Control Number : 45084 Item Number : 44 Addendum StartPage : 0
SOAH DOCKET NO. 473-16-0581 DOCKET NO. 45084 APPLICATION OF ENTERGY TEXAS, BEFORE THE STATE OFFICE INC. FOR APPROVAL FOR A OF ;.^. ^ ^ TRANSMISSION COST RECOVERY ADMINISTRATIVE HtAIa.TNG9 ^ FACTOR :..,,. RESPONSE OF ENTERGY TEXAS, INC. TO CITIES' FIRST REQUEST FOR INFORMATION: CITIES 1-1, 2, 3, 4, 5, 6 AND 7 Entergy Texas, Inc. ("ETI" or "the Company") files its Response to Cities' First Request for Information. The response to such request is attached and is numbered as in the request. An additional copy is available for inspection at the Company's office in Austin, Texas. ETI believes the foregoing response is correct and complete as of the time of the response, but the Company will supplement, correct or complete the response if it becomes aware that the response is no longer true and complete, and the circumstance is such that failure to amend the answer is in substance misleading. The parties may treat this response as if it were filed under oath. Respectfully submitted. Steven H. Neinast Steven H. Neinast Entergy Services, Inc. 919 Congress Avenue, Suite 701 Austin, Texas 78701 (512) 487-3957 telephone (512) 487-3958 facsimile Attachments: CITIES 1-1, 2,3,4,5,6 AND 7 CERTIFICATE OF SERVICE I certify that a copy of the foregoing Response of Entergy Texas, Inc. to Cities' First Request for Information has been sent by either hand delivery, facsimile, overnight delivery, or U.S. Mail to the party that initiated this request in this docket on this the 10th day of November, 2015. Steven H. Neinast Steven H. Neinast 001 44
ENTERGY TEXAS, INC. PUBLIC UTILITY COMMISSION OF TEXAS DOCKET NO. 45084 Response of: Entergy Texas, inc. to the First Set of Data Requests of Requesting Party: Cities Prepared By: DMark Hunter Sponsoring Witness: Khamsune Vongkhamchanh Beginning Sequence No. Ending Sequence No. Question No.: CITIES 1-1. Part No.: Addendum: Question: For each of the projects identified in Table 2 on page 10 of the Direct Testimony of Khamsu.ne Vongkhamchanh please provide the cost estimate for each of the listed transmission projects at the time the projects were initially approved and documentation of any changes to the fixed-price contracts as discussed on page 22, line 13 through page 23, line 8 of Mr. Vongkhamchanh's direct testimony. Response: The initial, approved cost estimate for each of the above referenced transmission projects are listed in the table below. Except for the Sunoco Nederland Interconnect project (P I PPU75592), the projects listed below were not associated with fixed-price contracts. The Sunoco Nederland Interconnect project is the only project that was based on a fixed price contract, and there were no changes to the fixed-price contract of this project. 45084 BB1 002
Question No.: CITIES 1-1 Project Code Initial Cost Estimate Dollars Closed to Plant Description I F1PPU75592 Sunoco Nederland Interconnect S 11,671,801 S 10,481 981 2 FIPPU50537 Ponderosa Switching Station $ 13,1.69.713 $ 10,401,746 3 F I PPSTORM3 Hurricane Ike Restoration $ 78,707,182 $ 6.648,476 4 FIPPU75471 Conroe-to-Cedar Hi11 Line Rebuild $ 7,550,057 $ 6,207.369 5 F1.PPU50817 Petrv Woods Substation $ 5,702,005 $ 5,780,733 6 FIPPU50745 E.TI: Purchase Spare Autotransformer $ 4,972,452 $ 4,495,838 1 ;Tl: I-l:artburg-1lclbig 230 kv Line 195 7 F 1 PPU75664 Pole Replacement $ 5,169,986 $ 3,931,687 8 FIPPU50778 Ranchland Build New Substation $ 3968,819 $ 3,778,631 Transmission Equipment Failures 9 F I PCUD055I Blanket _ f $ 6,913,619 $ 3^594,824 10 F113PU75563 Lewis Creek-Er:^^ t: 12e-conductor Line $4,190,681 $2,872,700 11 F1PPi775341 Jasper-Rayburn Line Re-conductorin $ 2,665,380 $ 2,276,021 12 FIPPUDQI29 Skvlinin "I'ree Hazard Blanket $ 12.481.408 $ 2,139,279 13 F1 PPU50850 Johns Gully 138kV Bus Extension $ 3,006,056 $ 2,071,503 14 F I PPU50670 Bentwater: Install Line Breaker and Capacitor Bank $ 2,779,700 $ 1.835,023 15 F1PPU50731 Dogwood German Pellets 138kV Substation $ 2.480,075 $ 1,681,402 16 FIPCUD0279 Transmission Lines Program Blanket $ 32,810,560 S 1,679,842 17 FiPPU50757 Eli: I'urchase Spare Autotransform $ 1,751,443 $ 1,429,000 18 F1PPU50863 1::;T1: Purchase Spare 138-69kV Autotransformer $ 1,597,913 $ 1,409,598 19 F I PPUDIZ279 DR279 IC: Transmission Lines Program Blanket $ 24,287,998 $ 1,408,119 20 FIPPUT0556 Transmission Substation Failure Blanket $ 12=774,890 S 1,246.913 21 F1.PPU75559 ETI Pansy to South Beaumont Line 62 69kV Upgrade $ 1,967,089 $ 1,214,021 22 F1PPU50838 Rivtrin: Replace oil circuit breaker relay panels $ 755,658 $ 1,023,169 1 Total i t S 77,607,875 45084 BB2 003
ENTERGY TEXAS, INC. PUBLIC UTILITY COMMISSION OF TEXAS DOCKET NO. 45084 Response of. Entergy Texas, Inc. to the First Set of Data Requests of Requesting Party: Cities Prepared By: DMark Hunter Sponsoring Witness: Khamsune Vongkhamchanh/Margaret L. McCloskey Beginning Sequence No. Ending Sequence No. Question No.: CITIES 1-2 Part No.: Addendum: Question: Please provide the rational for including Spare Auto Transformers (Project Codes F1.PPU50745, FI.PPU50757 & FIPPU50863) as Plant in Service rather than Plant Held for Future Use or Materials and Supplies? Response: For the treatment of spare autotransformers, the Company relies on the Uniform System of Accounts. industry guidance, and various Federal Energy Regulatory Commission (FERC) guidance to support its accounting of those projects. - FERC has established the following criteria for recognizing spare equipment as plant in service FERC account 101: the part must be (1) critical to plant operation; (2) be associated with specific plant; and (3) not be subject to normal periodic replacement. First, the spare autotransformers included in the TCRF are critical because ETI must have these spare autotransformers on hand and available at a moment's notice in order to replace other autotransformers that can fail unexpectedly and without notice. These spare autotransformers are essential for emergency needs because of the potential large number of customers that can lose power after a failure of one of these autotransformers, and the long lead times required to manufacture an autotransformer. Second, the spare autotransformers included in the TCRF are associated with specific plant in service. In particular, each of the spares performs a specific set of voltage transformations and has a particular MVA capacity. Third, the spare autotransformers included in the TCRF are not subject to use as normal periodic replacements. The expected life of these transformers range from 30 to 50 years, and these transformers are only replaced on an as-needed basis. Thus, given that the spare auto transformers meet the FE.RC guidance criteria, the costs are properly included in Plant in Service See, e.g., FERC Docket No. OA97-237- 012 (NEPOOL and ISO-NE). See also Interpretation No. 50 issued by the National Association of Regulatory Utility Commissioners (NARUC). Further, the Uniform System of Accounts notes that "transformers held in reserve, and normal spare capacity... shall not be included in [Account 105 Electric plant held for future use]." 18 C.F.R. 1.105 (2015). 45084 BB37 004
