# ASC 405-980: Liabilities — Regulated Operations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/405/980/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:20:12.403Z to 2026-09-10T00:20:28.784Z Record version: sha256:41877d518ce49aa2964f27dc64b87df4dc66c11e5cea10dcd0db24b9649af0d3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-980: Liabilities — Regulated Operations ### Machine-generated study aids ```json { "summary": "This Subtopic explains when a regulator's rate actions create liabilities (regulatory liabilities) for an entity with regulated operations. Three mechanisms create liabilities: required refunds to customers that meet the loss-contingency accrual criteria, current rates collected to recover costs expected to be incurred in the future for which the entity remains accountable, and gains or other reductions of net allowable costs that the regulator requires be amortized to customers over future periods. A regulator's actions can eliminate a liability only if the regulator's actions imposed it in the first place.", "key_points": [ "Rate actions of a regulator can impose a liability on a regulated entity, usually an obligation to the entity's customers (405-980-25-1).", "Refunds required by a regulator that meet the criteria for accrual of loss contingencies in paragraph 450-20-25-2 are recorded as liabilities and as reductions of revenue or as expenses (405-980-25-1(a)).", "When current rates are intended to recover costs expected to be incurred in the future and the regulator requires the entity to remain accountable for amounts collected but not yet expended, those amounts are recognized as liabilities rather than revenues and are taken to income only when the associated costs are incurred (405-980-25-1(b)).", "A gain or other reduction of net allowable costs that is to be amortized over future periods for rate-making purposes is not recognized in current income; it is recorded as a liability for the expected future reductions of charges to customers (405-980-25-1(c)).", "Actions of a regulator can eliminate a liability only if the liability was imposed by actions of the regulator (405-980-40-1).", "Implementation example: amounts collected in rates for a regulator-directed contingency (e.g., expected future uninsured storm damage) that does not meet Subtopic 450-20 recognition criteria are recorded as liabilities, and income is recognized equal to the cost when the repair cost is incurred (405-980-55-1)." ], "categories": [ "Recognition", "Derecognition", "Industry-specific", "Revenue" ], "audience_level": "intermediate", "student_note": "This is the liability mirror image of regulatory assets: cash collected today under a regulator's rate order is not always revenue. The common misunderstanding is thinking a regulator can wipe out any liability — it can only eliminate liabilities that its own actions imposed.", "related_topics": [ "980-10", "980-340", "980-405", "450-20", "980-605", "606" ], "key_concepts": [ "regulatory liability", "rate actions of a regulator", "allowable costs", "refunds to customers", "loss contingency accrual", "deferred revenue recognition", "amortization of gains for rate-making", "regulated operations" ] } ``` Source downloaded (UTC): 2026-09-10T00:20:12.403Z to 2026-09-10T00:20:12.403Z Record version: sha256:1eeaca204de28b3d4ba8d22a6aa5b91eec57480d6c22e26ef59e10bbb8ef8998 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-980-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/405/980/#05-overview-and-background) SEC content: no ##### [405-980-05-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:20:12.403Z to 2026-09-10T00:20:12.403Z Record version: sha256:5cbdb4358d7b26b34a0691b498d41aaf50d2881172c6e0bacbf7425f350f9ffd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance for liabilities for entities with regulated operations. Source downloaded (UTC): 2026-09-10T00:20:15.163Z to 2026-09-10T00:20:15.163Z Record version: sha256:e0845977848130e56a31eb1db6709d59c8acdce4c81e94c0140d13a7a582b2de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-980-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/405/980/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [405-980-15-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:20:15.163Z to 2026-09-10T00:20:15.163Z Record version: sha256:047f9ba6ba9db4acd6bcfd8ceb8cc3689bf7877d711ad886e2afa2f552561389 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 980-10-15. Source downloaded (UTC): 2026-09-10T00:20:21.402Z to 2026-09-10T00:20:21.402Z Record version: sha256:e48b752d11193e311d31c2b7ad061aeda20fe210f5c5671f1ec849913fc14648 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-980-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/405/980/#25-recognition) SEC content: no #### Regulator-Imposed Liabilities ##### [405-980-25-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:20:21.402Z