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Energy and Utilities Industry Insights

Electric utility accounting for emissions allowances
Jodi Dobson, CPA, Manager, Baker Tilly Virchow Krause, LLP January 2011 Introduction The utility industry uses emission allowances as a matter of doing business, although FASB, GASB, and International Accounting Standards Board (IASB) accounting guidance does not address this area. Varying methods are used to account for emission allowances and a standard approach is desirable, especially in light of the recent passage of Cap and Trade System-type legislation by the California State Legislature. Research Question: What is the proper classification and accounting treatment for emission allowances (most commonly SO2 or NOX allowances) by governmental electric utilities? Background: There is no definitive guidance at this time by FASB or IASB on the proper accounting for emission allowances. Both FASB and IASB have commissioned several projects reviewing this issue and the IASB actually issued some guidance, which was subsequently withdrawn over industry objections. At this time, the only current explicit guidance in the United States is from the Federal Energy Regulatory Commission (FERC) Uniform System of Accounts (USOA). Guidance: FERC requires that emission allowances be accounted for as follows: Nationwide energy practice. Our Energy and Utilities Group is focused just on utilities. More than 300 public and investor-owned energy and utility clients across the country are served by Baker Tilly. We are educators and thought leaders who provide strategic direction for the country’s leading utilities.

There is no definitive guidance at this time on the proper accounting for emission allowances, but both FASB and IASB have commissioned several projects reviewing this issue.

> Allowances are reported at historical cost and are classified as inventory if used in operations. > > > >

Purchased allowances are recorded at their exchange price, while those received from...
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