Investment in associate companies.
367.1240
Account 124, Other investments.
367.1280
Account 128, Other special funds.
Current and Accrued Assets

367.1310
Account 131, Cash.
367.1340
Account 134, Other special deposits.
367.1350
Account 135, Working funds.
367.1360
Account 136, Temporary cash investments.
367.1410
Account 141, Notes receivable.
367.1420
Account 142, Customer accounts receivable.
367.1430
Account 143, Other accounts receivable.
367.1440
Account 144, Accumulated provision for uncollectible accounts—Credit.
367.1450
Account 145, Notes receivable from associate companies.
367.1460
Account 146, Accounts receivable from associate companies.
367.1520
Account 152, Fuel stock expenses undistributed.
367.1540
Account 154, Materials and operating supplies.
367.1630
Account 163, Stores expense undistributed.
367.1650
Account 165, Prepayments.
367.1710
Account 171, Interest and dividends receivable.
367.1720
Account 172, Rents receivable.
367.1730
Account 173, Accrued revenues.
367.1740
Account 174, Miscellaneous current and accrued assets.
Deferred Debits

367.1810
Account 181, Unamortized debt expense.
367.1830
Account 183, Preliminary survey and investigation charges.
367.1840
Account 184, Clearing accounts.
367.1850
Account 185, Temporary facilities.
367.1860
Account 186, Miscellaneous deferred debits.
367.1880
Account 188, Research, development and demonstration expenditures.
367.1900
Account 190, Accumulated deferred income taxes.
Proprietary Capital

367.2010
Account 201, Common stock issued.
367.2040
Account 204, Preferred stock issued.
367.2110
Account 211, Miscellaneous paid-in-capital.
367.2150
Account 215, Appropriated retained earnings.
367.2160
Account 216, Unappropriated retained earnings.
367.2161
Account 216.1, Unappropriated undistributed subsidiary earnings.
367.2190
Account 219, Accumulated other comprehensive income.
Long-Term Debt

367.2230
Account 223, Advances from associate companies.
367.2240
Account 224, Other long-term debt.
367.2250
Account 225, Unamortized premium on long-term debt.
367.2260
Account 226, Unamortized discount on long-term debt—Debit.
Other Noncurrent Liabilities

367.2270
Account 227, Obligations under capital lease—Non-current.
367.2300
Account 230, Assets retirement obligations.
Current and Accrued Liabilities

367.2310
Account 231, Notes payable.
367.2320
Account 232, Accounts payable.
367.2330
Account 233, Notes payable to associate companies.
367.2340
Account 234, Accounts payable to associate companies.
367.2360
Account 236, Taxes accrued.
367.2370
Account 237, Interest accrued.
367.2380
Account 238, Dividends declared.
367.2410
Account 241, Tax collections payable.
367.2420
Account 242, Miscellaneous current and accrued liabilities.
367.2430
Account 243, Obligations under capital leases—Current.
Deferred Credits

367.2530
Account 253, Other deferred credits.
367.2550
Account 255, Accumulated deferred investment tax credits.
367.2820
Account 282, Accumulated deferred income taxes—Other property.
367.2830
Account 283, Accumulated deferred income taxes—Other

Subpart G—Service Company Property Chart of Accounts

367.3010
Account 301, Organization.
367.3030
Account 303, Miscellaneous intangible property.
367.3890
Account 389, Land and land rights.
367.3900
Account 390, Structures and improvements.
367.3910
Account 391, Office furniture and equipment.
367.3920
Account 392, Transportation equipment.
367.3930
Account 393, Stores equipment.
367.3940
Account 394, Tools, shop and garage equipment.
367.3950
Account 395, Laboratory equipment.
367.3960
Account 396, Power operated equipment.
367.3970
Account 397, Communication equipment.
367.3980
Account 398, Miscellaneous equipment.
367.3990
Account 399, Other tangible property.
367.3991
Account 399.1, Asset retirement costs for service company property.

Subpart H—Income Statement Chart of Accounts

Service Company Operating Income

367.4000
Account 400, Operating revenues.
367.4010
Account 401, Operation expense.
367.4020
Account 402, Maintenance expense.
367.4030
Account 403, Depreciation expense.
367.4031
Account 403.1, Depreciation expense for asset retirement costs.
367.4040
Account 404, Amortization of limited-term property.
367.4050
Account 405, Amortization of other property.
367.4081
Account 408.1, Taxes other than income taxes, operating income.
367.4082
Account 408.2, Taxes other than income taxes, other income and deductions.
367.4091
Account 409.1, Income taxes, operating income.
367.4092
Account 409.2, Income taxes, other income and deductions.
367.4093
Account 409.3, Income taxes, extraordinary items.
367.4101
Account 410.1, Provision for deferred income taxes, operating income.
367.4102
Account 410.2, Provision for deferred income taxes, other income and deductions.
367.4111
Account 411.1, Provision for deferred income taxes—Credit, operating income.
367.4112
Account 411.2, Provision for deferred income taxes—Credit, other income and deductions.
367.4114
Account 411.4, Investment tax credit adjustments, service company property.
367.4115
Account 411.5, Investment tax credit adjustments, other.
367.4116
Account 411.10, Accretion expense.
367.4150
Account 415, Revenues from merchandising, jobbing and contract work.
367.4160
Account 416, Costs and expenses of merchandising, jobbing and contract work.
367.4171
Account 417.1, Expenses of non-utility related operations.
367.4181
Account 418.1, Equity in earnings of subsidiary companies.
367.4190
Account 419, Interest and dividend income.
367.4191

Account 419.1, Allowance for other funds used during construction.

