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Brown, Williams, Moorhead & Quinn, Inc.

Depreciation expense is calculated by multiplying the depreciation rate times the plant balance. The reduction in the plant balance caused by plant retirements decrementally reduces depreciation accruals. Over the remaining life of the plant in service, these reduced accruals cause a shortfall in capital recovery. The effect of interim retirements and truncated economic lives are incorporated into depreciation rate derivations through the use of survivor curve methodology. Survivor curves are the end result of actuarial analyses of mortality patterns in industrial property. The curves provide a tool to estimate the average service lives of plant in service so that depreciation accruals can recover the investments over the actual useful lives of the assets. The selection of the curve can avoid over-accrual or under-accrual relative to the truncation date. Brown William’s staff of depreciation experts fully understands this field of extraordinarily complex data analysis and can help clients fit the depreciation accruals to the actual experience of the system.