# ASC 340-980-05: Other Assets and Deferred Costs — Regulated Operations — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/340/980/#05-overview-and-background)

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## ASC 340-980-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/340/980/#05-overview-and-background)

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##### [340-980-05-1](https://asc.understandingaccounting.org/asc/340/980/#340-980-05-1)

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This Subtopic provides guidance for deferred costs for entities with regulated operations, including [phase-in plans](https://asc.understandingaccounting.org/glossary/p/#phase-in-plan "Any method of recognition of allowable costs in rates that meets all of the following criteria: The method was adopted by the regulator in connection with a major, newly completed plant of the regulated entity or of one of its suppliers or a major plant scheduled for completion in the near future. The method defers the rates intended to recover allowable costs beyond the period in which those allowable costs would be charged to expense under generally accepted accounting principles (GAAP) applicable to entities in general. The method defers the rates intended to recover allowable costs beyond the period in which those rates would have been ordered under the rate-making methods routinely used prior to 1982 by that regulator for similar allowable costs of that regulated entity.").

#### Phase-In Plans

##### [340-980-05-2](https://asc.understandingaccounting.org/asc/340/980/#340-980-05-2)

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When a utility places a newly completed plant in service, traditional rate-making procedures establish rates to recover the [allowable costs](https://asc.understandingaccounting.org/glossary/a/#allowable-costs "All costs for which revenue is intended to provide recovery. Those costs can be actual or estimated. In that context, allowable costs include interest cost and amounts provided for earnings on shareholders' investments.") of that plant. A combination of circumstances can cause traditional rate-making procedures to result in a phenomenon called rate spike, which is a major, one-time increase in rates that can result from the inclusion of the cost of new plants in rates under traditional rate-making procedures.

##### [340-980-05-3](https://asc.understandingaccounting.org/asc/340/980/#340-980-05-3)

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Phase-in plans were developed to alleviate the problem of rate spike. Those plans are intended to moderate the initial increase in rates that would otherwise result from placing newly completed plants in service by deferring some of that rate increase to future years and providing the utility with return on investment for those deferred amounts. Instead of the traditional pattern of an increase in allowable costs followed by decreasing allowable costs for utility plants after the plants are placed in service, phase-in plans create a pattern of gradually increasing allowable costs for the initial years of the plant's service life.