367.4210
Account 421, Miscellaneous income or loss.
367.4211
Account 421.1, Gain on disposition of property.
367.4212
Account 421.2, Loss on disposition of property.
367.4250
Account 425, Miscellaneous amortization.
367.4261
Account 426.1, Donations.
367.4262
Account 426.2, Life insurance.
367.4263
Account 426.3, Penalties.
367.4264
Account 426.4, Expenditures for certain civic, political and related activities.
367.4265
Account 426.5, Other deductions.
367.4270
Account 427, Interest on long-term debt.
367.4280
Account 428, Amortization of debt discount and expense.
367.4290
Account 429, Amortization of premium on debt—Credit.
367.4300
Account 430, Interest on debt to associate companies.
367.4310
Account 431, Other interest expense.
367.4320
Account 432, Allowance for borrowed funds used during construction—Credit.

Subpart I—Retained Earnings Accounts

367.4330
Account 433, Balance transferred from income.
367.4340
Account 434, Extraordinary income.
367.4350
Account 435, Extraordinary deductions.
367.4360
Account 436, Appropriations of retained earnings.
367.4370
Account 437, Dividends declared—preferred stock.
367.4380
Account 438, Dividends declared—common stock.
367.4390
Account 439, Adjustments to retained earnings.

Subpart J—Operating Revenue Chart of Accounts

367.4570
Account 457, Services rendered to associate utility companies.
367.4571
Account 457.1, Direct costs charged to associate utility companies.
367.4572
Account 457.2, Indirect costs charged to associate utility companies.
367.4573
Account 457.3, Compensation for use of capital—associate utility companies.
367.4580
Account 458, Services rendered to non-associate utility companies.
367.4581
Account 458.1, Direct costs charged to non-associate utility companies.
367.4582
Account 458.2, Indirect costs charged to non-associate utility companies.
367.4583
Account 458.3, Compensation for use of capital—Non-associate utility companies.
367.4584
Account 458.4, Excess or deficiency on servicing non-associate utility companies.
367.4590
Account 459, Services rendered to non-utility companies.
367.4591
Account 459.1, Direct costs charged to non-utility companies.
367.4592
Account 459.2, Indirect costs charged to non-utility companies.
367.4593
Account 459.3, Compensation for use of capital—non-utility companies.
367.4594
Account 459.4, Excess or deficiency on servicing non-associate utility companies.

Subpart K—Operation and Maintenance Expense Chart of Accounts

367.5000
Accounts 500-598, Electric operation and maintenance accounts.
367.8000
Accounts 800-894, Gas operation and maintenance accounts.
367.9010
Account 901, Supervision.
367.9020
Account 902, Meter reading expenses.
367.9030
Account 903, Customer records and collection expenses.
367.9040
Account 904, Uncollectible accounts.
367.9050
Account 905, Miscellaneous customer accounts expenses.
367.9070
Account 907, Supervision.
367.9080
Account 908, Customer assistance expenses.
367.9090
Account 909, Informational and instructional advertising expenses.
367.9100
Account 910, Miscellaneous customer service and informational expenses.
367.9110
Account 911, Supervision.
367.9120
Account 912, Demonstrating and selling expenses.
367.9130
Account 913, Advertising expenses.
367.9160
Account 916, Miscellaneous sales expenses.
367.9200
Account 920, Administrative and general salaries.
367.9210
Account 921, Office supplies and expenses.
367.9220
Account 922, Administrative expenses transferred—Credit.
367.9230
Account 923, Outside services employed.
367.9240
Account 924, Property insurance.
367.9250
Account 925, Injuries and damages.
367.9260
Account 926, Employee pensions and benefits.
367.9280
Account 928, Regulatory commission expense.
367.9301
Account 930.1, General advertising expenses.
367.9302
Account 930.2, Miscellaneous general expenses.
367.9310
Account 931, Rents.
367.9350
Account 935, Maintenance of structures and equipment.

Authority:

42 U.S.C. 16451-16463.

Subpart A—Definitions

§ 367.1
Definitions.
(a) When used in this system of accounts:

(1)
Accounts
means the accounts prescribed by this Uniform System of Accounts.

(2)
Actually issued
, as applied to securities issued or assumed by the service companies, means those which have been sold to bona fide purchasers for a valuable consideration, those issued as dividends on stock, and those which have been issued in accordance with contractual requirements direct to trustees of sinking funds.

(3)
Actually outstanding
, as applied to securities issued or assumed by the service company, means those which have been actually issued and are neither retired nor held by or for the service company; provided, however, that securities held by trustees must be considered as actually outstanding.

(4)
Amortization
means the gradual extinguishment of an amount in an account by distributing such amount over a fixed period, over the life of the asset or liability to which it applies, or over the period during which it is anticipated the benefit will be realized.

(5)
Associate company
means any company in the same holding company system with such company.

(6)
Book cost
means the amount at which property is recorded in these accounts without deduction of related provisions for accrued depreciation, amortization, or for other purposes.

(7)
Commission
means the Federal Energy Regulatory Commission.

(8)
Company
, when not otherwise indicated in the context, means a service company.

