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Rate-regulated activities

Date recorded:


This was an education session.

The purpose of this meeting was to clarify the underlying basis for the proposed model for accounting for rate-regulated activities. This clarification came at the request of the Board in its February 2017 meeting, in which the Board criticised some of the proposed concepts in the model as being unnecessarily confusing and complex, and deferred the discussion of related topics until the Board is clear on the fundamentals of the model.


Overall, the revised description of the principles underlying the model does not change the basis of the model as previously presented to the Board. As the Board took issue specifically with the concepts of ‘customer base’ and ‘an imbalance in performance between the entity and the customer base’ which gives rise to the regulatory asset/liability, the Staff circumvented the use of these terms in their clarification. Instead, they re-characterised these notions as ‘various classes of existing and future customers’ and ‘temporary differences between the amount of profit to date that the entity is entitled to retain when viewed from the regulatory agreement perspective and the amount of profit when viewed from the customer contracts perspective (determined in terms of IFRS 15)’. The Staff also applied the revised basis to various examples that were previously presented to the Board, and came to the same outcomes as previously concluded. Interestingly, the Staff did not discuss the ‘storm damage’ example which caused much consternation amongst Board members in previous meetings.

Next steps

The Board was asked to comment on the Staff’s revised description of the model.

The Staff plan to discuss the following topics at future Board meetings: (a) measurement, impairment and derecognition; (b) presentation and disclosure; (c) interaction with other Standards, including IFRS 3 and IFRIC 12; (d) assessment of the model’s consistency with the revised Conceptual Framework; (e) comparison with Topic 980 Regulated Operations of US GAAP; and (f) transition and withdrawal of IFRS 14.


The Board liked the revised description of the model for its simplicity. They believed that the Staff had neatly captured the principle of the model as recognising the supplementary rights and obligations arising from a regulatory agreement, which are created when the satisfaction of a regulatory requirement, or the transfer of goods or services to customers, establishes a right or obligation to charge a higher or lower regulated rate in a future period.

The Board raised the following points for further consideration:

  • To clarify the scope of the model. This includes a clear distinction between how rate regulated activities are defined and what are their common characteristics. In particular, one Board member asked the Staff to stress test the characteristics used by them to describe defined rate regulation to ensure that on both an individual and a collective basis, the characteristics would appropriately scope regulated activities in or out of the model. Another Board member asked the Staff to consider what types of regulated activities would not give rise to regulatory balances and to test it against the scope criteria to ensure appropriate outcomes.
  • To characterise the regulated rate used in individual contracts as a fixed rate with a variation adjustment in the future, as opposed to an estimated rate.
  • To explore whether the regulatory adjustments are revenue-adjustments, cost-adjustments or something else. The Staff said that they will address this issue as part of the presentation of the regulatory adjustments.
  • To address how uncertainties regarding recoverability and measurement would be reflected in the model.

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