# ASC 842-980: Leases — Regulated Operations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/980/) 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): 2026-09-10T01:58:56.654Z to 2026-09-10T01:59:18.312Z Record version: sha256:9ba69bd132dbf7818189037f4d2bbebd6c0d6621eec8de5aa8f647fe49cdd9d1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980: Leases — Regulated Operations ### Machine-generated study aids ```json { "summary": "This Subtopic addresses how rate-regulated entities account for leases when the regulator's rate-making treatment differs from Topic 842. Lease classification for financial reporting follows Topic 842 regardless of how the regulator treats the lease, but the timing of expense (or income) recognition is modified to conform to the rate treatment, with timing differences capitalized or accrued as regulatory assets or liabilities. Sale-and-leaseback timing differences are handled either as part of a phase-in plan under Subtopic 980-340 or by conforming recognition to the Regulated Operations Topic.", "key_points": [ "Regulated entities must classify leases in accordance with Topic 842; the regulator's treatment of a finance lease as an operating lease for rate-making does not change classification, because the regulator cannot eliminate an obligation it did not impose (842-980-45-1 through 45-2).", "For a finance lease, the nature of the expense elements (amortization of the right-of-use asset and interest on the lease liability) is unchanged, but amortization of the ROU asset is modified so that total interest plus amortization equals the lease expense allowed for rate-making purposes (842-980-45-3).", "Such regulatory treatment for newly completed plants could constitute a phase-in plan as defined in Subtopic 980-340 (842-980-45-3).", "Sale and leaseback timing differences between Subtopic 842-40 and rate-making treatment are accounted for under Subtopic 980-340 if they are all or part of a phase-in plan; otherwise recognition timing is modified to conform to the Regulated Operations Topic (842-980-25-2).", "A non-phase-in timing difference on a sale and leaseback accounted for as a financing is capitalized or accrued as a separate regulatory-created asset or liability if it meets the criteria of the Regulated Operations Topic (842-980-25-3).", "If a sale and leaseback is accounted for as a financing but the sale is recognized for rate-making purposes, imputed interest under the interest method plus depreciation of the underlying asset is modified to equal total lease expense and the gain or loss allowable for rate-making purposes (842-980-35-1).", "Interest expense and ROU asset amortization need not be separate income statement line items (842-20-45-4), but they must be included in the total interest cost disclosure under Subtopic 835-20 and the finance lease disclosures under Section 842-20-50 (842-980-45-4; 842-980-55-1)." ], "categories": [ "Leases", "Industry-specific", "Presentation", "Subsequent measurement" ], "audience_level": "advanced", "student_note": "The key takeaway is the split between classification and timing: rate regulation never changes whether a lease is a finance lease, but it does reshape the pattern of expense recognition, with the difference parked in a regulatory asset or liability. Students commonly err by assuming a regulator's operating-lease treatment lets a utility report the lease as an operating lease for GAAP.", "related_topics": [ "980-340", "980-840", "842-40", "842-20", "835-20", "980-405" ], "key_concepts": [ "regulated operations", "rate-making purposes", "allowable cost", "regulatory asset", "phase-in plan", "finance lease classification", "sale and leaseback financing", "right-of-use asset amortization" ] } ``` Source downloaded (UTC): 2026-09-10T01:58:56.654Z to 2026-09-10T01:58:56.654Z Record version: sha256:0f8f6b65e208d8fb41c31d8fb58e6035a6885ce11e2b7ecdf65e3513d1024256 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/842/980/#00-status) SEC content: no ##### [842-980-00-1](https://asc.understandingaccounting.org/asc/842/980/#842-980-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:58:56.654Z to 2026-09-10T01:58:56.654Z Record version: sha256:19fd2eddd17490dad0cf900984b426769a097a431ac9c4b54374649898392498 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Allowable CostsAddedAccounting Standards Update No. 2016-0202/25/2016
Phase-In PlanAddedAccounting Standards Update No. 2016-0202/25/2016
980-842-05-1AddedAccounting Standards Update No. 2016-0202/25/2016
980-842-15-1AddedAccounting Standards Update No. 2016-0202/25/2016
980-842-25-1 through 25-3
AddedAccounting Standards Update No. 2016-0202/25/2016
980-842-35-1AddedAccounting Standards Update No. 2016-0202/25/2016
980-842-45-1 through 45-4
AddedAccounting Standards Update No. 2016-0202/25/2016
980-842-55-1AddedAccounting Standards Update No. 2016-0202/25/2016