(9)
Construction
, when used in the context of a service provided to other companies, means any construction, extension, improvement, maintenance, or repair of the facilities or any part thereof of a company, which is performed for a charge.

(10)
Cost
means the amount of money actually paid for property or services. When the consideration given is other than cash in a purchase and sale transaction, as distinguished from a transaction involving the issuance of common stock in a merger, the value of such consideration must be determined on a cash basis.

(11)
Cost of removal
means the cost of demolishing, dismantling, tearing down or otherwise removing service property, including the cost of transportation and handling incidental thereto. It does not include the cost of removal activities associated with asset retirement obligations that are capitalized as part of the tangible long-lived assets that give rise to the obligation. (
See
General Instructions in § 367.22).

(12)
Debt expense
means all expenses in connection with the issuance and initial sale of evidences of debt, such as fees for drafting mortgages and trust deeds; fees and taxes for issuing or recording evidences of debt; cost of engraving and printing bonds and certificates of indebtedness; fees paid trustees; specific costs of obtaining governmental authority; fees for legal services; fees and commissions paid underwriters, brokers, and salesmen for

marketing such evidences of debt; fees and expenses of listing on exchanges; and other like costs.

(13)
Depreciation
, as applied to depreciable service company property, means the loss in service value not restored by current maintenance. Among the causes to be used as consideration for causes of loss in service value are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities.

(14)
Direct cost
includes the labor costs and expenses which can be identified through a work order system as being applicable to services performed for a single or group of associate and non-associate companies. Cost incidental to or related to a directly charged item must be classified as direct costs.

(15)
Discount
, as applied to the securities issued or assumed by the service company, means the excess of the par (stated value of no-par stocks) or face value of the securities plus interest or dividends accrued at the date of the sale over the cash value of the consideration received from their sale.

(16)
Electric utility company
means any company that owns or operates facilities used for the generation, transmission, or distribution of electric energy for sale. For the purposes of this subchapter, “electric utility company” shall not include entities that engage only in marketing of electric energy.

(17)
Gas utility company
means any company that owns or operates facilities used for distribution at retail (other than the distribution only in enclosed portable containers or distribution to tenants or employees of the company operating such facilities for their own use and not for resale) of natural or manufactured gas for heat, light, or power. For the purposes of this subchapter, “gas utility company” shall not include entities that engage only in marketing of natural and manufactured gas.

(18)
Goods
means any goods, equipment (including machinery), materials, supplies, appliances, or similar property (including coal, oil, or steam, but not including electric energy, natural or manufactured gas, or utility assets) which is sold, leased, or furnished, for a charge.

(19)
Holding company
—(i)
In general
. The term “holding company” means—

(A) Any company that directly or indirectly owns, controls, or holds, with power to vote, 10 percent or more of the outstanding voting securities of a public-utility company or of a holding company of any public-utility company; and

(B) Any person, determined by the Commission, after notice and opportunity for hearing, to exercise directly or indirectly (either alone or pursuant to an arrangement or understanding with one or more persons) such a controlling influence over the management or policies of any public-utility company or holding company as to make it necessary or appropriate for the rate protection of utility customers with respect to rates that such person be subject to the obligations, duties, and liabilities imposed by this subchapter upon holding companies.

(ii)
Exclusions
. The term “holding company” must not include—

(A) A bank, savings association, or trust company, or their operating subsidiaries that own, control, or hold, with the power to vote, public utility or public utility holding company securities so long as the securities are—

(
1
) Held as collateral for a loan;

(
2
) Held in the ordinary course of business as a fiduciary; or

(
3
) Acquired solely for purposes of liquidation and in connection with a loan previously contracted for and owned beneficially for a period of not more than two years; or

(B) A broker or dealer that owns, controls, or holds with the power to vote public utility or public utility holding company securities so long as the securities are—

(
1
) Not beneficially owned by the broker or dealer and are subject to any voting instructions which may be given by customers or their assigns; or

(
2
) Acquired in the ordinary course of business as a broker, dealer, or underwriter with the bona fide intention of effecting distribution within 12 months of the specific securities so acquired.

(20)
Holding company system
means a holding company, together with its subsidiary companies.

(21)
Indirect cost
includes the costs of a general overhead nature such as general services, housekeeping costs, and other support cost which cannot be separately identified to a single or group of associate and non-associate companies and, therefore, must be allocated. Indirect costs must be accumulated on a departmental basis.

(22)
Investment advances
means advances, represented by notes or by book accounts only, with respect to which it is mutually agreed or intended between the creditor and debtor that they must be settled by the issuance of securities or must not be subject to current settlement.

(23)
Lease, capital
means a lease of property used by the service company, which meets one or more of the criteria stated in General Instructions in § 367.18.

(24)
Lease, operating
means a lease of property used by a service company, which does not meet any of the criteria stated in General Instructions in § 367.18.

(25)
Minor items of property
means the associated parts or items of which retirement units are composed.

(26)
Natural gas company
means a person engaged in the transportation of natural gas in interstate commerce or the sale of such gas in interstate commerce for resale.

(27)
Net salvage value
means the salvage value of property retired less the cost of removal.

(28)
Nominally issued
, as applied to securities issued or assumed by the service company, means those which have been signed, certified, or otherwise executed, and placed with the proper officer for sale and delivery, or pledged, or otherwise placed in some special fund of the service company, but which have not been sold, or issued direct to trustees of sinking funds in accordance with contractual requirements.

