oklahoma gas and electric company - … · general plant of oklahoma gas and electric company ......

Exhibit JJS-2

OKLAHOMA GAS AND ELECTRIC COMPANY Oklahoma City, Oklahoma

HOLDING COMPANY ASSETS

DEPRECIATION STUDY

, CALCULATED ANNUAL DEPRECIATION ACCRUALS

RELATED TO GENERAL PLANT

AS OF DECEMBER 31,2004

GANNETT FLEMING, INC. - VALUATION AND M T E DIVISION

Harrisburg, Pennsytvania

Gannett Fleming GANNETT FLEMING, INC. P.O. Box 67100 Harrisburg, PA 17106-7100 Location: 207 Senate Avenue Camp Hill, PA 1701 1 Office: (717) 763-7211 Fax: (717) 763-4590 www.gannettfleming.com

April 28, 2005

Oklahoma Gas and Electric Company 321 North Harvey Avenue Oklahoma City, OK 73102

Attention Mr. Donald R. Rowlett Vice President & Controller

Ladies and Gentlemen:

Pursuant to your request, we have conducted a depreciation study related to the general plant of Oklahoma Gas and Electric Company - Holding Company assets as of December 31,2004. The attached report presents a description of the methods used in the estimation of depreciation, the summary of annual and accrued depreciation and the detailed tabulations of annual and accrued depreciation.

Respectfully submitted,

GANNETT FLEMING, INC.

JOHN J. SPANOS Vice President Valuation and Rate Division

J JS: krm

- ii - A Tradition of Excellence

http://www.gannettfleming.com

CONTENTS

PART I . INTRODUCTION

Scope 1-2 Planof Rep0 rt 1-2

Survivor Curve and Net Salvage Estimates . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basis ofstudy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3 Depreciation 1-3

1-3 Calculation of Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II . METHODS USED IN THE ESTIMATION OF DEPRECIATION

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-2 Service Life and Net Salvage Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-3

Average Service Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-3 Survivor Curves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-3

Iowa Type Curves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-5 Retirement Rate Method of Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-1 0

Schedules of Annual Transactions in Plant Records . . . . . . . . . . . . . . . 11-1 1 Schedule of Plant Exposed to Retirement . . . . . . . . . . . . . . . . . . . . . . . 11-14 Original Life Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-16 Smoothing the Original Survivor Curve 11-18

Simulated Plant Balance Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-1 9 Service Life Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-24 Salvage Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-25 Net Salvage Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-25

Calculation of Annual and Accrued Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 11-25 Single Unit of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-26 Group Depreciation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-26

Remaining Life Annual Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-27 Average Service Life Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-27

Calculation of Annual and Accrued Amortization . . . . . . . . . . . . . . . . . . . . . . . . . 11-27

. . . . . . . . . . . . . . . . . . . . . . . . . .

PART 111 . RESULTS OF STUDY

Qualification of Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111-2 Description of Depreciation Tabulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111-2

CONTENTS, cont.

PART 111. RESULTS OF STUDY, cont.

Summary of Estimated Survivor Curves, Net Salvage, Original Cost, Book Reserve and Calculated Annual Depreciation Rates as of December 31 , 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111-4

Depreciation Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111-5

..

- iv -

PART 1. INTRODUCTION

1-1

OKLAHOMA GAS AND ELECTRIC COMPANY HOLDING COMPANY ASSETS

DEPRECIATION STUDY

CALCULATED ANNUAL DEPRECIATION ACCRUALS RELATED TO GENERAL PLANT

AS OF DECEMBER 31,2004

PART I . INTRODUCTION

SCOPE

This report presents the results of the depreciation study prepared for Oklahoma

Gas and Electric Company - Holding Company ("Company") as applied to general plant

in service as of December 31, 2004. It relates to the concepts, methods and basic

judgments which underlie recommended annual depreciation accrual rates related to

current general plant in service.

The service life estimates resulting from the study were based on informed judgment

which incorporated analyses of historical plant retirement data for the electric utility of

Oklahoma Gas and Electric plant as recorded through 2002; the net salvage analyses of

historical plant retirement data for the electric utility of Oklahoma Gas and Electric plant

recorded through 2002; a review of Company practice and outlook as they relate to plant

operation and retirement; and consideration of current practice in the utility industry,

including knowledge of service life and salvage estimates used for other general plant

assets.

PLAN OF REPORT

Part I includes brief statements of the scope and basis of the study. Part II presents

descriptions of the methods used in the service life and salvage studies and the methods

and procedures used in the calculation of depreciation. Part 111 presents the results of the

1-2

study, including a summary table and detailed tabulations of the calculated remaining lives

and annual accruals.

BASIS OF STUDY

Deweciation

For some accounts, the annual depreciation was calculated by the straight line

method using the average service life procedure and the remaining life basis. For the

remaining plant accounts, the annual depreciation was based on amortization accounting.

The calculated remaining lives and annual depreciation accrual rates were based on

attained ages of plant in service and the estimated service life and salvage characteristics

of each depreciable group.

Survivor Curve and Net Salvaae Estimates

The procedure for estimating survivor curves, which define service lives and

remaining lives, consisted of compiling historical service life data for the plant accounts or

other depreciable groups, analyzing the historical data base through the use of accepted

techniques, and forecasting the survivor characteristics for each depreciable account or

group. These forecasts were based on interpretations of the historical data analyses and

the expectations of future survivors. The combination of the historical data and the

estimated future trend yields a complete pattern of life characteristics, Le., a survivor curve,

from which the average service life and remaining service life are derived.

The historical data analyzed for life estimation purposes were compiled through

2002 from the Company’s fixed asset records for the OG&E electric utility. Such data

included plant additions, retirements, transfers and other activity recorded by the Company

for each of its plant accounts and subaccounts,

1-3

The estimates of net salvage by account incorporated a review of experienced costs

of removal and salvage related to plant retirements, and consideration of trends exhibited

by the historical data for the OG&E electric utility. Each component of net salvage, Le.,

cost of removal and salvage, was stated in dollars and as a percent of retirement.

An understanding of the function of the plant and information with respect to the

reasons for past retirements and the expected causes of future retirements was obtained

through discussions with operating and management personnel. The supplemental

information obtained in this manner was considered in the interpretation and extrapolation

of the statistical analyses.

Calculation of Depreciation

The depreciation accrual rates were calculated using the straight line method, the

remaining life basis and the average service life depreciation procedure. The continuation

of amortization accounting for certain accounts is recommended because of the

disproportionate plant accounting effort required when compared to the minimal original

cost of the large number of items in these accounts. An explanation of the calculation of

annual and accrued amortization is presented on page 11-28 of the report.

1-4

PART II. METHODS USED IN

THE ESTIMATION OF DEPRECIATION

11-1

PART 11. METHODS USED IN THE ESTIMATION OF DEPRECIATION

DEPRECIATION

Depreciation, as defined in the Uniform System of Accounts, is the loss in service

value not restored by current maintenance, incurred in connection with the consumption

or prospective retirement of electric and gas plant in the course of service from causes

which are known to be in current operation and against which the utility is not protected by

insurance. Among the causes to be given consideration are wear and tear, decay, action

of the elements, inadequacy, obsolescence, changes in the art, changes in demand,

requirements of public authorities, and, in the case of natural gas companies, the

exhaustion of natural resources.