ENTERGY TEXAS, INC. PUBLIC UTILITY COMMISSION OF TEXAS DOCKET NO. 45084 Response of: Entergy Texas, Inc. to the First Set of Data Requests of Requesting Party: Cities Prepared By: DMark Hunter Sponsoring Witness: Khamsune Vont;khatnchanh Beginning Sequence No. Endin^ Sequence No. Question No.: CITIES 1-3 Part No.: Addendum: Question: Please explain the difference between the Transmission Lines Program Blankets (Project Codes FIPCUD0279 & FIPPUDR279) and why they are considered capital replacement programs rather than line maintenance programs. Response: The Transmission Lines Program Blankets (Project Codes PIPCUD0279 and F I PPUDR279) are identical in scope. Project Code F I PCUD0279 is associated with the initial funding amount and Project Code FI PPUDR279 is associated with an incremental funding for the Transmission Lines Program Blankets project. According to the Uniform System of Accounts, expenditures associated with these projects are classified as capital because all work orders in these blankets were created and used to replace various retirement units for transmission line-related equipment. Retirement units (RUs) refer to property or equipment which, upon assembly or purchase, can function as a stand-alone unit. Once the RU is placed in service, the cost of the RU is to be capitalized to the appropriate utility plant account. Please see the attached copies of the Company's Capitalization policy, and the Company's Transmission Line Capitalization Procedure. 45084 CITIES 1-3 BB6 005
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 1 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 Subject Matter Expert: Responsible Officer: Approved By: ie Barras _(_Afyson Mount Drew Marsh 1. POLICY SUMMARY This Policy addresses the Company-wide (all Legal Entities and functional areas, whether regulated or unregulated), requirements applicable to Entergy's capital assets in compliance with Generally Accepted Accounting Principles (GAAP) in the United States, Securities & Exchange Commission (SEC) regulations, Federal Energy Regulatory Commission (FERC) regulations, state and local regulatory guidelines, as well as the Sarbanes- Oxley Act of 2002. ^ ^ This Policy applies to any transaction involving the acquisition, internal construction, transfer, disposition of Capital Assets as well as smaller assets or units, including all costs associated with preparing and making the assets or units useful. All employees, agents and contractors of Entergy shall immediately report known, suspected, or potential violations of this Policy by following the procedures described in the Reporting Violations Policy. Please refer to the following detailed Policy for further information. 45084 CITIES 1-3 BB7 006
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 2 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 1 January 19, 2014 il. DETAILED POLICY 1.0 PURPOSE AND APPLICABILITY The purpose of this Policy is to provide a framework for management to: apply consistent capital approval Policy and procedures to regulated and unregulated businesses in certain circumstances, differences may exist in the appropriate accounting for rate-regulated and unregulated businesses and/or entities whose depreciation rates are not set through Depreciation Studies. Those instances, and the appropriate accounting for each, are described in this Policy. outline the correct accounting treatment for Retirement Units, Minor Items of Property, Capital/Rotable Spare parts, Software Systems, and Plant Design Basis; including the treatment for Additions, Retirements, Replacements, Refurbishments, and Modifications/Betterments. This Policy applies to any transaction involving the acquisition, internal construction, transfer, disposition of Capital Assets as well as smaller assets or units, including all costs associated with preparing and making the assets or units useful. The accounting treatment for both Capital Assets, and equipment or pieces of property with a useful life of less than one year is included in this Policy. This Policy applies to any and all employees of any Entergy System Company, unless otherwise expressly excluded, as well as agents and contractors of any Entergy System Company. The extent to which any specific provision in the Policy covers employees who are represented by a union may depend on negotiations with and/or a collective bargaining agreement with that union. Nothing contained in this Policy should be construed to suggest that employees of a particular subsidiary or affiliate of Entergy Corporation are also employees of Entergy Corporation or any other affiliate or subsidiary of Entergy Corporation. Moreover, this Policy does not create any employment relationship between any person and any Entergy System Company, nor does this Policy confer any contractual right to any person to become or remain an employee of any Entergy System Company. 45084 CITIES 1-3 BB8 007
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 3 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 2.0 REFERENCES AND CROSS REFERENCES 2.1 The following policies should be read in conjunction with this Policy: Entergv Accounting Po[icies Capital Funding Project Approval Enter-qv System Policies Accounting Approval Authority Code of Entegrity Reporting Violations Investment Approval Process Entergy Procedure Documents Fossil Production Plant Capitalization Procedures Nuclear Plant Capitalization Procedures General! Intangible Plant Capitalization Procedures Substations Capitalization Procedures Transmission Line Capitalization Procedures 45084 CITIES 1-3 BB9 008
