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E-Mail Comment
Remaining Life Depreciation Filings

I received the following e-mail from a fellow graduate of the United States Naval Academy which noted a lack of rigorousness in my description of remaining life depreciation in some of my regulated utility depreciation filings with the Maryland Public Service Commission. He is probably correct in some of his observations.


From: Bill Cochran <wcochran@is.usmo.com>
To: deanlaw@hotmail.com
Subject: Remaining Life absurdity

Date: Wed, 17 Feb 1999 08:22:33 -0800

"Better to be a plebe than a youngster on cruise". Too Bad Michael- you got sucked in!!! There is no such thing as "remaining life". If you do or can do an generation arrangement -look to remaining life column and you will see that if you use that number to calculate an annual accrual-- it is a lot like an equal life method-i.e. accelerated depreciation in the present value to the benefit of the utility.

The "Remaining life method" can only be used, not to determine some # of years of remaining life to use to divide into the net assets for a remaining life depreciation rate---but to match accumulated reserve with theoretical reserve. Therefore "remaining life" can't be used as a basis of an annual accrual calculation. Utilities just love that application.

Remaining life properly stated is the remaining life adjustment to a whole life (i.e. average life) rate. Once you, thru Iowa Curve best fit, not the bullshit "Bell Curves" or the equally bullshit "equal life" crap, determine the whole life of all vintages within say a FERC or FCC NARUC Uniform System of Standard Accounts (USOA) you are only half way.

Now you have to do a generation arrangement coupled with a salvage or more properly a cost of removal study, to find the theoretical accrued depreciation for each vintage to arrive at a total theoretical accumulated reserve for all the vintages within one NARUC USOA. You then compare the theoretical reserve with acutal to determine if the reserve is over or under accured at that point on the life curve. You then use the "remaining life" figure from your generation arrangement, divided into the difference between theo reserve and actual reserve, NOT THE NET ASSET VALUE, to final an "annual accrual adjustment" number.

Your goal is to have accumulated reserve zero out the net assets at the end of the whole life of one NARUC USOA. You calculate an annual accrual with a whole life rate and "adjust" this rate by adding or subtracting the annual accrual you got by dividing the under or over accrual by the "remaining life" of the asset.

By now I figure you think I'm full of crap- but read page 87-1st full new paragraph that page of "Depreciation Systems" by Frank K.Wolf and W. Chester Finch - you should have got copy of this book during your "B" study in Grand Rapids.

Sincerely,

Handsome Bill Cochran P.E. Class of '65


This e-mail was apparently written in response to one of my depreciation filings (Bill was not sure which one it was). We later traded some additional messages regarding the approval of utility depreciation rates by state PUCs like the Maryland PSC.

Return to Mike Dean's PSC Filings Page or to his Homepage

This page was originally posted on February 27, 1999, and was last updated February 27, 1999.
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© Michael A. Dean 1999 (except for e-mail message, the content of course was authored by Mr. Cochran).