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Power and Utilities: Quarterly Insights

First quarter 2022


In this first quarter edition of the Power and Utilities: Quarterly Insights, we discuss relevant industry, accounting and reporting and regulatory updates that will impact power, utility and sustainable energy companies in 2022 and beyond.

One significant industry trend that will shape 2022 is the clean energy transition and investments related to carbon reduction. We highlight key themes from PwC’s ESG utilities survey and observations on the current status of the Build Back Better legislation.

In our Accounting, reporting and SEC update section, we include a list of standards relevant to the industry effective this year. We also highlight the top items to watch on the agendas of the Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB). New this quarter, we take a closer look at a specific trend or technology that is impacting the clean energy transition, and we outline key accounting and reporting considerations.

In the Regulatory update section, we highlight an emerging trend in ratemaking and provide reminders for companies preparing to file FERC Form 1 or Form 2.

Industry updates

Utilities go all in on ESG

In a recent ESG survey of leaders from large electric, gas and water utilities across North America, nearly all of those surveyed reported significant increases in spending on ESG-related initiatives, with much more planned in the years ahead. Carbon reduction investments continue to be a key priority, with utilities closely monitoring ongoing policy making in this area. While a majority of respondents expect to be on track to meet their carbon reduction goals, many have also identified challenges in ensuring their organizations have the right operational structures and skill sets in place to support ESG strategies.

Here are some of the common themes we saw in our survey results:

  • CEOs lead the way for utilities - Support for ESG initiatives comes straight from the top, with nearly 70% of respondents saying the CEO is the main decision maker.
  • Data is the differentiator - Compelling ESG reporting requires collaboration and support from across the organization as well as consistent and accessible data. Many still grapple with this part of their ESG strategy, with less than half of utilities surveyed being highly capable of gathering ESG data (48%).
  • Prepare today to deliver the needs of tomorrow - The right operating models and governance are important in achieving ESG goals. There’s a pretty even split between those who think they have the right structure and skill set in place (43%) and those who are not quite there yet but are making good progress (40%).
  • Utilities are committed - The vast majority of utilities (91%) have increased spending on ESG-related initiatives over the past three years, with nearly half saying they’ve increased investments by 25% or more.
  • Where net zero nets out - The industry faces a significant task in reducing carbon emissions in a manner that still provides reliable and affordable energy. Despite the challenges, 63% of respondents say they expect to achieve net zero carbon emissions by or before 2050, with more than a third uncertain or doubtful that achieving that goal by 2050 is realistic.

Refer to the ESG utilities survey for the complete results.

Build Back Better

Democratic legislators are still looking at ways to craft a slimmed-down Build Back Better (BBB) bill. While a pared down bill would likely involve a less ambitious spending program, many of the renewable and clean energy provisions are expected to survive.

If these efforts fail, and the BBB does not move forward, there may still be momentum to revive a bill to extend the existing wind and solar credits in the tax code; most likely later in the year. Unlike BBB, however, this type of bill may not have the "direct pay" provisions that would be popular amongst utilities and other renewable developers who currently may lack the ability to utilize credits on their federal tax returns.

Listen to the Power and Utilities Surge podcast for an update on BBB and tax implications.

Accounting, reporting and SEC updates

Macroeconomic factors continue to create significant instability and uncertainty in global and US markets. The Consumer Price Index climbed by an annualized 7.9% in February 2022, following a 7.5% increase in January. This represented the highest spike in four decades. Additionally, supply chain disruptions, labor shortages and increases in labor and fuel costs, along with rising interest rates and commodity price volatility, are likely to impact companies throughout the sector. While these trends have negatively impacted business confidence and stock markets worldwide, they have also increased the focus on energy security, particularly in Europe, which has further boosted the attractiveness of renewable energy projects to many investors.

As companies grapple with the wider business impacts of macroeconomic trends, it is important that they not lose focus on the potential accounting and reporting implications. Companies should continue to proactively monitor key estimates, re-confirming the appropriateness of significant projections and assumptions at each reporting date. 

