ASC 410-980

Regulated Operations

410 Asset Retirement and Environmental Obligations

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In brief

IntermediateRecognition Impairment Industry-specific Subsequent measurement

ASC 410-980 explains how rate-regulated entities apply the asset retirement obligation (ARO) model of Subtopic 410-20. Because rate regulation may allow recovery of retirement costs on a timing pattern different from GAAP ARO cost recognition, a regulated entity that meets the requirements of Topic 980 recognizes a regulatory asset or regulatory liability for that timing difference. Capitalized asset retirement cost is included in long-lived asset impairment testing on the same basis as for any other entity.

Key points (7)

Nuclear plant decommissioning costs are incurred costs imposed by regulation or statute (similar to the obligation to restore land after strip mining), so paragraph 980-405-25-1(b) does not address those costs (410-980-25-1).
Rate-regulated entities may recover retirement costs in customer rates on a timing pattern that differs from period cost recognition under Subtopic 410-20, and a timing difference can also arise when retirement costs are included in amounts charged to customers but no liability is recognized (410-980-25-2).
If the requirements of Topic 980 are met, the regulated entity recognizes a regulatory asset or regulatory liability for the difference between financial reporting recognition of ARO period costs and rate-making recognition (410-980-25-2).
Some retirement costs recovered in rates arise from AROs within the scope of Subtopic 410-20 and others do not; only the former follow that Subtopic (410-980-25-2).
The capitalized amount of an asset retirement cost is included in the impairment assessment of a rate-regulated entity's long-lived assets just as for any other entity (410-980-35-1).
Subtopic 980-360 applies to the asset retirement cost related to a rate-regulated long-lived asset that has been closed or abandoned (410-980-35-1).
The Subtopic follows the same scope and scope exceptions as Section 980-10-15 (410-980-15-1).

For students. This is the bridge between the ARO model and rate regulation: utilities still record AROs under 410-20 for financial reporting, and the rate-recovery mismatch is resolved through a regulatory asset or liability rather than by deferring the ARO itself. A common error is assuming that because decommissioning costs are collected in rates, no ARO liability or no impairment testing of the capitalized retirement cost is needed.

asset retirement obligation rate-regulated operations regulatory asset regulatory liability nuclear plant decommissioning costs asset retirement cost recovery through customer rates abandoned plant

Machine-generated study aid for ASC 410-980. Check the source paragraphs below.

410-980-05Overview and Background

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410-980-05-1

This Subtopic provides guidance for asset retirement obligations for entities with regulated operations.

410-980-15Scope and Scope Exceptions

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Overall Guidance

410-980-15-1

This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 980-10-15.

410-980-25Recognition

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Decommissioning Costs

410-980-25-1

Nuclear plant decommissioning costs are incurred costs in the current accounting framework. Those costs and the related liabilities are imposed by regulation or statute, similar to the liability to restore the land after strip mining. Accordingly, paragraph 980-405-25-1(b) does not address those costs.

Costs from Asset Retirement Obligations

410-980-25-2

Many rate-regulated entities currently provide for the costs related to the retirement of certain long-lived assets in their financial statements and recover those amounts in rates charged to their customers. Some of those costs result from asset retirement obligations within the scope of Subtopic 410-20; others result from costs that are not within the scope of that Subtopic. The amounts charged to customers for the costs related to the retirement of long-lived assets may differ from the period costs recognized in accordance with that Subtopic and, therefore, may result in a difference in the timing of recognition of period costs for financial reporting and rate-making purposes. An additional recognition timing difference may exist when the costs related to the retirement of long-lived assets are included in amounts charged to customers but liabilities are not recognized in the financial statements. If the requirements of this Topic are met, a regulated entity also shall recognize a regulatory asset or liability for differences in the timing of recognition of the period costs associated with asset retirement obligations for financial reporting pursuant to that Subtopic and rate-making purposes.

410-980-35Subsequent Measurement

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410-980-35-1

The capitalized amount of an asset retirement cost shall be included in the assessment of impairment of long-lived assets of a rate-regulated entity just as that cost is included in the assessment of impairment of long-lived assets of any other entity. Subtopic 980-360 applies to the asset retirement cost related to a long-lived asset of a rate-regulated entity that has been closed or abandoned.

410-980-S00StatusSEC

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410-980-S00-1

The following table identifies the changes made to this Subtopic.

Paragraph	Action	Accounting Standards Update	Date

980-410-S99-1	Amended	Accounting Standards Update No. 2009-03	08/24/2009

410-980-S25RecognitionSEC

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Environmental Remediation Liabilities

410-980-S25-1

See paragraph 980-410-S99-1, SAB Topic 10.F, Question 2, for SEC Staff views on the recognition of environmental remediation liabilities.

410-980-S45Other Presentation MattersSEC

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Presentation of Liabilities for Environmental Costs

410-980-S45-1

See paragraph 980-410-S99-1, SAB Topic 10.F, Question 1, for SEC Staff views on the presentation of environmental remediation liabilities.

410-980-S99SEC MaterialsSEC

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SEC Staff Guidance

410-980-S99-1

The following is the text of SAB Topic 10.F, Presentation of Liabilities for Environmental Costs.

Facts: A public utility company determines that it is obligated to pay material amounts as a result of an environmental liability. These amounts may relate to, for example, damages attributed to clean-up of hazardous wastes, reclamation costs, fines, and litigation costs.
Question 1: May a rate-regulated enterprise present on its balance sheet the amount of its estimated liability for environmental costs net of probable future revenue resulting from the inclusion of such costs in allowable costs for rate-making purposes?
Interpretive Response: No. Statement 71 [paragraph 980-340-25-1] specifies the conditions under which rate actions of a regulator can provide reasonable assurance of the existence of an asset. The staff believes that environmental costs meeting the criteria of paragraph 9 ^FN6 of Statement 71 [paragraph 980-340-25-1] should be presented on the balance sheet as an asset and should not be offset against the liability. Contingent recoveries through rates that do not meet the criteria of paragraph 9 [paragraph 980-340-25-1] should not be recognized either as an asset or as a reduction of the probable liability.
- FN6 Paragraph 9 of Statement 71 [paragraph 980-340-25-1] requires a rate-regulated enterprise to capitalize all or part of an incurred cost that would otherwise be charged to expense if it is probable that future revenue will be provided to recover the previously incurred cost from inclusion of the costs in allowable costs for rate-making purposes.
Question 2: May a rate-regulated enterprise delay recognition of a probable and estimable liability for environmental costs which it has incurred at the date of the latest balance sheet until the regulator's deliberations have proceeded to a point enabling management to determine whether this cost is likely to be included in allowable costs for rate-making purposes?
Interpretive Response: No. Statement 5 [paragraph 450-20-25-2] states that an estimated loss from a loss contingency shall be accrued by a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. ^FN7 The staff believes that actions of a regulator can affect whether an incurred cost is capitalized or expensed pursuant to Statement 71 [paragraph 980-340-25-1], but the regulator's actions cannot affect the timing of the recognition of the liability.
- FN7 Registrants also should apply the guidance of SOP 96-1 [Section 410-30-25] in determining the appropriate recognition of environmental remediation costs.