(29)
Nominally outstanding
, as applied to securities issued or assumed by the service company, means those which, after being actually issued, have been reacquired by or for the service company under circumstances which require them to be considered as held alive and not retired, provided, however, that securities held by trustees must be considered as actually outstanding.

(30)
Non-associate companies
means a person, partnership, organization, government body or company which is not a member of the holding company system.

(31)
Non-utility company
means a company that is not a utility company.

(32)
Person
means an individual or company.

(33)
Premium
, as applied to securities issued or assumed by the service company, means the excess of the cash value of the consideration received from their sale over the sum of their par (stated value of no-par stocks) or face value and interest or dividends accrued at the date of sale.

(34)
Public utility
means any person who owns or operates facilities used for transmission of electric energy in interstate commerce or sales of electric energy at wholesale in interstate commerce.

(35)
Public-utility company
means an electric utility company or gas utility company.

(36)
Replacing or replacement
, when not otherwise indicated in the context, means the construction or installation of service property in place of property retired, together with the removal of the property retired.

(37)
Research, development, and demonstration
(RD&D) means expenditures incurred by a service company, for the service company or on behalf of others, either directly or through another person or organization (such as research institute, industry association, foundation, university, engineering company or similar contractor) in pursuing research, development, and demonstration activities including experiment, design, installation, construction, or operation. This definition includes expenditures for the implementation or development of new and/or existing concepts until technically feasible and commercially feasible operations are verified. When conducted on behalf of an associate or non-associate utility company such research, development, and demonstration costs should be reasonably related to the existing or future business of such company. The term includes, but is not limited to: all the costs incidental to the design, development or implementation of an experimental facility, a plant process, a product, a formula, an invention, a system or similar items, and the improvement of already existing items of a like nature; amounts expended in connection with the proposed development and/or proposed delivery of alternate sources of electricity or substitute or synthetic gas supplies (alternate fuel sources, for example, an experimental coal gasification plant or an experimental plant synthetically producing gas from liquid hydrocarbons); and the costs of obtaining its own patent, such as attorney's fees expended in making and perfecting a patent application. The term includes preliminary investigations and detailed planning of specific projects for securing for customers' non-conventional electric power or pipeline gas supplies that rely on technology that has not been verified previously to be feasible. The term does not include expenditures for efficiency surveys; studies of management, management techniques and organization; consumer surveys, advertising, promotions, or items of a like nature.

(38)
Retained earnings
means the accumulated net income of the service company less distribution to stockholders and transfers to other capital accounts.

(39)
Retirement units
means those items of property which, when retired, with or without replacement, are accounted for by crediting the book cost of the retirement units to the property account in which it is included.

(40)
Salvage value
means the amount received for property retired, less any expenses incurred in connection with the sale or in preparing the property for sale; or, if retained, the amount at which the material recoverable is chargeable to materials and supplies, or other appropriate account.

(41)
Service
means any managerial, financial, legal, engineering, purchasing, marketing, auditing, statistical, advertising, publicity, tax, research, or any other service (including supervision or negotiation of construction or of sales), information or data, which is sold or furnished for a charge.

(42)
Service company
means any associate company within a holding company system organized specifically for the purpose of providing non-power goods or services or the sale of goods or construction work to any public utility in the same holding company system.

(43)
Service cost
means the total of direct and indirect costs incurred to provide a service to an associate or non-associate company which are properly charged to expense by the service company.

(44)
Service life
means the time between the date property is placed in service, or property is leased to others, and the date of its retirement. If depreciation is accounted for on a production basis rather than on a time basis, then service life should be measured in terms of the appropriate unit of production.

(45)
Service value
means the difference between the cost and net salvage value of service property.

(46)
State commission
means any commission, board, agency, or officer, by whatever name designated, of a State, municipality, or other political subdivision of a State that, under the laws of such State, has jurisdiction to regulate public-utility companies.

(47)
Uniform System of Accounts
means the Uniform System of Accounts for Centralized Service Companies prescribed in this part, as amended from time to time.

(48)
Utility company
means a public-utility company or natural gas company whose rates are regulated by the Commission, state commission or other similar regulatory body.

(49)
Work order system
means a system for the accumulation of service company cost on a job, project, or functional basis. It includes schedules and worksheets used to account for charges billed to single and groups of associate and non-associate companies.

Subpart B—General Instructions

§ 367.2
Companies for which this system of accounts is prescribed.
(a) This Uniform System of Accounts applies to any centralized service company operating, or organized specifically to operate, within a holding company system for the purpose of providing non-power services to any public utility in the same holding company system. A centralized service company is not a special-purpose company (e.g., a fuel supply company or a construction company), but rather is a service company that provides services such as administrative, managerial, financial, accounting, recordkeeping, legal or engineering services, which are sold, furnished, or otherwise provided (typically for a charge) to other companies in the same holding company system. To the extent that the term service company is used in this Uniform System of Accounts, it applies only to centralized service companies.

(b) This Uniform System of Accounts is not applicable to:

(1) Service companies that are specifically organized as a special-purpose company such as a fuel supply company or a construction company.

(2) Electric or gas utility companies.

(3) Companies primarily engaged:

(i) In the production of goods, including exploration and development of fuel resources,

(ii) In the provision of water, telephone, or similar services, the sale of which is normally subject to public rate regulation,

(iii) In the provision of transportation, whether or not regulated, or

(iv) In the ownership of property, including leased property and fuel reserves, for the use of associate companies.

