Assets > 12.01 Estimating the FRSR Provision. Issued June 1998. Purpose. This
section provides information on how the provision for future removal and site ...
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Purpose This section provides information on how the provision for future removal and site restoration costs (the "provision") on B.C. Hydro's assets is estimated and recorded.
Overview This section outlines the types of assets requiring a provision and the responsibilities of various groups to ensure the appropriateness of the provision. Factors associated with the initial establishment and subsequent revisions to the provision are also discussed. Further details on the accounting treatment for amortization and actual costs of future removal and site restoration appear in Section 12.02 Amortization of Future Removal and Site Restoration Costs and Section 12.03 The FSSR Provision and Actual Costs of Disposal of this manual.
Definition Future Removal and Site Restoration (FRSR) costs are the net amount, whether positive or negative, that result from the dismantling or abandonment of an asset and sale of all salvage materials as well as any other recoveries. FRSR costs include quantifiable liabilities for removal and restoration where the likelihood of occurrence is established under environmental law, contract or through corporate policy but exclude cleanup costs associated with contaminated sites. A separate provision is set up for cleanup costs. This amount is also referred to as "net salvage".
SAP 5.06 – Future Removal and Site Restoration Costs 1. Provisions for future removal and site restoration costs, net of expected recoveries, are only recorded if the costs can be estimated with reasonable accuracy. 2. Provisions for future removal and site restoration costs are determined on a site-by-site basis, evaluating major sites individually and less material sites on a group basis by location or site. 3. Future removal and site restoration costs (relating to future periods) are allocated in a rational and systematic manner over the remaining useful life of the related assets or asset group. 4. Actual dismantling, removal or restoration costs incurred in a period are charged against the accumulated provision for future removal and site restoration costs. If costs incurred in a period exceed the accumulated provision, the excess is expensed. 5. Estimates of future removal and site restoration costs are reviewed periodically. Adjustments to the provisions are made on a current-dollar basis and are amortized in a systematic and rational manner over the remaining useful life of the related assets or asset group.
Responsibility 1. The Controller's Division (CD)
CD is responsible for maintaining the appropriate net salvage percentage, based on recommendations by business units, in the Profile ID Catalogue. The net salvage percentage may be positive or negative. The net salvage percentage is used to calculate and record the annual provision for each asset or asset pool to the appropriate accounts. 2. Group Controller Group Controllers are responsible for reviewing the net salvage rates and advising CD if the rates appear unreasonable based on experience or expectations, and for conducting studies, on a periodic basis to evaluate the reasonableness of salvage rates. Additionally, Group Controllers are required to establish FRSR provisions as necessary for any sites which may be earmarked for disposal, or any additional sites or assets which may require a provision. Sites or assets requiring a provision may be identified through asset verification procedures or environmental audits. Group controllers are responsible for reviewing the provisions and making adjustments as required. The Controller’s Division is notified of changes in excess of $1 million.
Application of the Accounting Policy 1. Assets Requiring a Provision FRSR costs are amounts likely to be paid or received as an asset reaches the end of its useful life. The provision is set up gradually over the useful life of the related asset. The provision increases each year until, at the end of the life of the asset, the entire amount of the provision is recorded and should approximate costs related to FRSR at that date. In situations where FRSR costs are likely to occur and are quantifiable, a provision is estimated and recorded using rates provided in the Profile ID Catalogue. If costs cannot be estimated with any reasonable degree of accuracy until a later date, the provision is established when FRSR costs are quantifiable. 2. Assets with No Provision In recording a provision, the anticipated operating lifespan of the asset is considered. Some generating plants or dams are unlikely to ever be abandoned or dismantled, therefore, no provision is made for these assets. Other plant or groups of assets such as transmission lines may not be abandoned or dismantled for up to 100 years. With little history or experience in the FRSR costs for these assets, it is difficult to reasonably determine a provision, therefore, no provision is established until the FRSR costs can be reasonably quantified. 3. Factors Affecting the Provision a. Specific Assets and Sites Group Controllers are required to monitor assets which are located under the following site influences. These site influences may lead to the establishment of provisions. i. PCB Sites ii. Underground Oil-Filled Transmission Cables iii. Substations iv. Pole Yards
v. Burrard Thermal vi. Submarine Cables vii. All Land Sites viii.
All Storage Sites
b. Materiality Where sufficient evidence exists that possible material FRSR costs will occur, a provision is made. Deciding what is material in any particular case is a matter of judgement and the final decision is the responsibility of CD. Materiality may be judged by the relative significance of the asset or Profile ID in relation to the operation of B.C. Hydro. Individual Assets are usually of higher value and therefore are considered significant. Mass Assets could also have significant levels of potential FRSR costs, particularly if it is probable that a certain group of assets will be slated for dismantling. c. Revisions to the Initial Provision Over time, experience and new expectations or circumstances may necessitate revisions to the provision. Any additional costs associated with restoring the site to reflect the changes need to be estimated. Such changes to the provision are amortized prospectively over the remaining estimated useful life. Changes in estimates may arise from: i. Engineering Studies ii. Consultation with other Utilities iii. Past Experience iv. Environmental Studies v. Policy or Legislative Changes
References Capital Asset Accounting Manual
12.02 Amortization of Future Removal and Site Restoration Costs 12.03 The FRSR Provision and Actual Costs of Disposal
Statement of Accounting Policy
5.06 Future Removal and Site Restoration Costs 10.06 Environmental Costs
Profile ID Catalogue CICA Handbook 3060 Capital Assets E-Mail inquiries to: CAAM Contact Last Update: April 2003
