SAB Topic 10.A, Financing By Electric Utility Companies Through Use Of Construction Intermediaries (SAB Topic 10.A), which was codified in ASC 980-810-S99-2, provides guidance on the presentation of construction work in progress and capitalized interest when a regulated utility uses a third party to finance construction of a generating plant.

The typical case described by the guidance involves establishing a trust or corporation (construction intermediary) to which the utility assigns its interest in property or other contractual rights. The construction intermediary finances the construction, guaranteed by the construction work in progress as well as by the obligation of the utility to purchase the plant at the completion of construction. In some cases, the utility also may commit to make up deficiencies in the funding provided by the construction intermediary. During construction, interest will be capitalized. The question that arises in these structures is whether the construction work in progress, related liabilities, and interest expense being generated by the construction intermediary should be presented on the utility’s financial statements.

SAB Topic 10.A requires these amounts to be reported in the utility’s financial statements in the applicable captions (effectively concluding that the construction intermediary should be consolidated by the utility). We would generally expect a consolidation conclusion to be consistent with the application of ASC 810. However, reporting entities applying this guidance should also evaluate the impact of ASC 810 when evaluating the appropriate accounting for these structures.