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 4 of 17 Title: CAPITALIZATION I Last Revision: ^ Rev. 1 January 19, 2014 3.0 DEFINITIONS 3.1 Capital Asset - Is an asset meeting the definition of a Retirement Unit, Minor Item of Property, Capital Spare, Rotable Spare, Software System, or Plant Design Basis, and which meets the applicable Capitalization Criteria as described in this Policy. 3.2 Capital Funding Proiect -A planned venture that creates a Capital Asset by: adding or improving facilities in compliance with business goals, legal or regulatory requirements; or improving the operating performance of existing facilities. 3.3 PowerPlant- Fixed asset system, used for the set-up, approval, maintenance, record-keeping, and reporting of fixed assets. 3.4 Work Order (WO) - Captures details/charges relative to its funding project. It is used to account for the charges on a project. 3.5 Retirement Unit (RU) - Defined in Section 6.1 below. 3.6 Minor Items of Property - Defined in Section 6.2 below. 3.7 Capital Spare - Defined in Section 6,3 below 3.8 Rotable Spare - Defined in Section 6.4 below 3.9 Software System - Defined in Section 6.5 below 3.10 Plant Design Basis - Defined in Section 6.6 below. Applies only to nuclear plants. 3.11 Addition - Purchase, installation or construction of a new Capital Asset that is added to a larger system. Normally in the form of a Retirement Unit, but which may be any Capital Asset type. 3.12 Betterment- Describes the situation in which a major part of a Retirement Unit is modified or replaced, resulting in the RU's significant improvement or superior performance. This improvement increases the efficiency and, many times, increases the useful life of the Retirement Unit. 3.13 Replacement of a Retirement Unit or System- The removal of a Retirement Unit or system and the substitution of a new unit or system that is of the same type and has the same performance capabilities. 45084 CITIES 1-3 BB1.4 009
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 5 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 3.14 Retirement of a Retirement Unit or System - Describes the process by which an operational item is taken out of service, with or without replacement. 3.15 Capitalization Criteria - See Section 7 below 3.16 Rate-Requtated Entity - An entity is considered to be Rate-Regulated when the rates it charges for its products and services to captive customers are set by an independent regulator in a manner that is intended to recover the entity's cost of those products and services. See ASC 980-10-15-2 for additional guidance. The following are generally considered to be Rate Regulated Entities: Entergy Arkansas, Inc. and Subsidiaries Entergy Gulf States Louisiana, L.L.C. Entergy Louisiana, LLC and Subsidiaries Entergy Mississippi, Inc. Entergy New Orleans, Inc. Entergy Texas, Inc. and Subsidiaries System Energy Resources, Inc. Contact Accounting Policy with any interpretative questions. 3.17 Depreciation Study - A Depreciation Study contains extensive information about an entity's assets, their estimated lives, their patterns of replacement, etc. This information is analyzed to determine a depreciation rate for each asset class. The following are entities whose depreciation rates are set using Depreciation Study methodology: The Rate-Regulated entities listed in 3.16, above; and Entergy Nuclear Generation Co (Pilgrim) Entergy Nuc Indian Point 3, LLC Entergy Nuc Fitzpatrick, LLC Entergy Nuclear Indian Point 2 Entergy Nuclear Palisades, LLC 3.18 Refurbishment - If a Retirement Unit is reassembled, overhauled or reworked in a manner that extends the ability to utilize that Retirement Unit beyond its depreciable life as dictated through a Depreciation Study, it may be considered a Refurbishment and the associated costs may be capitalized. To qualify as a Refurbishment, the cost of the Refurbishment must meet the applicable dollar threshold for a Betterment defined in Attachment B for the Entergy Capitalization Policy. Only entities referenced in Section 3.17 of this Policy are permitted to capitalize the cost of Refurbishments. 3.19 Policy - This Capitalization Policy. 45084 CITIES 1-3 BB11 010
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 6 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 Janua ry 19, 2014 4.0 RESPONSIBILITY 4.1 The Vice President, Accounting Policy and External Reporting, in coniunction with the Senior Vice President, Chief Accountinq Officer (CAO), and Accounting Policy are responsible for: interpretation and administration of this Policy; and attestation to the conformance of this Policy with accounting rules. 4.2 The Director, Operations Finance Business Partners and Jurisdictional Finance Directors are responsible for the following project activities for entities within their respective function and/or jurisdiction: providing project evaluation guidance to project managers and business unit management; and providing project and capitalization guidance. 4.3 The Vice President, Corporate Development is responsible for managing the Investment Approval Process. 4.4 The Property Accounting Department, under the direction of the Vice President, Accounting Governance and Controls, and in consultation with the Vice President, Accounting Policy and External Reporting, is responsible for: interpreting this Policy in conjunction with daily project approvals; determining whether an expenditure should be capitalized or expensed; bringing any issues related to interpretation to CAO or Accounting Policy; and Approving projects, which include a review of Retirement Units. 4.5 Risk Management and Internal Audit will periodically test for compliance with the Entergy Code of Entegrity, this Policy and attendant procedures, and any related internal control processes. 45084 CITIES 1-3 BB12 011
