25-30.140. Depreciation

(1) For the purpose of the rule, the following definitions apply: (a) Account – Water and wastewater plant accounts are defined in the NARUC Uniform System of Accounts adopted by Rule 25-30.115, F.A.C. (b) Amortization – The gradual extinguishment of an amount in an account by distributing such amount over a fixed period. (c) Asset – Any owned physical object (tangible) or right (intangible) having economic value to its owner. (d) Average Remaining Life – The future expected service in years of the surviving plant at a given age. (e) Average Service Life – The period of service that can be reasonably expected from the plant type in question. It is measured by the period of time the subject plant and its associated investment is included on the company’s books as in service to the public. The average service life will typically be less than the potential physical life due to factors such as governmental requirements, growth or adverse operating conditions. (f) Average Service Life Depreciation Rate - The depreciation rate based on the expected average service to be experienced by the investment or account in question. A.S.L. Rate = 100% ‒ Average Net Salvage % Average Service Life (g) Capitalization – Measures of the propriety of capitalization versus expensing as follows: 1. The addition of any retirement unit, or 2. Any replacement with a retirement unit that materially enhances the value, use, life expectancy, strength or capacity of the asset prior to replacement shall be capitalized. 3. The cost of incidental repairs that neither materially add to the value of the property nor appreciably prolong its life and that were made to keep the property in an ordinary efficient operating condition shall be accounted for as a maintenance expense. (h) Cost of removal – The cost of demolishing, dismantling, tearing down or otherwise removing utility plant, including the cost of transportation and handling incidental thereto. (i) Continuing Property Record (CPR) – A perpetual collection of records required by the NARUC Uniform System of Accounts showing the detailed original costs, quantities, and locations of plant in service. Generally, a CPR should contain 1) an inventory of property record units which can be readily checked for proof of physical existence, 2) the association of costs with such property record units to ensure accurate accounting for retirements, and 3) the dates of installation and removal of plant to provide data for use in connection with depreciation studies. (j) Depreciation – As applied to depreciable utility plant, the loss in service value not restored by current maintenance incurred in connection with the consumption or prospective retirement of utility plant in the course of service from causes that are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities. The intent of depreciation per this rule is to provide for recovery of invested capital and to match this recovery as nearly as possible to the useful life of the depreciable investment. (k) Depreciation Accounting – The process of charging the book cost of depreciable property, adjusted for net salvage, to operations over the associated useful life. (l) Depreciation Expense – The periodic charge to expense to allocate the original cost of a depreciable group of assets over the life of those assets. (m) Depreciable Group – A homogeneous grouping of assets expected to experience similar life and salvage patterns. Unless otherwise ordered by the Commission, depreciable groups are the accounts defined in the NARUC Uniform System of Accounts adopted by Rule 25-30.115, F.A.C. (n) Function – defined as follows: Water Wastewater Source of Supply Collection Plant (Accounts 304 to 311 and 339) (Accounts 354, 355 and 360 to 367) Pumping Plant (Accounts 354, 355, 370, 371) Water Treatment Plant Treatment & Disposal Plant (Accounts 304, 310, 311, 320, and 339) (Accounts 354 and 380 to 389) Reclaimed Water Treatment Plant Transmission & Distribution Plant (Accounts 354, 355, 371, 374, 380, 381, 389) (Accounts 304, 310, 311 and 330 to 339) General Plant Reclaimed Water Distribution Plant (Accounts 354, 355, 366, 367, 371, 375, 389) (Accounts 304 and 340 to 348) General Plant (Accounts 354 and 390 to 398) (o) Group Depreciation – An accounting procedure under which depreciation charges are accrued on the basis of the original cost of all property included in each depreciable group. Under the group concept, no attempt is made to keep track of the accumulated provision for depreciation applicable to individual assets of property, in view of the many items making up a utility system. The group approach recognizes that some assets within the group may live longer or shorter than the average life of the group but the group is expected to live the average service life. Every item in the group is assumed to be fully depreciated at retirement. (p) Mortality Data – See plant activity data. (q) Net Salvage – The salvage value of property retired less the cost of removal. This is expressed as a percent of retirements in the depreciation rate formula. (r) Original Cost – The