Regulatory accounting is specifically tailored for electric co-ops and utilities to manage financial outcomes and customer rates effectively. Neglecting this tool can place these organizations in unnecessary financial constraints.

There are common misunderstandings about using regulatory accounting. Thoughts are that maybe it’s taking advantage of accounting standards or a desperation move to help boost earnings. Reg accounting is a standard part of the power and utilities business. Here are some understandings and the counter.

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). Here’s an example of smoothing the recovery of these costs in utility rates.

Using GASB 62 and ASC 980 - Recording Future Recoverable Costs is a useful tool in regulatory accounting and managing utility financial results is to recognize the difference between bond principal payments on debt-financed fixed assets and the depreciation expense on those assets.

Regulatory accounting under both ASC 980 and GASB 62 can be used for deferring revenues and matching revenue recognition to the related impact on customer rates. Here is an example of a common application for rate stabilization, stashing revenues now for use later when needed in meeting bond coverage in poor earnings years. 

Using GASB 62 and ASC 980 - In utilities, mark-to-market adjustments are generally non-cash adjustments that impact net income, but really have no rate benefit. Regulatory accounting can mitigate this effect.

Electric regulatory accounting under ASC 980 and GASB 62 is your friend when it comes to events that cannot be recovered in customer rates. Events like unexpected major storms, increases in power costs, contributed assets, long-term pension obligations, and commodity mark-to-market gains or losses can impact current cash flows but not be collected from customers until a future rate change. Regulatory accounting will help structure the matching of expense recognition to rate recovery.

When hurricane, tornado, fire, or ice season comes, the first order of business is getting everyone to safety. then restoration begins.

It's not callous to think of the financial impacts, as with any storm restoration, there are many moving parts. If your system has a mutual aid electric crew assisting in cleanup, there are other complications. Eventually, these cleanup costs will need to be assessed for their rate impacts on your customers.

The use of regulatory accounting under both ASC 980 and GASB 62 is well suited for instances of major storm damage clean-up, i.e. snow, ice, hurricanes, tornados, fire. Here’s a common example of smoothing utility rates for recovery of uninsured storm damages.

Impairment of fixed assets is a big reality in today’s energy markets. With the shift to renewables and greater usage of natural gas, power and utilities organizations may find themselves with legacy power supply units that are “out of the money” when it comes to pricing. The issue is how to recognize impairment losses while recovering debt payments on those units. Regulatory accounting under ASC 980 and GASB 62 are the answer.