Examples of areas where the re-consideration of macroeconomic factors and their accounting impact may require monitoring include: 

  • Cash flow projections: Companies should revisit assumptions in any areas of GAAP that rely on cash flow projections (e.g., impairments of long-lived assets and goodwill), interest rates (e.g., variable rate debt), or future operating results (e.g., realizability of deferred tax assets) and ensure that assumptions being used reflect all current developments.
  • Market capitalization: Higher interest rates tend to negatively affect earnings and stock prices. Companies should be mindful of how changes in their stock prices will impact overall market capitalization calculations and any downstream impacts that may occur as a result (e.g., goodwill impairment assessments).
  • Hedging and normal purchase normal sale designations: Companies with existing hedging relationships will need to consider whether forecasted purchases/sales or forecasted interest payments remain probable of occurring, as this could impact eligibility for current and future hedges. Similarly, companies should review any contracts designated as normal purchases and normal sales to ensure that physical delivery continues to be probable.
  • Compliance with debt covenant ratios: Changes in financial ratios may impact existing debt covenant requirements. Breaches of debt covenants may trigger reclassification of long-term debt to current.

The evolving conflict in Ukraine and related sanctions have also created pervasive uncertainty and risk that will likely impact a broader range of companies beyond just those with operations in the region. For a detailed discussion of considerations related to the conflict in Ukraine, refer to our In depth, Implications of the Russian government's invasion of Ukraine.

While it has been a quiet quarter on the accounting standard front, we have included below a reminder on a selection of new accounting standards that are effective for the first time in 2022.

New standard Effective date Overview

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06)


This guidance is effective for all public business entities, for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2021.

The guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity by reducing the number of accounting models for convertible debt and convertible preferred stock instruments. In addition, the FASB amended the derivative guidance for the “own stock” scope exception and the guidance on calculating earnings per share (EPS).

Key impacts to accounting for convertible instruments include the following:

  • More convertible instruments (1) eligible for the fair value option and (2) reported as a single unit of account on the balance sheet
  • Lower interest expense through accretion as fewer instruments will be bifurcated between liability and equity units, and therefore fewer liabilities will be recorded with a discount
  •  Easier for more equity-linked features and certain freestanding instruments to avoid mark-to-market accounting
  • Potential reduction to diluted EPS calculations, as companies will be required to assume share settlement for instruments that can be settled in shares or cash at the company’s option

For more information on this new standard, refer to our In depth, Accounting for convertible instruments and own equity contracts.

Lessors—Certain Leases with Variable Lease Payments (ASU 2021-05) These amendments are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and interim periods within fiscal years beginning after December 15, 2022 for all other entities.

ASU 2021-05 requires a lessor to classify a lease with variable lease payments (that do not depend on a rate or index) as an operating lease if classifying the lease as a sales-type or direct financing lease would result in a selling loss.

See section of PwC’s Leases guide for more details.

Disclosures by Business Entities about Government Assistance (ASU 2021-10) This guidance is effective for annual reporting periods beginning after December 15, 2021.

ASU 2021-10 was issued in November 2021, and requires new disclosures about transactions with a government that are accounted for by applying a grant or contribution model by analogy, such as the IFRS guidance on government grants in IAS 20 or the guidance on contributions to not-for-profit entities in ASC 958-605.

Companies are required to provide information about the nature of the transaction, including significant terms and conditions, as well as the company’s accounting policy and the specific financial statement line items affected.

The scope of the new disclosure requirements could include various forms of government assistance (e.g., grants or other incentives), but excludes transactions in the scope of specific US GAAP, such as tax incentives accounted for under ASC 740, Income Taxes.

For a complete list of recently issued accounting standards and their effective dates for public and nonpublic companies, including links to PwC resources, refer to the Guidance effective for calendar year-end public companies and Guidance effective for calendar year-end nonpublic companies pages on Viewpoint.

In addition to the new standards effective in 2022, there are additional projects on the agendas of both the FASB and the IASB that may be relevant to power, utility and sustainable energy companies.