cost of acquiring an asset and placing it into service for first utility use. This includes the direct costs of acquiring the asset and the cost of labor, materials, and associated costs of installation to prepare the asset for first utility use. The cost is used in the computation of depreciation expense. In the event that an asset is acquired that is already in public service, the original historic cost of the asset should be recorded in plant in service, and the historic accumulated depreciation should be charged to the accumulated depreciation account. In the event the historic cost of an asset that is already in utility service cannot be determined, an independent engineer’s evaluation based on an original cost study may be used. (s) Plant Activity Data – Annual additions, retirements, adjustments or transfers, sales or purchases, and investment balances at end of year. (t) Property Retired – As applied to utility plant, property that has been removed, sold, abandoned, destroyed or which has been withdrawn from service for any cause. (u) Remaining Life Depreciation Rate – The depreciation rate based on the average remaining portion of the service life expected to be experienced by the investment or account in question and on the net unrecovered capital for that investment or account. R.L. Rate = 100% ‒ Accumulated Reserve % ‒ Future Net Salvage % Average Remaining Life The average remaining life for an account or sub-account is a function of known planned retirement or of the average age of that account and its appropriate mortality table. (v) Replacing or Replacement – The construction or installation of utility plant in place of property retired, together with the removal of the property retired. (w) Reserve – The accumulated provision for depreciation. The accumulated depreciation reserve is the net of depreciation accruals (expenses) and retired investment with related gross salvage and cost of removal as well as any appropriate adjustments or transfers. (x) Reserve Activity Data – Annual depreciation expense, retirements, transfers or adjustments, gross salvage realized, cost of removal, and end of year balance for the accumulated provision for depreciation. (y) Retirement Units – Those items of utility plant which, when retired with or without replacement, are accounted for by crediting the book cost to the utility plant account in which it is included. (z) Salvage Value – The amount received for property retired, less any expenses incurred in connection with the sale or in preparing the property for sale or, if retained, the amount at which the material recoverable is chargeable to materials and supplies or other appropriate account. (aa) Straight-Line Method – A depreciation method by which the service value of a depreciable group is charged to depreciation expense (or a clearing account) and credited to the accumulated provision for depreciation account through equal annual charges over the service life of the group. (bb) Unit Depreciation – An accounting procedure under which the original cost, depreciation expense, and accumulated provision for depreciation, and all associated activity are maintained for each individual asset. Service life and salvage parameters are estimated for each individual asset with a depreciation rate designed to recover each asset’s original cost over its related life. If the asset lives longer than its expected life, depreciation expense stops accruing when the asset is fully recovered. If the asset retires earlier than its expected service life, the associated unrecovered amount is immediately written-off as a loss. (cc) Unrecovered Amount – Original cost less the accumulated provision for depreciation less expected net salvage. (2) The average service life and salvage components for each class of utility are as follows: (a) Water System Guideline Average Service Lives. Large Small Small Utility Utility Utility (Class (Class Function Net Account Description A&B) C) Composite3 Salvage %4 1. Intangible Plant 351 Organization 40 40 352 Franchise Cost 405 405 2. Source of Supply 28 304 Structures & Improvements 321 271 Wood 28 25 Masonry 30 27 Reinforced Concrete 40 37 Steel Building 40 35 Tanks or Sheds 25 20 Fiberglass 20 18 305 Collecting and Impounding Resevoirs 50 40 306 Lake, River and Other Intakes 40 40 307 Wells and Springs Drilled & Cased Well 30 27 (Floridan or Non-Corrosive) Shallow Well (Sand 20 18 Aquifer or Corrosive Water) 308 Infiltration Galleries and Tunnels 40 N/A 309 Supply Mains 35 32 310 Power Generation Equipment 20 17 311 Pumping Equipment 201 171 Pumping Equipment Electric 20 15 Pumping Equipment Chemical 8 6 339 Other Miscellaneous Equipment 18 15 3. Water Treatment Plant 21 304 Structures and Improvements (see “Source of Supply” for subcategory lives) 321 271 310 Power Generation Equipment 20 17 311 Pumping Equipment 201 171 Pumping Equipment-Electric 20 15 Pumping Equipment-Chemical 8 6 320 Water Treatment Equipment 221 171 Chlorination Equipment 10 7 Membrane Elements 5 5 Other Mechanical Equipment 25 20 339 Other Miscellaneous Equipment 18 15 4.Transmission & Distribution Plant 