Power and Utilities Accounting, Financial Reporting, and ...

1 Power and UtilitiesAccounting, Financial reporting , and Tax Research GuideJul y 2018 This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting , business, Financial , investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional shall not be responsible for any loss sustained by any person who relies on this used in this document, Deloitte means Deloitte & Touche LLP, a subsidiary of Deloitte LLP.

2 Please see for a detailed description our legal structure. Certain services may not be available to attest clients under the rules and regulations of public 2018 Deloitte Development LLC. All rights ivAcknowledgments and Contact Information vSection 1 Industry Developments 1 Section 2 SEC Update 37 Section 3 Industry Hot Topics 54 Section 4 accounting Standards Codification Update 76 Section 5 New Revenue Recognition Model 131 Section 6 New Lease accounting Model 154 Section 7 Income Tax Update 174 Section 8 Renewable Energy Considerations 195 Appendixes

3 211 Appendix A Other Resources and Upcoming Events 212 Appendix B Titles of Standards and Other Literature 213 Appendix C Abbreviations 220ivivForewordJuly 2018To our clients, colleagues, and other friends:We are pleased to present the most current version of our accounting , Financial reporting , and Tax Research Guide for the Power and Utilities (P&U) industry. We have revised this publication to serve principally as a reference guide for readers rather than just as an annual update. Our industry continues to face changing markets, new and revised legislation, environmental initiatives or changes, regulatory pressures, cyber and physical threats, and new technologies, in addition to new accounting publication discusses accounting , tax, and regulatory matters that P&U entities will need to consider as a result of these changes, including updates to SEC, FASB, and tax guidance, and focuses on specialized industry accounting topics that frequently affect P&U companies, including rate-regulated entities.

4 We have expanded several sections in this year s publication that concentrate on accounting and reporting considerations related to the new accounting standards, including the discussion of those specific industry matters that remain outstanding with the AICPA s Power and Utility Entities Revenue Recognition Task sections of this publication are designed to help you understand and address potential challenges in accounting and reporting related to topics on which the FASB has recently issued (1) proposed guidance or (2) final standards that are not yet effective or available for adoption. Ourpublication discusses such proposed and codified standards and highlights nuances that could affectour hope you find this update a useful resource, and we welcome your feedback.

5 As always, we encourage you to contact your Deloitte team or any of our Deloitte specialists for additional information and assistance. Sincerely,William P. Graf Power & Utilities Audit Functional Sector Leaderand Industry Professional Practice Director Deloitte & Touche LLPv Energy, Resources & Industrials ContactsStanley Porter Energy, Resources & Industrials National Industry Leader Deloitte Consulting LLP +1 703 251 4000 Smith Energy, Resources & Industrials Audit Leader Deloitte & Touche LLP +1 619 237 6989 Pavlovsky Energy, Resources & Industrials Risk and Financial Advisory Leader Deloitte FAS LLP +1 713 982 4358 Weirens Energy, Resources & Industrials Consulting Leader Deloitte Consulting LLP +1 612 397 4382 Crawford Energy.

6 Resources & Industrials Tax Leader Deloitte Tax LLP +1 713 982 4048 Motyka Global and Renewable Energy Leader Deloitte Transactions and Business Analytics LLP +1 973 602 5691 and Contact InformationAcknowledgmentsWe would like to thank the following Deloitte professionals for contributing to this publication:James BarkerMark BoltonDavid BrownAshley CarpenterDiane CastroEmily ChildsChris ChiriattiSandy CluzetAmy DavidsonJamie DavisGeorge FacklerCasey FerschJason GamboneBill GrafMichael GyoerkoeJohn HartmanBree HillmanChase HodgesDavid HornJonathan HowardJeremy HurwitchEric JainCourtney Johnson-GomezMike JuergensTom KilkennySandie KimTim KolberElise LambertMichael LorenzoJake ManningRoy MatsunagaKenjiro Matsuo Peter McLaughlinMelissa McMahonMorgan MilesAdrian MillsDarry NewbillAdam NicholsonTaylor PaulJeanine Pagliaro Haley ReutherAndy RobertsShahid ShahLindsey SimpsonCheryl SmolinskiConor TammsAllison TaylorBrenna VanderloopCurt WellerBrent WilbertsHayley

7 WildenAndrew WintersDave YankeeviDeloitte | Power and Utilities accounting , Financial reporting , and Tax Research Guide Power & Utilities ContactsScott Smith Power & Utilities National Sector Leader Deloitte & Touche LLP +1 619 237 6989 Graf Power & Utilities Audit Functional Sector Leader and Industry Professional Practice Director Deloitte & Touche LLP +1 312 486 2673 Murrell Power & Utilities Risk and Financial Advisory Functional Sector Leader Deloitte & Touche LLP +1 212 436 4805 Miller Power & Utilities Consulting Functional Sector Leader Deloitte Consulting LLP +1 612 397 4156 Yankee Power & Utilities Tax Functional Sector Leader Deloitte Tax LLP +1 312 486 9842 Kilkenny Power & Utilities Deputy Industry

8 Professional Practice Director Deloitte & Touche LLP +1 469 417 2060 Barker Power & Utilities Deputy Industry Professional Practice Director Deloitte & Touche LLP +1 203 761 3550 1 Industry Developments2 Role of M&A in the P&U SectorM&A activity in the energy sector continued to be active in 2017, with many micro- and macroeconomic factors coming together to create an opportunistic environment. The micro- and macroeconomic factors are being driven by market volatility throughout the sector, which is attributable to low natural gas and wholesale Power prices and a low interest rate environment. Compounding the market volatility is the movement away from traditional fossil fuel-fired generation toward cleaner sources, coupled with changing energy market dynamics.

9 Many regulated Utilities have significant capital expenditure plans related to infrastructure needs that constitute growth potential for acquirers. All of these factors have led to shifting opportunities for energy investments by both public and private entities, including several deals between and Canadian Utilities that were completed or announced in 2017. The acquisitions of public companies completed and announced in 2017 and the first quarter of 2018 had a wide range of premiums. Some examples of the premiums on transactions include the following: Completed:o January 2017 (announced February 2016) Liberty Utilities and The Empire District Electric Company (21 percent premium).

10 O February 2017 (announced September 2016) Enbridge Inc. and Spectra Energy Corp. (11 percent premium).o September 2017 (announced February 2017) Peoples Natural Gas and Delta Natural Gas Company Inc. (17 percent premium).o March 2018 (announced August 2017) Energy Capital Partners and Calpine Corporation (51 percent premium from May 9, 2017, price before speculation of a transaction).o April 2018 (announced October 2017) Vistra Energy Corporation and Dynegy Inc. ( percent premium). Announced:o January 2017 AltaGas and Washington Gas and Electric (12 percent premium).o July 2017 Hydro One Limited and Avista Corporation (24 percent premium).