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 7 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 4.6 Pro"ect, Managers are responsible for the management of their projects including compliance with this Policy. Specifically, functional areas and Project Managers are responsible for ensuring that the description of their projects and Retirement Units are accurate and updated as needed. Project Managers must ensure: 5.0 DETAILS Whenever possible, costs are estimated for the entirety of a project to allow management to have a complete financial view of a project's scope; When a project includes costs that are both capital, and Operating & Maintenance Expense, separate Work Orders should be utilized to properly capture the costs. However, a single capital Work Order may be utilized for Mass Property Electric and Gas Distribution when activity-based derivation assigns capital and expense costs; That the most up to date in-service dates, completion dates, and as-built estimates are depicted in PowerPlant; and Accurate estimates are reflected in PowerPlant on projects, including proper RU's for additions, removals, and retirements. 5.1 General Requirements - Spending on Capital Funding Projects should NOT begin until approval is obtained in accordance with this Policy, the Capital Funding Project Approval Policy, and the Entergy System Approval Authority Policy, Some storm projects have special requirements that can be found in the Capital Funding Project Approval Policy and the Storm Damage Policy. Contractual arrangements that bind the Company to future spending should not be entered into until approval is obtained in accordance with this Policy, 6.0 TYPES OF CAPITAL ASSETS 6.1 RETIREMENT UNITS (RUs) - The term Retirement Unit (or RU) refers to property or equipment which, upon assembly or purchase, can function as a stand-alone unit. A detailed listing of Retirement Units by function is maintained by Property Accounting. 6.1.1 The total cost of a Retirement Unit is to include all costs incurred in the acquisition and installation of the Retirement Unit. The components of construction cost can be found in the FERC Uniform System of Accounts Electric Plant Instruction No. 3 (Link to FERC USOA). Also, the cost of any associated Minor Item of Property is included in direct and indirect costs when one is calculating the total cost for any Retirement Unit. Once 45084 CITIES 1-3 BB13 012
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 8 of 17 Title: CAPITALIZATION Last Revision: Rev. I January 19, 2014 the RU is placed in service, the cost of the RU is to be capitalized to the appropriate utility plant account. 6.1.2 When RU's are taken out of service or retired, with or without being replaced, the cost of the RU will then be credited to the same utility plant account that it was capitalized to when it was procured. The cost to be retired, once again includes all of the construction costs that the FERC deems to be appropriate for inclusion. A complete list of RU's can be found in the PowerPlant Estimate Panels, or the Property Accounting Web Page. The appropriate accounting for retirements is discussed further in Section 7.4 below. 6.1.3 For entities that are not Rate Regulated Entities as defined in Section 3.16 of this Policy: if the cost of removal of a Retirement Unit, or the net book value of the Retirement Unit being removed is significant, Property Accounting should contact Accounting Policy to determine the appropriate accounting for the retirement/removal. 6.2 MINOR ITEMS OF PROPERTY - The associated parts or items of property that compose Retirement Units are considered to be Minor Items of Property. 6.2.1 Minor Items of Property may be considered Capital Assets when they meet the appropriate Capitalization Criteria (described Section 7), are considered significant with respect to the associated Retirement Unit, and did not previously exist. At a minimum, a Minor Item of Property must meet the appropriate materiality threshold (Attachment A) described in this Policy. 6.2.2 Minor items can be retired, but may not necessarily be replaced. Here, the usual procedure, which warrants a credit to the plant account to remove the minor item from the books, will not be needed if the minor item's original cost was included as a component of the related Retirement Unit's cost. The salvage and removal costs are recorded as expense. 6.2.3 For the addition of an item to qualify as a capitalizable Minor Item of Property addition, it must meet certain criteria which vary by function. A Minor Item of Property must also have an estimated life greater than one year, and it must meet the applicable materiality threshold specified in Attachment A. 6.3 CAPITAL SPARES - Capital Spares are limited replacement parts for items of equipment critical to the operations of the plant. 45084 CITIES 1-3 BB14 013
Title: CAPITALIZATION I ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 9 of 17 Last Revision: Rev. 1 January 19, 2014 6.3.1 Capital Spares should be accounted for in the same plant accounts, and use the same useful life for depreciation as the specific retirement units to which they are related. 6.3.2 All of the following criteria must be met for an item to be considered a Capital Spare: a. The item must be essential for emergency needs to continue plant/substation operations b. The item must not have a history of periodic replacement (see Rotable Spare) c. The item cannot be readily available from a vendor or manufacturer, requires long lead time for delivery, and is generally considered to be special order merchandise. d. The item is generally limited in quantity (i.e, only one on hand), not interchangeable with various machinery or equipment, and stored at the site of the related equipment it is intended to replace or repair. 6.3.3 The cost of removal of the Retirement Unit in operation should be charged to removal cost and the cost to install the spare should be charged to capital. 6.3.4 The cost of the Retirement Unit replaced, if not repairable, should be retired. If the Retirement Unit can be repaired, or it is likely it will be repaired, the repair cost should be charged to the appropriate maintenance expense account and the Retirement Unit should remain in account 101 (Electric Plant In Service) as the Capital Spare. 6.3.5 The cost of purchasing a new Capital Spare should be accounted for as a capital purchase if the Capitalization Criteria found in this policy are otherwise met. 6.3.6 Replacements of assets must be recorded on a Capital WO, including the associated removal costs. 6.3.7 The cost of maintaining and storing Capital Spares should be accounted for by charging the appropriate operating expense account of the Retirement Unit to which it is related. The inclusion in Account 101 (Electric Plant In Service) does not relieve the requirements for a physical inventory of these items per Instruction C of 45084 CITIES 1-3 BB15 014
