Atmos Energy 1999 Annual Report Download - page 47

Atmos
Energy
Corporation
43
Accounting for Unconsolidated Investments The Company
accounts for its 45% interest in WMLLC using the equity method of
accounting for investments. Equity in pre-tax earnings of WMLLC
included in the consolidated statement of income was $7.2 million,
$3.9 million and $3.3 million in 1999, 1998 and 1997, respectively.
The Company amortizes the excess of the purchase price over the
value of the net tangible assets, amounting to approximately $5.4
million, which was allocated to intangible assets consisting of cus-
tomer contracts and goodwill over 10 and 20 years, respectively.
WMLLC adopted Emerging Issues Task Force 98-10, “Accounting for
Contracts Involved in Energy Trading and Risk Management
Activities” (“EITF 98-10”). EITF 98-10 requires that energy trading
contracts should be marked to market (that is, measured at fair value
determined as of the balance sheet date) with the gains and losses
included in earnings and separately disclosed. Atmos’ 45% after-tax
share of WMLLC’s income from the adoption of EITF 98-10 was $2.4
million or $.08 per share.
Restatement for Pooling of Interests The consolidated financial
statements for all periods prior to July 31, 1997 have been restated
for the pooling of interests of the Company with United Cities Gas
Company. Certain changes in account classifications have been made
to conform United Cities Gas Company’s classifications to Atmos’
presentation.
Regulation The Company’s utility operations are subject to regula-
tion with respect to rates, service, maintenance of accounting records
and various other matters by the respective regulatory authorities in
the states in which it operates. Atmos’ accounting policies recognize
the financial effects of the ratemaking and accounting practices and
policies of the various regulatory commissions. Regulated utility oper-
ations are accounted for in accordance with Statement of Financial
Accounting Standards No. 71, “Accounting for the Effects of Certain
Types of Regulation.” This statement requires cost-based rate regulat-
ed entities that meet certain criteria to reflect the authorized recovery
of costs due to regulatory decisions in their financial statements.
The Company records regulatory assets which represent assets
which are being recovered through customer rates or are probable of
being recovered through customer rates. Significant regulatory assets
as of September 30, 1999 included the following: merger and inte-
gration costs of $35.9 million, net of related reserve, environmental
costs of $3.9 million, and deferred cost of purchased gas of $.5 mil-
lion. Regulatory liabilities represent probable future reductions in rev-
enues associated with amounts that are to be credited to customers
through the ratemaking process. As of September 30, 1999, the
Company had recorded a regulatory liability of $2.2 million for
deferred income taxes.
Revenue Recognition Sales of natural gas are billed on a monthly
cycle basis; however, the billing cycle periods for certain classes of
customers do not necessarily coincide with accounting periods used
for financial reporting purposes. The Company follows the revenue
accrual method of accounting for natural gas revenues whereby rev-
enues applicable to gas delivered to customers, but not yet billed
under the cycle billing method, are estimated and accrued and the
related costs are charged to expense. Estimated losses due to credit
risk are reserved at the time revenue is recognized.
Utility Property, Plant and Equipment Utility property, plant and
equipment is stated at original cost net of contributions in aid of con-
struction. The cost of additions includes direct construction costs,
payroll related costs (taxes, pensions and other fringe benefits),
administrative and general costs, and the estimated cost of an
allowance for funds used during construction (See AFUDC below).
Major renewals and betterments are capitalized, while the costs of
maintenance and repairs are charged to expense as incurred. The
costs of large projects are accumulated in construction in progress
until the project is completed. When the project is completed, tested
and placed in service, the balance is transferred to the utility plant in
service account, included in rate base and depreciation begins.
Property, plant and equipment is depreciated at various rates on a
straight-line basis over the estimated useful lives of the assets. The
composite rates were 4.0%, 4.0% and 3.9% for 1999, 1998 and
1997, respectively. At the time property, plant and equipment is
retired, the cost, plus removal expenses less salvage, is charged to
accumulated depreciation.
Allowance for Funds Used During Construction (“AFUDC”)
AFUDC represents the estimated cost of funds used to finance the
construction of major projects. Under regulatory practices, the costs
are capitalized and included in rate base for ratemaking purposes
when the completed projects are placed in service. Interest expense
of $3.7 million, $4.1 million and $1.2 million was capitalized in 1999,
1998 and 1997, respectively. The increased amounts in 1999 and
1998 were related to the Customer Support Center and customer
information, accounting and human resource technology systems
that were completed and placed in service in 1999.
Non-Utility Property, Plant and Equipment Balances are stated at
cost and depreciation is computed generally on the straight-line
method for financial reporting purposes.