FASB Pension ASU Implementation Considerations - aga.org · PDF fileGAAP CWIP FERC CWIP. ......
Transcript of FASB Pension ASU Implementation Considerations - aga.org · PDF fileGAAP CWIP FERC CWIP. ......
FASB Pension ASU Implementation Considerations
Tuesday May 23rd, 2017
Confidential & Proprietary – Copyright © 2017 PowerPlan, Inc.
Agenda
2Confidential & Proprietary – Copyright © 2017 PowerPlan, Inc.
Randall Hartman, EEI• Background ASU 715• Industry Specific Concerns• Open Topics
Jim Dahlby, PowerPlan• Allocations, Billings & AFUDC• Cost of Removal & ARO• Closing to Plant & Assets
Joel Sechler, RCC• Depreciation• Retirement• Tax
Safe Harbor
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Industry Groups and Accounting Firms still working through many of these topics
Some points of discussion are likely to change as these topics are further refined
Individual facts and circumstances need to be considered for each organization, regulatory and materiality are of particular importance.
ASC 715Compensation – Retirement Benefits
Background• Focus: transparency of benefit cost presentation• Income statement classification priority: decision-usefulness to
investors– Service cost – All other components of net benefit cost
• GAAP PP&E capitalization limited to service cost• No exceptions for regulated entities
– Affirmed ability to apply ASC 980-Regulated Operations• Effective for 2018 calendar year
ASC 715Compensation – Retirement Benefits
Specific Concerns – Regulated Entities• Regulator continues capitalization of all benefit cost components during
construction– ASC 715 requirements for GAAP reporting
• Service cost capitalized = PP&E• Non-service cost capitalized = regulatory asset
– Identification/computation– Amortization period, method, income statement line– Derecognition for early retirements
• Capitalization of AFUDC on capitalized non-service cost– Recognition– Balance sheet classification
ASC 715Compensation – Retirement Benefits
Other Issues• Industry task force on possible methodology for estimation of
regulatory asset• Service cost exceeds net benefit cost
– Regulatory liability?– Net amount capitalized?
• State regulator aligns with GAAP – FERC reporting and rate considerations
Allocations, Billings & AFUDC
Allocations & Overheads
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Need Traceability of where non-service pension costs are allocated on balance sheet• Labor Loading to CWIP, Stores Clearing, Inventory, Fuel, etc. • What is impact of multi-step allocations? Does Stores Clearing need to be broken into Non-
Service Pension and All Other, etc.? Materiality?
Result: • Add new cost elements, expenditure types, etc. in Chart of Accounts• Update Allocation and Overheads to separate out Non-Service Pension Cost
– Options for Contra Reclass after or separating pools to keep separate• Reclass to Regulatory Asset/Liability based on specific situations
Billings
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Joint Owner, Reimbursables, CIAC, Storm Crews
Billings normally driven based on contractual agreements
Open Questions: What impact does billings have on non-service pension being charged to CWIP or billed to a 3rd party.
Result: • When company will retain a portion of an asset in PP&E, depending on materiality the billing
process may need to bill amounts from CWIP and Reg Asset balances, since the CWIP will be split.
• Items collected for billing pass through, there is no impact to income statement, therefore no changes required.
• Review agreements to determine if there is a specific reference to GAAP accounting
AFUDC
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Accounting Firms in agreement that AFUDC Base can be construction costs as determined by AFUDC rules• This doesn’t have to equal GAAP CWIP basis• All AFUDC stays in CWIP(107)
Result: Compute AFUDC as is today, based on total CWIP including any non-service
pension costs Keep CWIP as-is for FERC, AFUDC and Operational/Budgeting Exclude reclass of non-service pension amounts to Regulatory Asset/Liability
from AFUDC base
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Polling Question:
How many people have an internal working group established already?
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Cost of Removal & ARO
Cost of Removal
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Monthly Accrual of Cost of Removal in Depreciation is reclassed from Accumulated Reserve (108) for FERC reporting to a Regulatory Liability under GAAP
Cost of Removal expenditures under GAAP are viewed as a spending of a regulatory liability
Result: No change required for Cost of Removal related to Non-Service Pension Costs
Asset Retirement Obligations
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Estimation and Liability
ARO Liability must be based on estimated expenditures at “market” rates for external parties
Internal labor and pension costs should have no bearing on how the ARO liability is formed
Result: No changes to ARO estimation or liability
Asset Retirement Obligations
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Settlement
Scenario 1: Accretion and ARC Depreciation are deferred to a Regulatory Asset• Expenditures for Settlement are accounted for based on regulatory treatment (e.g. COR)• ARO liability and ARO Reg Asset reduced as liability is reduced (either through a new layer
or adjustments)• Result: Follow approach for COR
Scenario 2: No Regulatory Asset for ARO Liability• Expenditures for Settlement are accounted for reduction in ARO Liability• Result:
– Based on materiality – don’t add non-service pension to labor used in settlement. Net result is same income statement but shift between pension and gain/loss for ARO
Closing to Plant & Assets
Closing to Plant and Assets Options
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Option #1 – Set of Books in CWIP, Asset and Depreciation Modules
Option #2 – Maintain 1 to 1 Regulatory Assets/Liabilities for Each Asset
Option #3 – Create summarized (e.g. functional class) Regulatory Assets/Liabilities
Option #4 – Manually in GL
Options Considerations Reference Guide
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Weighing the Options
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Decision FactorOption #1
(Separate Set of Books)
Option #2 (1-to-1 – Separate Asset)
Option #3 (Summarized Reg
Asset)
Provides fully detailed asset reporting from a FERC / Regulatory perspective Yes Yes Yes
Allows for GAAP net book value reporting at an asset level (for sale, investor reporting/reconciling, etc.) Yes Yes No
Accounting for asset transfers on the underlying asset automatically accounted for in the reg asset Yes No No
Asset retirements to the underlying asset automatically trigger proportional retirement to the reg asset Yes Yes No
Impact on number of sets of books in PowerPlanAdditional 1-2 per existing
SoBNone None
Requires the creation of new basis buckets in PowerPlan Yes Yes Yes
Requires the creation of new depreciation groups / methods in PowerPlan No Yes Yes
Weighing the Options
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Decision Factor
Option #1 (Separate Set of
Books )
Option #2 (1-to-1 –Separate Asset)
Option #3 (Summarized Reg Asset)
Impact on number of asset records in the CPR None Double (or more)
Increase based on level of summarization
Allows for the reg asset to depreciate at the same rate as the “native” asset Yes Yes No
Increase in complexity of Depreciation Control Tree None Low to High High
Impact to journal entry configuration (or reporting, if in lieu of automated journal entries) High Low Low
Automated integration of book and tax depreciation No Yes Yes
New, on-going manual processes required None None Several1
1 Composite Rate Calculations, Asset retirements, transfers, and sales
Option #4 Considerations
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Materiality?