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 10 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 Januarv 19, 2014 Account 154 (Plant Materials and Operating Supplies). The designation as Capital Spare Parts will be decided by the CAO and Property Accounting. 6.4 ROTABLE SPARES - Rotable Spares are replacement parts for equipment that are necessary for plant operations, but which (unlike Capital Spares) require regular replacement or refurbishment. Several Rotable Spares may be kept to allow for the exchange of commonly rotated parts and for the maintenance, repair, or refurbishment of existing Rotable Spares. 6.4.1 For an item to be designated a Rotable Spare, it must meet all of the following criteria: a. The rotation of the item must be essential for safe and/or reliable plant operations; and b. The item must be on a periodic rotation schedule. 6.4.2 The cost of removal of the Retirement Unit in operation should be charged to removal cost and the installation of the spare should be charged to expense. 6.4.3 The cost of the Retirement Unit replaced, if not repairable, should be retired. If the Retirement Unit can be repaired, or it is likely it will be repaired, the repair cost should be charged to the appropriate maintenance expense account and the Retirement Unit should remain in account 101 (Electric Plant In Service) as the Rotable Spare. 6.4.4 The cost of purchasing a new Rotable Spare should be accounted for as a capital purchase if the Capitalization Criteria found in this Policy are otherwise met. 6.4.5 The cost of maintaining and storing Rotable Spares should be accounted for by charging the appropriate operating expense account of the retirement unit to which it is related. The inclusion in Account 101 (Electric Plant In Service) does not relieve the regulatory requirements for a physical inventory of these items per Instruction C of Account 154 (Plant Materials and Operating Supplies). The designation as a Rotable Spare will be decided by the CAO and Property Accounting. 6.5 SOFTWARE SYSTEMS - Software Systems applies to the custom development of a new software program to be used by the Company, whether internally developed by the Company or developed externally (via the use of off-site or in house consultants). 45084 CITIES 1-3 BB16 015
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 11 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 6.5.1 Internally or externally developed software should be capitalized based on the guidance in ASC 350-40 (formerly SoP 9$-1). Contact Property Accounting for any interpretive questions regarding the capitalization of software related costs. 6.5.2 For Rate-Regulated Entities; FERC rules permit the capitalization of certain design, administrative and general overhead, and training costs which would otherwise be expensed for non-rate-regulated Entities. The guidance in the FERC Components of Construction Cost and Overhead Construction Cost is the basis for this exception. See Section 6.1.1 for a link to the FERC USoA which contains this guidance in Electric Plant Instructions 3 and 4. 6.5.3 The development of databases, reports, spreadsheet, calculations, etc. are not considered to be a software programs, and should not be considered for capitalization except as a part of a Software System project. 6.5.4 Enhancements are defined as modifications to existing internal-use software that result in additional functionality-that is, modifications to enable the software to perform tasks that it was previously incapable of performing. Upgrades and enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. 6.6 PLANT DESIGN BASIS (NUCLEAR PLANTS ONLY) - Certain projects constituting a change to the "design basis" of a nuclear plant may be capital. Contact Property Accounting for any interpretive questions regarding the capitalization of Plant Design Basis related costs. The following are the guidelines under which projects should be evaluated: 6.6.1 A capital change to the design basis of the plant is generally one that requires the filing of a license amendment request (LAR) under CFR 50.59, and where the project team has assessed as probable the likelihood of acceptance by the NRC of that LAR without substantial or material modifications (such that the company does not believe that another evaluated option will ultimately need to be pursued). CFR 50.59 provides guidance as to when the Company is filing documentation with the NRC that effectively changes design basis documentation via changes to the FSAR (final safety evaluation report). 6.6.2 If an LAR will be filed, the following types of costs may potentially be considered capital plant basis design costs: 45084 CITIES 1-3 BB17 016
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 12 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 7.0 CAPITALIZATION CRITERIA a. Work to change the design basis documentation related to: A change to a "Facility" which is defined in that section as "structures, systems and components (SSCs) that are described in the final FSAR" and the associated design and performance requirements for such SSCs (as described in the FSAR). b. Work to change the design basis documentation related to a change to procedures under 50.59 which is defined in that section as "those procedures that contain information described in the FSAR such as how SSCs are operated and controlled (including operator actions and response times)". Changes to the design basis documentation for the specified performance of a test or experiment which are described in 50.59 as "any activity where any structure, system, or component is utilized or controlled in a manner which is either outside the reference bounds of the design bases as described in the FSAR or inconsistent with the FSAR" will generally be considered O&M 7.0.1 Capitalization and depreciation is a process by which Entergy records assets that benefit future periods and matches the recognition of the associated cost of those assets ratably over the period of the assets' benefit. A Capital Asset is an asset that has an estimated service life of longer than one year, and meets the appropriate criteria (including materiality threshold) established by this policy based on its function and classification. 7.0.2 General materiality thresholds can be found in Attachment A. Materiality thresholds specific to Betterments (discussed in Section 7.2 below) are included in Attachment B. 7.0.3 Exceptions to the previous rules are as follows: An asset with an expected useful life of less than 1 year from the time of acquisition or completed construction shall be charged to the appropriate maintenance expense account, regardless of its cost. Items listed as Retirement Units on the Property Accounting website require capitalization regardless of cost, if their useful life is 1 year or more. 7.0.4 The cost of training should generally be expensed as incurred. However, for Rate-Regulated Entities, certain training costs may be capitalized when they 45084 CITIES 1-3 BB18 017
