Sec. 561.21. Long-term debt; premium, discount and expense, and gain or loss on reacquisition

(a) Premium, discount and expense.

(1) A separate premium, discount and expense account shall be maintained for each class and series of long-term debt (including receivers' certificates) issued or assumed by the utility. The premium will be recorded in account 225, Unamortized Premium on Long-term Debt, the discount will be recorded in account 226, Unamortized Discount on Long-term Debt—Debit, and the expense of issuance shall be recorded in account 181, Unamortized Debt Expense.

(2) The premium, discount and expense shall be amortized over the life of the respective issues under a plan which will distribute the amounts equitably over the life of the securities. The amortization shall be on a monthly basis, and amounts thereof relating to discount and expense shall be charged to account 428, Amortization of Debt Discount and Expense. The amounts relating to premium shall be credited to account 429, Amortization of Premium on Debt—Credit.

(b) Reacquisition, without refunding.

When long-term debt is reacquired or redeemed without being converted into another form of long-term debt and when the transaction is not in connection with a refunding operation (primarily redemptions for sinking fund purposes), the difference between the amount paid upon reacquisition and the face value; plus any unamortized premium less any related unamortized debt expense and reacquisition costs; or less any unamortized discount, related debt expense and reacquisition costs applicable to the debt redeemed, retired and cancelled, shall be included in account 421, Miscellaneous Nonoperating Income, or account 426.5, Other Deductions, as appropriate.

(c) Reacquisition, with refunding.

When the redemption of one issue or series of bonds or other long-term obligations is financed by another issue or series before the maturity date of the first issue, the difference between the amount paid upon refunding and the face value; plus any unamortized premium loss related debt expense; or less any unamortized discount and related debt expense, applicable to the debt refunded, shall be included in account 421, Miscellaneous Nonoperating Income, or account 426.5, Other Deductions, as appropriate. If the utility desires to amortize any of the discount, expense, or premium associated with the issuance or redemption of the first issue over a period subsequent to the date of redemption, the permission of the commission must be obtained.

(d) When the utility chooses to use the optional privilege of deferring the tax on the gain attributable to the reacquisition of debt by reducing the depreciable basis of utility property for tax purposes, pursuant to section 108 of the Internal Revenue Code, the related tax effect shall be deferred as the income is recognized for accounting purposes, and the deferred amounts shall be amortized over the life of the associated property on a vintage year basis. Account 410.1, Provision for Deferred Income Taxes, Utility Operating Income, shall be debited, and account 283, Accumulated Deferred Income Taxes—Other, shall be credited with an amount equal to the estimated income tax effect applicable to the portion of the income attributable to reacquired debt, recognized for accounting purposes during the period. Account 283 shall be debited and account 411.1, Provision for Deferred Income Taxes—Credit, Utility Operating Income, shall be credited with an amount equal to the estimated income tax effects during the life of the property, attributable to the reduction in the depreciable basis for tax purposes.

(e) The tax effects relating to gain or loss shall be allocated as above to utility operations except in cases where a portion of the debt reacquired is directly applicable to nonutility operations. In that event the related portion of the tax effects shall be allocated to nonutility operations. Where it can be established that reacquired debt is generally applicable to both utility and nonutility operations, the tax effects shall be allocated between utility and nonutility operations based on the ratio of net investment in utility plant to net investment in nonutility plant.

(f) Premium, discount or expense on debt shall not be included as an element in the cost of construction or acquisition of property (tangible or intangible), except under the provisions of water plant instruction 563.3(a)(17) and account 419.1, Allowance for Funds Used During Construction.