RE:RE:RE:RE:RE:RE:Don't Just Sell This POSsplurge wrote: Thanks for your insight Capharnaum. Much appreciated. How are you on financials? Perhaps you could help me understand some items on their cahflow statement as I have not seen this before perhaps as they report in US. Note 20 on their finanacials Q3 breaksdown the supposedly "Non cash items" in working capital. The largest item is $57.7 mln Q3 and $112 mln YTD 2022. YTD last year was $399.5 mln so not a minor item. It is referred to as Regulatory assets and liabilities. Are these regualtory liabilities that will be deducted from the rate base in future periods? Thus you overstate earnings now as they reduce future rate increases? Therefore you remove them from the cash flow statement to arrive at Operating Cash Flow. But are they real cash items and not non cash items like dep? Or is this a nothing burger?
cheers
splurge
You can find the list of of regulatory assets and liabilities in note 5. It's basically revenue or costs that are recognized by the regulator but will be put into rates later on. So, they are part of the earnings but the cash will flow later on. The net amount of regulatory assets would be part of the rate base and accrue interests at the average cost of capital.
There are mainly two ways for utilities to get regulatory assets. The first one is to file for a specific asset. For example, the fuel and commodity cost are usually pass through costs for utilities. So, the utilities will have applied at some point (could be last year, 5, 10 or 15 years ago) for a regulatory asset account to be created for all extra costs or revenues related to fuel/commodity costs to be put in, with a way to recover them (which can vary, it could be over a period of 12 months, over a period of 5 years, or postponed until the next rate review). The second one is usually at year's end. At that point, the revenues are compared to the costs (including the cost of capital/the investor's return) and extras or shortfalls are put into regulatory assets to be included in later rate reviews.
So, to answer your specific answer, for AQN, those non cash assets will be recovered in cash later on and they have the same effect/return as capex expenses for utilities.