Deferred Costs and Large Load Infrastructure: What ASC 980 Allows — and What It Doesn’t

Regulated utilities operate under an accounting framework that no other industry shares. ASC 980—the GAAP codification addressing regulated operations—allows utilities to defer costs that would be expensed immediately under standard accounting principles, provided that those costs are probable of future recovery through regulated rates. This capability is not a technicality. It is the accounting foundation that makes long-lived utility infrastructure investments feasible within a regulated business model.

Large load infrastructure arrangements—for large load customers, hydrogen electrolyzers, crypto mining facilities, EV charging hubs, and large industrial customers—are now testing the boundaries of ASC 980 in ways that require careful analysis. The questions are not new in kind but new in scale: When can costs associated with large load infrastructure be deferred? When does cost recovery become probable enough to support deferral? And what happens when recovery becomes uncertain because a large load customer exits before the infrastructure is fully depreciated?

The ASC 980 Framework: What It Is and Why It Exists

ASC 980 exists because regulated utilities face a fundamental economic reality that private companies do not: they cannot adjust prices freely in response to cost changes. A regulated utility that incurs $100 million in costs to build new infrastructure must wait for a rate proceeding to recover those costs. If standard GAAP required immediate expensing of those costs, the utility’s financial statements would show dramatic swings that do not reflect the economic reality of a business whose revenues are determined by regulatory proceedings, not market conditions.

How ASC 980 Applies to Data Center Infrastructure Costs

Costs That Clearly Qualify

When a utility builds dedicated infrastructure for a large load customer and has regulatory authorization to recover those costs through a rate rider, minimum bill structure, or rate base inclusion, the infrastructure asset itself is properly capitalized under standard GAAP. The carrying costs (return on rate base) are recognized as revenue as rates are earned. Depreciation is recognized in accordance with the regulatory-approved depreciation schedule.

Where dedicated infrastructure costs are being incurred during construction but have not yet been included in rates, those costs accumulate in Construction Work in Progress (CWIP) and ultimately transfer to plant in service upon completion. If the regulatory framework provides for CWIP carrying cost recovery, those interim carrying charges may qualify as regulatory assets under ASC 980.

Costs That Present More Complexity

The harder questions arise in several scenarios common to large load arrangements:

Pre-approval costs: A utility may incur significant costs studying, permitting, and planning large load infrastructure before regulatory approval of the rate structure is obtained. Whether these pre-approval costs can be deferred as regulatory assets depends on whether regulatory approval is probable at the time the costs are incurred. If the regulatory framework for cost recovery is uncertain, immediate expensing may be required even if subsequent approval is obtained.

Costs exceeding customer contributions: If a large load customer pays a contribution in aid of construction (CIAC) that partially offsets infrastructure costs, the utility’s net investment may still be substantial. The accounting for the net investment—and the regulatory asset treatment available for costs above the CIAC—depends on the structure of the authorized rate recovery.

Incremental costs for shared infrastructure: Where a utility upgrades shared transmission or distribution infrastructure to accommodate large load customer load, only the incremental costs attributable to the large load customer may be assigned to the large load customer. Identifying and segregating those incremental costs for both accounting and rate recovery purposes requires careful cost allocation analysis.

The Limits of ASC 980: What It Doesn’t Allow

ASC 980 is a powerful accounting tool, but it has clear limits that large load infrastructure arrangements can breach if the cost recovery framework is not carefully designed.

Recovery Must Be Probable, Not Just Possible

The probability standard under ASC 980 is meaningful, not nominal. A utility cannot record a regulatory asset simply because it intends to seek rate recovery. There must be a reasonable basis for concluding that the regulator will approve recovery. Where the regulatory framework is silent on large load infrastructure costs, or where a commission has previously disallowed similar costs, the probability assessment may not support regulatory asset treatment.

Regulatory Asset Treatment Does Not Survive Loss of Regulatory Authority

If a utility loses the regulatory authorization that underpinned a regulatory asset—for example, if a commission disallows previously approved costs upon review, or if the large load customer’s exit eliminates the basis for cost recovery—the regulatory asset must be reversed and the cost recognized as a loss. This is the accounting version of stranded cost: an asset that appeared recoverable but is not.

Utilities should assess the probability of regulatory asset reversal as part of their large load agreement risk analysis, particularly for agreements with early termination provisions that may leave infrastructure costs unrecovered if a customer exits before the end of the contract term.

CIAC Creates Different Accounting Treatment

When a large load customer pays CIAC as an upfront contribution toward infrastructure costs, the CIAC reduces the cost basis of the asset for regulatory purposes. Under prior GAAP, CIAC was excluded from income and offset against asset cost. The Tax Cuts and Jobs Act of 2017 created significant changes to the tax treatment of CIAC, which in turn affects the regulatory accounting treatment and rate base implications of CIAC-funded infrastructure. This intersection of tax law and regulatory accounting is an area where utilities and their accountants must be particularly careful.

For a broader discussion of the rate base implications of large load agreements, see our article on Rate Base Implications of Data Center Agreements: A Primer for Utility Accountants.

Deferred Costs in the Context of Early Termination

The scenario that most directly tests ASC 980 in large load arrangements is early customer termination. If a large load customer exits a long-term service agreement before the infrastructure is fully depreciated, and the early termination fee is insufficient to make the utility whole, the utility faces potential stranded costs that may require regulatory asset reversal and loss recognition.

The accounting treatment of this scenario requires analysis of:

• Whether the termination fee constitutes rate recovery for purposes of ASC 980
• Whether residual stranded costs can be deferred pending regulatory proceedings to recover them from other ratepayers
• Whether the impairment testing requirements of ASC 360 (Property, Plant and Equipment) require write-down of dedicated infrastructure that no longer has a clear path to recovery

These are not purely academic questions. The financial statement impact of getting them wrong can be significant, particularly for smaller utilities where a large large load agreement represents a material portion of total rate base.

Practical Guidance for Utility Accountants

Utility accountants working with large load agreements should establish clear documentation protocols from the outset of each agreement. This means:

• Documenting the regulatory authorization for each category of infrastructure cost and the basis for concluding that recovery is probable
• Establishing clear accounting policies for CIAC treatment, CWIP carrying costs, and the transfer from construction to in-service status
• Maintaining models that track unamortized infrastructure costs and compare them to contracted recovery mechanisms so that potential shortfalls are identified early
• Working with rate personnel to ensure that accounting classifications align with the regulatory cost recovery structure

The complexity of large load infrastructure accounting will only increase as agreements become larger and more customized. Utility accountants who develop expertise in the intersection of ASC 980, large-load rate design, and large load agreement structures will be valuable resources as their organizations navigate this environment.