36 304 Structures & Improvements (See “Source of Supply” for subcategory lives) 321 271 310 Power Generation Equipment 20 17 311 Pumping Equipment 201 171 Pumping Equipment – Electric 20 15 Pumping Equipment – Chemical 8 6 330 Distribution Reservoirs & Stand Pipes 371 331 Steel Pneumatic Tank 35 30 Concrete Ground Storage Reservoir 40 37 331 Transmission & Distribution Mains 431 381 Galvanized Steel pipe & Fittings 35 33 Black Steel Pipe 20 18 Plastic Pipe2 45 40 Asbestos – Cement 40 35 Cast Iron or Ductile Iron 40 35 Valves & Valve Boxes 25 20 Fire Mains 33 30 333 Services2 40 35 334 Meters and Meter Installations 20 17 335 Hydrants 45 40 336 Backflow Prevention Devices 15 10 339 Other Plant and Miscellaneous Equipment 25 20 5. General Plant 304 Structures & Improvements 401 351 Wood Building 35 30 Masonry Building 40 35 Reinforced Concrete Building 40 37 Steel Building 40 35 Tanks or Sheds 25 20 340 Office Furniture & Equipment 15 15 Computers 6 6 341 Transportation Equipment 6 6 10 342 Stores Equipment 18 N/A 14 (composite of 342-348) 343 Tools, Shop & Garage Equipment 16 15 344 Laboratory Equipment 15 N/A 345 Power Operated Equipment 12 10 5 346 Communication Equipment 10 N/A 10 347 Miscellaneous Equipment 15 N/A 348 Other Tangible Plant 10 10 (b) Wastewater System Guideline Average Services Lives. Large Small Small Utility Utility Utility (Class (Class Function Net Account Description A&B) C) Composite3 Salvage %4 1. Intangible Plant 351 Organization 40 40 352 Franchise Cost 405 405 2. Collection System 35 354 Structures & Improvements Above Grade 321 271 Wood 28 25 Masonry 30 27 Reinforced Concrete 38 35 Steel Below Grade 25 22 Concrete 35 32 Steel 22 20 Lift Stations 25 22 355 Power Generation Equipment 20 17 360 Collection Sewers-Force2 301 271 361 Collection Sewers-Gravity2 45 40 Manholes 30 27 362 Special Collecting 40 37 Structures 363 Services to Customers2 38 35 364 Flow Measuring Devices 5 5 365 Flow Measuring Installations 38 35 389 Other Miscellaneous Equipment 18 15 3. Pumping Plant 18 354 Structures & Improvements 321 271 355 Power Generating Equipment 20 17 370 Receiving Wells 30 25 371 Pumping Equipment 18 15 Pumping Equipment – Electric 18 15 Pumping Equipment – Chemical 7 5 389 Other Miscellaneous Equipment 18 15 4. Treatment and Disposal Plant 18 354 Structures & Improvements (see “Collection System” for subcategory lives) 321 271 355 Power Generating Equipment 20 17 371 Pumping Equipment 181 151 Pumping Equipment – Electric 18 15 Pumping Equipment – Chemical 7 5 380 Treatment & Disposal Equipment 181 151 Blowers, Motors, Pumps Electric Controls 15 12 Chlorination Equipment 10 7 Other Mechanical Equipment 23 18 381 Plant Sewers 35 32 382 Outfall Sewer Lines 30 30 389 Other Plant and Miscellaneous Equipment 18 15 5. ReclaimedWater Treatment Plant 21 354 Structures & Improvements (see “Collection System” for subcategory lives) 321 271 355 Power Generating Equipment 20 17 371 Pumping Equipment 181 151 Pumping Equipment – Electric 18 15 Pumping Equipment – Chemical 7 5 374 Reuse Distribution Reservoirs 371 331 Steel Pneumatic Tank 35 30 Concrete Ground Storage Reservoir 40 37 380 Treatment & Disposal Equipment 181 151 Blowers, Motors, Pumps, Electric Controls 15 12 Chlorination Equipment 10 7 Other Mechanical Equipment 23 18 381 Plant Sewers 35 32 389 Other Plant and Miscellaneous Equipment 18 15 6. Reclaimed Water Distribution Plant 36 354 Structures & Improvements (see “Collection System” for subcategory lives) 321 271 355 Power Generating Equipment 20 17 366 Reuse Services 40 35 367 Reuse Meters and Meter Installation 20 17 371 Pumping Equipment 181 151 Pumping Equipment – Electric 181 15 Pumping Equipment – Chemical 7 5 375 Reuse Transmission & Distribution System 431 381 Plastic Pipe2 45 40 Valves & Valve Boxes 25 20 Fire Mains 33 30 389 Other Plant and Miscellaneous Equipment 18 15 7. General Plant 354 Structures & Improvements 401 351 Reinforced Concrete Building 45 40 Masonry Building 40 35 Wood Building 35 30 Steel Building 40 35 Tanks or Sheds 25 20 390 Office Furniture & Equipment 15 15 Computers 6 6 391 Transportation Equipment 6 6 10 392 Stores Equipment 18 N/A 14 (composite of 392-398) 393 Tools, Shop & Garage Equipment 16 15 394 Laboratory Equipment 15 N/A 395 Power Operated Equipment 12 10 5 396 Communication Equipment 10 N/A 10 397 Miscellaneous Equipment 15 N/A 398 Other Tangible Plant 10 10 (c) For the purposes of paragraphs (2)(a) and (b), the following apply: 1. 1 Denotes composite life. 2. 2 Plastic pipe footnote – assumes use of AWWA standard pipe only. Assumes AWWA DR18 used for all mains of 6'' or more. 3. 3 To be used only when acceptable company plant balances are not available for developing composites using account lives. 4. 4 Net Salvage zero except as indicated. 5. 