Regulatory Accounting | ASC 980 | GASB 62
Using ASC 980 and GASB 62 to Record Future Recoverable Costs — Cooking the Books or Reporting Reality?
How Can We Use ASC 980 and GASB 62 to Defer Losses Due to Depreciation?
ASC 980 and GASB 62 are an approach to timing the recording in future rates with current expenses — that is the essence of future recoverable costs. This article is an excerpt from the UARS publication "The Practical Guidebook to Utility Regulatory Accounting."
Recording Future Recoverable Costs is a useful tool in regulatory accounting to recognize the difference between bond principal payments on debt-financed fixed assets and the depreciation expense on those assets. The financial impact is to offset book losses caused by the difference between principal payments and depreciation expense in an asset's early years of service — and gains in the asset's later years of service.
Why do this? If a utility has a high level of debt-financed fixed assets, the non-cash differences between bond principal payments and depreciation expense could be material and could negatively impact the utility's Net Position. Financial statement readers may not understand this and could infer problems — even when Net Position will improve over time as principal payments step down and depreciation catches up.
The goal is to level operating income, reflecting the intent to recover bond principal payments through rates over the useful service life of the financed asset.
Example Situation
The Facts
The utility issues $20 million of revenue bonds at an interest rate of 5% to finance a substation that has a useful life of 20 years. The substation is depreciated using the straight-line method ($1,000,000/year).
Bond principal payments are structured to start low and increase over time (as is typical with level-debt-service structures). In the early years, bond principal payments exceed depreciation expense, creating a cumulative book "loss" that peaks at approximately $2,407,000 in Year 10 — then decreases to zero by Year 20 as depreciation catches up.
The Exit Strategy — Board Approval
Management presents a blanket resolution to the oversight Board to approve this treatment for similar transactions. The Board approves the resolution. This Board approval is required under both ASC 980 and GASB 62 — there must be an authorized recovery period.
Journal Entries
Each year, when bond principal exceeds depreciation expense, the utility makes the following deferral entry:
| Account | Debit | Credit |
|---|---|---|
| Regulatory Asset — Future Recoverable Costs (non-current) | $XXX | |
| Future Recoverable Costs Revenue | $XXX |
In later years, when depreciation expense exceeds bond principal payments, the entry reverses — the regulatory asset is reduced, and the revenue is reversed. By Year 20, the cumulative balance is zero.
Impact on Rates
There is no impact on rates from this treatment. Bond principal payments are already recovered in customer rates, and depreciation expense is a non-cash item. The purpose of using future recoverable costs is to mitigate negative impacts on the financial statements and accurately reflect rate recovery from customers — not to change what is collected in rates.
Financial Statement Presentation
The regulatory asset for future recoverable costs is presented as a non-current asset on the balance sheet (or statement of net position for GASB entities). It represents the amount that has been deferred and that will be reversed in future years as depreciation expense exceeds bond principal payments.
Learn More About Regulatory Accounting in Practice
The full Practical Guidebook to Utility Regulatory Accounting and related on-demand courses are available at UtilityEducation.com — with detailed journal entries, financial statement examples, and CPE credit.
Browse All Courses →Why Do This?
Using ASC 980/GASB 62 for future recoverable costs recognizes that your organization has not changed the process or mechanism for recovering debt payments from ratepayers — but newer accounting standards require you to report differently. Bond principal payments and depreciation expense are different animals under GAAP, and the mismatch can create financial statement distortions that don't reflect economic reality.
As with any other use of regulatory accounting, the goal is to match recognition of an event to recovery from customers in their rates. This is the most honest representation of how a rate-regulated utility actually operates.
About the Author
Russ Hissom, CPA is a principal of UtilityEducation.com , providing on-demand professional education classes in FERC, RUS, FASB, and GASB accounting, finance, ratemaking, artificial intelligence, and management for electric, gas, wastewater, and water utilities and electric cooperatives.
Contact Russ at [email protected]
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided b