ASC 330-10-15-3 states that the guidance in ASC 330 may not necessarily apply to regulated utilities, however, it does not provide any specific exceptions and we generally do not expect there to be a difference in how regulated utilities apply the guidance. However, regulated utilities may be provided specific recovery mechanisms from regulators for inventory-related costs, such as fuel. In such cases, the regulated utility would consider this mechanism when evaluating the impact of potential impairments or reserves. See UP 17 for information regarding the recognition of regulatory assets and liabilities.

Inventory should be recorded based on LOCOM (see UP 11.2). ASC 330-10-20 states that “market” should not be less than net realizable value reduced by an allowance for an approximately normal profit margin. If a regulated utility has a direct pass-through mechanism for fuel or purchased natural gas costs, then it is permitted to recover from its customers an amount equivalent to the original cost of the inventory (the regulated utility’s normal profit margin on the cost is zero). Therefore, a reporting entity in this situation would not be required to record an LOCOM adjustment for fuel or purchased natural gas, even if the spot market price has declined below cost.