Depreciation, as used in accounting, is a method of distributing fixed capital costs,

less net salvage, over a period of time by allocating annual amounts to expense. Each

annual amount of such depreciation expense is part of that year's total cost of providing

utility service. Normally, the period of time over which the fixed capital cost is allocated to

the cost of service is equal to the period of time over which an item renders service, that

is, the item's service life. The most prevalent method of allocation is to distribute an equal

amount of cost to each year of service life. This method is known as the straight line

method of depreciation.

The calculation of annual depreciation based on the straight line method requires

the estimation of average life and salvage. These subjects are discussed in the sections

which follow.

11-2

SERVICE LIFE AND NET SALVAGE ESTIMATION

Averase Service Life

The use of an average service life for a property group implies that the various units

in the group have different lives. Thus, the average life may be obtained by determining

the separate lives of each of the units, or by constructing a survivor curve by plotting the

number of units which survive at successive ages. A discussion of the general concept of

survivor curves is presented. Also, the Iowa type survivor curves are reviewed.

Survivor Curves

The survivor curve graphically depicts the amount of property existing at each age

throughout the life of an original group. From the survivor curve, the average life of the

group, the remaining life expectancy, the probable life, and the frequency curve can be

calculated. In Figure 1, a typical smooth survivor curve and the derived curves are

illustrated. The average life is obtained by calculating the area under the survivor curve,

from age zero to the maximum age, and dividing this area by the ordinate at age zero. The

remaining life expectancy at any age can be calculated by obtaining the area under the

curve, from the observation age to the maximum age, and dividing this area by the percent

surviving at the observation age. For example, in Figure 1 , the remaining life at age 30 is

equal to the crosshatched area under the survivor curve divided by 29.5 percent surviving

at age 30. The probable life at any age is developed by adding the age and remaining life.

If the probable life of the property is calculated for each year of age, the probable life curve

shown in the chart can be developed. The frequency curve presents the number of units

retired in each age interval and is derived by obtaining the differences between the amount

of property surviving at the beginning and at the end of each interval.

11-3

/

-H - Q) U 0

11-4

Iowa TvDe Curves. The range of survivor characteristics usually experienced by

utility and industrial properties is encompassed by a system of generalized survivor curves

known as the Iowa type curves. There are four families in the Iowa system, labeled in

accordance with the location of the modes of the retirements in relationship to the average

life and the relative height of the modes. The left moded or L curves, presented in Figure

2, are those in which the greatest frequency of retirement occurs to the left of, or prior to,

average service life. The symmetrical moded or S curves, presented in Figure 3, are those

in which the greatest frequency of retirement occurs at average service life. The right

moded or R curves, presented in Figure 4, are those in which the greatest frequency

occurs to the right of, or after, average service life. The origin moded or 0 curves,

presented in Figure 5, are those in which the greatest frequency of retirement occurs at the

origin, or immediately after age zero. The letter designation of each family of curves (L,

SI R or 0) represents the location of the mode of the associated frequency curve with

respect to the average service life. The numerical subscripts represent the relative heights

of the modes of the frequency curves within each family.

The Iowa curves were developed at the Iowa State College Engineering Experiment

Station through an extensive process of observation and classification of the ages at which

industrial property had been retired. A report of the study which resulted in the

classification of property survivor characteristics into 1 8 type curves, which constitute three

of the four families, was published in 1935 in the form of the Experiment Station's Bulletin

125.' These type curves have also been presented in subsequent Experiment Station

'Winfrey, Robley. Statistical Analvses of Industrial ProPertv Retirements. Iowa State College, Engineering Experiment Station, Bulletin 125. 1935.

11-5

100

90

80

70 CT) c -- -5 60 2

CO + 50

$ 40

30

3

c a,

a.

20

10

0 25 50 75 I00 125 150 175 200 225 250 275 300

Age, Percent of Average Life

Figure 2. Left Modal or "L" Iowa Type Survivor Curves

1 oc

9c

8C

7C ul c .- '5 60 L

50 3

r: a

Q

-c.r

40

30

20

I O

25 50 75 I00 125 150 175 200 225 250 275 300 0

Age, Percent of Average Life

Figure 3. Symmetrical or "S" Iowa Type Survivor Curves

0 CD

0 ln

LL

11-8

100

90

80

70

60

50

40

30

20

10

I I I I I I

0 Age, Percent of Average Life

Figure 5. Origin Modal or "0" Iowa Type Survivor Curves

bulletins and in the text, "Engineering Valuation and Depreciation."' In 1957, Frank V

B.Couch, Jr., an Iowa State College graduate student, submitted a thesis3 presenting his

development of the fourth family consisting of the four 0 type survivor curves.

Retirement Rate Method of Analvsis

The retirement rate method is an actuarial method of deriving survivor curves using

the average rates at which property of each age group is retired. The method relates to

property groups for which aged accounting experience is available or for which aged

accounting experience is developed by statistically aging unaged amounts and is the

method used to develop the original stub survivor curves in this study. The method (also

known as the annual rate method) is illustrated through the use of an example in the

following text, and is also explained in several publications, including "Statistical Analyses

of Industrial Property retirement^,"^ "Engineering Valuation and Depreciati~n,"~ and

"Depreciation Systems."6

The average rate of retirement used in the calculation of the percent surviving for

the survivor curve (life table) requires two sets of data: first, the property retired during a

period of observation, identified by the property's age at retirement; and

second, the

'Marston, Anson, Robley Winfrey and Jean C. Hempstead. Enaineering Valuation and Depreciation, 2nd Edition. New York, McGraw-Hill Book Company. 1953.

3 C ~ ~ ~ h , Frank V. B., Jr. "Classification of Type 0 Retirement Characteristics of Industrial Property." Unpublished M.S. thesis (Engineering Valuation). Library, Iowa State College, Ames, Iowa. 1957.

4Winfrey, Robley, Supra Note 1.

'Marston, Anson, Robley Winfrey, and Jean C. Hempstead, Supra Note 2.

'Wolf, Frank K. and W. Chester Fitch. Depreciation Svstems. Iowa State University Press. 1994

11-10

property exposed to retirement at the beginnings of the age intervals during the same

period. The period of observation is referred to as the experience band, and the band of

years which represent the installation dates of the property exposed to retirement during

the experience band is referred to as the placement band. An example of the calculations

used in the development of a life table follows. The example includes schedules of annual

aged property transactions, a schedule of plant exposed to retirement, a life table and

illustrations of smoothing the stub survivor curve.

Schedules of Annual Transactions in Plant Records. The property group used to

illustrate the retirement rate method is observed for the experience band 1995-2004 during

which there were placements during the years 1990-2004. In order to illustrate the

summation of the aged data by age interval, the data were compiled in the manner

presented in Tables 1 and 2 on pages 11-12 and 11-13. In Table 1, the year of installation

(year placed) and the year of retirement are shown. The age interval during which a *<*+ ..-v&+- rl+. ' e -

retirement occurred is determined from this information. In the example which follows,

$10,000 of the dollars invested in 1990 were retired in 1995. The $10,000 retirement

occurred during the age interval between 4% and 5% years on the basis that approximately

one-half of the amount of property was installed prior to and subsequent to July 1 of each

year. That is, on the average, property installed during a year is placed in service at the

midpoint of the year for the purpose of the analysis. All retirements also are stated as

occurring at the midpoint of a one-year age interval of time, except the first age interval

which encompasses only one-half year.

