# ASC 980-10-S99: Regulated Operations — Overall — SEC 99 SEC Materials

Source: FASB Accounting Standards Codification, Basic View

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## ASC 980-10-S99: SEC 99 SEC Materials

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#### SEC Staff Guidance

##### [980-10-S99-1](https://asc.understandingaccounting.org/asc/980/10/#980-10-S99-1)

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The following is the text of SAB Topic 10.D, Long-Term Contracts for Purchase of Electric Power.

-   Facts: Under long-term contracts with public utility districts, cooperatives or other organizations, a utility company receives a portion of the output of a production plant constructed and financed by the district or cooperative. The utility has only a nominal or no investment at all in the plant but pays a proportionate part of the plant's costs, including debt service. The contract may be in the form of a sale of a generating plant and its immediate lease back. The utility is obligated to pay certain minimum amounts which cover debt service requirements whether or not the plant is operating. At the option of other parties to the contract and in accordance with a predetermined schedule, the utility's proportionate share of the output may be reduced. Separate agreements may exist for the transmission of power to the utility's system. <sup class="ph sup">FN2</sup>.
    
    -   FN2 Registrants are reminded that the arrangement may contain a guarantee that is within the scope of Interpretation 45 \[Topic 460\]. Further, registrants should consider the guidance of Interpretation 46 \[Topic 810\]. Also, registrants would need to consider whether the arrangement contains a derivative that should be accounted for according to Statement 133 \[Topic 815\].
        
-   Question: How should the cost of power obtained under long-term purchase contracts be reflected on the financial statements and what supplemental disclosures should be made in notes to the statements?
    
-   Interpretive Response: The cost of power obtained under long-term purchase contracts, including payments required to be made when a production plant is not operating, should be included in the operating expenses section of the income statement. A note to the financial statements should present information concerning the terms and significance of such contracts to the utility company including date of contract expiration, share of plant output being purchased, estimated annual cost, annual minimum debt service payment required and amount of related long-term debt or lease obligations outstanding.
    
-   Additional disclosure should be given if the contract provides, or is expected to provide, in excess of five percent of current or estimated future system capability. This additional disclosure may be in the form of separate financial statements of the vendor entity or inclusion of the amount of the obligation under the contract as a liability on the balance sheet with a corresponding amount as an asset representing the right to purchase power under the contract.
    
-   The note to the financial statements should disclose the allocable portion of interest included in charges under such contracts.