to 2026-09-10T00:20:21.402Z Record version: sha256:a84f9ba22b29304b72ae8be98a912cbf6fddc4b0dc33f664184833ff5466f57e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Rate actions of a regulator can impose a liability on a regulated entity. Such liabilities are usually obligations to the entity's customers. The following are the usual ways in which liabilities can be imposed and the resulting accounting: 1. a A regulator may require refunds to customers. Refunds can be paid to the customers who paid the amounts being refunded; however, they are usually provided to current customers by reducing current charges. Refunds that meet the criteria of accrual of loss contingencies (see paragraph [450-20-25-2](https://asc.understandingaccounting.org/asc/450/20/#450-20-25-2)) shall be recorded as liabilities and as reductions of revenue or as expenses of the regulated entity. 2. b A regulator can provide current rates intended to recover costs that are expected to be incurred in the future with the understanding that if those costs are not incurred future rates will be reduced by corresponding amounts. If current rates are intended to recover such costs and the regulator requires the entity to remain accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose, the entity shall not recognize as revenues amounts charged pursuant to such rates. The usual mechanism used by regulators for this purpose is to require the regulated entity to record the anticipated cost as a liability in its regulatory accounting records. Those amounts shall be recognized as liabilities and taken to income only when the associated costs are incurred. (For related implementation guidance, see paragraph [980-405-55-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-55-1)). 3. c A regulator can require that a gain or other reduction of net [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.") be given to customers over future periods. That would be accomplished, for rate-making purposes, by amortizing the gain or other reduction of net allowable costs over those future periods and reducing rates to reduce revenues in approximately the amount of the amortization. If a gain or other reduction of net allowable costs is to be amortized over future periods for rate-making purposes, the regulated entity shall not recognize that gain or other reduction of net allowable costs in income of the current period. Instead, it shall record it as a liability for future reductions of charges to customers that are expected to result. Source downloaded (UTC): 2026-09-10T00:20:24.235Z to 2026-09-10T00:20:24.235Z Record version: sha256:8215a8c38004e587306ed0ffcae5afa568fe11732578f08f32f0ead76b9d00e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-980-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/405/980/#40-derecognition) SEC content: no #### Regulator-Imposed Liabilities ##### [405-980-40-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-40-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:20:24.235Z to 2026-09-10T00:20:24.235Z Record version: sha256:4c5621e01e924c54ec2bd41992c8e6df26b8790c8fcdd31eb00a765df5926234 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Actions of a regulator can eliminate a liability only if the liability was imposed by actions of the regulator. Source downloaded (UTC): 2026-09-10T00:20:26.812Z to 2026-09-10T00:20:26.812Z Record version: sha256:bb40587369d1bc6e13fcac3d55a50ce7effe8dd1057d3171c8442fbc9faabef2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-980-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/405/980/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [405-980-55-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:20:26.812Z to 2026-09-10T00:20:26.812Z Record version: sha256:9bf3390594965f4ffb3e273741ae2620f10652de3203cfbba8fd6fd079ac12e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph provides guidance on implementing paragraph [980-405-25-1(b)](https://asc.understandingaccounting.org/asc/405/980/#405-980-25-1). A regulator may direct a regulated entity to include an amount for a contingency in allowable costs for rate-making purposes even though the amount does not meet the criteria in Subtopic 450-20 for recording. For example, a regulator may direct a regulated entity to include an amount for repairs of expected future uninsured storm damage. If a cost to repair storm damage is not subsequently incurred, the increased charges will have to be refunded to customers through future rate reductions. Accordingly, the regulated entity would recognize the amounts charged pursuant to such rates as liabilities rather than as revenues. If a cost to repair storm damage is subsequently incurred, the entity would charge that cost to expense and reduce the liabilities at that time by recognizing income in amounts equal to the cost.