The total retirements occurring in each age interval in a band are determined by

summing the amounts for each transaction year-installation year combination for that age

11-1 1

Experience Band 1995-2004

TABLE 1. RETIREMENTS FOR EACH YEAR 1995-2004 SUMMARIZED BY AGE INTERVAL

Placement Band 1990-2004 . Retirements, Thousands of Dollars

During Year Year Total During Age

(1 1 (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (1 3) Placed 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Age Interval Interval

1990 10 11 12 13 14 16 23 24 25 26 26 13%-14% 1991 7 12 13 15 16 18 20 21 22 19 44 12%-13% 1992 11 '71 ;i , 14 16 17 19 21 22 18 1993 8 11 11 13 14 15 16 17

64 11%-12% a3 10%-11%

1994 9 10 I 1 13 14 16 17 19 20 93 9%-I 0% 1995 4 9 10 11 121 13 14 15 16 20 105 8%-9% 1996 5 11 12 13 14 I 15 16 18 20 113 7%-8% 1997 1998 1999 2000 2001 2002 2003 2004 -

l6 I%-, ;: , :: ::: 6 12 13 15 6 13 15 16

7 14 16 17 20 143 8 18 20 22 23 146

9 20 22 25 150 11 23 25 151

11 24 153 - - 13 80 - - - - - -

1,606

6%-7?4 5%-6% 4%-5% 31/2-4% 21/2-3% 1 w-2% %-I % 0-%

TABLE 2. OTHER TRANSACTIONS FOR EACH YEAR 1995-2004 SUMMARIZED BY AGE INTERVAL

Experience Band 1995-2004

Acquisitions, Transfers. and Sales, Thousands of Dollars During Year

Year Placed 1995 1996 1997 1998 1999 2000 (1) (2) (3) (4) (5) (6) (7)

I990 - 1991 - 1992 - 1993 - 1994 -

- - 1995 --L 1996

1997 1998 I999 2000 2001 2002 2003 2004 -

I

0

- - - - - - = - - = = Total

" Transfer Affecting Exposures at Beginning of Year.

"Sale with Continued Use.

b Transfer Affecting Exposures at End of Year.

Parentheses denote Credit amount.

Placement Band 1990-2004

Total During Age Aae Interval Interval

(1 2) (1 3)

13%-14% 12%-I 3% 11%-121/2 l O % - I l % 9%-10% 8?4-91/2 7%-81/2 6%-7% 5%6% 4%-5% 3%-4% 2?4-3% 1 %-2% %-I % 0-%

interval. For example, the total of $143,000 retired for age interval 4%5% is the sum of

the retirements entered on Table 1 immediately above the stairstep line drawn on the table

beginning with the 1995 retirements of 1990 installations and ending with the 2004

retirements of the 1998 installations. Thus, the total amount of 143 for age interval 4%-5%

equals the sum of:

10 + 12 + 13 + 11 + 13 + 13 + 15 + 17 + 19 + 20.

In Table 2, other transactions which affect the group are recorded in a similar

manner. The entries illustrated include transfers and sales. The entries which are credits

to the plant account are shown in parentheses. The items recorded on this schedule are

not totaled with the retirements, but are used in developing the exposures at the beginning

of each age interval.

Schedule of Plant Exposed to Retirement. The development of the amount of plant

exposed to retirement at the beginning of each age interval is illustrated in Table 3 on page

11-15.

The surviving plant at the beginning of each year from 1995 through 2004 is

recorded by year in the portion of the table headed "Annual Survivors at the Beginning of

the Year." The last amount entered in each column is the amount of new plant added to

the group during the year. The amounts entered in Table 3 for each successive year

following the beginning balance or addition are obtained by adding or subtracting the net

entries shown on Tables 1 and 2. For the purpose of determining the plant exposed to

retirement, transfers-in are considered as being exposed to retirement in this group at the

beginning of the vear in which they occurred, and the sales and transfers-out are

considered to be removed from the plant exposed to retirement at the beqinninq of the

followina vear.

11-14

TABLE 3. PLANT EXPOSED TO RETIREMENT JANUARY 1 OF EACH YEAR 1995-2004 SUMMARIZED BY AGE INTERVAL

Experience Band 1995-2004 Placement Band 1990-2004

Exposures. Thousands of Dollars Annual Survivors at the Beainnina of the Year

Total at Beginning

Year of Age Age

(1) (2) (3) (4) (5) (6) (7) (8) (9) (1 0) (1 1) (12) (1 3) . Interval Placed 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Interval

1990 255 245 234 222 209 195 239 216 192 167 167 131/2-14'!4 212 194 174 153 131 323 121/2-13%

1992 224 205 184 162 53 1 11M-12% 1993 330 300 289 276 262 242 226 823 10%111/2 Igg1 ?%!--] i! 1:: :i; 241

1994 376 367 357 346 1995 420" 41 6 407 397 1996 460" 455 444 1997 510" 504 1998 580a 1999 2000 200 1 2002 2003 2004

I 334 32 I 307 297 280 26 1 1,097 91/2-101/2 386 I 374 361 347 332 31 6 1,503 8%-9?4 432 419 I 405 390 374 356 1,952 7%-8% 492 479 464 I 448 43 1 412 2,463 6?4-7?4 574 56 1 546 530 I 501 482 3,057 5?4-6?4 660" 653 639 623 628 I 609 3,789 41/2-51/2

750" 742 724 685 663 4,332 31/2-41/2

960" 949 926 5,719 1 1/2-21/2 1,080" 1,069 6,579 %-I ?4

850a 841 82 1 799 4,955 21/2-31/2

1,220" 7.490 0-1/2

Total 1,975 2,382 2.824 3,318 3.872 4.494 - 5.247 6.017 - - 6.852 7,799 44,780

a Additions during the year.

Thus, the amounts of plant shown at the beginning of each year are the amounts of plant

from each placement year considered to be exposed to retirement at the beginning of each

successive transaction year. For example, the exposures for the installation year 1999 are

calculated in the following manner:

Exposures at age 0 = amount of addition = $750,000 Exposures at age W = $750,000 - $8,000 = $742,000 Exposures at age 1% = $742,000 - $18,000 = $724,000 Exposures at age 2% = $724,000 - $20,000 - $19,000 = $685,000 Exposures at age 3% = $685,000 - $22,000 = $663,000

For the entire experience band 1995-204, the total exposures at the beginning of

an age interval are obtained by summing diagonally in a manner similar to the summing

of the retirements during an age interval (Table 1). For example, the figure of 3,789,

shown as the total exposures at the beginning of age interval 4%5%, is obtained by

summing:

255+268+284+311 +334+374+405+448+501 +609.

Original Life Table. The original life table, illustrated in Table 4 on page 11-17, is

developed from the totals shown on the schedules of retirements and exposures, Tables

1 and 3, respectively. The exposures at the beginning of the age interval are obtained from

the corresponding age interval of the exposure schedule, and the retirements during the

age interval are obtained from the corresponding age interval of the retirement schedule.

