Using ASC 980 and GASB 62 to record the deferral of OPEBs is a best practice and generally matches your funding intent. This is an excerpt from our publication – “The Practical Guidebook to Utility Regulatory Accounting” that addresses this issue. It sounds like a dry topic (and it can be), but it is necessary knowledge to ensure rate recovery from your customers for unexpected, unbudgeted expenses that need to be recovered over a longer time-frame.

The use of regulatory accounting under both ASC 980 and GASB 62 is well suited for long-term liabilities, such as pensions and other post-employment benefits (OPEBs).

Check out the full publication in our Resource Library for many more examples that can be used in your utility’s approach to ratemaking through regulatory accounting under GASB 62 or ASC 980! Session 2 of our regulatory accounting course explains this approach in detail.

1. Long-term rate recovery of pension and other post-employment benefits (OPEB)

Situation

The utility wishes to recover future unfunded pension and other post-employment benefits (OPEB) costs from ratepayers on a level basis. Using an actuarial study that forecasts future pension and other post-employment benefit obligations, the utility determines that it has unfunded liabilities of $10 million. The utility plans to fund these unfunded liabilities over 30 years, in addition to the current year pension and other benefits costs. 

The exit strategy

Management presents a resolution to the oversight Board to record a regulatory deferral of $10 million and recover that balance through utility rates at $333,333 ($10 million/30 years) each year. The Board approves the resolution.  

Utility Accounting and Rates Specialists provides on-line/on-demand courses on operations and construction project accounting, rates, and management for new and experienced co-op and utility professionals and Board Members. Click on the button to see courses that will enhance your career skills and provide value to your organization!

 

The utility will undergo regular actuarial studies to determine the unfunded liability for pension and other post-employment benefits. As the unfunded future liability changes, the regulatory asset and related liability should also be changed. 

The actual annual expense and recovery of the unfunded balance are two separate events. The utility should record the actual pension and other post-employment benefits as paid and the rate recovery of the unfunded pension and other post-employment benefits as a separate entry. The regulatory asset and liability are used as a tracking mechanism to reflect the liability of the unfunded obligation and the commitment to fund the unfunded obligation through customer rates. 

Impact on rates

The $333,333 designated to fund the unfunded pension and other post-employment benefits is included as a separate line item in the annual budget for 30 years and recovered through customer rates. The amount is changed as the unfunded balance is recalculated through actuarial studies.

Financial statement presentation

The presentation in the financial statements is as a current asset for the amount to be recognized for funding in the next 12 months with the remaining balance presented as a non-current asset.

Why do this?

Using ASC 980/GASB 62 as described in this article recognizes that your organization most likely has not changed the process and mechanism for funding OPEBs, but newer accounting standards require you to report differently. As with any other use of regulatory accounting, the goal is to match recognition of an event to recovery from customers in their rates.

About Russ Hissom - Article Author

Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power and utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.  

Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@utilityeducation.com

The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.