(4) A service company that provides services exclusively to a local gas distribution company.

§ 367.3
Records.
(a) Each service company must keep its books of account, and all other books, records, and memoranda that support the entries in the books of account, so as to be able to furnish full information on any item included in any account. Each entry must be supported by sufficient detailed information that will permit ready identification, analysis, and verification of all facts relevant and related to the records.

(b) The books and records referred to in this part include not only accounting

records in a limited technical sense, but all other records, such as minutes books, stock books, reports, correspondence, and memoranda, that may be useful in developing the history of or facts regarding any transaction.

(c) No service company may destroy any books or records unless the destruction is permitted by the rules and regulations of the Commission.

(d) In addition to prescribed accounts, clearing accounts, temporary or experimental accounts, and subaccounts of any accounts may be kept, provided the integrity of the prescribed accounts is not impaired.

(e) The arrangement or sequence of the accounts prescribed in this part must not be controlling as to the arrangement or sequence in report forms that may be prescribed by the Commission.

§ 367.4
Numbering system.
(a) The account numbering plan used in this part consists of a system of three-digit whole numbers as follows:

(1) 100-199, Assets and other debits.

(2) 200-299, Liabilities and other credits.

(3) 300-399, Property accounts.

(4) 400-432 and 434-435, Income accounts.

(5) 433, 436 and 439, Retained earnings accounts.

(6) 457-459, Revenue accounts.

(7) 500-599, Electric operating expenses.

(8) 800-894, Gas operating expenses.

(9) 900-949, Customer accounts, customer service and informational, sales, and general and administrative expenses.

(b) The numbers prefixed to account titles are to be considered as parts of the titles. Each service company, however, may adopt for its own purposes a different system of account numbers (
See also
General Instructions in § 367.3(d)) provided that the numbers prescribed in this part must appear in the descriptive headings of the ledger accounts and in the various sources of original entry; however, if a service company uses a different system of account numbers and it is not practicable to show the prescribed account numbers in the various sources of original entry, the reference to the prescribed account numbers may be omitted from the various sources of original entry. Each service company using different account numbers for its own purposes must keep readily available a list of the account numbers that it uses and a reconciliation of those account numbers with the account numbers provided in this part. It is intended that the service company's records must be kept so as to permit ready analysis by prescribed accounts (by direct reference to sources of original entry to the extent practicable) and to permit preparation of financial and operating statements directly from the records at the end of each accounting period according to the prescribed accounts.

§ 367.5
Accounting period.
Each service company must keep its books on a monthly basis so that for each month all transactions applicable to the account, as nearly as may be ascertained, must be entered in the books of the service company. Amounts applicable or assignable to a single or group of associate and non-associate companies must be segregated monthly. Each service company must close its books at the end of each calendar year unless otherwise authorized by the Commission.

§ 367.6
Submittal of questions.
To maintain uniformity of accounting, service companies must submit questions of doubtful interpretation to the Commission for consideration and decision.

§ 367.7
Item list.
Lists of items appearing in the texts of the accounts or elsewhere in this part are for the purpose of indicating clearly the application of the prescribed accounting. The lists are intended to be representative, but not exhaustive. The appearance of an item in a list warrants the inclusion of the item in the account mentioned only when the text of the account also indicates inclusion inasmuch as the same item frequently appears in more than one list. The proper entry in each instance must be determined by the texts of the accounts.

§ 367.8
Extraordinary items.

Those items related to the effects of events and transactions that have occurred during the current period and that are of an unusual nature and infrequent occurrence must be considered extraordinary items. Accordingly, there will be events and transactions of significant effect that are abnormal and significantly different from the ordinary and typical activities of the service company, and that would not reasonably be expected to recur in the foreseeable future. In determining significance, items must be considered individually and not in the aggregate. However, the effects of a series of related transactions arising from a single specific and identifiable event or plan of action should be considered in the aggregate. For an item to be recognized as extraordinary, Commission approval must be obtained. (
See
Accounts 434 and 435 in §§ 367.4340 and 367.4350.)

§ 367.9
Prior period items.
(a) Items of profit and loss related to the following must be accounted for as prior period adjustments and excluded from the determination of net income for the current year:

(1) Correction of an error in the financial statements of a prior year.

(2) Adjustments that result from realization of income tax benefits of pre-acquisition operating loss carry forwards of purchased subsidiaries.

(b) All other items of profit and loss recognized during the year must be included in the determination of net income for that year.

§ 367.10
Unaudited items.
Whenever a financial statement is required by the Commission, if it is known that a transaction has occurred that affects the accounts but the amount involved in the transaction and its effect upon the accounts cannot be determined with absolute accuracy, the amount must be estimated and the estimated amount included in the proper accounts. The service company is not required to anticipate minor items that would not appreciably affect the accounts.

§ 367.11
Distribution of pay and expenses of employees.
The charges to property, operating expense and other accounts for services and expenses of employees engaged in activities chargeable to various accounts, such as construction, maintenance, and operations, must be based upon the actual time engaged in the respective classes of work, or an appropriate allocation method.

§ 367.12
Payroll distribution.
Underlying accounting data must be maintained so that the distribution of the cost of labor charged direct to the various accounts will be readily available. The underlying data must permit a reasonably accurate distribution to be made of the cost of labor charged initially to clearing accounts so that the total labor cost may be classified among construction, cost of removal, operating functions.

