Summary of Statement No. 90

Regulated Enterprises—Accounting for Abandonments and Disallowances of Plant Costs—an amendment of FASB Statement No. 71 (Issued 12/86)


This Statement amends FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, for two types of events that recently have occurred in the electric utility industry-abandonments of plants and disallowances of costs of recently completed plants.

This Statement amends Statement 71 to require the future revenue that is expected to result from the regulator's inclusion of the cost of an abandoned plant in allowable costs for rate-making purposes to be reported at its present value when the abandonment becomes probable. If the carrying amount of the abandoned plant exceeds that present value, a loss would be recognized. Statement 71 previously required that asset to be reported at the lesser of the cost of the abandoned plant or the probable gross revenue.

This Statement also amends Statement 71 to require any disallowed costs of a recently completed plant to be recognized as a loss. Statement 71 previously required asset impairments to be recognized but did not specify what constitutes an impairment or provide specific guidance about how impairments should be measured.

Finally, this Statement amends Statement 71 to specify that an allowance for funds used during construction should be capitalized only if its subsequent inclusion in allowable costs for rate-making purposes is probable.

This Statement is effective for fiscal years beginning after December 15, 1987 unless (a) application of the Statement would cause a violation or probable future violation of a restrictive clause in an existing loan indenture or other agreement and (b) the enterprise is actively seeking to obtain modification of that restrictive clause. In that case, this Statement is effective for fiscal years beginning after December 15, 1988.

This Statement applies to the recorded costs of previously abandoned assets, the recorded costs of assets for which future abandonment is probable or becomes probable in the future, previously disallowed plant costs, and disallowances of plant costs that are probable or become probable in the future. Restatement of financial statements for prior fiscal years is encouraged but not required.