On May 7, 2020, FERC’s Division of Audits and Accounting issued a guidance letter on how regulated entities may account for expected credit losses on accounts receivable. The letter, issued to ease regulatory burdens on the energy industry in the midst of the ongoing COVID-19 pandemic, clarifies that Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) No. 2016-13 is an acceptable methodology for purposes of financial accounting and reporting obligations on jurisdictional public utilities and licensees, natural gas companies, oil pipeline companies, and centralized service companies.
As described in the guidance letter, ASU No. 2016-13 requires companies to change the method of measuring credit losses, including uncollectible accounts receivable, from an incurred loss basis to a current expected credit loss basis. The letter stated that, although FERC’s Uniform System of Accounts do not automatically update based on FASB accounting changes, the Commission may issue guidance on how to incorporate ASUs into existing accounting and financial reporting requirements. To that end, the guidance letter expressly identified ASU No. 2016-13 as is a “reasonable methodology” for measuring expected credit losses and “is acceptable for Commission financial accounting and reporting purposes.”
In addition, according to the guidance, a jurisdictional entity may make a cumulative adjustment to its beginning retained earnings account without FERC approval, if the jurisdictional entity determines that such an adjustment is necessary to implement ASU No. 2016-13.
Finally, the letter noted that the guidance is provided “for Commission accounting and reporting purposes only and is without prejudice to the ratemaking practice or treatment that should be afforded the items addressed herein.”
A copy of the Accounting Guidance Letter, issued in Docket No. AI20-2-000, can be found here.