III. Applicant's Proposal

Sierra seeks authority to offset the balance sheet entries required by FAS 133 and 138 by regulatory assets or liabilities' accounts. Sierra proposes to record the fair market value of various resource acquisition contracts as assets in Federal Energy Regulatory Commission (FERC) Account 174, Miscellaneous Current and Accrued Assets, or as liabilities in FERC Account 242, Miscellaneous Current and Accrued Liabilities. These non-cash accounting entries would be offset by regulatory assets or liabilities' entries using the same accounts. The entries would be made simultaneously and would offset each other in Sierra's statements of income and comprehensive income. When the obligations under an affected contract are fulfilled, any gain or loss recognized under FAS 133 and 138 would be reversed and the offsetting regulatory asset or liability would also be reversed. The result would be no net loss or gain upon settlement of the contract.

Sierra's proposed accounting treatment, which results in equal and opposite entries in the balance sheet and income statement, would eliminate the earnings volatility caused by FAS 133 and 138. The adverse effect on reported earnings, dividends and financing arrangements would be eliminated. In addition, the ratemaking treatment of the contracts would be unaffected.

Sierra requests that its proposed accounting treatment become effective for its financial accounting entries beginning with its adoption of FAS 133 and 138 on January 1, 2001.