The retirement ratio is the result of dividing the retirements during the age interval by the

exposures at the beginning of the age interval. The percent surviving at the beginning of

each age interval is derived from survivor ratios, each of which equals one

11-1 6

TABLE 4. ORIGINAL LIFE TABLE CALCULATED BY THE RETIREMENT RATE METHOD

Experience Band 1995-2004 Placement Band 1990-2004

(Exposure and Retirement Amounts are in Thousands of Dollars)

Age at Beginning of

Interval (1 1

0.0 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5 10.5 11.5 12.5 13.5

Total

Exposures at Beginning of Acre Interval

(2)

7,490 6,579 5,719 4,955 4,332 3,789 3,057 2,463 1,952 1,503 1,097 823 53 1 323 167

44,780

Retirements During Age

Interval (3)

80 153 151 150 146 143 131 124 113 105 93 83 64 44 2

1,606

Retirement Ratio (4)

0.01 07 0.0233 0.0264 0.0303 0.0337 0.0377 0.0429 0.0503 0.0579 0.0699 0.0848 0.1009 0.1205 0.1 362 0.1557

Survivor Ratio (5)

0.9893 0.9767 0.9736 0.9697 0.9663 0.9623 0.9571 0.9497 0.9421 0.9301 0.9152 0.8991 0.8795 0.8638 0.8443

Percent Surviving at Beginning of Age Interval

(6)

100.00 98.93 96.62 94.07 91 -22 88.15 84.83 81.19 77.1 1 72.65 67.57 61.84 55.60 48.90 42.24 35.66

Column 2 from Table 3, Column 12, Plant Exposed to Retirement. Column 3 from Table 1, Column 12, Retirements for Each Year. Column 4 = Column 3 divided by Column 2. Column 5 = 1.0000 minus Column 4. Column 6 = Column 5 multiplied by Column 6 as of the Preceding Age Interval.

11-1 7

minus the retirement ratio. The percent surviving is developed by starting with 100% at

age zero and successively multiplying the percent surviving at the beginning of each

interval by the survivor ratio, i.e., one minus the retirement ratio for that age interval. The

calculations necessary to determine the percent surviving at age 5% are as follows:

88.15 Exposures at age 4% = 3,789,000 Retirements from age 4% to 5% = 143,000 Retirement Ratio = 143,000 +3,789,000 = 0.0377 Survivor Ratio - Percent surviving at age 5% = (88.15) x (0.9623) = 84.83

- - Percent surviving at age 4%

1.000 - 0.0377 = 0.9623 -

The totals of the exposures and retirements (columns 2 and 3) are shown for the

purpose of checking with the respective totals in Tables 1 and 3. The ratio of the total

retirements to the total exposures, other than for each age interval, is meaningless.

The original survivor curve is plotted from the original life table (column 6, Table 4).

When the curve terminates at a percent surviving greater than zero, it is called a stub

survivor curve. Survivor curves developed from retirement rate studies generally are stub

curves.

Srnoothina the Oriainal Survivor Curve. The smoothing of the original survivor curve

eliminates any irregularities and serves as the basis for the preliminary extrapolation to

zero percent surviving of the original stub curve. Even if the original survivor curve is

complete from 100% to zero percent, it is desirable to eliminate any irregularities, as there

is still an extrapolation for the vintages which have not yet lived to the age at which the

curve reaches zero percent. In this study, the smoothing of the original curve with estab-

lished type curves was used to eliminate irregularities in the original curve.

The Iowa type curves are used in this study to smooth those original stub curves

which are expressed as percents surviving at ages in years. Each original survivor curve

was compared to the Iowa curves using visual and mathematical matching in order to

11-18

determine the better fitting smooth curves. In Figures 6, 7, and 8, the original curve

developed in Table 4 is compared with the L, SI and R Iowa type curves which most nearly

fit the original survivor curve. In Figure 6, the L1 curve with an average life between 12 and

1 3 years appears to be the best fit. In Figure 7, the SO type curve with a 12-year average

life appears to be the best fit and appears to be better than the L1 fitting. In Figure 8, the

R I type curve with a 12-year average life appears to be the best fit and appears to be

better than either the L l or the SO. In Figure 9, the three fittings, 12-L1, 12-SO and 12-R1

are drawn for comparison purposes. It is probable that the 12-R1 Iowa curve would be

selected as the most representative of the plotted survivor characteristics of the group,

assuming no contrary relevant factors external to the analysis of historical data.

Simulated Plant Balance Method

The Simulated plant balance method of life analysis is a statistical procedure by

which experienced average service life and survivor characteristics are inferred through a

series of approximations in which several average service life and survivor curve

combinations are tested. The testing procedure consists of applying survivor ratios defined

by the average service life and survivor curve combinations being tested to historical plant

additions and comparing the resulting calculated, or simulated, surviving balances with the

actual surviving balances.

11-1 9

I

I

0 0 - 0 0

m Q x 0 ru

11-20

1 oc

90

a0

70

I

> I

2 I- Z w U K w 40 a

30

20

10

0 5 10 15 RGE IN YERRS

20 25 30

100

90

80

70

U z 60 e

> > 3 m 50

z W U U

L

- - a

- k -

-

w 40

30

20

IO

RGE I N YEARS

l o o F

:T 10 0

FIGURE 9. ILLUSTRRTION OF THE MATCHING OF RN ORIGINAL SURVIVOR CURVE WITH L I , 50 AND R I IOWA TYPE CURVES.

ORIGINAL CURVE: X 1995-200'4 EXPERIENCE: 1990-200'4 PLACEMENTS

20 25 30

RGE IN YERRS

Each year-end book balance is the sum of the plant surviving from the original

annual additions. Each calculated year-end balance is the sum of the simulated plant

surviving from the same original annual additions. The simulated survivors are calculated

for each vintage by multiplying the original additions by the percent surviving corresponding

to the age of the vintage as of the date of the yearend balances being simulated. This

procedure is repeated until a series of simulated balances is calculated. The balances are

then compared with the book balances to determine which average service life and survivor

curve combinations result in calculated balances most nearly simulating the progression

of actual balances.

The simulated plant balance method is presented in greater detail in the Edison

Electric Institute’s publication, “Methods of Estimating Utility Plant Life’’.7

Service Life Considerations

The service life estimates were based on judgment which considered a number of

factors. The primary factors were the current Company policies and outlook as determined

during conversations with management and the survivor curve estimates from previous

studies of both the holding company and the electric utility assets as well as other utility

companies.

For the 10 plant accounts and subaccounts for which survivor curves were

estimated, the statistical analyses using the retirement rate or simulated plant record

methods did not provide specific indicators of survivor patterns. Therefore, judgment

incorporating the estimates of other utilities was a major factor in determining service life.

‘A Report of the Engineering Subcommittee of the Depreciation Accounting Committee, Edison Electric Institute. Publication No. 51 -23. Published 1952.

11-24

These accounts represent 8 percent of depreciable plant. The estimates of the remaining

accounts were based on amortization periods.

Salvaqe Analvsis

The estimates of net salvage by account were based in part on historical data

compiled through 2002 for the OG&E electric utility. Cost of removal and salvage were

expressed as percents of the original cost of plant retired, both on annual and three-year

moving average bases. The most recent five-year average also was calculated for

consideration. The net salvage estimates by account are expressed as a percent of the

original cost of plant retired.

Net Salvaqe Considerations

The estimates of future net salvage are expressed as percentages of surviving plant

in service, i.e., all future retirements. In cases in which removal costs are expected to

exceed salvage receipts, a negative net salvage percentage is estimated. The net salvage

estimates were based on judgment which incorporated analyses of historical cost of

removal and salvage data, expectations with respect to future removal requirements and

markets for retired transportation and power operated equipment.

Statistical analyses for the transportation equipment subaccount and power

operated equipment account of the OG&E electric utility were utilized in determining a

reasonable net salvage percent. All other accounts were amortized, therefore, a zero

percent for net salvage was recommended.