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 13 of 17 Title: CAPITALIZATION Last Revision: Rev. I January 19, 2014 relate to the addition of technology that is new to the Company's operations. This treatment should only be applied in the instance of the construction or purchase of a new Capital Asset. In that situation the cost of training may be included in the Capital Funding Project associated with the new Capital Asset. 7.0.5 Internal labor may be capitalized associated with time spent directly on the construction, or modification (Betterment) of a Capital Asset. These costs should only be capitalized when all other Capitalization Criteria in Section 7 of this Policy have been met. 7.1 Additions 7.1.1 Additions of plant result from the purchase or construction of equipment, or other types of assets. Purchases of plant or other assets should be considered a Capital Asset when they meet the criteria above in Section 7.0.1 through 7.0.4. Additional criteria for constructed Capital Assets are discussed in 7.1.2 below. 7.1.2 For an asset that is being constructed or developed (by internal or external resources), costs should only be capitalized when the plan of work identifies a specific Capital Asset(s), which is/are probable of being placed into service. For the purposes of this Policy, construction shall also be applied to the development of a Software System in conjunction with ASC 350-40 as appropriate. 7.1.2.1 For Rate-Regulated Entities, the guidance in Electric Plant Instructions 3 and 4 should be used to define the costs associated with the project which should be capitalized (see Section 6.1.1 for a link to this material). 7.1.2.2 FERC rules also permit Rate-Regulated Entities to capitalize certain costs associated with testing, surveys, plans, and investigations in Account 183. This account may only be used with prior approval from Property Accounting. Note: Property Accounting will approve the use of this account only after 1) consultation with Accounting Policy and the Director, Utility Operations Accounting; and 2) notification of probable recovery from the respective jurisdiction's Director of Finance. 7.1.2.3 For non-rate-regulated Entities, GAAP guidance should be followed regarding the costs that should be capitalized as a part of construction. 7.2 Betterments 45084 CITIES 1-3 BB19 018
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 14 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 7.2.1 A modification of an existing Capital Asset may qualify as a Betterment if it meets the appropriate thresholds specified in Attachment B. 7.2.2 When making the assessment of increases to the output or useful life of an existing Capital Asset, the asset analyzed should be the lowest level which can be separately identified in the property record (usually a Retirement Unit, but which may also be a group of assets if no single Capital Asset can be identified in the property record). Therefore, if an individual Capital Asset has a separate property record, a modification of that Capital Asset may be assessed to determine if it qualifies as a Betterment. If Capital Assets are not entered into the property records on a componentized basis, the lowest level of Capital Asset in the property record that is being modified should be assessed to determine whether the modification will result in an increase to the useful life or output of that Capital Asset. If so, the modification may be capitalized as a Betterment. 7.2.3 Ordinary and/or recurring maintenance and repairs of Capital Assets, or modifications that do not meet the criteria as Betterments should be recognized in the appropriate maintenance expense account. 7.2.4 Questions regarding the appropriate accounting for Betterments should be directed to Property Accounting. 7.3 Replacements 7.3.1 Replacements of Capital Assets must be recorded on a Capital WO. The Retirement must be recorded along with the addition. See Section 7.4 below for the appropriate accounting treatment for Retirements. 7.3.2 Costs to remove and dispose of a Capital Asset must be estimated as removal costs. 7.4 Retirements 7.4.1 Retirements, as well as Additions and Replacements, are to be accounted for using a Capital WO 7.4.2 When retiring a Capital Asset, the Retirement is recorded by crediting its originally installed cost to the utility plant account in which it was originally included. 7.4.3 Costs to remove and dispose of a Capital Asset must be estimated as removal costs. 45084 CITIES 1-3 BB20 019
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 15 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 7.5 TRANSFERS AND SALES 7.5.1 Property Accounting must be contacted for transfers of Capital Assets between Asset Locations, Legal Entities, Business Units or sales to third parties. 8.0 ATTACHMENTS Attachment A - Materiality Thresholds for Capitalization Attachment B - Criteria for Betterments Designation by Function 45084 CITIES 1-3 BB21 020
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 16 of 17 Title: CAPITALIZATION Last Revision: Rev. I January 19, 2014 Attachment A - Materiality Thresholds for Capitalization Function Fossil Production Plant Nuclear General Plant Substation Transmission and Distribution Lines Software Threshold Amount Material Invoice Cost must be greater than $5,000 Material Invoice Cost must be greater than $5,000 Material Invoice Cost must be greater than $5,000 Material Invoice Cost must be greater than $5,000 Material Invoice Cost must be greater than $1,000 Material Invoice Cost must be greater than $50,000 Note: All thresholds apply to all items that are not already classified as Retirement Units. Material Invoice Cost includes all direct costs to construct or acquire an asset and make it ready for service. 45084 CITIES 1-3 BB22 021
