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The FERC Chart of Accounts – Industry Best Practice and the Key to Fair Rate Recovery from Utility Customers

Russ Hissom's picture
Owner Utility Accounting Education Specialists - utilityeducation.com

Russ is the owner of Utility Accounting Education Specialists a firm that provides power utilities consulting services and online/on-demand courses on accounting, finance, FERC best-practices,...

  • Member since 2021
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  • Feb 2, 2021
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In accounting, the chart of accounts tells a business's story, i.e., operating and capital spending, focusing on priorities, and how the business is financed. Best practices in utility accounting also center on accuracy, peer comparability, and effectiveness to develop equitable utility rates. The Federal Energy Regulatory Commission's Uniform System of Accounts (FERC USOA) is the industry-wide accepted best practice for utility accounting. 

 

Why the FERC USOA?

 The FERC USOA contains details on accounting for the majority of potential utility transactions. A timeless artifact of the utility industry, the FERC USOA has been in existence for many years and is updated infrequently. You can download the latest version of the FERC USOA at https://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=054f2bfd518f9926aac4b73489f11c67&rgn=div5&view=text&node=18:1.0.1.3.34&idno=18.

The FERC USOA is organized in a logical format to assist in all facets of utility accounting, including:

1. A simple 3-digit account number

2. General instructions on accounting for assets, liabilities, revenues and expenses

3. The account distribution is based on standard generation, transmission, distribution, customer service, and finance activities

4. Detailed explanations for accounting for more complex utility transactions

5. Detailed lists of the proper categorization of items into each general ledger account

6. Detailed instructions for accounting for utility construction projects

 A compelling argument for using the FERC USOA

 The utility industry is a combination of uniqueness and uniformity. While each utility is unique, the utility business is mainly centered around delivering a uniform set of products and services (i.e., electricity) to end-users. Utility rates are the center of the utility universe and centered around the classification of transactions and fixed assets in the FERC USOA categories. 

 Likewise, the FERC USOA lends itself to developing key performance indicators which are used for:

  • Analyzing cost structures

  • Developing and implementing long-term strategies

  • Comparisons to peer utilities in the areas of expense components

 For example, what is the meaningfulness of a metric that measures the cost to serve a customer? The utility can use this metric as:

  1. A comparison to its budget

  2. A comparison to recent internal trends

  3. A measure of productivity

  4. A comparison to peer utilities

  5. 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:

  1.  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)

  2. 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 on-line 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.

Summary

This article is only a brief discussion on the FERC USOA. The process is much more involved, and the benefits to your utility are more extensive than discussed here. The use of the FERC USOA is an industry best-practice and one you should consider if you are not already using this tool to tell your utility's story. 

 



 

 

Discussions
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Matt Chester's picture
Matt Chester on Feb 2, 2021

What do you think is holding back some utilities from embracing this practice, Russ? 

Russ Hissom's picture
Russ Hissom on Feb 4, 2021

Investor-owned and electric coops are required to follow the FERC USOA. It's optional for municipal utilities. The larger municipal utilities do follow it, but many mid and small munis don't. They may be tied to the city chart of accounts (when they use joint accounting systems) and not able to switch, or others just don't know. We're trying to spread the word. 

Thanks for your question!

 

Russ

Mark Silverstone's picture
Mark Silverstone on Feb 3, 2021

Thanks for providing this timely information.  I wonder if the application of FERC USOA is appropriate and if it would help to clarify situations such as in this report regarding the competing claims of state and local official in Illinois versus those of Exelon about the profitability of nuclear generators in that state?

Russ Hissom's picture
Russ Hissom on Feb 4, 2021

Exelon would be required by FERC to follow the FERC USOA, so the financial information would be embedded in their FERC Form 1 report. I'm not sure how easy it would be to break out the segment data.

Thanks for your question!

Mark Silverstone's picture
Mark Silverstone on Feb 4, 2021

Thanks for the reply. I will refer to FERC USOA in an upcoming post based on this article in Forbes.

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