CALCULATION OF ANNUAL AND ACCRUED DEPRECIATION

After the survivor curve and salvage are estimated, the annual depreciation accrual

rate can be calculated. In the average service life procedure, the annual accrual rate is

computed by the following equation:

(100% - Net Salvage, Percenf) Average Sewice Life

Annual Accrual Rate, Percent =

11-25

The calculated accrued depreciation for each depreciable property group represents that

portion of the depreciable cost of the group which will not be allocated to expense through

future depreciation accruals if current forecasts of life characteristics are used as a basis

for straight line depreciation accounting.

The accrued depreciation calculation consists of applying an appropriate ratio to the

surviving original cost of each vintage of each account, based upon the attained age and

the estimated survivor curve. The accrued depreciation ratios are calculated as follows:

Average Remaining Life Expectancy Average Service Life

- Net Salvage, Pen=enf). Ratio = (1 -

The application of these procedures is described for a single unit of property and

a group of property units. Salvage is omitted from the description for ease of application.

Sinale Unit of ProDertv

The calculation of straight line depreciation for a single unit of property is

straightforward. For example, if a $1,000 unit of property attains an age of four years and

has a life expectancy of six years, the annual accrual over the total life is:

$'*Oo0 = $100 per year. (4 + 6)

The accrued depreciation is:

6 10

$1,000 (1 - -) = $400.

Group Depreciation Procedures

When more than a single item of property is under consideration, a group procedure

for depreciation is appropriate because normally all of the items within a group do not have

11-26

identical service lives, but have lives that are dispersed over a range of time. There are

two primary group procedures, namely, average service life and equal life group.

Remainina Life Annual Accruals. For the purpose of calculating remaining life

accruals as of December 31, 2004, the depreciation reserve for each plant account is

allocated among vintages in proportion to the calculated accrued depreciation for the

account. Explanations of remaining life accruals and calculated accrued depreciation

follow. The detailed calculations as of December 31, 2004, are set forth in the Results of

Study section of the report.

Averaae Service Life Procedure. In the average service life procedure, the

remaining life annual accrual for each vintage is determined by dividing future book

accruals (original cost less book reserve) by the average remaining life of the vintage. The

average remaining life is a directly weighted average derived from the estimated future

survivor curve in accordance with the average service life procedure.

The calculated accrued depreciation for each depreciable property group represents

that portion of the depreciable cost of the group which would not be allocated to expense

through future depreciation accruals, if current forecasts of life characteristics are used as

the basis for such accruals. The accrued depreciation calculation consists of applying an

appropriate ratio to the surviving original cost of each vintage of each account, based upon

the attained age and service life. The straight line accrued depreciation ratios are

calculated as follows for the average service life procedure:

Average Remaining Life Average Service Life ’

Ratio =

11-27

CALCULATION OF ANNUAL AND ACCRUED AMORTIZATION

Amortization, as defined in the Uniform System of Accounts, is the gradual

extinguishment of an amount in an account by distributing such amount over a fixed period,

over the life of the asset or liability to which it applies, or over the period during which it is

anticipated the benefit will be realized. Normally, the distribution of the amount is in equal

amounts to each year of the amortization period.

The calculation of annual and accrued amortization requires the selection of an

amortization period. The amortization periods used in this report were based on judgment

which incorporated a consideration of the period during which the assets will render most

of their service, the amortization periods and service lives used by other utilities, and the

service life estimates previously used for the asset under depreciation accounting.

Amortization accounting is appropriate for certain General Plant accounts that

represent numerous units of property, but a very small portion of depreciable plant in

service. The accounts and their amortization periods are as follows:

Account

ELECTRIC PLANT 391 .OO 391.01 0 Computers and Printers

Card Access Upgrade SAP Disk Computer Hardware

Bar Code Upgrade SAP and CCS Systems Small Packages

Mechanical Equipment Electrical Equipment Sony Projector Bar Code Equipment

Office Furniture & Equipment

391.01 1 Software

391.090 Miscellaneous

394.00 395.00 Laboratory Equipment

Tools, Shop and Garage Equip

Amortization Period, Years

15

10 5 3

10 5 3

15 10 5 3

25 20

11-28

Account

Amortization Period , Years

397.00 Communication Equipment Radio Service 15 PBX System 10 Voice Mail System 8 Radio Equipment 5

398.00 Miscellaneous Equipment 15

For the purpose of calculating annual amortization amounts as of December 31,

2004, the book or ratemaking book depreciation reserve for each plant account or

subaccount is assigned or allocated to vintages. The reserve assigned to vintages with an

age greater than the amortization period is equal to the vintage’s original cost. The

remaining reserve is allocated among vintages with an age less than the amortization

period in proportion to the calculated accrued amortization. The calculated accrued

amortization is equal to the original cost multiplied by the ratio of the vintage’s age to its

amortization period. The annual amortization amount is determined by dividing the future

amortizations (original cost less allocated book reserve) by the remaining period of

amortization for the vintage.

11-29

PART 111. RESULTS OF STUDY

Ill-I

PART 111. RESULTS OF STUDY

QUALIFICATION OF RESULTS

The calculated annual depreciation accrual rates are the principal results of the

study. Continued surveillance and periodic revisions are normally required to maintain

continued use of appropriate annual depreciation accrual rates. An assumption that

accrual rates can remain unchanged over a long period of time implies a disregard for the

inherent variability in service lives and salvage and for the change of the composition of

property in service. The annual accrual rates were calculated in accordance with the

straight line remaining life method of depreciation using the annual service life procedure

based on estimates which reflect considerations of current historical evidence and

expected future conditions.

The annual depreciation accrual rates are applicable specifically to the general plant

in service as of December 31, 2004. For most plant accounts, the application of such

rates to future balances that reflect additions subsequent to December 31, 2004, is

reasonable for a period of three to five years.

DESCRIPTION OF DEPRECIATION TABULATIONS

A summary of the results of the study, as applied to the original cost of general

plant at December 31,2004, is presented on page 111-4 of this report. The schedule sets

forth the original cost, the book reserve, future accruals, the calculated annual depreciation

rate and amount, and the corhposite remaining life related to general plant.

The tables of the calculated annual depreciation accruals are presented in account

sequence in the section titled "Depreciation Calculations." The tables indicate the

estimated survivor curve and salvage percent for the account and set forth, for each

111-2

installation year, the original cost, the calculated accrued depreciation, the allocated book

reserve, future accruals, the remaining life and the calculated annual accrual amount.

