Reassessing Depreciation Methodology: The Case for Equal Life Group Depreciation

For decades, the Average Life Group procedure has been the predominant method for calculating depreciation expense among most North American utilities, valued for its simplicity and familiarity among regulators and practitioners. But as the expected useful lives of utility assets become increasingly uncertain, that familiarity does not exempt the method from renewed scrutiny. 

In this paper, Amanda Nori makes the case for reconsidering the Equal Life Group procedure as a practical, mathematically grounded alternative that can help utilities better align depreciation expense with the actual consumption of asset value. Against the backdrop of the energy transition and compressed planning horizons for certain asset groups, the paper explains how a straightforward procedural change can reduce stranded cost exposure without changing the total amount ultimately recovered from ratepayers. 

The publication walks through the mechanics of group depreciation, explains how the Average Life Group and Equal Life Group procedures differ, provides a simplified numerical illustration, surveys relevant regulatory precedent, and considers why today’s operating environment may favor a change in approach. 

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