FERC Chart of Accounts - Train Your Team Now
- Feb 2, 2022 5:33 pm GMT
The FERC Chart of Accounts is cool
Wow, with a puffed-up title like that, how could you not read this article? Seriously, the Federal Energy Regulatory Commission (FERC) Chart of Accounts is the bedrock of utility accounting. It can be difficult for new employees to get their arms around it at first. Many employees learn on the job or take industry classes to learn the ins and outs of FERC accounting. This article talks about why the FERC Uniform System of Accounts is necessary in some key areas. Not too sizzling, but it is the bread and butter of electric cooperatives and electric utilities. It’s called the FERC Uniform System of Accounts (FERC USOA), FERC Chart of Accounts, or just FERC Accounting. Take your pick, we’ll switch back and forth in this article.
Key Points on the FERC Uniform System of Accounts
1. It’s required for IOUs and electric coops - Using the FERC USOA is required for electric investor-owned utilities and electric cooperatives. Many large and mid-sized municipal utilities and electric joint action agencies use it also.
2. New employees should be trained as soon as possible in using the FERC USOA- New finance, engineering, and operations employees should be trained in the FERC Chart of Accounts soon after they start employment. The employees should learn the why of the FERC Chart of Accounts, not just the what. Here’s a training course to get started.
3. Metrics and KPIs are a benefit of using the FERC USOA - It is built for determining operating and financial metrics and key performance indicators.
4. Running your electric utility or co-op on metrics and KPIs will improve performance - Key performance indicators and metrics can be used to measure results, impact short and long-term strategies, and be part of the inputs into electric rates.
Tell me a nightime story with a great ending
In any accounting, the chart of accounts tells a business's story, i.e., operating and capital spending, focusing on priorities strategies, workforce management, how the business is financed, where it's been, and where it's going. Think of the FERC Uniform System of Accounts as used in a manufacturing business. In this case, electricity is being manufactured and delivered.
The beauty of the FERC Chart of Accounts is simplicity and consistency. Get a copy and see how. The simplicity is shown in these areas:
1. The FERC USOA uses a simple 3-digit account number
2. It comes in a book! There are general instructions on accounting for assets, liabilities, revenues, and expenses
3. There are more detailed instructions in that same book for electric construction accounting
4. The account distribution divides electric cooperatives and utilities into major business units - generation, transmission, distribution, customer service, and finance activities
5. There are detailed explanations for accounting for more complex transactions
Tell hidden usefulness of the FERC Chart of Accounts
The other beauty of the FERC USOA is that is required to be used by investor-owned electric utilities and electric cooperatives. Many municipal electric utilities also use the FERC USOA. The common use opens up a host of opportunities:
1. The FERC USOA is the industry-wide accepted best practice for electric utility and electric cooperative accounting
2. The FERC USOA is used to file a public regulatory report by electric investor-owned utilities and cooperatives – the FERC Form 1
3. The common filing of the FERC Form 1 regulatory report allows publicly available information on all utility sizes. What can be done with that data?
Using metrics and key performance indicators to run an electric cooperative or utility
The electric business is a combination of uniqueness and uniformity. While each electric cooperative or utility is unique, the business mainly delivers a uniform set of products and services (i.e., electricity) to end-users. Electric rates are the center of the utility universe and are centered around classifying transactions and fixed assets in the FERC Chart of Accounts categories.
Likewise, the FERC Chart of Accounts lends itself to developing metrics key performance indicators (KPIs), which are used for:
Analyzing cost structures
Developing and implementing long-term strategies
Comparisons to peer utilities in the areas of expense components
What is the meaningfulness of a metric that measures the cost to serve a customer? The utility or co-opcan use this metric as:
A comparison to its budget
Comparison to recent internal trends
A measure of productivity
A comparison to peer utilities
A baseline amount to measure future strategy implementation
For example, the utility compares its $100 cost per customer to a nearby peer utility's cost per customer of $80. It raises several questions that could result in action:
What services does our utility provide that the peer utility does not (for example, more customer services representatives are employed to enhance the customer's experience)
Is our cost structure higher than the peer utility? If so, why?
The analysis leads to actionable steps. For example, the utility may decide on a long-term strategy of reducing customer service representatives and moving towards more online payments or self-service kiosks. Or it might choose to increase the number of customer service representatives and retrain them to provide a more hands-on counselor-type customer service experience. In either case, the use of the FERC USOA allows the future expense of the strategy to be recognized and analyzed systematically and comparably. This approach can be used and played out in all utility operational areas.
Train your employees in using the FERC USOA
This article is only a brief discussion on the FERC USOA. The use of the FERC USOA is an industry best practice and one you should consider if you're not using it. The process is much more involved, and the benefits to your utility are more extensive than discussed here. Also, to maximize the contribution of new finance, engineering, and operations employees, they should be trained in the why of the FERC Chart of Accounts, not just the what.
About Russ Hissom - Article Author
Russ is the owner of Utility Accounting Education Specialists. Russ is passionate about the Electric and Telecom Industries and his goal is to share industry best practices to help better your business and enhance your career knowledge. He has over 35 years serving electric investor-owned and public power utilities, electric cooperatives, and telecom providers as a past partner in a national public accounting and consulting firm's energy practice. Russ was named one of the 2021 Top Voices in the Energy Central Community by EnergyBiz Network.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by UAES. You should seek formal advice on this topic from your accounting advisor.
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