Hot Topic | February 2022

 

Insight

Power companies receive recovery of winter storm losses

Accounting issues result from Texas legislation providing for cash payments to affected companies.


In February 2021, the extreme temperatures of Winter Storm Uri caused a surge in demand for electricity across affected regions. In Texas, electricity prices soared to unprecedented levels, triggering a series of financial defaults across the Texas electricity market. Texas Legislature passed House Bill 4492 in June 2021 to authorize ERCOT, the Texas ISO, to obtain 30-year financing to partially offset excess costs and defaults incurred by power companies during the storm. ERCOT will allocate proceeds from the financing to affected power companies, and recover amounts required to service the financing through additional market charges over the next 30 years.

Applicability

  • Companies that have received or expect to receive proceeds from ERCOT financings will be required to determine the applicable accounting and disclosure requirements beginning with the 2021 reporting period.

Relevant dates

  • Effective immediately

Key impacts

  • Texas Legislature passed House Bill 4492 to financially stabilize the Texas electricity market after Winter Storm Uri.
  • ERCOT will obtain financing to partially cover excess costs and defaults in the Texas electricity market and allocate proceeds of approximately $3 billion to affected power companies. 
  • We believe reporting entities may reasonably conclude that proceeds from the ERCOT financing may be recognized as a reduction of costs incurred in the period received or receivable.

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