Energy market update: how to record power transactions

Portions of the North American grid are divided into Independent System Operators (ISO) or Regional Transmission Organizations (RTO). These organizations include:

  • Alberta Electric System Operator (AESO)
  • California Independent System Operator (CAISO)
  • Electric Reliability Council of Texas (ERCOT)
  • Midcontinent Independent System Operator, Inc. (MISO)
  • New Brunswick System Operator (NBSO)
  • ISO New England (ISO-NE)
  • New York Independent System Operator (NYISO)
  • Ontario Independent Electricity System Operator (IESO)
  • PJM Interconnection (PJM)
  • Southwest Power Pool (SPP)

Utilities that operate in these ISO/RTO markets must answer the question of the proper accounting treatment for purchased power transactions where the utility both sells into and buys power from the market, i.e., should these transactions be recorded as net or gross in the financial statements?

Accounting standard guidance

There is not specific and clear guidance in the accounting standards for these types of transactions. A common sense approach has been to look at the substance of the transaction over the form of the standards and get to the heart of the intent of the transaction. For example, certain energy markets require utilities to sell their output into the market and then buy it back for the utility to supply its retail customers, so the substance of the transaction is:

If the utility did not have to sell its generated output into the market, it would use it for its native load If the power is used it for the utility’s native load, then the monies received from native load customers would be revenues to the utility, while the utility would incur generating expense for those revenues

Baker Tilly interpretation

Depending on the contract language and circumstances, recording yet another transaction of the utility’s sale of generation into a market and a buy-back of that same output to serve customers is an unnecessary entry. The entry increases utility revenues and expenses and inflates both for the occurrence of an event which did not add any economic benefit to the utility or any additional utility economic utility cost. Common industry practice used by utilities is to record these types of buy/purchase transactions at their net impact, if this was the intent of the original transaction.

Emerging Issues Task Force (EITF) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent (Accounting Standards Codification 605-45-45 Revenue Recognition), reviews the reporting of revenues on either a gross or net basis and provides questions to assist in determining the appropriate accounting treatment. The guidance in EITF 99-19 states that if the answers to the questions are ambiguous, then the facts and circumstances of the transactions should be evaluated to form a judgment about the proper recording of the transactions.


As there is no clear cut accounting guidance in this area, it is important for the transactional parties to use their best judgment as to the intent of the transaction and record it accordingly for those particular transactions.