Regulatory Asset

What Is a Regulatory Asset?

A regulatory asset is a specific cost of service recovery that a regulatory agency permits a U.S. public utility (typically an energy company) to concede to its balance sheet. In effect, these costs or incomes are capitalized and afterward depreciated over the long haul. These sums would somehow be required to show up on the company's income statement as current period expenses. The booking of regulatory assets (as well as regulatory liabilities) is the purpose of regulatory accounting for the utilities sector to match incomes and expenses, and to streamline rate recuperations.

Figuring out Regulatory Assets

Government Accounting Standards Board (GASB) Statement No. 62 oversees the recording of regulatory assets. As indicated by the statement, regulatory assets are made when certain expenses are recognized as deferrals rather than period expenses. These expenses might incorporate environmental and decommissioning costs, deferred power costs, losses on asset retirements, extraordinary repair and maintenance costs, unrealized derivative losses, advance refunding costs, storm damage costs, and debt issuance costs.

The regulator has carefulness over which expenses (and their sums) can be remembered for rates for recovery for a public utility. On the off chance that it considers an expense thing as not eligible to recuperate from ratepayers, it will require the utility to expense it as opposed to recording it as a regulatory asset. Sums allowed as regulatory assets must be amortized over an expected period through rates. GASB rules involve point by point tracking of expenses and their associated estimated recovery periods. Each regulatory asset must likewise be uncovered exhaustively in a utility's financial statements.

Illustration of a Regulatory Asset

Electric utility Edison International is the parent company of Southern California Edison (SCE). SCE carried $1,314 million in short-term regulatory assets and $7,120 million in long-term regulatory assets on its balance sheet as of December 31, 2020. The breakdown of the regulatory assets is unveiled and examined in the notes to the financial statements, under the term "SCE Regulatory Assets."

Features

• These apply predominantly to public utilities, for example, power companies.
• Regulatory assets might incorporate costs connected with energy productivity programs and low-income energy assistance programs, and deferred fuel costs.
• A regulatory asset is a method for promoting cash flows for public utilities so they show up on the balance sheet rather than the income statement.
• Regulatory assets must be dealt with suitably on financial statements under fitting accounting standards.