FASB project Summary Next steps
EITF issue 21-A, Accounting for investments in tax credit structures using the proportional amortization method The EITF is considering whether to expand the use of the proportional amortization method of accounting (currently only allowed for investments in the Low Income Housing Tax Credit) to other programs, such as the New Markets Tax Credit and the Renewable Energy Tax Credit. The FASB staff is performing additional outreach and research which will be discussed at the next scheduled EITF meeting, on March 24, 2022.
Proposed ASU - Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations The FASB issued a proposed ASU on this topic in December 2021. The proposed amendments would require an entity to disclose key terms of any supplier programs in which it participates, including any amounts outstanding at the end of each period and where those amounts are presented in the balance sheet. Comments on the exposure draft were due on March 21, 2022. The Board will consider feedback received at a future meeting.
Identifiable Intangible Assets and Subsequent Accounting for Goodwill This project revisits the subsequent accounting for goodwill and identifiable intangible assets. The Board issued an invitation to comment on this project in 2019. While the Board made a tentative decision to amortize goodwill in 2020, it has continued to refine the scope and direction of the project. No final decisions have been made to date.

The Board discussed this project on March 2, 2022. While no decisions were made, the Board expressed a preference to include goodwill arising from a reorganization, goodwill at a subsidiary, and equity method goodwill within the scope of the project and to provide additional implementation guidance for entities applying pushdown accounting.

The FASB staff will continue to research and perform outreach, which will be discussed at future meetings.

FASB adds new research projects in response to agenda feedback

The FASB has kicked off discussions of the feedback received from the invitation to comment on its future standard-setting agenda, with much of the focus on addressing emerging areas, consistent with the common theme coming out of feedback from respondents.

FASB Chair Rich Jones added multiple projects to the FASB’s research agenda, some of which may be of particular relevance to the sector:

  • Exchange-traded digital assets and commodities - This research project will explore accounting for and disclosure of a subset of exchange-traded digital assets and exchange-traded commodities.
  • Financial instruments with ESG-linked features and regulatory credits - This research project will explore accounting for and disclosure of financial instruments with ESG-linked features and regulatory credits, such as renewable energy credits.
  • Recognition and measurement of government grants - This research project will solicit feedback on whether the requirements in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, should be incorporated into GAAP.

The FASB is likely to make more decisions regarding its agenda throughout 2022.

IFRS exposure draft on rate regulated accounting - Q1 update

In February, the IASB began redeliberations on its rate-regulated activities project after receiving feedback on the exposure draft. The Board’s discussions focused primarily on scoping, and specifically around (1) the criteria that should be used to determine whether a regulatory arrangement falls within the scope of the proposed guidance and (2) the definition of a regulator.

What happens next?

The IASB, including its Consultative Group for Rate Regulation, plans to continue deliberations over the exposure draft, including the topics above. Further information about the Board’s timeline for the project is expected once redeliberations begin. Monitor the latest project developments here: IASB’s Rate-regulated Activities project and planned redeliberations.

SEC update

SEC comment letters on climate change

In September 2021, the SEC's Division of Corporation Finance issued comment letters to 43 issuers regarding climate-related disclosures. The SEC staff posted an example of the letter sent to these issuers on its website, while reinforcing the importance of the 2010 climate change disclosure guidance. Certain of the letters and responses provided by these issuers have been published and are available to the public through the SEC’s EDGAR website. 

The initial questions asked by the staff have closely followed the example letter published in September. The most common follow up questions related to requests for additional information about how the issuer determined what items were material for disclosure, especially when asserting that disclosures were not made because they were immaterial.

SEC ESG rulemaking activity

The SEC is expected to introduce new ESG-related rules in three specific areas this year.

Climate change: Rulemaking on climate change disclosures has been an item on the top of the SEC regulatory agenda, receiving significant attention from both issuers and media. On March 21, the SEC released its long-awaited proposed rules related to climate disclosures. The proposed rules are subject to a public comment period before becoming effective. The rules propose a significant expansion of disclosure requirements compared to existing guidance and a significant impact is expected for issuers in the sector. For the very latest, view SEC Climate disclosures and your company.

Cybersecurity: Cyber risk has been a priority for the SEC, with SEC Chair Gensler expressing that cyber risk is integral to the SEC’s goals of protecting investors and maintaining orderly markets. On March 9, the SEC proposed new rules for public companies that, among other things, would require the disclosure of cybersecurity policies, practices and expertise, how the board of directors’ oversees cybersecurity risks, and require Form 8-K disclosures when material cyber events occur. Comments on the proposal are due in May.