ENTERGY ACCOUNTING POLICIES & PROCEDURES Page 17 of 17 Title: CAPITALIZATION Last Revision: Rev. 1 January 19, 2014 Attachment B-- Criteria for Betterments Designation by Function Function Threshold Nuclear The life of an item must be extended by at least 25 lo and the differential value to be capitalized must be greater than $50,000; or The item's performance must be increased by at least 25!o and the differential value to be capitalized must be greate r than $50,000. Fossil Production Plant The life of an item must be extended by the lesser of 3 years or 25% and the differential value to be capitalized must be greater than $50,000; or The item's performance must be increased by at least 25 l0 and the differential value to be capitalized must be greater than $50.000. General/ Intangible Plant Similar rules apply, but the material invoice cost must be materially larger than the "like kind" replacement's material invoice cost in order to be considered as a Betterment. The life of an item must be extended by 25% or 5 years and the differential value to be capitalized must be greater than 1 000; or The item's performance must be increased by at least 25% and the differential value to be capitalized must be reater than $1.000. Transmission Lines * The life of an item must be extended by at least 25% and the differential value to be capitalized must be greater than $10,000; or The item's performance must be increased by at least 25% and the differential value to be capitalized must be reater than $10,000. Substations The life of the item must be extended by at least 25% and the differential value to be capitalized must be -greater than 1Q 000; or, The performance of the item must be increased by at least 25% and the differential value to be capitalized must be greater than $10.000. Software The life of the item must be extended by at least 25% and the differential value to be capitalized must be greater than $50, 000; AND It must meet the definition of an enhancement in Section 6.5.4 45084 CITIES 1-3 BB23 022
ENTERGY CORPORATION TRANSMISSION LINE CAPITALIZATION PROCEDURES 1.0 Purpose This procedure document defines Entergy Corporation's accounting requirements for Transmission Line Units of Property. This procedure document complies with the Federal Energy Regulatory Commission (FERC) Code of Federal Regulations Part 101, Electric Plant Instruction #10, which requires that all property consist of retirement units and minor items of property. 2.0 Applicability/Scope This procedure document applies to the accounting for all Entergy Corporation Transmission Line Capital Expenditure Authorizations (CWOs), and should be utilized in conjunction with the Entergy Capitalization Policy. 3.0 Definitions 3.1 "Retirement Unit" (RU's) refers to property or equipment which, upon assembly or purchase, can function as a stand-alone unit. When the RU's are put into service, the cost of the RU is to be capitalized to the appropriate utility plant account. 3.2 "Minor Items of Property" refers to the associated parts or items of which Retirement Units (units of property) are composed. 3.3 "Operations and Maintenance of a Retirement Unit or System" reflects operations and maintenance costs charged to Transmission Line expense accounts and includes expenditures related to repairs, minor upgrades, lubrication, cleaning, adjustment, preventative maintenance and painting which are incurred to keep equipment in normal usable condition. Such expenditures may be either minor or major in magnitude and may be routine or non-routine in nature. 3.4 "Replacement of a Retirement Unit or System" is the removal and replacement of a retirement unit or system as identified in the retirement unit listing and the substitution of a new unit or system that is of the same type and has the same performance capabilities. 3.5 "Material Invoice Cost" includes all direct costs to construct or acquire an asset and make it ready for service. Transmission Line Capitalization Procedures Page 9 45084 CITiES 1-3 BB24 023
ENTERGY CORPORATION TRANSMISSION LINE CAPITALIZATION PROCEDURES 4.0 Procedure 4.1 Listing of Property/Retirement Units 4.1.1 A complete list can be referenced in the PowerPlant Estimate Panels or the Property Accounting Web Page. 4.2 Accounting for Retirement Units 4.2.1 Additions, retirements and replacements of Retirement Units are to be accounted for by using capital and retirement CWfJ's. The cost of a Retirement Unit shall include all FERC prescribed direct and indirect costs incurred in the placement of the Retirement Unit, including any associated Minor Items of Property. 4.2.2 When a Retirement Unit is taken out of service or retired; with or without replacement; the cost of the Retirement Unit shall be credited to the utility plant account in which recorded. The original cost to be retired includes all of the construction costs that the FERC deems to be appropriate for inclusion (see FERC Uniform System of Accounts Electric Plant Instruction No. 3). 4.2.3 All assets with an estimated service life less than 1 year are expensed. 4.3 Accounting for Minor Items of Property 4.3.1 The cost of an addition to a Retirement Unit of a Minor Item of Property that did not previously exist shall be charged to the appropriate maintenance expense account, except where the minor item represents a substantial addition. 4.3.2 A substantial minor item addition is defined as the following: 1. The estimated service life of each minor item addition is for one year or more. 2. The Material Invoice Cost (refer to 3.5) is equal to or exceeds $1,000. 4.3.3 If a Minor Item of Property is replaced independently of the Retirement Unit of which it is a part, all costs of the replacement Transmission Line Capitalization Procedures Page 2 45084 CITIES 1-3 BB25 024