Source downloaded (UTC): 2026-09-10T01:58:59.768Z to 2026-09-10T01:58:59.768Z Record version: sha256:b088b7fcf66faf5555933612d35b047ba5700e592f8561274ef0f8bd170eeb99 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/842/980/#05-overview-and-background) SEC content: no ##### [842-980-05-1](https://asc.understandingaccounting.org/asc/842/980/#842-980-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:58:59.768Z to 2026-09-10T01:58:59.768Z Record version: sha256:c3c02fe070177b1fdad937c15cdb4e4f70d67f717fb9579b93fa0fafd0239369 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on accounting for leases for entities with regulated operations. Source downloaded (UTC): 2026-09-10T01:59:02.075Z to 2026-09-10T01:59:02.075Z Record version: sha256:fb5bf3523a02a1e9109bec1bd1d159e46e33d9e123985869db18fd31ec3b79f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/842/980/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [842-980-15-1](https://asc.understandingaccounting.org/asc/842/980/#842-980-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:02.075Z to 2026-09-10T01:59:02.075Z Record version: sha256:6676607859d7893dc50d8d60bbca0571defba8a4005dee6d2cb9faec7a3df651 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): 2026-09-10T01:59:08.707Z to 2026-09-10T01:59:08.707Z Record version: sha256:bf25b07d5dc86eac8df6b4cec72b48b4985cddf5f2b7abdc83f9b5cb16dcfec6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/842/980/#25-recognition) SEC content: no #### Sale and Leaseback Transactions ##### [842-980-25-1](https://asc.understandingaccounting.org/asc/842/980/#842-980-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:08.707Z to 2026-09-10T01:59:08.707Z Record version: sha256:d058f577992a3c5309608635fbfabec410d2cc2eec0a242eb12b82d3fd685756 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accounting for sale and leaseback transactions in accordance with the guidance in Subtopic 842-40 may result in a difference between the timing of income and expense recognition required by that Subtopic and the timing of income and expense recognition for rate-making purposes. ##### [842-980-25-2](https://asc.understandingaccounting.org/asc/842/980/#842-980-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:08.707Z to 2026-09-10T01:59:08.707Z Record version: sha256:5aa71e3350e1aac0ced68fc9b352aed130ea7da56467992e5d329aee24cdf3b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. That difference shall be accounted for as follows: 1. a If the difference in timing of income and expense recognition constitutes all or a part of a [phase-in plan](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."), it shall be accounted for in accordance with Subtopic 980-340. 2. b Otherwise, the timing of income and expense recognition related to the sale and leaseback transaction shall be modified as necessary to conform to the Regulated Operations Topic. That modification required for a transaction that is accounted for as a financing is further described in the following paragraph and paragraphs [980-840-35-1 through 35-2](https://asc.understandingaccounting.org/asc/840/980/#840-980-35-1) . ##### [842-980-25-3](https://asc.understandingaccounting.org/asc/842/980/#842-980-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:08.707Z to 2026-09-10T01:59:08.707Z Record version: sha256:f1695a37b293d87ea9af64bf8b528cd003c4f346a6dd4c3a6cd141a7185d94cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The difference between the amount of income or expense recognized for a transaction that is not part of a phase-in plan and that is accounted for as a financing under Subtopic 842-40 and the amount of income or expense included in allowable cost for rate-making purposes shall be capitalized or accrued as a separate regulatory-created asset or liability, as appropriate, if that difference meets the criteria of the Regulated Operations Topic. Source downloaded (UTC): 2026-09-10T01:59:11.732Z to 2026-09-10T01:59:11.732Z Record version: sha256:04996e556eeb86d5e346bc277fb10afb6bce826533fa73dda5a8acef4b480d03 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/842/980/#35-subsequent-measurement) SEC content: no #### Sale and Leaseback Transactions ##### [842-980-35-1](https://asc.understandingaccounting.org/asc/842/980/#842-980-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:11.732Z to 2026-09-10T01:59:11.732Z Record version: sha256:fe7dde76ad3fcf0260a779400cc19d3a8f0645674cb5e476045a7858f856e506 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the sale and leaseback transaction is accounted for as a financing and the sale is recognized for rate-making purposes, the total of interest imputed under the interest method for the financing and the depreciation of the underlying asset shall be modified to equal the total lease expense and the gain or loss allowable for rate-making purposes. Source downloaded (UTC): 2026-09-10T01:59:15.695Z to 2026-09-10T01:59:15.695Z Record version: sha256:b15db5c2779d6ba17751a25063deae27ac7f83084c7778d17ee31d6f08c8958d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/842/980/#45-other-presentation-matters) SEC content: no #### Treatment of Leases for Rate-Making Purposes ##### [842-980-45-1](https://asc.understandingaccounting.org/asc/842/980/#842-980-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:15.695Z to 2026-09-10T01:59:15.695Z Record version: sha256:6f21b43c0b43316636506a688bee0a5225781a535ea1fd8e117a376dbfba71f1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Topic 842 specifies criteria for classification of leases and the method of accounting for each type of lease. For rate-making purposes, a lease may be treated as an operating lease even though the lease would be classified as a finance lease under those criteria. In effect, the amount of the lease payment is included in [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.") as rental expense in the period it covers. ##### [842-980-45-2](https://asc.understandingaccounting.org/asc/842/980/#842-980-45-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:15.695Z to 2026-09-10T01:59:15.695Z Record version: sha256:44e017aa28712332602480dabf6e90057c1a1fd07af81f8dac0c10e6277465f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For financial reporting purposes, the classification of the lease is not affected by the regulator's actions. The regulator cannot eliminate an obligation that was not imposed by the regulator (see paragraph [980-405-40-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-40-1)). Also, by including the lease payments as allowable costs, the regulator sets rates that will provide revenue approximately equal to the combined amount of the right-of-use asset and interest on the lease liability over the term of the lease and, thus, provides reasonable assurance of the existence of an asset (see paragraph [980-340-25-1](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-1)). Accordingly, regulated entities shall classify leases in accordance with Topic 842. ##### [842-980-45-3](https://asc.understandingaccounting.org/asc/842/980/#842-980-45-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:15.695Z to 2026-09-10T01:59:15.695Z Record version: sha256:529e519bf3fbb2c44bfcb68949ddba29481f59ad2a798c74ee8ac422713b0db5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The nature of the expense elements related to a finance lease (amortization of the right-of-use asset and interest on the lease liability) is not changed by the regulator's action; however, the timing of expense recognition related to the lease would be modified to conform to the rate treatment. Thus, amortization of the right-of-use asset shall be modified so that the total of interest on the lease liability and amortization of the right-of-use asset shall equal the lease expense that was allowed for rate-making purposes. For newly completed plants such regulatory treatment could result in a [phase-in plan](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.") as defined in Subtopic 980-340. ##### [842-980-45-4](https://asc.understandingaccounting.org/asc/842/980/#842-980-45-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:15.695Z to 2026-09-10T01:59:15.695Z Record version: sha256:2cb4eb835b228c76d1870e70fa5926e6bb3e6d7b129fbfb945cbf83507eea3fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [842-20-45-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-45-4) states that an entity is not required to classify the interest expense and amortization of the right-of-use asset in a finance lease as separate items in an income statement. For example, the amounts of amortization of the right-of-use asset and interest on the related lease liability could each be combined with other costs and presented in a manner consistent with how the entity presents depreciation or amortization of similar assets and other interest expense. However, the disclosure of total interest cost incurred, required by Subtopic 835-20, shall include the interest on that lease liability, and the disclosure of the total amortization of the entity's right-of-use assets arising under a finance lease and interest on finance lease liabilities, required by Section 842-20-50, shall include amortization of that right-of-use asset and interest on that lease liability. Source downloaded (UTC): 2026-09-10T01:59:18.312Z to 2026-09-10T01:59:18.312Z Record version: sha256:b99dd83988d8562bb149004ed9124dd3b83321d948679ca4b1b2888ebbd746a7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-980-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/842/980/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [842-980-55-1](https://asc.understandingaccounting.org/asc/842/980/#842-980-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:59:18.312Z to 2026-09-10T01:59:18.312Z Record version: sha256:b84e067b71dc84dbb7a1db8d0a447eee77b4d949c33590d562ca9cd31aec5764 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [842-20-45-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-45-4) states that an entity is not required to classify the interest expense and amortization of the right-of-use asset in a finance lease as separate items in an income statement. However, that paragraph also states that the interest expense and the amortization of the right-of-use asset in a finance lease should be presented in a manner consistent with how the entity presents depreciation or amortization of similar assets and other interest expense. For example, the amounts of amortization of the right-of-use asset and interest on the related lease liability could each be combined with other costs and presented in a manner consistent with how the entity presents depreciation or amortization of similar assets and other interest expense. However, in that circumstance, the disclosure of total interest cost incurred, required by Subtopic 835-20, would include the interest on that lease liability, and the disclosure of the total amortization of the entity's right-of-use assets arising under a finance lease and interest on finance lease liabilities, required by Section 842-20-50, would include amortization of that right-of-use asset and interest on that lease liability.