§ 367.13
Accounting to be on accrual basis.

(a) The service company is required to keep its accounts on the accrual basis. This requires the inclusion in its accounts of all known transactions of appreciable amount that affect the accounts. If bills covering the transactions have not been received or

rendered, the amounts must be estimated and appropriate adjustments made when the bills are received. When the amount is ascertained, the necessary adjustments must be made through the accounts in which the estimate was recorded. If it is determined during the interval that a material adjustment will be required, the estimate must be adjusted through the current accounts. The service company is not required to anticipate minor items which would not appreciably affect these accounts.

(b) When payments are made in advance for items such as insurance, rents, taxes or interest, the amount applicable to future periods must be charged to account 165, Prepayments (§ 367.1650), and spread over the periods to which they are applicable by credits to account 165 (§ 367.1650), and charges to the accounts appropriate for the expenditure.

§ 367.14
Transactions with associate companies.
Each service company must keep its accounts and records so as to be able to furnish accurately and expeditiously statements of all transactions with associate companies. The statements may be required to show the general nature of the transactions, the amounts involved in the transactions and the amounts included in each account prescribed in this part with respect to such transactions. Transactions with associate companies must be recorded in the appropriate accounts for transactions of the same nature. Nothing contained in this part, however, must be construed as restraining the service company from subdividing accounts for the purpose of recording separately transactions with associate companies.

§ 367.15
Contingent assets and liabilities.
Contingent assets represent a possible source of value to the service company contingent upon the fulfillment of conditions regarded as uncertain. Contingent liabilities include items that, under certain conditions, may become obligations of the service company but that are neither direct nor assumed liabilities at the date of the balance sheet. The service company must be prepared to give a complete statement of significant contingent assets and liabilities (including cumulative dividends on preference stock) in its annual report and at such other times as may be requested by the Commission.

§ 367.16
Long-term debt: Premium, discount and expense, and gain or loss on reacquisition.
(a) A separate premium, discount and expense account must be maintained for each class and series of long-term debt (including receivers' certificates) issued or assumed by the service company. The premium must be recorded in account 225, Unamortized premium on long-term debt (§ 367.2250), the discount must be recorded in account 226, Unamortized discount on long-term debt—Debit (§ 367.2260), and the expense of issuance must be recorded in account 181, Unamortized debt expense (§ 367.1810). The premium, discount and expense must be amortized over the life of the respective issues under a plan that will distribute the amounts equitably over the life of the securities. The amortization must be on a monthly basis, and the amounts relating to discounts and expenses must be charged to account 428, Amortization of debt discount and expense (§ 367.4280). The amounts relating to premiums must be credited to account 429, Amortization of premium on debt—Credit (§ 367.4290).

(b) When long-term debt is reacquired the difference between the amount paid upon reacquisition of any long-term debt and the face value, adjusted for unamortized discount, expenses or premium, as the case may be, applicable to the debt redeemed must be recognized currently in income and recorded in account 421, Miscellaneous income or loss (§ 367.4210), or account 426.5, Other deductions (§ 367.4265).

§ 367.17
Comprehensive inter-period income tax allocation.
(a) Where there are timing differences between the periods in which transactions affect taxable income and the periods in which they enter into the determination of pretax accounting income, the income tax effects of such transactions are to be recognized in the periods in which the differences between book accounting income and taxable income arise and in the periods in which the differences reverse using the deferred tax method. In general, comprehensive inter-period tax allocation should be followed whenever transactions enter into the determination of pretax accounting income for the period even though some transactions may affect the determination of taxes payable in a different period, as further qualified in this section.

(b) Once comprehensive inter-period tax allocation has been initiated, either in whole or in part, it must be practiced on a consistent basis and must not be changed or discontinued without prior Commission approval.

(c) Tax effects deferred currently will be recorded as deferred debits or deferred credits in accounts 190, Accumulated deferred income taxes (§ 367.1900), 282, Accumulated deferred income taxes—Other property (§ 367.2820), and 283, Accumulated deferred income taxes—Other (§ 367.2830), as appropriate. The resulting amounts recorded in these accounts must be disposed of as prescribed in this system of accounts or as otherwise authorized by the Commission.

§ 367.18
Criteria for classifying leases.
(a) If, at its inception, a lease meets one or more of the following criteria, the lease must be classified as a capital lease. Otherwise, it must be classified as an operating lease.

(1) The lease transfers ownership of the property to the lessee by the end of the lease term.

(2) The lease contains a bargain purchase option.

(3) The lease term is equal to 75 percent or more of the estimated economic life of the leased property. However, if the beginning of the lease term falls within the last 25 percent of the total estimated economic life of the leased property, including earlier years of use, this criterion must not be used for purposes of classifying the lease.

(4) The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any related profit, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by the lessor and expected to be realized by the lessor. However, if the beginning of the lease term falls within the last 25 percent of the total estimated economic life of the leased property, including earlier years of use, this criterion must not be used for purposes of classifying the lease. The lessee must compute the present value of the minimum lease payments using its incremental borrowing rate, unless:

(i) It is practicable for the company to learn the implicit rate computed by the lessor, and

(ii) The implicit rate computed by the lessor is less than the lessee's incremental borrowing rate.

(iii) If both of those conditions are met, the lessee must use the implicit rate.