111-3

OKLAHOMA GAS AND ELECTRIC COMPANY -HOLDING COMPANY ASSETS SUMMARY OF ESTIMATED SURVIVOR CURVES, NET SALVAGE, ORIGINAL COST, BOOK RESERVE AND CALCULATED

ANNUAL DEPREClATlON RATES AS OF DECEMBER 31,2004

CALCULATED COMPOSITE REMAINING

LIFE (9)=(6)47)

NET SALVAGE PERCENT

(3)

0 0

0 0 0 0

0 0 0

0 0 0 0

10

10 0

10 10 10 10 0 10

0 0 5

0 0 0 0

0

ORIGINAL SURVIVOR CURVE

(2)

6OOK FUTURE ANNUAL ACCRUAL RESERVE ACCRUALS AMOUNT RATE

(5) (6) (7) (8)=(7)1(4) ACCOUNT

(1)

OFFICE FURNITURE AND EQUIPMENT INTERNET CONTENT MANAGEMENT

TOTAL OFFICE FURNITURE AND EQUIPMENT

COMPUTERS AND PRINTERS COMPUTER HARDWARE COMPUTER HARDWARE SAP DISK CAR0 ACCESS UPGRADE

TOTAL COMPUTERS AND PRINTERS

SOFTWARE SMALL SOFTWARE AND PACKAGES SAP AND CCS SYSTEMS BAR CODE UPGRADE

TOTAL SOFTWARE

MISCELLANEOUS BAR CODE EQUIPMENT SONY PROJECTOR ELECTRICAL EQUIPMENT MECHANICAL EQUIPMENT

TOTAL MISCELLANEOUS

TOTAL ACCOUNT 391

TRANSPORTATION EQUIPMENT STANDARD CARS

HEAVY CARS MERCURY FORD CROWN VICTORIA

TOTAL HEAVY CARS

PICKUP TRUCKS LIGHT TRUCKS HEAVY TRUCKS TRAILERS ELECTRIC VANS MOTOR HOME

TOTAL TRANSPORTATION EQUIPMENT

TOOLS, SHOP AND GARAGE EQUIPMENT LABORATORY EQUIPMENT POWER OPERATED EQUIPMENT

COMMUNICATION EQUIPMENT RADIO EQUIPMENT VOICE MAILSYSTEM PBX SYSTEM RADIO SERVICE MONITOR

TOTAL COMMUNICATION EQUIPMENT

MISCELLANEOUS EQUIPMENT

COST (4)

391.000

391.010

391.011

391.090

392.010

392.020

392.030 392.040 392.050 392.060 392.110 392.890

394.000

395.000 396.000

397.000

398.000

15-SQ 5-SQ

6.92 21.67

9.70 13.78 15.00 10.58

30.67 1.73 9.49

18.05 15.14 9.79 6.73

8.35

10.26

14.85 0.00

7.95 14.32 8.52 6.63 0.00 7.09

8.28

3.93 4.75 7.42

21.23 19.00 10.38 7.09

18.61

12.48

8.99

11.8 3.5

34.655.07 463,872.70 498.527.77

6.398 112,104 118,502

28.257 351,769 380.026

2.399 100,505 102.904

3-SQ 4SQ 5-SQ lO-SQ

1.4 2.9 1.5 6.5

2.398,497.77 8.584.155.20

72.624.20 29,813.23

11.085.090.40

2,082.640 5,120,534

56.284 9,319

7.268.777

315,857 3,463,620

16,340 20,494

3.816.31 1

232,709 1.182.523

10.893 3.153

1.429.278

3-SQ 5-SQ 10-SQ

7,710.422.1 3 35,032,561 3 1

3,298,224 34.073.798

4.412.198 958.763

1.9 1.6 7.5

2,365,029 607,751

9,495 2,982.275

28,821 37.400.843

100,034.30 42,843,017.74

71.213 5,442,174

3-SQ 5-SQ 1 0-SQ 15-SQ

171.329,ll 161.575.49 118,439.49

1 .o 3.7 7.3

11.5

140,404 71,254 33.61 1 5.678

250,947

45,039,069

30,925 90,321 84.829 19,433 225.508

9,864,019

30.925 24.460 11,598 1,690

68,673

4.583.130

25.111.06 476,455.1 5

54,903,091.06 2.2

9-L3 142,004.58 78.637 49.167 14.574 3.4

27,159.34 742.5 7-S2.5

2.9

2.9

4.5 3.5 8.9

10.5

5.5

5.3

12.707 19,388 32,175

11,656 0

1 1,656

571 -558 183,039 423,653 107,464

0 43,692

1,390.229

19,400 12,292

410.659

4,033 0

4.033 19,388.49 46.547.83

8-L3 9 4 3 13-R2 1442 7-54 18-R4

1.605.1 15.51 360.403.20 557,794.68 154.796,44 203.672.40 112,598.80

3.182.933.44

21.090,03 15.698.00

592,285.46

127.566 51,617 47.540 10.266

0 7.988

263.584

829 745

43.919

873.045 141.325 78.363 31.853

203.672 57,647

1,496,711

1.890 3.406

152,012

25SQ 20-SQ 1542.5

23.4 16.5 9.4

4-SQ 5-SQ 10-SQ 15-SQ

1.1 2.5 6.5

11.5 1.9

4.7

2,902.752.26

883.439,21 36.098.74

4,038,189.74

13.398.28

215,899.53 616,227 41,020 91.735 2,558

751,540

1,672

2.239.995 113,349 287.159

6,681 2,647,184

5.509

662.757 102,551 596.280 29,418

1,391,006

7.889 7-SQ

TOTAL PLANT 62,786,686.01 49,345,587 5,645,419

DE PREC IATlON CALCULATIONS

111-5

OKLAHOMA GAS AND ELECTRIC COMPANY

ACCOUNT 391.000 OFFICE FURNITURE AND EQUIPMENT

CALCULATED REMAINING LIFE DEPRECIATION ACCRUAL RELATED TO ORIGINAL COST AT DECEMBER 31, 2004

ORIGINAL CALCULATED YEAR COST ACCRUED (1) (2) (3)

5 Y R SURVIVOR CURVE.. 5-SQUARE NET SALVAGE PERCENT.. 0

2003 463,872.70 139,162

15 YR

NET SALVAGE PERCENT.. 0 SURVIVOR CURVE.. 15-SQUARE

2001 29,722.75 6,934 2003 4 , 932.32 493

34,655.07 7,427

498,527.77 146 , 589

ALLOC. BOOK RESERVE

( 4 )

112,104

5,973 425

6,398

118 , 502

FWT. BOOK ACCRUALS

(5)

351,769

23 , 750 4,507

28,257

380,026

REM. LIFE ( 6 )

3 .SO

11.50 13.50

COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE, PCT.. 3.7

ANNUAL ACCRUAL

(7)

100,505

2,065 334

2,399

102 , 904

20.64

111-6


ACCOUNT 391.010 OFFICE FURNITURE AND EQUIPMENT-COMP&PRINTER



COMPUTER HARDWARE SURVIVOR CURVE.. 3-SQUARE NET SALVAGE PERCENT.. 0

2001 1,820,860.12 1,820,860 2002 192,069.16 160 , 051 2003 377,071.03 188,536 2004 8,497.46 1,417

2,398,497.77 2,170,864

4 Y R SURVIVOR CURVE.. 4-SQUARE NET SALVAGE PERCENT.. 0

2001 2,030,668.20 1,776,835 2002 1,549,757.32 968,598 2003 2,344,064.39 879,024 2004 2,659,665.29 332,458

8,584,155.20 3,956,915

SAP DISK SURVIVOR CURVE.. 5-SQUARE NET SALVAGE PERCENT.. 0

2001 72,624.20 50,837

CARD ACCESS UPGRADE SURVIVOR CURVE.. 10-SQUARE NET SALVAGE PERCENT.. 0

2001 29,813.23 10,435

11,085,090.40 6,189,051

ALLOC. BOOK RESERVE

( 4 )

1,820,860 119,708 141,012

1,060

2,082,640

2 , 030,668 1,372,811 1 , 245,856

471,199

5,120 , 534

E'UT. BOOK ACCRUALS

(5)

72,361 236,059

7,437

315 , 857

176,946 1,098,208 2,188,466

3 , 463 , 620

REM. LIFE (6)

0.50 1.50 2.50

1.50 2.50 3.50

ANNUAL ACCRUAL

(7)

