phase-in plan

This subtopic governs when a rate-regulated entity may capitalize incurred costs as regulatory assets (deferred costs) and, in particular, how to account for phase-in plans — rate-making arrangements that defer part of the rate increase caused by placing a newly completed plant in service in order to avoid a "rate spike." A cost is capitalized only if it is probable that future revenue at least equal to the cost will result from including it in allowable costs and that revenue is intended to recover the previously incurred cost rather than fund similar future costs (980-340-25-1). Amounts deferred under a phase-in plan may be capitalized only for plants completed or substantially constructed before January 1, 1988, and only if the plan meets four strict criteria (980-340-25-3).

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.