Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, January 31, 1992 TAG: 9201310176
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
SOURCE: GEORGE KEGLEY BUSINESS EDITOR
DATELINE: LENGTH: Medium
RATES NUDGED ANEW
A proposed accounting rule is expected to lower earnings for many companies and may raise electricity and natural-gas rates for consumers.Beginning in January 1993, companies paying medical benefits for retirees must start putting those costs on their books for future retirement, said Fulton Galer of KPMG Peat Marwick in Roanoke.
Companies now are required by generally accepted accounting procedures to list the costs of medical benefits for retired workers on the liability side of their balance sheets only when the costs are paid.
Roanoke Gas Co. and Appalachian Power Co. are among the companies studying the change announced by the Financial Accounting Standards Board, a quasi-official group that sets rules for the public accounting profession.
In Virginia, the State Corporation Commission has asked utilities it regulates how they will handle the change.
The national accounting board is saying that increased health care costs in the future could add a huge liability on corporations and they should put it on their books now, Galer said.
The change will affect employees, he said, because companies may decide to eliminate or cut retirees' benefits. "A lot of people are planning ways to get out of it and others are lowering their benefits."
Roger Baumgardner, a vice president of Roanoke Gas, said one option will be for companies to amortize the liability of medical costs for future retirees over 20 years. The SCC will determine how much of the utilities' benefits costs they will be allowed to put in their costs of service, he said.
Most companies are working with actuarial firms to determine their liability by calculating how long their retired employees will live, Baumgardner said.
The change already has prompted some Northeastern utilities to apply for regulatory approval of substantial rate increases to cover the promised medical benefits, the New York Times reported recently. If those increases are granted, more than $4 billion would be added to electric, gas and telephone bills each year, the newspaper said.
The SCC staff said the new rule "will materially impact the financial statements of every . . . public utility operating in Virginia."
The staff recommended that the SCC commissioners consider a comprehensive rule to address the issue. The comments are due at the SCC by Feb. 28. Virginians' comments should be sent to William J. Bridge, clerk of the SCC, Document Control Center, P.O. Box 2118, Richmond 23216.
Utilities, customers and others are invited to say whether the best interest of ratepayers is to allow the future retirement benefits to be included in the cost of service.
National consumer advocates are asking state regulators to reject utility requests to fold the medical benefits into rates, saying ratepayers will receive little or no advantage in paying now for unpredictable obligations in years ahead, the Times said.