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Regulatory Asset Defined

What Is a Regulatory Asset?

A regulatory asset is a particular price of service restoration {that a} regulatory company permits a U.S. public utility (often an power firm) to defer to its balance sheet. In impact, these prices or revenues are capitalized after which depreciated over time. These quantities would in any other case be required to seem on the corporate’s income statement as present interval bills. The reserving of regulatory property (in addition to regulatory liabilities) is the aim of regulatory accounting for the utilities sector to match revenues and bills, and to clean out price recoveries.

Key Takeaways

  • A regulatory asset is a technique to capitalize money flows for public utilities in order that they seem on the stability sheet as a substitute of the earnings assertion.
  • These apply mainly to public utilities comparable to energy corporations.
  • Regulatory property should be handled appropriately on monetary statements below acceptable accounting requirements.
  • Regulatory property might embrace prices associated to power effectivity packages and low-income power help packages, and deferred gasoline prices.

Understanding Regulatory Property

Government Accounting Standards Board (GASB) Assertion No. 62 governs the recording of regulatory property. In keeping with the assertion, regulatory property are created when sure bills are acknowledged as deferrals as a substitute of interval bills. These bills might embrace environmental and decommissioning prices, deferred energy prices, losses on asset retirements, extraordinary restore and upkeep prices, unrealized spinoff losses, advance refunding prices, storm harm prices and debt issuance prices.

The regulator has discretion over which bills (and their quantities) may be included in charges for restoration for a public utility. If it deems an expense merchandise as not eligible to recuperate from ratepayers, it’s going to require the utility to expense it as a substitute of recording it as a regulatory asset. Quantities allowed as regulatory property should be amortized over an anticipated interval by charges. GASB guidelines entail detailed monitoring of bills and their related estimated restoration durations. Every regulatory asset should even be disclosed intimately in a utility’s monetary statements.

Instance of a Regulatory Asset

Electrical utility Edison Worldwide is the mum or dad firm of Southern California Edison (SCE). SCE carried $1,314 million in short-term regulatory property and $7,120 million in long-term regulatory property on its stability sheet as of December 31, 2020. The breakdown of the regulatory property is disclosed and mentioned within the notes to the monetary statements, below the time period “SCE Regulatory Property.

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