Rate regulated activities — Research project update

Date recorded:

The project manager provided the Board with an overview of the research done on the rate regulated activities project since the last Board meeting.

On the features of rate regulation introduced was the ‘dual element adjustment’ which is a mechanism used by some rate regulators to protect the interests of consumers and to maintain the quality and availability of the supply of the rate-regulated goods or services. In the majority of cases, the rate regulation will usually use a price adjustment for future sales as a pragmatic and practical mechanism for collecting or delivering the cash flows associated with this adjustment. The project manager believes that this dual element adjustment is the most important and unique feature of rate regulation.

On the unit of account topic she raised the question whether rights and obligations from rate regulation should be seen as a package or should be disaggregated.

She asked the IASB if they agree that the proposed features should be recognised in accounting.

One Board member asked if the dual element adjustment was supported by the working group on rate regulation.

The project manager replied that they have not gone back to the working group to test the identified features but will do so in a few weeks.

Another Board member identified a dilemma on the unit of account topic being that regulatory decisions are more and more multi-element decisions and perhaps not individually identifiable. It would be difficult to separate identifiable assets and liabilities.

The project manager agreed that there is a dilemma but that it is difficult to perform a clear analysis at such an early stage of the project.

One Board member was concerned if the dual element adjustment feature of rate regulation is enough and suggested looking into other features as well. Also, a list of features that are not distinguishing features of rate regulation should be provided. Moreover, the discussion paper should clearly state what areas will not be part of the project. Her last comment was that price regulation should always be substantial and that this needs to be reflected in the project as well.

Another Board member pointed out that there are differences between rate-regulated assets and internally generated assets. On first sight it looks like they are similar as nobody has an obligation for these assets. However, if you look more closely, on goodwill it is true that nobody has an obligation but on rate-regulated assets, the regulator has an obligation, being to guarantee that the goods are available and continue to be available.

There were some discussions around measurement, however the project manager said that first, it needs to be decided whether assets and liabilities that can be measured exist at all and that measurement would be discussed in a later stage in the project. The same applies to unit of account – it first needs to be decided if there is something to account for.

One Board member asked whether situations in which an entity, for example, builds a dam and the government reimburses the entity for essential repairs of the dam, would be included in the project.

The project manager replied that this would probably not be included but that will be decided in a later stage of the project.

In general, the Board members were supportive of the direction of the project and were satisfied with the dual element adjustment criteria being the main feature of rate regulation.

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