5 Franchise costs shall be amortized over a period of 40 years unless a specific time period is designated in the utility franchise agreement. (3)(a) Average service life depreciation rates based on guideline lives and salvages shall be used in any Commission proceeding in which depreciation rates are addressed, except for those utilities using depreciation rates in accordance with the requirements listed in subsections (6) and (7) of this rule. A utility shall also implement the applicable guideline rates for any new plant to be placed in service. (b) A utility may implement applicable guideline rates without specific approval by the Commission. Guideline rates, if implemented for any account, must be implemented for all accounts. If a utility implements applicable guideline rates outside of a rate proceeding, the utility shall provide written notification to the Director of Economics within 30 days of such implementation. (c) If guideline depreciation rates have been implemented, the rates shall not be changed unless approved by the Commission. (4)(a) All Class A and B utilities shall maintain depreciation rates and reserve activity data by account as prescribed by this Commission. (b) All Class C utilities shall maintain depreciation rates and reserve activity data by total depreciable plant, function or account as prescribed by this Commission. (5) Computation of depreciation expense. Regulatory book depreciation expense shall be computed on a monthly basis in conformity with group depreciation accounting procedures. (6)(a) At the time a utility applies for a change in its revenue rates and charges, it may also petition for average service life depreciation rates different from those in the above schedule if it can justify the service lives that the utility is proposing in lieu of the guideline lives. That justification should be in the form of historic data, technical information or utility planning for the affected accounts or sub-accounts. Common causes of need for different depreciation rates include composition of account, adverse environmental conditions, high growth or regulatory changes. (b) A utility filing for such a revision of depreciation rates shall submit six copies of the filing to the office of the Office of Commission Clerk. (c) For each account or function of depreciable plant addressed in the filing, the following shall be included: 1. A comparison of current and proposed depreciation rates and service lives. The proposed effective date of the new rates shall be identified. 2. A comparison of depreciation expenses resulting from current rates with those produced by the proposed rates. Plant balances used in this calculation shall be those as of the effective date of the proposed rates. 3. A general narrative defining the service environment of the applicant utility and the factors (e.g., composition of account, growth, environmental conditions, regulatory changes) leading to the present application for a revision in rates in the affected accounts. 4. Any statistics, data, analyses or calculations used in the development of the proposed average service lives. (7)(a) A Class A, B, or C utility may apply for guidelines for a proposal for implementation of remaining life depreciation rates if the utility has maintained both plant activity data by account and accumulated provision for depreciation (reserve) data by account, function or total depreciable plant generally in accord with the Uniform System of Accounts for either at least ten years or since the inception of the utility, whichever is less. (b) To provide time for study development, any application for remaining life guidelines should be submitted at least six months before the filing for a test year in connection with a request for a revenue rate increase. (8) Prior to the date of retirement of major installations, the Commission may approve capital recovery schedules to correct associated calculated deficiencies in recovery where a utility demonstrates that retirement of the installation or group of installations is prudent and the associated investment will not be recovered by the time of retirement through the normal depreciation process. (9)(a) Beginning with the year ending December 31, 2003, all Class A and B utilities shall maintain separate sub-accounts for: (1) each type of Contributions-in-Aid-of-Construction (CIAC) charge collected including, but not limited to, plant capacity, meter installation, main extension or system capacity; (2) contributed plant; (3) contributed lines; and (4) other contributed plant not mentioned previously. Establishing balances for each new sub-account may require an allocation based upon historical balances. Each CIAC sub-account shall be amortized in the same manner that the related contributed plant is depreciated. Separate sub-accounts for accumulated amortization of CIAC shall be maintained to correspond to each sub-account for CIAC. (b) Beginning with the year ending December 31, 2003, for Class C utilities, where adequate CIAC records are maintained in sub-accounts, by type of charge or contributed plant, CIAC amortization rates shall be applied separately to each sub-account. Where CIAC records are not kept by sub-account, a composite depreciation rate for total plant, excluding general plant, shall be applied to the entire CIAC account. (c) Any composite rate used shall be recalculated each year based on the applicable plant balances and depreciation rates.