Matching Electric System Storm Damage Costs to Electric Rates Using ASC 980 and GASB 62
ASC 980 and GASB 62 can ease your recovery of storm damages in electric rates
ASC 980 and GASB 62 are a good solution to deferring electric system storm damage for future collection in rates. This is an excerpt from our publication – “The Practical Guidebook to Utility Regulatory Accounting” on 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 instances of unexpected material maintenance expenses. Here’s a common example for recovery of uninsured storm damage.
Check out the full publication in our eBook Store for many more examples that can be used in your utility’s approach to ratemaking through regulatory accounting under GASB 62 or ASC 980! Our course on regulatory accounting explains this approach in detail.
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1. Recovering storm damage costs in electric rates
Situation
An ice and wind storm requires the utility to clean up fallen tree damage. The utility takes the opportunity to trim trees further to widen the rights of way to potentially lessen damage from the next storm. Total tree trimming costs are $5 million. These costs are not included in the utility’s current budget or customer rates.
The exit strategy
The storm costs are an unbudgeted expense. Management presents a resolution to the oversight Board to record a regulatory deferral and recover the $5 million in customer rates over a period of 5 years ($1 million per year). The Board approves the resolution.
Impact on rates
The $1 million amortization is included as a separate line item in the annual budget for 5 years and included in customer rates.
Financial statement presentation
Presentation in the financial statements would be as a current asset for the amount to be recognized as an expense in the next 12 months, with the remaining balance presented as a non-current asset.
Salvage your budget with this accounting tool
GASB 62 and its counterpart - ASC 980 are designed to match recovery of storm damage to the recognition of the event. Learn how to utilize this tool and your budget and bond coverage (not to mention your ratepayers) will be accepting of the results.
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.