Manually keep all FERC to GAAP differences in GL
Monthly Entries:• CWIP & Allocations• Joint Owner, CIAC, Billings, etc.• Closing to Plant• Depreciation• Retirements (optional)
Sustainable process for Year 2, Year 10, etc.
Tax Adjustments – discussed later
Contact:Jim Dahlby
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Depreciation Considerations
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differently now
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Depreciation Implementation Considerations
• Goal: Track the Recovery of the Pension Regulatory Asset/Liability over life of the underlying Fixed Assets.
• Reversal of the Timing Difference• Ensure the economic realities are appropriately reflected
• Potential Tracking Methods• Fixed Asset Sub Ledger• General Ledger with Spreadsheet Support
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Single Composite Depreciation Group
Multiple Groups by Functional Class
Multi Sets of Books
Depreciation Implementation Considerations
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Single Group Approach
• One Pension Group would be created by legal entity to adjust SEC Accumulated Reserve
• Amortized Over the Composite Life of All Assets
• Pro: Simplistic Approach and Minimal Impact to Accounting Operations
• Con: Least accurate and may not be reflective of underlying asset depreciation
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Functionalized Groups Approach
• A Group created for each FERC Functional Class• Amortized over Functional Class Composite Life
• Pro: More accurate than contra group with medium impact to Accounting Operations
• Con: Still may not be reflective of underlying asset depreciation
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Multi Set of Book Approach
• Multiple sets of books are tracked for all depreciation groups
• Same rates FERC depreciation rates
• Pro: Most Accurate recovery of timing difference. Reserve is identifiable for Retirements.
• Con: Can be burdensome to maintain and need to modify integrations with General Ledger
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Other Depreciation Considerations
• How Often should the composite rates be updated?• Quarterly• Annually
• Will Internal labor Cost of Removal have a timing difference?
• Can I support that in my Reserve / Regulatory Asset?
• What level of detail does the Tax Department need to support ADIT’s?
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Fixed Asset Retirement Considerations
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Asset Retirement Accounting Impacts
• Goal: Track Asset Retirement Impacts on the Recovery of the Regulatory Asset / Liability
• How will Retirements be applied to assets with a timing difference?
• Multi Set of Books• Contra Assets Retirement• By Vintage by Depreciation Group
• Impacts Depreciable Base
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Retirements Multi Sets of Books
• Basis Differences are automatically retired when the underlying Assets are retired.
• Gross Depreciable Base reduction that corresponds to FERC Books.
• Pro: Depreciation reversal calculation is most accurate.• Con: May require integration changes with the General
Ledger. More Complex Change Management.
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Contra Asset – Related Retirement
• Contra Assets, equal to the pension differential are created at unitization in relation to underlying assets
• Pro: Multiple Set of Books are not required and improved integration with Tax.
• Con: Increased volume of Assets and Depreciation Groups to Track. Potential Integration changes with the general ledger would be required.
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By Vintage by Contra Depreciation Group
• Actual Retirements are rationed by the applicable non-service cost impact on a particular vintage and applied to Contra Group manually.
• Pro: Minimal (If Any Integration Changes)• Con: Less Accurate and may lead to divergent depreciation
calculations over time.
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Tax Accounting Considerations
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GAAP vs FERC Timing Differences
GAAP CWIP FERC CWIPGAAP Net Plant FERC Net Plant
Since the difference in book expense is only temporary, a FAS 71 Regulatory Asset/Liability will likely be set up to track the difference
The timing difference will originate as internal labor is capitalized and will reverse as the underlying assets are depreciated and retired
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Why is this important for Tax?For a rate-regulated utility, the most important job of the tax function is to support accurate rate recovery, and to account for tax positions that are consistent with the economic realities of rate filings.
Multiple Book Basis to Tax Basis Reconciliations– GAAP is the starting point for IRS calculations– FERC (or PSC) is the starting point for above-the-line tax expense
Separate GAAP-vs-Tax and FERC-vs-Tax Timing Differences– Different ADIT balances– Different deferred tax expense amounts
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Polling Question
How Many Utilities Have not engaged their Tax Department determining the best solution for the company?
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Conclusion
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Materiality / Solution Complexity
Functionalized Differential Groups Multi Set of Books
Single Composite Differential Group Contra Assets
Approach
Solution Complexity
Materiality
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Contact Information
Joel SechlerE-mail – [email protected] - 610-554-5567