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continued
1. Summary of significant
accounting policies
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Other
deferred charges
Other deferred charges primarily include prepaid pension costs and regulatory
assets capitalized under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 71, “Accounting for the Effects of Certain
Types of Regulation.”
Regulatory assets.
At September 30, 2000, other deferred charges included total unamortized
regulatory assets of $372 million of which $228 million represents a
transition obligation for certain postemployment benefits and $144 million
represents an additional obligation related to the closure and removal
of nuclear units (see note 1—Decommissioning
costs). At September 30, 1999, the unamortized balances of regulatory
assets of $968 million included $343 million representing a transition
obligation for certain postemployment benefits; $393 million
representing an additional obligation related to the closure and removal
of nuclear units (see note 1—Decommissioning
costs); $221 million representing an overmarket portion of nuclear
fuel; and $11 million representing TVA’s portion of the costs for
decommissioning the DOE’s uranium enrichment facilities.
Effective for 1999
TVA reclassified an additional $332 million from nuclear fuel inventory
to deferred charges. This regulatory asset was fully amortized in 2000
(see note 1—Accelerated amortization).
The effect of this change was to increase 1999 expense by approximately
$111 million and to increase 2000 expense by approximately $221 million.
Accrual for
nuclear refueling outage costs. Also effective for 1999 TVA changed
its method of accounting for nuclear refueling outage maintenance costs
whereby such costs are deferred and amortized on a straight-line basis
over the estimated period until the next refueling outage, rather than
expensed as incurred. The effect of this change was to decrease 2000
and 1999 expense by $11 million and $63 million, respectively.
Investment
funds
Investment funds consist primarily of trust funds designated to fund
nuclear decommissioning requirements (see
note 9—Decommissioning costs). These funds are invested in
portfolios of securities generally designed to earn returns in line
with overall equity market performance.
Debt
issue and reacquisition costs
Effective for 1999 TVA changed its method of amortizing debt issue and
reacquisition costs. Under the current policy, debt issue and reacquisition
expenses, call premiums and other related costs are deferred and amortized
(accreted) on a pooled straight-line basis over the weighted average
life of TVA’s debt portfolio. Prior to 1999 debt issue and reacquisition
costs were separately amortized on a straight-line basis over the term
of the related outstanding securities. The effect of the change was
to decrease 2000 and 1999 expense approximately $23 million and $20
million, respectively.
TVA has incurred
premiums related to certain advanced refundings and also received and
paid premiums in connection with the monetization of certain call provisions.
In accordance with regulatory practices, TVA has deferred these premiums
and is amortizing such premiums on a pooled straight-line basis over
the weighted average life of TVA’s debt portfolio. The unamortized
balances of such regulatory assets at September 30, 2000 and 1999 were
$607 million and $641 million, respectively.
Tax-equivalents
The TVA Act requires TVA to make payments to states and local governments
where the power operations of the corporation are conducted. The amount
is 5 percent of gross revenues from the prior year’s sale of power,
excluding sales to other Federal agencies and interchange sales with
other utilities, with a provision for minimum payments under certain
circumstances.
Accelerated
amortization
Effective for 1999 TVA adopted a new accounting policy whereby annual
provisions for amortization of deferred charges will be adjusted as
necessary in order to achieve certain earnings levels as set forth in
resolutions adopted annually by the TVA Board of Directors in connection
with the rate review process. The targeted earnings levels will be based
on the earnings requirements of the TVA Act and the Basic TVA Power
Bond Resolution (see note 5—Borrowing authority).
Such adjustments may result in either contracting or extending the estimated
amortization periods. The amortization of such assets is principally
computed on a straight-line basis, over periods ranging from three to
15 years. As a result of surplus earnings levels in 2000 and 1999, TVA
accelerated amortization of certain regulatory assets by $121 million
and $261 million, respectively, under the policy.
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