Form revised: August 9, 2010
FISCAL NOTE FOR NON-CAPITAL PROJECTS
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Department: |
Contact Person/Phone: |
CBO Analyst/Phone: |
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Seattle City Light |
Fernando Estudillo 206-684-3832 |
Calvin Chow/x4-4652 |
Legislation Title:
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Summary of the Legislation:
This legislation affirms SCL’s use of certain standard accounting practices in administering the Rate Stabilization Account. SCL’s independent auditors are looking for affirmation of these practices by Resolution.
Background:
The Rate Stabilization Account (RSA), implemented on May 1, 2010, was established under Ordinance 121637 and expanded with additional parameters under Ordinance 123260. There are different options for the accounting treatment of deposits to, and withdrawals from, the RSA and City Light is required by Generally Accepted Accounting Principles of the United States of America to get the approval of its regulator – the City Council – for the use of a particular approach.
The proposed Resolution authorizes the use of two accounting standards for revenue associated with the RSA account. ASC 980-405-25-25-1 may be used to defer or recognize revenues for past and current RSA cash deposits and withdrawals and ASC 980-605-25-25-1-4 may be used for recognition of future retail revenues. The Resolution limits the future revenues that may be recognized for this purpose to one complete billing cycle unless otherwise approved by City Council. The accounting standards would be used in those circumstances where doing so was necessary for City Light to meet its debt service coverage policy established by the City Council. The proposed Resolution also directs City Light to send an annual affirmation letter to City Council, specifying the amount of revenue deferred or recognized for the fiscal year ended and the related recording amount of the regulatory asset or liability.
Please check one of the following:
____ This legislation does not have any financial implications.
__√__ This legislation has financial implications.
The SCL – Rate Stabilization Account Accounting Policy Resolution has financial implications in that the deferral or recognition of revenue utilizing ASC 980-405-25-25-1 or ASC 980-605-25-25-1-4 will assist in the reduction of the need for rapid and substantial increases in City Light’s rates solely to address bond coverage and debt service coverage ratio requirements.
Any deferral or recognition of revenue associated with the RSA cash deposits and withdrawals, and according to the specifications of the ASC pronouncements, will be recognized as earned revenue in a different fiscal period than when the RSA transactions were originally billed or incurred. SCL’s required debt service coverage ratio will be more consistently achieved by utilizing this treatment of revenue, whereby the RSA revenue is deferred to a different fiscal period when operating revenues exceed the revenue required for the current debt service coverage ratio, or RSA revenue is recognized from a different fiscal period when operating revenues are below the revenue required to meet the current debt service ratio.
The recognition of earned revenue in a fiscal period other than the fiscal period billed or transactions incurred will be reflected in SCL’s Annual Report, the City’s Comprehensive Annual Financial Report, and other financial reports, and will be subject to audit in accordance with auditing standards generally accepted in the United States of America by SCL’s independent auditors.
Appropriations: None
Anticipated Revenue/Reimbursement: Resulting from this Legislation:
There are no changes in revenues as a result of the legislation. The legislation will only change the timing of when the RSA revenue will be recognized as earned revenue for financial accounting and reporting purposes.
Total Regular Positions Created, Modified, or Abrogated through this Legislation, Including FTE Impact: None
Do positions sunset in the future? Not Applicable
Spending/Cash Flow: Not Applicable
What is the financial cost of not implementing the legislation?
If the legislation is not implemented, it would increase the possibility that SCL would be unable to meet bond coverage and debt service coverage ratio requirements in a given year which would result in a potential regulatory conflict. If SCL could not meet its required bond coverage and debt service coverage ratios, it is possible that SCL’s bond credit ratings would be lowered which would result in potential higher financing costs.
Does this legislation affect any departments besides the originating department? No
What are the possible alternatives to the legislation that could achieve the same or similar objectives? No known alternatives
Is the legislation subject to public hearing requirements? No
Other Issues: None
List attachments to the fiscal note below: None