1. NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS Jan A. Umbaugh Deloitte & Touche LLP October 8, 2007

2. Purchase Accounting Issues Goodwill and other identifiable intangibles Property, plant & equipment Emission allowances Long-term debt Unrecognized pension and OPEB Hedging and normal contracts Cost savings from synergies Rate stabilization plans/frozen rates Push down accounting Business Combinations Exposure Draft

3. Goodwill and Other Identifiable Intangibles Why historical cost for FAS 71 entities What is basis for regulated entity goodwill Aren’t there other identifiable intangibles Why isn’t regulated goodwill amortized

4. Property, Plant & Equipment Justify original cost/carryover basis for FAS 71 entity Should accumulated depreciation be zeroed out PP&E valuation approaches –Replacement cost new, depreciated Is this the maximum value –Income/discounted cash flow approach –Market/comparable sales approach

5. Emission Allowances Assigning value separate from PP&E What allowances to value Valuation approaches –Discounted cash flows –Available market Subsequent impairment testing

6. Long-term Debt Substantiating carryover basis for FAS 71 entity –FV disclosures already made in footnotes Treatment of debt of partial FAS 71 entity

7. Unrecognized Pension and OPEB FAS 87 and 106 require recognition of unrecognized amounts in purchase accounting (pre-FAS 158) Should regulatory asset/liability be recognized Must assumptions be harmonized –Discount rate –Expected return on assets –Market related value (current recognition preferred)

8. Hedging and Normal Contracts Recognizing favorable/unfavorable contracts Exception under FAS 71? Flushing Accumulated OCI Acquiree/acquirer contracts – EITF 04-1 –Comparable values? –What if one MTM and other accrual? –What if one MTM and other FAS 71?

9. Cost Savings from Synergies Not recognized under GAAP If retained, is this a favorable contract If rate decrease, is this an unfavorable contract

10. Rate Stabilization Plans/Frozen Rates Are these favorable/unfavorable contracts? Is unregulated “market” appropriate comparison? What is “comparable” market?

11. Push Down Accounting SEC generally requires if 100% acquisition Not restrictions on form of ownership First Mortgage Bonds generally restrict push down Non-mortgage debt restrictions may not be sufficient to prevent push down Can regulatory restrictions prevent GAAP pushdown

12. Business Combinations Exposure Draft FASB was to issue final Q3 2007 (now 10/07?) Defines business, changes EITF98-3/FIN46 Recognize value acquired, not cost Expense acquisition costs Contingent consideration estimated at acquisition; subsequent changes in income Negative goodwill to income (not other assets) Preacquisition contingencies valued at acquisition and later changes to income Changes EITF 95-3; most restructuring liabilities expensed after acquisition Full fair value of partial/step acquisitions

13. Consolidations and Minority Interests Minority interest in equity; not liability or mezzanine OCI would be allocated to minority interest Losses in excess of minority carrying value would be assigned to minority (not controlling entity) After controlled, all transactions are equity transactions (no longer step acquisitions) Upon loss of control, remeasure at FV and recognize gain/loss in income

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