ENTERGY CORPORATION TRANSMISSION LINE CAPITALIZATION PROCEDURES including property addition, cost of removal and salvage credits shall be recorded in the appropriate maintenance expense account. See Section 4.4.6 for those instances in which the replacement of a portion of an existing Retirement Unit would be treated as a Betterment and therefore capitalized as a part of the Retirement Unit. 4.3.4 A Minor Item of Property that is retired and not replaced requires no separate retirement (credit to the plant account) provided that its cost is included as part of the related Retirement Unit. All costs of removal and salvage shall be recorded as expense. 4.4 Betterment of a Retirement Unit (Unit of Property) 4.4.1 Betterment describes the situation in which a major part of a Retirement Unit is modified or replaced, resulting in significant improvement or superior performance. The result of the improved substitute serves to increase the overall efficiency and/or tends to increase the useful life of the Retirement Unit. The accounting treatment for Betterments will be decided on a case by case basis by Property Accounting. 4.4.2 When making the assessment of increases to the output or useful life of an existing Capital Asset, the asset analyzed should be the lowest level which can be separately identified in the property record (usually a Retirement Unit, but which may also be a group of assets if no single Capital Asset can be identified in the property record). Therefore, if an individual Capital Asset has a separate property record, a modification of that Capital Asset may be assessed to determine if it qualifies as a Betterment. If Capital Assets are not entered into the property records on a componentized basis, the lowest level of Capital Asset in the property record which is being modified should be assessed to determine whether the modification will result in an increase to the useful life or output of that Capital Asset. If so, the modification may be capitalized as a Betterment. 4.4.3 Ordinary and/or recurring maintenance and repairs of Capital Assets, or modifications which do not meet the criteria as Betterments should be recognized in the appropriate maintenance expense account. Transmission Line Capitalization Procedures Page 3 45084 CITIES 1-3 BB26 025
ENTERGY CORPORATION TRANSMISSION LINE CAPITALIZATION PROCEDURES 4.4.4 A Betterment that involves the replacement of a Minor Item of Property (refer to 4.3) is generally expensed unless the results involve a significant improvement in performance, or life extension, and the Material Invoice Cost (refer to 3.5) is materially larger than the material invoice cost of a "like kind" replacement. If the cost factor is deemed not to be material (refer to 4.4.6), then the cost of the Betterment is usually charged to the appropriate maintenance expense account. 4.4.5 A Betterment may involve an addition to plant that did not previously exist. Accounting for such additions would involve capitalization of Retirement Units and expensing Minor Items of Property not meeting the criteria of Section 4.3.2. 4.4.6 For an item to be designated a Betterment it must meet one of the following criteria: 1. The life of the item must be extended by at least 25 lo and the differential value to be capitalized must be greater than $10,000; or 2. The performance of the item must be increased by at least 25!o and the differential value to be capitalized must be greater than $ 10,000. 5.0 Threshold for Capitalization of General Property Refer to the Entergy Corporation General/Intangible Plant Capitalization Procedures located on the Property Accounting Web Page for specific details. Transmission Line Capitalization Procedures Page 4 45084 CITIES 1-3 BB27 026
ENTERGY TEXAS, INC. PUBLIC UTILITY COMMISSION OF TEXAS DOCKET NO. 45084 Response of Entergy Texas, Inc. to the First Set of Data Requests of Requesting Party: Cities Prepared By: DMark Hunter Sponsoring Witness: Khamsune Vongkhamchanh Beginning Sequence No. Ending Sequence No. Question No.: CITiES 1-4 Part No.: Addendum: Question: Please provide a more detailed description of the Transmission Substation Failures Blanket (Project Code F I PPUT0556) and why it is considered a capital replacement prograrn rather than a substation maintenance program. Response: The Transmission Substation Failures Blanket (Project Code F1 PPUT0556) was created to address failures of substation equipment that need immediate attention to preserve the integrity and reliability of the transmission substations. According to the Uniform System of Accounts, expenditures associated with these projects are classified as capital because all work orders in this blanket were created and used to replace various retirement units for substation equipment. Attached is the Company's Substation Capitalization Procedure. For a definition of "retirement unit" and the Company's capitalization policy, please see the Company's response to Cities 1-3. 45084 CITIES 1-4 BB28 027
ENTERGY CORPORATION SUBSTATIONS CAPITALIZATION PROCEDURES 1.0 Purpose This procedure document defines Entergy Corporation's accounting requirements for Transmission and Distribution Substation Units of Property. This procedure document complies with the Federal Energy Regulatory Commission (FERC) Code of Federal Regulations Part 101, Electric Plant Instruction #10, which requires that all property consist of retirement units and minor items of property, 2.0 Applicability/Scope This procedure document applies to the accounting for all Entergy Corporation Substation Capital Work Orders (CWOs), and should be utilized in conjunction with the Entergy Capitalization Policy. 3.0 Definitions 3.1 "Retirement Units" (RU's) refers to property or equipment which, upon assembly or purchase, can function as a stand-alone unit. When the RU's are put into service, the cost of the RU is to be capitalized to the appropriate utility plant account 3.2 "Minor Items of Property" refers to the associated parts or items of which Retirement Units (units of property) are composed. 3.3 "Operations and Maintenance of a Retirement Unit" reflects operations and maintenance costs charged to Substation expense accounts and includes expenditures related to repairs, minor upgrades, lubrication, cleaning, adjustment, preventative maintenance and painting which are incurred to keep equipment in normal usable condition. Such expenditures may be either minor or major in magnitude and may be routine or non-routine in nature. 3.4 "Replacement of a Retirement Unit or System" is the removal and replacement of a Retirement Unit or system as identified in the retirement unit listing and the substitution of a new unit or system that is of the same type and has the same performance capabilities. 3.5 "Production Plant/Transmission Plant Demarcations" distinguish between FERC Accounts 315, 324, 334, 345 & FERC Account 353. The Demarcation point is defined as: 45084 CITIES 1-4 BB29 028