Senior decision-makers come together to connect around strategies and business trends affecting utilities.

Post

Locked into a Municipal Chart of Accounts, an Electric Utility Was Not Able to Properly Assess Its Financial Situation and Rates

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
  • 100 items added with 26,588 views
  • Jul 25, 2022
  • 203 views

How can we use the utility financial model in a municipal chart of accounts?

Many municipal utilities share software platforms with the city general fund operations. It’s cost effective to share software and information technology staff, but the system output options may not always fit the needs of the business.

Sharing can work, we’ve seen it many times. Here’s one utility’s approach.

Please add additional points and ideas in the comments section.

Key points on a utility working within a municipal chart of accounts

  1. The industry standard charts of accounts (FERC and NARUC) use three digits for each account.

  2. Securing a three digit field in the municipal account string is often possible.

  3. When it isn’t possible to secure three digits, adding another three digits involves custom programming and an additional data table.

  4. The extra effort for custom programming is worth it to obtain accounting and reporting that better matches the utility business model.

  5. Wow, that’s a lot of digits!

    A common chart of accounts for a city general fund usually has a breakdown of 5 major fields:

    XXX - Fund

    XXXX - Department

    XXXX - Business

    XXXX - Element

    XXX - Object

    Utilities find that the standard chart of accounts for a municipal general fund (shown above) doesn’t meet their needs. General fund accounting is based on a flow of funds basis, while utilities use the accrual basis of accounting like a private sector business. The general fund chart of accounts is not a good fit.

  6. The industry standard for a chart of accounts for an electric utility is the Federal Energy Regulatory Commission Uniform System of Accounts (FERC USOA). The FERC USOA has 3 digits. The industry standard chart of accounts for water, wastewater, and gas utilities comes from the National Association of Regulatory Utility Commissioners (NARUC). The NARUC chart of accounts has up to 4 digits.

    As shown in the example municipal chart of accounts above, there isn’t room for either FERC or NARUC in the account string. In many software platforms, adding another 3 or 4 digit string field can be done with custom programming. Other utilities resort to using the general fund chart of accounts, but use download the account activity into another platform, aka Excel, then convert the activity to FERC or NARUC so the information can better be used in evaluating financial results, forecasting, and making decisions.

    There is no ideal solution short of the utility maintaining its own software, so let’s review one utility’s approach to developing financial systems and accounting that better fit the utility operating model.

    All we need is 3 digits!!

    A municipal electric utility struggled to properly measure its financial results and set customer rates as it was using a city-wide general fund chart of accounts. The utility wanted to implement the FERC Uniform Chart of Accounts to meet best-practices in the business. Several approaches were tried:

    1. Using the municipal chart of accounts and setting up as many activity accounts as possible to mirror electric operations.

    2. Downloading the monthly general fund chart of accounts detail into an excel spreadsheet, analyzing the activity and mapping it to a detailed FERC income statement set up in the excel spreadsheet.

    3. Using the spreadsheet for financial analysis, budget to actual reporting, presentations to the oversight body, and business planning.

    Running a business from a spreadsheet is not ideal, plus there are internal control weakness issues that are inherent with downloading core financial data into a spreadsheet, then manipulating the data into a useable format.

    The solution

    The electric utility was able to secure custom programming time to add a 3-digit field to the general fund’s account string. The utility used this field for the FERC account number. The general fund did not use this field, so the utility was able to build on the activity numbers that led the string, and run custom reports sorted on the 3 digit field FERC number.

    Electric team members received training on using the FERC chart of accounts and developed process changes for a smoother transition to the new formats.

    With the new format, the electric utility was even able to utilize the system to run a work order process for electric construction projects using FERC accounting practices. The result was accounting for costs in a manner that matches the model of the electric business. With the accounting now in place, the electric utility is able to conduct an electric cost of service study more in line with industry standards, leading to better rate design.

    The outcome

    An approach as was done by this utility shows that electric industry standards for accounting and business reporting can still be made within the framework of a municipal-related chart of accounts string. The efforts to make this happen lead to benefits for both the electric utility and its ratepayers.

    About Russ Hissom - Article Author

    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, improving business processes, and implementing strategy. Russ is passionate about the Power and Utilities Industry 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, broadband providers, and water, wastewater, and gas utilities as a past partner in a national public accounting and consulting firm's power and utilities practice. Russ was named one of the 2021 Top Voices in the Energy Central Community by EnergyBiz Network.

    Find out more about Utility Accounting Education Specialists here or you can reach Russ at russ.hissom@utilityeducation.com

    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.

Discussions
Spell checking: Press the CTRL or COMMAND key then click on the underlined misspelled word.

No discussions yet. Start a discussion below.

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »