Rate-regulated activities

Date recorded:

Plan for redeliberations (Agenda Paper 9)

In this session, the Board discussed the staff’s plan for redeliberations of the Board’s Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities.

In planning the redeliberations, the staff have identified the following work streams:

  • Topics that respondents raised significant concerns about:
    • Total allowed compensation—mainly:
      • Returns on assets not yet available for use
      • Regulatory assets and regulatory liabilities arising from differences between assets’ regulatory recovery pace and their useful lives
    • Scope including interaction of the proposals with IFRIC 12
    • Minimum interest rate
  • Topics that were generally well received:
    • The proposed definitions of regulatory assets and regulatory liabilities and that they meet the definitions of assets and liabilities in the Conceptual Framework
    • The existence threshold of ‘more likely than not’ for recognising regulatory assets and regulatory liabilities
    • The use of a cash-flow-based measurement technique to measure regulatory assets and regulatory liabilities, which would involve estimating uncertain cash flows using the ‘most likely amount’ method or the ‘expected value’ method
    • The use of the regulatory interest rate as the discount rate for a regulatory asset or regulatory liability
    • The proposal to present all regulatory income minus all regulatory expense, including regulatory interest income and regulatory interest expense, as a separate line item immediately below revenue
    • The focus of the proposed overall disclosure objective
  • Other topics:
    • Transition proposals and effective date
    • Effects analysis
    • Due process steps

The staff recommended prioritising the workstream on total allowed compensation and scope.

These topics, together with discount rate and disclosure are proposed to be discussed with the Consultative Group for Rate Regulation.

Questions for the Board

The staff asked the Board whether it agrees with the proposed plan for redeliberations. Specifically, they asked whether the Board has any comments or suggestions on:

  • The classification of the workstreams
  • The main matters for the Board’s consideration
  • Prioritising the total allowed compensation and scope workstreams
  • The proposed use of the Consultative Group

Board discussion

Board members expressed support for the proposed work plan, saying it seems to be the right selection of topics. It was noted that the workstreams could be worked on simultaneously.

One Board member said that construction work in progress seems to be a pervasive issue across all topics. She suggested that the staff move all issues related to construction work in progress into a separate work stream that should be discussed first so that the remaining issues for each topic would be easier to solve. Another Board member picked up on that and said that he would like to understand the difference in depreciation for the construction work and whether it would be slower or faster than the regulatory depreciation. One Board member suggested to perform outreach on this outside the consultative group. The staff confirmed that such outreach meetings with regulators and users have already been scheduled for January and February 2022.

On minimum interest rate, one Board member said that she did not understand why this has been raised by so many stakeholders given that it is not mandatory to use the minimum interest rate if an adequate rate is available. The staff may want to gather more evidence on why this topic is so controversial.

One Board member said that it should be explained to preparers that some of their IFRIC 12 contracts may fall within the scope of the proposed new Standard as they may not be aware and continue IFRIC 12 accounting.

Board decision

All Board members supported the staff’s plan for redeliberation of the proposals in the ED.

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