Accounting for Storm Damage - Best Practices with ASC 980 and GASB 62
Storm damage is part of the electric business - What is the smoothest way to recover these costs in electric rates?
How can accounting standards like ASC 980 or GASB 62 help to account for major unplanned expenses? When hurricane, tornado, fire, or ice season comes, the first order of business is getting everyone to safety. then restoration begins.
It's not callous to think of the financial impacts, as with any storm restoration, there are many moving parts. If your system has a mutual aid electric crew assisting in cleanup, there are other complications. Eventually, these cleanup costs will need to be assessed for their rate impacts on your customers.
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FERC accounting best practices kick in to assist with tracking storm costs
Best practices when it comes to storm cleanup include:
Open a series of storm cleanup work orders for labor, materials, equipment charges, and retirements. Charge the appropriate costs into the related work orders. The analysis piece will come later, and it will be messy. In the heat of the moment, mistakes may occur.
If possible, open a separate series of work orders for each mutual aid utility or co-op assisting. That will help in the billing and payment process with these organizations.
The cleanup process may be lengthy, so keep these work orders open until you've determined the completion of the cleanup.
Once the work is done, allocate overhead costs to the work orders for labor, stores, cost of capital (AFUDC), and other support.
Analyze the cleanup costs and use the information to claim insurance and FEMA for reimbursement.
Analyze the work orders to define assets added and retired and maintenance charges.
Determine (with management, your oversight Board, or as part of the subsequent rate filing with the state regulatory body) what costs can be recovered in customer rates and the length of time over which you will recover them.
Use accounting standards ASC 980 or GASB 62 Regulated Operations to defer costs for recognition as the costs are collected in customer rates. Don't have the financial statements of your electric utility or co-op take a hit if the storm costs are recoverable.
This is the short version of the process. Those of you that have been through this before know the amount of work involved.
Check out the full publication in our Resource Library for many more examples that can be used in your utility’s approach to ratemaking through regulatory accounting under GASB 62 or ASC 980! Our course on regulatory accounting explains this approach in detail.
About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@utilityeducation.com.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.