(b) If, at any time, the lessee and lessor agree to change the provisions of the lease, other than by renewing the lease would have resulted in a different classification of the lease under the criteria in paragraph (a) of this section had the changed terms been in effect at the inception of the lease, the revised

agreement must be considered as a new agreement over its term, and the criteria in paragraph (a) of this section must be applied for purposes of classifying the new lease. Likewise, any action that extends the lease beyond the expiration of the existing lease term, such as the exercise of a lease renewal option other than those already included in the lease term, must be considered as a new agreement and must be classified according to the criteria in paragraph (a) of this section. Changes in estimates (for example, changes in estimates of the economic life or of the residual value of the leased property) or changes in circumstances (for example, default by the lessee) must not give rise to a new classification of a lease for accounting purposes.

§ 367.19
Accounting for leases.
(a) All leases must be classified as either capital or operating leases.

(b) The service company must record a capital lease as an asset in account 101.1, Property under capital leases (§ 367.1011) and an obligation in account 227, Obligations under capital leases—Non-current (§ 367.2270), or account 243, Obligations under capital leases—Current (§ 367.2430), at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, together with any related profit. However, if the determined amount exceeds the fair value of the leased property at the inception of the lease, the amount recorded as the asset and obligation must be the fair value.

(c) The service company, as a lessee, must recognize an asset retirement obligation (
See
General Instructions in § 367.22) arising from the property under a capital lease unless the obligation is recorded as an asset and liability under a capital lease. The service company must record the asset retirement cost by debiting account 101.1, Property under capital leases (§ 367.1011), and crediting the liability for the asset retirement obligation in account 230, Asset retirement obligations (§ 367.2300). Asset retirement costs recorded in account 101.1 (§ 367.1011) must be amortized by charging rent expense (
See
Operating Expense Instructions in § 367.82) or account 421, Miscellaneous income or loss (§ 367.4210), as appropriate, and crediting a separate subaccount of the account in which the asset retirement costs are recorded. Charges for the periodic accretion of the liability in account 230, Asset retirement obligations (§ 367.2300), must be recorded by a charge to account 411.10, Accretion expense, for service company property (§ 367.4111), and account 421, Miscellaneous income or loss, for non-service company property (§ 367.4210) and a credit to account 230, Asset retirement obligations (§ 367.2300).

(d) Rental payments on all leases must be charged to rent expense, fuel expense, construction work in progress, or other appropriate accounts as they become payable.

(e) For a capital lease, for each period during the lease term, the amounts recorded for the asset and obligation must be reduced by an amount equal to the portion of each lease payment that would have been allocated to the reduction of the obligation, if the payment had been treated as a payment on an installment obligation (liability) and allocated between interest expense and a reduction of the obligation so as to produce a constant periodic rate of interest on the remaining balance.

§ 367.20
Depreciation accounting.

(a)
Method.
Service companies must use a method of depreciation that allocates in a systematic and rational manner the service value of depreciable property over the service life of the property.

(b)
Service lives.
Estimated useful service lives of depreciable property must be supported by engineering, economic, or other depreciation studies.

(c)
Rate.
Service companies must use percentage rates of depreciation that are based on a method of depreciation that allocates the service value of depreciable property over the service life of the property. Where composite depreciation rates are used, they must be based on the weighted average estimated useful service lives of the depreciable property comprising the composite group.

§ 367.22
Accounting for asset retirement obligations.
(a) An asset retirement obligation represents a liability for the legal obligation associated with the retirement of a tangible, long-lived asset that a service company is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract, or by legal construction of a contract under the doctrine of promissory estoppel. An asset retirement cost represents the amount capitalized when the liability is recognized for the long-lived asset that gives rise to the legal obligation. The amount recognized for the liability and an associated asset retirement cost must be stated at the fair value of the asset retirement obligation in the period in which the obligation is incurred.

(b) The service company must initially record a liability for an asset retirement obligation in account 230, Asset retirement obligations (§ 367.2300), and charge the associated asset retirement costs to service company property (including account 101.1 in § 367.1011) related to the property that gives rise to the legal obligation. The asset retirement cost must be depreciated over the useful life of the related asset that gives rise to the obligations. For periods subsequent to the initial recording of the asset retirement obligation, a service company must recognize the period to period changes of the asset retirement obligation that result from the passage of time due to the accretion of the liability and any subsequent measurement changes to the initial liability for the legal obligation recorded in account 230, Asset retirement obligations (§ 367.2300), as follows:

(1) The service company must record the accretion of the liability by debiting account 411.10, Accretion expense (§ 367.4116); and

(2) The service company must recognize any subsequent measurement changes of the liability initially recorded in account 230, Asset retirement obligations (§ 367.2300), for each specific asset retirement obligation as an adjustment of that liability in account 230 with the corresponding adjustment to service company property. The service company must on a timely basis monitor any measurement changes of the asset retirement obligations.

(c) Gains or losses resulting from the settlement of asset retirement obligations associated with service company property resulting from the difference between the amount of the liability for the asset retirement obligation included in account 230, Asset retirement obligations(§ 367.2300), and the actual amount paid to settle the obligation shall be accounted for as follows:

(1) Gains shall be credited to account 421, Miscellaneous income or loss (§ 367.4210), and;

(2) Losses shall be charged to account 426.5, Other deductions (§ 367.4265).

