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Question

Where can I find information on classifying substation asset installation/maintenance by FERC accounting codes?

how does one determine if adding components to a substation are classified as capital or expense?  The FERC codes can be subject to interpretation by the Utility's accounting department...

Answers

Well, of course, living in Australia, I have no knowledge of FERC or it's codes, but a lot of these situations are best solved by just looking at the basic situation and  what is wanted, - as an example, I sold an 80 kW wind turbine to a High School in Victoria, a town called Murtoa, and the head of the Physics department had convinced the School, (and since a fast friend), but when they got the thing installed, - such a time and work.. they could not work out how to install the wind turbine, (3 phase) to the school Main circuit board, (3 phase), - the electrical engineer who designed the board, - no idea, the electricians who built the board, - no idea, - they all knew that the Wind turbine would be supplying the school and there were no grants, so it was obvious to me that the wind turbine had to be connected between the Mains Meter and the School network, - still no idea, so I requested a picture of the board, - high definition, and looked at it, - there the meter, there the terminal blocks for each phase, leading off to the various buildings, connect it there, those three blocks, earth is common. - so simple, but people are afraid of new, whatever, it worked fine.

So, you break it down, does the new HVDC contribute to the substation's capacity? if yes, (probably at a guess), then it increases Capacity, so Capital, or if not, then it is just maintenance, ie Expense.

The next bit is dependant on that you are dealing with a Bureaucracy, so if they fund Expense, but not capacity, you can probably show you need no more capacity, so it is expense, but if you need more power, it is Capital, - easy peasy. 

Cheers, Geoff Thomas, Advanced Wind Technologies, Malanda, Qld, Australia.

 

FERC has a Uniform System of Accounts that is very specific as to classifying transmission or distribution assets, including substations, as well as for recording transmission or distribution O&M. Here is the link to the FERC USOAs:

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

It is a long document and ordered by instructions, assets, liabilities, plant assets, taxes, revenues and O&M.

My experience with classifying an items as capital or expense is it depends on your asset records and how one organizes property units. If the work items replaces a property unit, then it is capital. If it does not, it is O&M. Therefore, the detail of one’s property records has lots to do with items being capitalized versus expensed.

While FERC has jurisdiction over hydropower projects, FERC has no authority over the construction or maintenance of power generating plants and has significant limited jurisdiction over transmission line siting.

The responsibility over the construction and maintenance of power generating plants and transmission lines primarily resides with the state Public Utility Commissions. You can link to all the Public Utility Commissions on the National Associations of Regulatory Utility Commissioners (NARUC) website: https://www.naruc.org/

James Tarpey's picture
James Tarpey on Oct 10, 2019 5:09 pm GMT

My rule of thumb is that if it is a new or replacement asset, and, any work required on adajcent existing assets that need to be moved, relocated, adjusted  to accomodate the capital addition, can be capitalized.   Also, if the work or material is required to upgrade the capability of an asset or extend its life (beyond routine maintenance), it can also be capitalized as above.  

The real distinction as far as capital vs expense is concerned is if the work is considered “maintenance”. In a “new installation” and in a “significant replacement”, all of the costs are capital. In a maintenance situation all of the cost should be expensed. There is some subjectivity with regard to general plant additions that is worked out between the utility and their auditors. I would imagine there is still some subjectivity on what is considered a replacement significant enough to capitalize.

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