VIII. Uniform System of Accounts Not Determinative of Proper Allocation of Gain on Sale
In the OIR, we took the position that the Uniform System of Accounts (USOA), which provides accounting instructions for plant assets, should not determine how to allocate gains on sale:
The usefulness of the USOA is limited only to the accounting and recordation of a transaction; it lacks clarity as to the appropriate treatment for ratemaking purposes. . . . The USOA only provides the accounting instructions and procedures to record the transaction; it does not provide or mandate any ratemaking guideline to the treatment of the gain or loss from the sales.56
We sought comment on this proposal.
A. Comments on Applicability of USOA to Gain on Sale Determination
Aglet and ORA/TURN agree with the Commission's finding that the USOA is not useful in determining how gains on sale should be allocated. ORA/TURN cites several cases in which the Commission has declined to apply USOA accounting rules to ratemaking questions.
In contrast, San Gabriel Water Company (San Gabriel) contends that the USOA provides consistent accounting procedures for recording gain or loss from sales of utility property, and should be relied upon to reinforce, not deviate from, ratemaking policies. San Gabriel states that the USOA was developed "so that regulatory agencies could be consistent and rational," and notes that the USOA provides accounting treatment for the sale of utility property. San Gabriel asserts that stock and bondholders purchase investments based on utility financial statements kept in accordance with the USOA. Failure to adopt gain on sale rules consistent with the USOA would, San Gabriel contends, "undermine the integrity of the utility's financial statements with lenders and investors."57
While most other parties do not appear to address the USOA question, SCE states that it "understands that it is the Commission's policy that the [USOA] is not necessarily binding with regard to ratemaking practices."
B. Discussion - USOA
The USOA dictates how utilities maintain their accounts for regulatory purposes. It ensures uniform accounting policies across utilities in the same industry. In the case of electric utilities, we adopted the Federal Energy Regulatory Commission (FERC) USOA in 1970. At that time, however, we stated that, "the Commission does not commit itself to approve or accept any item set out in any account for the purpose of fixing rates or determining other matters which may come before it." We further noted that, "we have consistently maintained that the accounting provisions contained [in the USOA] are not controlling as to the ratemaking policies which this Commission may determine to be reasonable and necessary."58
We have long acknowledged that the USOA is not determinative of gain on sale allocation. We have stated that, "the FERC adopted USOA is really a record keeping system, and . . . is not a ratemaking treatise that is controlling on the issue before us [how to allocate the gain on sale]."59 Similarly, in connection with a water gain on sale issue, we held that,
[n]otwithstanding the specificity with which the USOA governs the accounting practices of a water company, we stress that the purpose of a system of accounts is to predict the bookkeeping entries but not the ratemaking impact of a sale. The purpose of the USOA is not to provide a methodology for allocating the gain on sale for the purpose of setting rates but to properly track the Commission-imposed allocation. The Commission is not bound by accounting convention; it is free to pursue its legislative duty to balance the interests of shareholders and consumers.60
We made the same determination in the telecommunications context in D.94-09-080: "we reject any argument that the USOA alone should direct the Commission's allocation of gain between shareholders and ratepayers. While GTEC's interpretation of the accounting rules is correct, accounting practices do not drive ratemaking nor will we base our decision solely on the principles set forth in the USOA."61
San Gabriel provided no evidence supporting its claims that stock and bondholders rely on the USOA for gain on sale allocation, and no other party makes that claim. Consistent rules adopted by a regulator should provide investors with a level of consistency and certainty that is equal to or greater than that provided in the USOA. Given our long line of cases holding that the USOA accounting categories should not determine ratemaking allocations such as gain on sale, it would be unreasonable for investors to assume that the USOA would determine gain on sale allocations. Thus, we reject San Gabriel's position.
We find that USOA accounting categories, while necessary to ensure that utilities maintain their books in a consistent manner, do not control gain on sale allocations.
56 OIR at 14.
57 Comments of San Gabriel Water Co. at 7-8.
58 See D.03-12-056, 2002 Cal. PUC LEXIS 1069, at *17 (citations omitted).
59 D.90-04-028, 1990 Cal. PUC LEXIS 200, at *27.
60 D.94-09-032, 56 CPUC 2d 4 (1994), 1994 Cal. PUC LEXIS 529, at *25 (citations omitted).
61 D.94-09-080, 1994 Cal. PUC LEXIS 663, at *20.
