Authored by Russ Hissom
Best practices in utility accounting center on accuracy, peer comparability and effectiveness in utilization for developing equitable utility rates. Whether or not your utility is regulated by a state public service commission, the Federal Energy Regulatory Commission’s Uniform System of Accounts (FERC USOA) is the industry-wide accepted best practice for utility accounting.
What’s the FERC USOA?
The FERC USOA is the industry bible for utility accounting, containing details on accounting for the majority of potential utility transactions. A timeless artifact of the utility industry, the FERC USOA has existed for many years and is frequently updated. Download the latest version of the FERC USOA.
The FERC USOA is organized in a logical format to assist in all facets of utility accounting:
- A simple 3-digit account number for all category
- General instructions on accounting for assets, liabilities, revenues and expenses
- Account distribution based on common generation, transmission, distribution, customer service and finance utility activities
- Thorough explanations for accounting for more complex utility transactions
- Detailed lists of the proper categorization of items into each general ledger account
- Exhaustive instructions for accounting for utility construction projects
Why would we want to use the FERC USOA?
The utility industry is a combination of uniqueness and uniformity. While individual utilities are unique, the primary focus of utility business is to deliver a uniform set of products and services (i.e. electricity) to end users. Utility rates are the center of the utility universe and industry-wide cost of service and rate-making methodologies are based on the classification of transactions and fixed assets into FERC USOA categories.
Likewise, the FERC USOA is built to develop key performance indicators which can be used to:
- Analyze cost structures
- Develop and implementing long-term strategies
- Make comparisons to peer utilities in the areas of expense components
The majority of costs for customer service, sales and marketing are categorized in FERC accounts 900 – 917. If a utility incurs $1 million of customer accounts expenses and has 10,000 customers, its customer accounts expense per customer is $100 (or $1,000,000 ÷ 10,000). Why is this metric meaningful? The utility can use it as:
- A comparison to its budget
- A comparison to recent internal trends
- A measure of productivity
- A comparison to peer utilities
- A baseline amount to measure future strategy implementation
For example, a utility comparing its $100 cost per customer to a peer utility’s $80 cost per customer would ponder:
- What services does our utility provide that the peer utility does not (e.g., more customer services representatives to enhance the customer’s experience)
- Is our cost structure higher than the peer utility? If so, why?
The analysis leads to actionable steps in either case. Another application is in the area of strategy implementation. For example the utility may decide on a long-term strategy of reducing customer service representatives and encouraging customer utilization of online payments and self-service kiosks. Or it might decide to increase the number of customer service representatives and retrain them to provide a hands-on counselor-type experience from which customers would gain additional value. In either case, the use of the FERC USOA allows the future expense of the strategy to be recognized and analyzed in a systematic and comparable manner. This approach can be used in all utility operational areas.
Solutions for unregulated utilities
If you work for an unregulated utility, the benefits of using the FERC USOA are likely intriguing although you may feel your hands are tied. Many an unregulated utility accounting department has lamented, “Our utility is a public power enterprise fund of our city general government. We can’t use the FERC USOA because we’re tied to their platform and general ledger account structure!”
Fret not! In many cases, it’s still possible to implement the FERC USOA. Remember, the account string contains only three digits. Of course, it can be made more complex (by adding sub-accounts), but at its core, it’s a simple three-digit system. The total account strings of many municipal general fund software programs contain between eight to 20 digits.
To use a reporting platform based on the FERC USOA, utilities who operate as an enterprise fund can populate an unused or under-used sortable account field of three digits to include the FERC USOA. In the most extreme cases, utilities can implement a similar system and download the general ledger balances into general database reporting tools to assemble the information in the FERC format.
For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.