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continued
1. Summary of significant
accounting policies
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Allowance
for funds used during construction
TVA capitalizes
an allowance for funds used during construction. The allowance is applicable
to construction in progress, excluding deferred nuclear generating units.
Loans
and other long-term receivables
In June 1997, TVA entered into a five-year agreement with a bank
pursuant to which TVA agreed to sell certain receivables relating to
TVA’s consumer energy-conservation programs. As of September 30,
1999, approximately $218 million of the receivables have been sold for
proceeds equal to their carrying amount. Under the terms of the agreement,
TVA has retained substantially the same risk of credit loss as if the
receivables had not been sold and, accordingly, an appropriate liability
account has been established.
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.” At September 30, 1999, other deferred
charges included total unamortized regulatory assets of $968 million—of
which $343 million represents a transition obligation for certain postemployment
benefits; $393 million represents an additional obligation related to
the closure and removal of nuclear units (see
note 1—Decommissioning costs); $221 million represents an over-market
portion of nuclear fuel; and $11 million represents TVA’s portion
of the costs for decommissioning the Department of Energy’s (DOE)
uranium enrichment facilities. At September 30, 1998, the unamortized
balances of regulatory assets of $1,260 million included $342 million
representing a capitalized interest component of nuclear fuel; $377
million representing a transition obligation for certain postemployment
benefits; $478 million representing an additional obligation related
to the closure and removal of nuclear units (see
note 1—Decommissioning costs); and $63 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 will be amortized on a straight-line
basis over an estimated three-year period. The effect of this change
was to increase 1999 expense approximately $111 million.
Also effective
for 1999, TVA changed its method of accounting for nuclear refueling
outage maintenance costs whereby such costs will be 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 the change was
to decrease 1999 expense approximately $63 million.
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, 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 public debt portfolio. During 1998 and 1997, 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 1999 expense approximately $20 million.
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 public debt portfolio. The unamortized
balances of such regulatory assets at September 30, 1999 and 1998, were
$641 million and $674 million, respectively.
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