Human capital: The SEC rule-making agenda also includes an expansion of the existing human capital disclosure rules, which became effective for 2020 calendar-year reporting. Such rulemaking could include more quantitative information being required to be disclosed and may be proposed as early as Q2 2022.


Regulatory and tax updates

Regulatory trend spotlight - New rate structures

Each quarter, this section will feature an emerging trend related to regulation and ratemaking for utilities and what companies should be thinking about now. 

Historically, the rate a utility charged a customer was generally driven by the aggregate energy volume a customer used and the customer class (e.g., commercial, industrial, residential). A fixed rate was then assigned to a customer class, or subcategory within the class, based on the expected usage over the billing period, and all customers in the class were billed a consistent rate per unit of commodity consumed.

Emerging rate structure observations

Regulators have started to consider changes to traditional rate design due to a variety of factors including (1) the emergence of advanced metering technology, (2) customer preferences, including a desire for clean power, (3) shifting usage patterns, (4) political and economic pressures and (5) advances in clean energy technologies. Some of these changes may cause base rates to become de-linked from total customer consumption. 

Unlike traditional, volume-based rate structures, billings under these new structures are based on factors other than customer usage. Examples of these rate structures include the following:

  • Green tariffs: Rates dependent on the nature of generation source often associated with taking power than is generated from a renewable power source
  • Rates dependent on geography: Rates vary across customer class due to geographical area within a rate jurisdiction
  • Customer income-based rates: Rates that may decrease based on lower customer incomes levels

In each of the above examples, customer-specific factors (other than consumption) drive the rate assigned to a customer.

Regulators also continue to accelerate implementation of time-of-use (TOU) rates. TOU rates depend on the time at which power is drawn from the provider, in addition to, total usage during the period. A common example of TOU rates are when rates have been designated as “peak” and “off-peak” depending on the time of day a customer uses power.

What you should be thinking about now? 

Companies will need to consider the accounting impact of changes in rate structures. New rate structures may also require changes in the IT environment and overall control environment, including controls around customer set up and rate classification, to ensure a timely and accurate customer billing process. Companies will also want to consider changes in regulatory filing requirements that may result from the new rate structures.

CARS Corner
Mark Panza
Power & Utilities Managing Director, Complex Accounting
& Regulatory Solutions (CARS) practice leader

During this time of year, many companies are in the middle of preparing their FERC Form 1 or Form 2. This makes it a good time to refresh on some key FERC reporting matters and common FERC to GAAP differences. For the last few years, PwC has published a FERC reporting guide that assists companies on these points. Below are a few key considerations highlighted in our most recent FERC reporting guide:

  • Over the last 12 months, new financial reporting guidance from FERC has been limited. In addition, there has not been new GAAP that has become effective that significantly impacts regulated entities that could result in new FERC to GAAP differences or considerations.
  • FERC extended its COVID-related waiver for the calculation of AFUDC until March 31, 2022.
  • FERC issued a Notice of Inquiry (NOI) regarding the accounting for renewable technologies and renewable energy credits. Further guidance is expected this Spring.
  • Through an additional NOI, FERC has expressed an increased focus on the rate recovery, reporting and accounting for industry association dues and certain civic, political, and related expenses.
  • Calendar-year 2021 financial statements reported on FERC Form 1 and Form 2 will be required to be filed in XBRL format. EEI has recently noted that companies with formula rates may need to assess if page numbers may have changed, which could require an update to the page references included in their formula rate with FERC. FERC has indicated that a Section 205 filing will not be necessary to reflect these changes, but should be considered in the next normal Section 205 filing.

Our guide also includes many common FERC to GAAP differences that practitioners may find useful while developing their FERC financial statements.

Please see our full guide at Financial reporting to the Federal Energy Regulatory Commission: FERC versus GAAP reporting considerations - February 2022 Update

Contact us

Gavin S. Hamilton

Partner, Trust Segment Team Leader - Power & Utilities, PwC US

Lucas Carpenter

Partner, Trust Segment Team Technical Accounting Leader - Power & Utilities, PwC US

Jillian Pearce

Partner, National Quality Organization, PwC US

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