Regulatory Deferred Charges and Credits
The Company prepares its consolidated financial statements in accordance with regulatory accounting practices because:
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• | rates for regulated services are established by or subject to approval by independent third-party regulators, |
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• | the regulated rates are designed to recover the cost of providing the regulated services, and |
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• | in view of demand for the regulated services and the level of competition, it is reasonable to assume that rates can be charged to and collected from customers at levels that will recover costs. |
Regulatory accounting practices require that certain costs and/or obligations (such as incurred power and natural gas costs not currently included in rates, but expected to be recovered or refunded in the future) are reflected as deferred charges or credits on the Consolidated Balance Sheets. These costs and/or obligations are not reflected in the Consolidated Statements of Income until the period during which matching revenues are recognized. If at some point in the future the Company determines that it no longer meets the criteria for continued application of regulatory accounting practices for all or a portion of its regulated operations, the Company could be:
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• | required to write off its regulatory assets, and |
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• | precluded from the future deferral of costs not recovered through rates at the time such costs are incurred, even if the Company expected to recover such costs in the future. |
See Note 22 for further details of regulatory assets and liabilities.