72 , 361 157,373

2,975

232 , 709

117,964 439,283 625 , 276

1,182 , 523

56,284 16,340 1-50 10,893

9,319

7,268,777

20,494

3,816,311

6.50 3,153

1,429,278

COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE, PCT.. 2.7 12.89

111-7


ACCOUNT 391.011 OFFICE FURNITURE AND EQUIPMENT-SOFTWARE


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK YEAR COST ACCRUED RESERVE ACCRUALS (1) (2) (3) ( 4 ) (5)

SMALL SOFTWARE AND PACKAGES SURVIVOR CURVE.. 3-SQUARE NET SALVAGE PERCENT.. 0

2000 246,603.46 246 , 603 246 , 603 2 001 245,920.63 245 , 921 245 , 921 2002 1,570,110.37 1,308,373 1,186,057 384 , 053 2003 2,535,816.68 1,267,908 1,149,375 1,386,442 2004 3,111,970.99 518,766 470,268 2,641,703

7,710,422.13 3,587,571 3,298,224 4,412,198

SA?? AND CCS SYSTEMS SURVIVOR CURVE.. 5-SQUARE NET SALVAGE PERCENT.. 0

1998 31,046,157.73 31,046,158 31,046,158 2000 1,992,774.14 1,793,497 1,786,715 206,059 2001 1,546,092.19 1,082,265 1,078,172 467,920 2002 296,543.30 148 , 272 147,711 148,832 2004 150,993.95 15,099 15,042 135 , 952

35,032,561 -31 34,085,291 34,073,798 958 , 763

BAR CODE UPGRADE SURVIVOR CURVE.. 10-SQUARE NET SALVAGE PERCENT.. 0

2002 100,034.30 25,009 28,821 71,213

42,843,017.74 37,697,871 37,400,843 5,442,174

COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE, PCT..

REM. ANNUAL LIFE ACCRUAL (6) (7)

0.50 384 , 053 1.50 924,295 2.50 1,056,681

2,365,029

0.50 206,059 1.50 311,947 2.50 59,533 4.50 30 , 212

607,751

7.50 9,495

2 , 982,275

1.8 6.96

111-8


ACCOUNT 391.090 OFFICE FURNITURE AND EQUIPMENT-MISC.


ORIGINAL CALCULATED YEAR COST ACCRUED (1) (2) ( 3 )

BAR CODE EQUIPMENT


2002 171,329.11 142,769

SONY PROJECTOR


2002 18,309.32 9,155 2003 109,698.90 32 , 910 2004 33,567.27 3,357

161,575.49 45,422

ELECTRICAL EQUIPMENT SURVIVOR CURVE.. 10-SQUARE NET SALVAGE PERCENT.. 0

2001 31,175.61 10 , 911 2002 82,910.66 20,728 2004 4,353 -22 218

118,439.49 31 , 857

MECHANICAL EQUIPMENT SURVIVOR CURVE.. 15-SQUARE NET SALVAGE PERCENT.. 0

2001 25,111.06 5,858

476,455.15 225,906

ALLOC. BOOK RESERVE

(4)

140,404

14,362 5.1, 626 5,266

71,254

11 , 512 21,869

230

33 , 611

5,678

250,947

FUT. BOOK ACCRUALS

(5)

30,925

3 , 947 58 , 073 28,301

90,321

19 , 664 61,042 4,123

84,829

19,433

225,500

REM. LIFE (6)

0.50

2.50 3.50 4.50

6.50 7.50 9.50

11 - 5 0


ANNUAL ACCRUAL

(7)

30,925

1,579 16,592 6,289

24 , 460

3,025 8,139 434

11,598

1,690

60,673

14.41

111-9


ACCOUNT 392.010 TRANSPORTATION EQUIPMENT - STANDARD CARS


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK REM. ANNLTAL YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) (2) (3) (4) (5) ( 6 ) (7)

SURVIVOR CURVE.. IOWA 9-L3 NET SALVAGE PERCENT.. +10

1992 35,446.72 24,989 24,692 7,210 1.95 3,697 1994 46 , 282.71 30 , 408 30,046 11,608 2.43 4 , 777 1996 6,528.00 4,054 4,006 1,869 2.79 670 1998 17,968.45 10,044 9,924 6,248 3.41 1,832 2001 16,744.09 5,693 5,625 9,445 5.60 1,687 2002 17,484.61 4,318 4,267 11,469 6.53 1,756 2004 1,550.00 78 77 1,318 8.50 155

142,004.58 79,584 78,637 49,167 14 , 574

COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE, PCT. . 3.4 10 -26

111-1 0


ACCOUNT 392.110 TRANSPORTATION EQUIPMENT - ELECTRIC VANS


ORIGINAL CALCULATED ALLOC. BOOK FWT. BOOK REM. m A L YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) (2 1 (3) (4 1 (5) (6) (7)

SURVIVOR CURVE.. IOWA 7-S4 NET SALVAGE PERCENT.. 0

88,105.48 86,220 88 , 105 1993 1994 68,400.00 65 , 958 68,400 1995 47,166.92 44 , 606 47,167

203,672.40 196 , 784 203,672


111-1 1


ACCOUNT 392.020 TFLANSPORTATION EQUIPMENT - HEAVY CARS


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK REM. ANNUAL YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) (2) (3 1 (4) (5) (6) (7)

MERCURY

NET SALVAGE PERCENT.. +10 SURVIVOR CURVE.. IOWA 7-S2.5

2000 27,159.34 14,351 12,787 11,656 2.89 4,033

FORD CROWN VICTORIA SURVIVOR CURVE.. IOWA 7-S2.5 NET SALVAGE PERCENT.. 0

1998 19,388 -49 14 , 458 19,388

46,547.83 28,809 32,175 11,656 4,033


111-12


ACCOUNT 392.030 TRANSPORTATION EQUIPMENT - PICKUP TRUCKS


ORIGINAL CALCULATED ALLOC. BOOK F'UT. BOOK YEAR COST ACCRUED RESERVE ACCRUALS (1) (2) (3) (4) (5)

SURVIVOR CURVE.. IOWA 8-L3 NET SALVAGE PERCENT.. +10

1988 1990 1991 1992 1993 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

14,541.26 28,899.44 49,268.74 50,433.15 4,792.75

30,495.45 97,394.83

295,110.27 102 , 364.64 104,036.49 282,087.30 99,433.99

190,623.79 65,704.98

189,928.43

12,252 23,018 38,023 37,560 3,434

20,137 62 , 235

182 , 918 60,574 56,526

132 , 652 37,693 52,755 11,088 10,683

13,087 26,009 44,342 44,381 4,058

23,794 73 , 536

216,135 71 , 574 66,791

156,741 44,538 62,335 13,101 12,623

1,009 255

3,652 14,119 49,464 20,554 26,842 97,138 44,953 109,226 46,033 158,313

1,605,115.51 741,548 873,045 571,558

COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE, PCT..

