# ASC 360-980-S99: Property, Plant, and Equipment — Regulated Operations — SEC 99 SEC Materials

Source: FASB Accounting Standards Codification, Basic View

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## ASC 360-980-S99: SEC 99 SEC Materials

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#### SEC Staff Guidance

##### [360-980-S99-1](https://asc.understandingaccounting.org/asc/360/980/#360-980-S99-1)

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The following is the text of SAB Topic 10.C, Jointly Owned Electric Utility Plants.

-   Facts: Groups of electric utility companies have been building and operating utility plants under joint ownership agreements or arrangements which do not create legal entities for which separate financial statements are presented. <sup class="ph sup">FN1</sup> Under these arrangements, a participating utility has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and its entitled to its proportionate share of the energy produced.
    
    -   FN1 Before considering the guidance in this SAB Topic, registrants are reminded that the arrangement should be evaluated in accordance with the provisions of Interpretation 46 \[Topic 810\].
        
-   During the construction period a participating utility finances its own share of a utility plant using its own financial resources and not the combined resources of the group. Allowance for funds used during construction is provided in the same manner and at the same rates as for plants constructed to be used entirely by the participant utility.
    
-   When a joint-owned plant becomes operational, one of the participant utilities acts as operator and bills the other participants for their proportionate share of the direct expenses incurred. Each individual participant incurs other expenses related to transmission, distribution, supervision and control which cannot be related to the energy generated or received from any particular source. Many companies maintain depreciation records on a composite basis for each class of property so that neither the accumulated allowance for depreciation nor the periodic expense can be allocated to specific generating units whether jointly or wholly owned.
    
-   Question: What disclosure should be made on the financial statements or in the notes concerning interests in jointly owned utility plants?
    
-   Interpretive Response: A participating utility should include information concerning the extent of its interests in jointly owned plants in a note to its financial statements. The note should include a table showing separately for each interest in a jointly owned plant the amount of utility plant in service, the accumulated provision for depreciation (if available), the amount of plant under construction, and the proportionate share. The amounts presented for plant in service or plant under construction may be further subdivided to show amounts applicable to plant subcategories such as production, transmission, and distribution. The note should include statements that the dollar amounts represent the participating utility's share in each joint plant and that each participant must provide its own financing. Information concerning two or more generating plants on the same site may be combined if appropriate.
    
-   The note should state that the participating utility's share of direct expenses of the joint plants is included in the corresponding operating expenses on its income statement (e. g., fuel, maintenance of plant, other operating expense). If the share of direct expenses is charged to purchased power then the note should disclose the amount so charged and the proportionate amounts charged to specific operating expenses on the records maintained for the joint plants.

##### [360-980-S99-2](https://asc.understandingaccounting.org/asc/360/980/#360-980-S99-2)

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The following is the text of SAB Topic 10.E, Classification of Charges for Abandonment and Disallowances.

-   Facts: A public utility company abandons the construction of a plant and, under the provisions of Statement 90 \[Topic 980\], must charge a portion of the costs of the abandoned plant to expense. <sup class="ph sup">FN3</sup> Also, the utility determines that it is probable that certain costs of a recently completed plant will be disallowed, and charges those costs to expense as required by Statement 90 \[Topic 980\].
    
    -   FN3 Paragraph 3 of Statement 90 \[paragraph [980-360-35-3](https://asc.understandingaccounting.org/asc/360/980/#360-980-35-3)\] requires that costs of abandoned plants in excess of the present value of the future revenues expected to be provided to recover any allowable costs be charged to expense in the period that the abandonment becomes probable. Also, paragraph 7 of Statement 90 \[paragraph [980-360-35-12](https://asc.understandingaccounting.org/asc/360/980/#360-980-35-12)\] requires that disallowed costs for recently completed plants be charged to expense when the disallowance becomes probable and can be reasonably estimated.
        
-   Question: May such charges for abandonments and disallowances be reported as extraordinary items in the statement of income?
    
-   Interpretive Response: No. The staff does not believe that such charges meet the requirements of APB Opinion 30 \[Topic 225\] that an item be both unusual and infrequent to be classified as an extraordinary item. Accordingly, the public utility was advised by the staff that such charges should be reported as a component of income from continuing operations, separately presented, if material. <sup class="ph sup">FN4</sup>
    
    -   FN4 Additionally, the registrant was reminded that paragraph 26 of APB Opinion 30 \[paragraph [220-20-45-1](https://asc.understandingaccounting.org/asc/220/20/#220-20-45-1)\] provides that items which are not reported as extraordinary should not be reported on the income statement net of income taxes or in any manner that implies that they are similar to extraordinary items.
        
-   Paragraph 20 of APB Opinion 30 \[paragraph [225-20-45-2](https://asc.understandingaccounting.org/asc/225/20/#225-20-45-2)\] indicates that to be unusual, an item must "possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates." Similarly, that paragraph indicates that, to be infrequent, an event should "not reasonably be expected to recur in the foreseeable future."
    
-   Electric utilities operate under a franchise that requires them to furnish adequate supplies of electricity for their service area. That undertaking requires utilities to continually forecast the future demand for electricity, and the costs to be incurred in constructing the plants necessary to meet that demand. Abandonments and disallowances result from the failure of demand to reach projected levels and/or plant construction costs that exceed anticipated amounts. Neither event qualifies as being both unusual and infrequent in the environment in which electric utilities operate.
    
-   Accordingly, the staff believes that charges for abandonments and disallowances under Statement 90 should not be presented as extraordinary items. <sup class="ph sup">FN5</sup>
    
    -   FN5 The staff also notes that paragraphs 3 and 7 of Statement 90 \[paragraphs [980-360-35-3](https://asc.understandingaccounting.org/asc/360/980/#360-980-35-3) and [980-360-35-12](https://asc.understandingaccounting.org/asc/360/980/#360-980-35-12)\], in requiring that such costs be "recognized as a loss," do not specify extraordinary item treatment. The staff believes that it generally has been the FASB's practice to affirmatively require extraordinary item treatment when it believes that it is appropriate for charges or credits to income specifically required by a provision of a statement.