Policy

Regulated Operations

We account for our regulated operations in accordance with ASC Topic 980, Regulated Operations, which includes accounting principles for companies whose rates are determined by independent third-party regulators. When setting rates, regulators often make decisions, the economics of which require companies to defer costs or revenues in different periods than may be appropriate for unregulated enterprises. When this situation occurs, a regulated company defers the associated costs as regulatory assets on the balance sheet and records them as expense on the income statement as it collects revenues. Further, regulators can also impose liabilities upon a regulated company for amounts previously collected from customers and for recovery of costs that are expected to be incurred in the future as regulatory liabilities. If we were required to terminate the application of these regulatory provisions to our regulated operations, all such deferred amounts would be recognized in the statement of income at that time, which could have a material impact on our financial position, results of operations and cash flows.

At December 31, 2013 and 2012, the regulated utility operations had recorded the following regulatory assets and liabilities included in our consolidated balance sheets. These assets and liabilities will be recognized as revenues and expenses in future periods as they are reflected in customers’ rates.



	As of December 31,
	2013		2012
(in thousands)
Regulatory Assets
Under-recovered purchased fuel costs ⁽¹⁾	$	1,549	$	2,219
Deferred post retirement benefits ⁽²⁾	8,578		17,755
Deferred transaction and transition costs ⁽³⁾	471		1,035
Deferred conversion and development costs ⁽¹⁾	1,320		842
Environmental regulatory assets and expenditures ⁽⁴⁾	5,170		5,432
Acquisition adjustment ⁽⁵⁾	47,478		48,724
Loss on reacquired debt ⁽⁶⁾	1,486		1,484
Other	2,968		2,653
Total Regulatory Assets	$	69,020	$	80,144
Regulatory Liabilities
Self insurance ⁽⁹⁾	$	1,000	$	1,212
Over-recovered purchased fuel costs ⁽¹⁾	2,818		218
Conservation cost recovery ⁽¹⁾	51		356
Storm reserve ⁽⁹⁾	2,875		2,742
Accrued asset removal cost ⁽⁸⁾	39,510		38,096
Deferred gains ⁽⁷⁾	783		1,977
Other	1,032		526
Total Regulatory Liabilities	$	48,069	$	45,127


⁽¹⁾	We are allowed to recover the asset or are required to pay the liability in rates. We do not earn an overall rate of return on these assets.


⁽²⁾	The Florida PSC allowed FPU to treat as a regulatory asset the portion of the unrecognized costs pursuant to ASC Topic 715, Compensation - Retirement Benefits, related to its regulated operations. See Note 16, Employee Benefit Plans, for additional information.


⁽³⁾	The Florida PSC approved the inclusion of the FPU merger-related costs in our rate base and the recovery of those costs in rates. The balances at December 31, 2013 and 2012 include the gross-up of this regulatory asset for income tax because a portion of the merger-related costs is not tax-deductible.


⁽⁴⁾	All of our environmental expenditures incurred to date and current estimate of future environmental expenditures have been approved by various PSCs for recovery. See Note 19, Environmental Commitments and Contingencies, for additional information on our environmental contingencies.

⁽⁵⁾

We are allowed to include the premiums paid in various natural gas utility acquisitions in Florida in our rate bases and recover them over a specific time period pursuant to the Florida PSC approvals. Included in these amounts are $1.3 million of the premium paid by FPU, $34.2 million of the premium paid by Chesapeake in 2009, including the gross up of the amount for income tax, because it is not tax deductible, and $746,000 of the premium paid by FPU in 2010.


⁽⁶⁾	Gains and losses resulting from the reacquisition of long-term debt are amortized over future periods as adjustments to interest expense in accordance with established regulatory practice.


⁽⁷⁾	Pursuant to the Florida PSC order, we are required to defer and amortize over a specific time period certain gains identified during the FPU merger integration.

⁽⁸⁾

In accordance with regulatory treatment, our depreciation rates are comprised of two components – historical cost and the estimated cost of removal, net of estimated salvage, of certain regulated properties. We collect these costs in base rates through depreciation expense with a corresponding credit to accumulated depreciation. Because the accumulated estimated removal costs meet the requirements of authoritative guidance related to regulated operations, we have accounted for them as a regulatory liability and have reclassified them from accumulated depreciation to accumulated removal costs in our consolidated balance sheets.


⁽⁹⁾	We have self-insurance and storm reserves that allow us to collect through rates amounts to be used against general claims, storm restoration costs and other losses as they are incurred.

We monitor our regulatory and competitive environments to determine whether the recovery of our regulatory assets continues to be probable. If we were to determine that recovery of these assets is no longer probable, we would write off the assets against earnings. We believe that provisions of ASC Topic 980, Regulated Operations, continue to apply to our regulated operations and that the recovery of our regulatory assets is probable.

CHESAPEAKE UTILITIES CORP | 2013 | FY |

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