Electric Impairment Accounting Using ASC 360 and GASB 42
December 28, 2025
ASC 360 and GASB 42 Give the Rules to Follow
The Realities of Today's Electric Power Markets
The overall energy industry power supply mix is slowly (?) changing, from traditional fossil fuels to renewables and more "clean" fuels. Recent declines in power cost projections and auctions lead to the conclusion that some traditional power supply resources are "out of the money" in projected pricing for the next few years. The Energy Information Administration forecasts a steady decline in power costs over the next 30 years, through 2050. If you have some of these resources in your power supply portfolio, you might have impaired assets.
Impaired assets impact your power organization's Statement of Net Position and Income Statement. It is also a complex exercise, as generally, an impaired asset may also have outstanding revenue bonds that were issued for the asset's construction. Those bonds still need to be repaid.
What does addressing impairments involve? Here's a snapshot look.
What Determines if an Asset Is Impaired?
For municipal utilities and other public sector organizations that follow Governmental Accounting Standards Board Standards (GASB), GASB Statement No. 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, provides the rules for determining asset impairment. Private sector utilities and electric cooperatives will find impairment guidance in ASC 360 - Property, Plant and Equipment. The rules are similar.
Definition of Impaired Assets
Assets are considered impaired if they have a significant, unexpected decline in their service utility.
"Significant" would refer to the cost-benefit of continued use.
"Unexpected" refers to an event that would not have been foreseen by management.
Five Key Questions to Identify Potential Impairment
- Market conditions - Are our power supply resource pricing competitive in our power market? If not, can they be made to be so?
- Technology - Is our power supply resource meeting environmental standards? If not, will the cost of meeting the standards be more than the market pricing and benefit received through the effort?
- Fuel pricing - What is the potential future pricing for our generating fuel?
- Economic conditions - Have local economic conditions deteriorated or have we lost a major customer that was a big part of our load?
- Storm damage - Has a recent storm damaged the asset so that it will only be usable with a sizable investment?
Answering "yes" to any of these questions should trigger an evaluation of potential impairment.
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What Is the Valuation Process for an Impairment?
The approach to be used to value the impairment can be found in the GASB/FASB accounting standards and can be fairly complex. In the simplest example, the difference between the current book value of the asset and a valuation of the asset based on the current market value, after evaluating the impact of items #1 - #5 above, would equal the impaired value of the asset.
An impairment should be recognized as a loss in the period the impairment is determined, and it will impact that period's net income. After recognizing the impairment loss, the impaired asset is technically "off the books" and removed from the balance sheet.
But, often, the impaired asset has been financed with debt and a portion of that debt may still be owed to bondholders. In that situation, the impairment loss should be deferred for rate recovery from customers, using the guidance of regulatory accounting - GASB 62/ASC 980. Customer rates should still include debt service on the impaired asset, and the loss will be recognized over the same period as the debt service until the revenue bonds financing the impaired asset are paid off.
Evaluate Assets Now for Potential Impairment - Use This in Financial, Budget, and Rate Strategies for Your Next Fiscal Year
The process to determine an impairment can take some time, so it is not too early to begin consideration of impairments for this year's budget. This article was designed to outline the high-level concerns to help your thought process.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists, LLC. You should seek formal advice on this topic from your accounting or legal advisor.