ASC 980-810-45 requires that in certain circumstances intercompany profit on sales from unregulated entities to regulated affiliates should not be eliminated in the general purpose financial statements. This would be the case if both of the following conditions exist:
  • The sales price charged to the regulated utility by the unregulated affiliate is reasonable.
  • It is probable that future revenues allowed in the ratemaking process will provide for the recovery of the sales price resulting from the regulated utility’s use of the product(s).
When evaluating whether the sales price is reasonable, reporting entities should consider whether the price is accepted by the regulator or otherwise not challenged. Alternatively, the regulated utility should consider comparison to the return or pricing from other available sources.
This guidance is restricted to sales to the regulated affiliate by its unregulated affiliate. Intercompany profit on sales from a regulated utility to an unregulated affiliate should be eliminated in consolidation.
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