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Note 2.
Summary of Significant Accounting Policies -
continued |
The Company does not record
the balancing and memorandum accounts until the Commission has
authorized a change in customer rates and the customer has been billed.
Utility Plant Utility plant is carried at original cost
when first constructed or purchased, except for certain minor units of
property recorded at estimated fair values at the date of acquisition.
When depreciable plant is retired, the cost is eliminated from utility
plant accounts and such costs are charged against accumulated
depreciation. Maintenance of utility plant is charged to operating
expenses as incurred. Maintenance projects are not accrued for in
advance. Interest is capitalized on plant expenditures during the
construction period and amounted to $900 in 2005, $824 in 2004, and
$1,995 in 2003.
Intangible assets acquired as part of water systems purchased are stated
at amounts as prescribed by the Commissions. All other intangibles have
been recorded at cost and are amortized over their useful life. Included
in intangible assets is $6,515 paid to the City of Hawthorne in 1996 to
lease the city’s water system and associated water rights. The asset is
being amortized on a straight-line basis over the 15-year life of the
lease.
The following table represents depreciable plant and equipment as of
December 31: |
|
2005 |
2004 |
Equipment |
$234,073 |
$214,202 |
Transmission and
distribution plant |
864,450 |
819,793 |
Office buildings and
other structures |
72,695 |
68,937 |
Total |
$1,171,218 |
$1,102,932 |
|
Depreciation of utility
plant for financial statement purposes is computed on a straight-line
basis over the assets’ estimated useful lives and provides for asset
retirement costs as follows: |
|
Useful Lives |
Equipment |
5 to 50 years |
Transmission and distribution plant |
40 to 65 years |
Office buildings and other structures |
50 years |
|
The provision for
depreciation expressed as a percentage of the aggregate depreciable
asset balances was 2.7% in 2005, 2.6% in 2004, and 2.5% in 2003. For
income tax purposes, as applicable, the Company computes depreciation
using the accelerated methods allowed by the respective taxing
authorities. Plant additions since June 1996 are depreciated on a
straight-line basis for tax purposes in accordance with tax regulations.
Cash Equivalents Cash equivalents include highly liquid
investments with original maturities of three months or less. As of
December 31, 2005 and 2004, cash equivalents included investments in
money market funds in the amount of $4,003 and $6,133, respectively, and
investment in high-quality commercial paper in the amount of zero and
$4,997, respectively.
Restricted Cash Restricted cash primarily represents
proceeds collected through a surcharge on certain customers’ bills, plus
interest earned on the proceeds, and is used to service California Safe
Drinking Water Bond obligations. All restricted cash is classified in
other prepaid expenses. At December 31, 2005 and 2004, restricted cash
was $1,200 and $1,337, respectively.
Regulatory Assets and Liabilities The Company records
regulatory assets for future revenues expected to be realized in
customers’ rates when certain items are recognized as expenses for
rate-making purposes. The income tax temporary differences relate
primarily to the difference between book and federal income tax
depreciation on utility plant that was placed in service before the
regulatory Commissions adopted normalization for rate-making purposes.
Previously, the tax benefit of tax depreciation was passed onto
customers (flow-through). For state income tax purposes, the Commission
continues to use the flow-through method.
As such timing differences reverse, the Company will be able to include
the impact of such differences in customer rates. These federal tax
differences will continue to reverse over the remaining book lives of
the related assets.
In addition, regulatory assets include items that are recognized as
liabilities for financial statement purposes, which will be recovered in
future customer rates. Asset retirement obligations are recorded net of
depreciation, which has been recorded and recognized through the
regulatory process. The liabilities relate to asset retirement
obligations, postretirement benefits other than pensions, and accrued
benefits for vacation, self-insured workers’ compensation, and
directors’ retirement benefits. |
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