REM. LIFE (6)

1.38 1.63 2 -13 2 -32 2.49 2.74 3.17 3.82 4 -63 5 -54 6 -50 7.50

4.5

ANNUAL ACCRUAL

(7)

731 156

1,715 6,086

19,865 7,501 8,468

25,429 9,709

19,716 7,082

21,108

127 , 566

7.95

i l l-I3


ACCOUNT 392.040 TRANSPORTATION EQUIPMENT - LIGHT TRUCKS


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK REM. m A L YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) (2) (3) (4) (5) (6) (7)

SURVIVOR CURVE.. IOWA 9-S3 NET SALVAGE PERCENT.. +10

1996 44 , 091.15 30 , 952 23 , 204 16,478 1.98 8 , 322 1997 36,987.53 24 191 18,136 15,153 2.46 6,160 1998 78,181.90 . 46, 595 34 , 932 35,432 3.04 11 655

137,817.25 72,213 54 , 137 69,899 3.76 18,590 1999 2002 56,960.37 14,241 10 , 677 40,587 6.50 6,244 2004 6,365.00 319 239 5,490 8-50 646

360,403.20 188,511 141,325 183 , 039 51,617

14.32 COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE, PCT.. 3.5

111-14


ACCOUNT 392.050 TRANSPORTATION EQUIPMENT - HEAVY TRUCKS


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK REM. ANNUAL YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) (2) ( 3 ) (4 1 ( 5 ) (6) (7)

SURVIVOR CURVE.. IOWA 13-R2 "ET SALVAGE PERCENT.. +10

1997 109,321.05 46,322 23,741 74,648 6.88 10 , 850 1998 74,690.63 27,924 14,312 52,910 7.60 6,962 2001 373,783.00 78,651 40,310 296,095 9.96 29,728

557,794.68 152,897 78,363 423 , 653 47,540


111-15


ACCOUNT 392.060 TRANSPORTATION EQUIPMENT - TRAILERS


ORIGINAL CALCULATED ALLOC. BOOK YEAR COST ACCRUED RESERVE (1) (2) (3 1 ( 4 )

SURVIVOR CURVE.. IOWA 14-S2 NET SALVAGE PERCENT.. +10

1973 1975 1983 1987 1998 1999 2001 2002 2003 2004

6,053.12 1,609.44

940.04 2,316.97

31,952 -58 22,381.84 18 , 067.53 9,538.70 3,500.00

58,436.22

5,448 1,448

767 1,735

12 , 570 7,612 4,018 1,527

337 1,878

5,448 1,448

629 1,422

10,305 6 , 240 3 , 294 1,252

276 1,539

154,796.44 37,340 31,853

FWT. BOOK ACCRUALS

(5)

217 663

18,452 13 , 904 12,967 7,333 2 , 874 51,054

107,464

REM. LIFE (6)

1.30 2.35 7.88 8.71 10.54 11.51 12.50 13.50


ANNUAL ACCRUAL

(7)

167 2 82

2,342 1,596 1,230

637 230

3,782

10,266

6.63

111-16


ACCOUNT 392.890 TRANSPORTATION EQUIPMENT - MOTORHOME


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK R E M . ANNUAL YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) ( 2 ) (3) (4) (5) (6) (7)

SURVIVOR CURVE.. IOWA 18-R4 NET SALVAGE PERCENT.. +lo

1991 112,598.80 70 , 542 57,647 43,692 5.47 7,988

112,598.80 70,542 57,647 43,692 7,988

COMPOSITE REMAINING LIFE AND ANNLJAL ACCRUAL RATE, PCT.. 5.5 7.09

111-17


ACCOUNT 394.000 TOOLS, SHOP AND GARAGE EQUIPMENT


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK REM. ANNUAL YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) ( 2 ) ( 3 ) (4 1 (5) (6) (7)

SURVIVOR CURVE.. 25-SQUARE NET SALVAGE PERCENT.. 0

2002 11,573.03 1,157 1,452 10,121 22.50 450 2004 9,517.00 190 238 9,279 24.50 379

21,090.03 1,347 1,690 19,400 829


111-1 8


ACCOUNT 395.000 LABORATORY EQUIPMENT


ORIGINAL CALCULATED ALLOC. BOOK FWT. BOOK REM. ANNUAL YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) (2) ( 3 ) (4) ( 5 ) (6) (7)


2001 15,698.00 2,747 3,406 12,292 16.50 74s

15,698.00 2,747 3,406 12,292 745

COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE, PCT.. 16.5 4.7s

111-1 9


ACCOUNT 396.000 POWER OPERATED EQUIPMENT


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK REM. ANNUAL YEAR COST ACCRUD RESERVE ACCRUALS LIFE ACCRUAL (1) (2 1 (3) (4) (5) (6) (7)

SURVIVOR CURVE.. IOWA 15-S2.5 NET SALVAGE PERCENT.. +5

1978 1982 1983 1984 1985 1991 1996 1998 1999 2000 2001 2002 2 004

7,961.48 15,873.74 10,439.07 2,521.21 1,000.00 54 , 456.46 12,459.57 33 , 269.27 38,253.12

215,106.24 36,853.79 9,407.74

154,683.77

7,240 13 , 673 8,859 2,106

821 37,936 6,289

13 , 297 13,083 60 , 754 8,123 1,490 4,893

6,163 11,640 7,542 1,793

699 32,295 5,354

11,320 11,137 51,720 6,915 1,268 4,166

1,400 3,440 2,375

602 251

19,439 6,483

20,286 25,203 152,631 28,096 7,669

142 , 784

0 -64 1.40 1.60 1.81 2.04 4.00 7.03 8.69 9.60

10.54 ii .52 12.50 14.50

1,400 2,457 1,484

333 123

4,860 922

2,334 2 , 625

14,481 2 , 439

614 9,847

592,285.46 178,564 152 , 012 410,659 43 , 919


111-20


ACCOUNT 397.000 COMMUNICATION EQUIPMENT



RADIO EQUIPMENT SURVIVOR CURVE.. 4-SQUARE NET SALVAGE PERCENT.. 0

2001 2,824,675.93 2,471,591 2003 12,478.30 4,679 2004 65,598.03 8,200

2,902 , 752.26 2,484,470

VOICE MAILSYSTEM SURVIVOR CURVE.. 5-SQUARE NET SALVAGE PERCENT.. 0

2002 215,899 - 53 107,950

PBX SYSTEM SURVIVOR CURVE.. 10-SQUARE NET SALVAGE PERCENT.. 0

2001 883,439.21 309,204

RADIO SERVICE MONITOR


2001 36,098.74 8 , 422

4,038,189.74 2,910,046

ALLOC. BOOK RESERVE

( 4 1

2,228,383 4,219 7,393

2,239,995

113 , 349

287,159

6,681

2 , 647,184

FUT. BOOK ACCRUALS

(5)

596,293 8,259

58,205

662,757

102 , 551

596,280

29,418

1,391,006

REM. LIFE (6)

0.50 2 -50 3.50

2 -50

6.50

11.50

COMPOSITE REMAINING LIFE AND ANNUAL ACCRUAL RATE. PCT.. 1.9

ANNUAL ACCRUAL

(7)

596 , 293 3 , 304

16,630

616 , 227

41,020

91,735

2,558

751 , 540

18.61

111-21


ACCOUNT 398.000 MISCELLANEOUS EQUIPMENT


ORIGINAL CALCULATED ALLOC. BOOK FUT. BOOK REM. ANNUAL YEAR COST ACCRUED RESERVE ACCRUALS LIFE ACCRUAL (1) (2) (3) ( 4 ) (5) (6) (7)


2002 10,661.46 3,807 4 , 773 5,888 4.50 1,308 2003 2,736.82 587 736 2,001 5.50 3 64

13,398.28 4 , 394 5,509 7,889 1,672


I 11-22

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