This Subtopic provides guidance for asset retirement obligations for entities with regulated operations.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
980-10-15.
The following table identifies the changes made to this Subtopic.
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.