Alliant Energy just received regulatory approval for its 2014 electricity rate. The company has been authorized to charge customers $0.10 per kilowatt-hour (kwh), a rate lower than other utilities in the state charge. Details of the rate calculation follow:

Shortly after the 2014 rate was set, the company’s financial reporting staff circulated an internal memo recommending the following accounting changes:
1. Extend plant depreciation life by five years to reflect current utilization forecasts. This would add $175 million to the asset base and reduce annual depreciation (an operating cost) by $5 million.
2. Increase estimated bad debt expense from 1% to 1.5% of sales to reflect current forecasts of customer defaults. This would add $7 million to operating costs and reduce total assets by the same amount.
3. Amortize 2013 hostile takeover defense costs of $4.5 million over three years rather than take the entire expense in 2013. This would increase 2014 operating costs by $1.5 million and add $3 million to the asset base.
4. Write up fuel and materials inventories to their current replacement value. This would add $60 million to the asset base, but it would have no impact on 2014 operating costs.

1. Assess the impact of each proposed change on the company’s 2014 revenue requirement and rate per kilowatt-hour, assuming that regulators will approve the accounting changes and adjust the allowed rate accordingly.
2. As a member of the state utility commission, comment on the merits of each proposed accountingchange.

  • CreatedSeptember 10, 2014
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