IV. Discussion

Under Sierra's proposed accounting treatment, the non-cash accounting entries (differences between the contract and market prices) would be simultaneously offset by regulatory assets or liabilities' accounts. When the contract is actually settled, the net gains or losses previously recognized as well as the net offsetting regulatory assets or liabilities would be reversed. The result would be no net gain or loss upon settlement of the contract.

The proposed accounting treatment would reduce the volatility in Sierra's balance sheet caused by FAS 133 and 138. As a result, potential adverse effects on its ability to pay dividends and to attract capital would be eliminated. In addition, Sierra's cost of service will not be affected due to its accounting proposal. Sierra's rates will not be adversely affected. Therefore, there is no reason that Sierra's proposed accounting treatment cannot be made effective for accounting entries effective January 1, 2001.

We will grant Sierra's request. However, our approval of Sierra's proposed accounting treatment does not constitute approval of any contract, or the regulatory treatment of any contract.