(d) Separate subsidiary records must be maintained for each asset retirement obligation showing the initial liability and associated asset retirement cost, any incremental amounts of the liability incurred in subsequent reporting periods for additional layers of the original liability and related asset retirement cost, the accretion of the

liability, the subsequent measurement changes to the asset retirement obligation, the depreciation and amortization of the asset retirement costs and related accumulated depreciation, and the settlement date and actual amount paid to settle the obligation. For purposes of analysis, a service company must maintain supporting documentation so as to be able to furnish accurately and expeditiously with respect to each asset retirement obligation the full details of the identity and nature of the legal obligation, the year incurred, the identity of the plant giving rise to the obligation, the full particulars relating to each component and supporting computations related to the measurement of the asset retirement obligation.

§ 367.23
Transactions with non-associate companies.
When a service or construction is performed for non-associate companies at an amount other than cost, the amount of revenues in excess or deficiency of the cost on servicing the non-associate companies must be charged to account 458.4, Excess or deficiency on servicing non-associate utility companies (§ 367.4584), or account 459.4, Excess or deficiency on servicing non-associate non-utility companies(§ 367.4594), as appropriate. A deficiency incurred in a project deemed beneficial to the associate companies may be charged to associate companies subject to disallowance by a State Commission or Federal Commission having jurisdiction over the rates or services of the associate companies. To the extent not charged, or if disallowed, the deficiency will be charged to account 458.4 (§ 367.4584) or account 459.4 (§ 367.4594), as appropriate. In computing charges to associate companies for any calendar year, the sum of the closing balances in these accounts, if a credit, must be deducted from amounts reimbursable by associate companies as compensation for use of capital invested in the service company.

§ 367.24
Construction and service contracts for other companies.
(a) Specific accounts have not been provided to classify expenditures made in the performance of construction or service contracts, under which the service company undertakes projects to construct physical property for associate or non-associate companies. The service company must keep records pursuant to its work order system indicating the cost of each contract or project, the amount of service costs allocated to the contracts, and the additional classification of expenditures relating to projects that will meet the accounting requirements of the company for which the work is performed.

(b) Service costs allocated to construction must include the proper proportion of salaries, expense of officers and employees, pay of employees on the service company's regular staff specifically assigned to construction work, and other expenses of maintaining the service company's organization and equipment. Cost of materials, construction payrolls, outside services, and other expenses directly attributable to construction work must be excluded from the accounting system of the service company and charged directly by the vendor or supplier to the construction project.

(c) Service costs allocated to centralized procurement activities must include only the cost of the support services performed by the service company in connection with the procurement of goods for associate companies. Cost of goods procured must be excluded from the accounting system of the service company and charged directly by the vendor or supplier to the associate company concerned. The service company must keep records indicating the cost of goods, if any, that it procures for each associate company and the amount of service costs allocated thereto. These records must be maintained to meet the Commission's accounting requirements for electric and gas companies.

§ 367.25
Determination of service cost.
A service must be deemed at cost and fair allocation of costs requires an accurate accounting for the elements that makes up the aggregate expense of conducting the business of the service company. In the accounts prescribed in this part, the total amounts included in the expense accounts during any period plus the amount that appropriately may be added as compensation for the use of capital, if paid, constitute cost during that period.

§ 367.26
Departmental classification.
Salaries and wages and all other costs must be classified by departmental or other functional category in accordance with the departmental organization of the service company to provide a readily available basis for analysis.

§ 367.27
Billing procedures.
All invoices for services rendered must be submitted monthly with sufficient information and in sufficient detail to permit such company, where applicable, to identify and classify the charge in terms of the system of accounts prescribed by the regulatory authorities to which it is subject. Each month a statement must be rendered to each associate and non-associate utility company to whom services were provided containing a summary of the accounts by work order and showing the charges, classified as direct cost, indirect cost, and compensation for use of capital.

§ 367.28
Methods of allocation.
Indirect costs and compensation for use of capital must be allocated to work orders in accordance with the service company's applicable and currently effective methods of allocation. Both direct and allocated indirect costs of work orders must be assigned among those companies in the same manner. Each work order must identify the methods of allocation and the accounts to be charged. Companies must be notified in writing of any change in the methods of allocation.

§ 367.29
Compensation for use of capital.
A servicing transaction is deemed to be performed at no more than cost if the price of the service does not exceed a fair and equitable allocation of expenses plus reasonable compensation for necessary capital procured through the issuance of capital stock. Interest on borrowed capital and compensation for the use of capital must only represent a reasonable return on the amount of capital reasonably necessary for the performance of services or construction work for, or the sale of goods to, associate companies. The compensation may be estimated and must be computed monthly. The amount of compensation must be stated separately in each billing to the associate companies. An annual statement to support the amount of compensation for use of capital billed for the previous 12 months and how it was calculated must be supplied to each associate company at the end of the calendar year.

§ 367.30
Work order system for associate companies.

Service companies must maintain a detailed classification of service costs, that permits costs to be identified with the functional processes of the associate companies served. To permit the classification, each service company must maintain a work order system for accumulating reimbursable costs and charges to the associate companies served, and maintain time records for all service company employees in order to support the accounting allocation of all expenses assignable to the types of services performed and chargeable to

the associate companies served. Service company employee records must permit a ready identification of the hours worked, account numbers charged, department work order number and other code designations that facilitate proper classification.

Subpart C—Service Company Property Instructions

§ 367.50
Service company property to be recorded at cost.
(a) All amounts included in the accounts for service company property must be stated at the cost inc

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A06-4043. Public record. Not legal advice.