Accounting Clarified for ISO Electricity Contracts
On August 10, 2015, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) to reduce diversity in practice in the accounting treatment of electricity contracts of entities in independent system operator (ISO) marketplaces. The new standard, ASU 2015-13, Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets, allows electricity contracts for physical delivery through or within nodal energy markets to meet the physical delivery criterion of the normal purchases and normal sales (NPNS) exception from derivative accounting treatment. In the fiscal year adopted, entities would disclose the change in accounting principle. The standard is effective upon issuance and should be applied on a prospective basis.