Managing Rate Impacts: Where to Get Strategic in 2019
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- January 29, 2019
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There's no doubt that the energy sector is going through a number of fundamental changes. Disruption, in the form of everything from governmental policies to environmental challenges is forcing regulated utility organizations to adjust their thinking and prepare for the future. A vice president of a major utility has even said, “credibility is my currency,” in regard to the importance of having his company’s data organized to support his regulatory filings. As a result, here are three things finance and accounting professionals within the sector should be thinking about through 2019.
Control What You Can
Regulated utility organizations are facing increased scrutiny on top of already tight budgets, and that doesn't include external factors that can come out of nowhere and adversely impact business. That's why it's essential to focus on the internal factors you can control within the organization, and maximize your return on assets (ROA). One way to do that is taking a hard look at the challenges and opportunities your organization faces and determining the best strategy, from a financial standpoint, to manage assets. Thankfully, there are data and processes that can be put in place that will help generate the highest returns possible and mitigate potential risk and losses, setting your organization up for success, now and into the future. Once you've nailed the internal issues, it's time to look outside.
Wise Up To External Factors
President Trump signed the Tax Cuts and Jobs Act (TCJA) in December 2017, cutting the corporate tax rate from 35% to 21%. While the law went into effect in 2018, it's only now, as tax returns are being filed that we'll begin to see the real impacts of the law. For the regulated utilities sector, this tax cut has the makings of a double-edged sword. Companies must account for new rates based on lower taxes coupled with the potential of having set aside funds, based on the higher tax rate, to pay expected future bills. Regulatory proceedings are currently ongoing with regards to accumulated deferred income taxes (ADIT) in 24 states. These external factors must be tracked into 2019, along with readiness to pivot strategy on the go.
Know When to Ask For More (and How to Prove It)
With internal and external factors combining to increase pressure on organizations, using data to adjust strategy when defending current rate cases and forecasting future needs is crucial. Regulatory changes and requirements also add an entirely new level of information and preparation to projections and forecasts. So, when it comes to developing and defending rate cases, having easy access to up-to-the-minute data on how models and forecasts can be impacted by regulatory change matters. Using a system that provides comprehensive forecasts and models of rate changes, based on real financial information and projections, means getting ahead of the game as the year unfolds.
If credibility is truly the new currency for utilities, for 2019 and beyond, regulated utilities will need to strategically focus on managing the factors that impact their rates – whether they're in their control or not. That's why many are turning to software solutions to help manage return on assets, regulatory changes, and rate case changes. These tools help break down big data into digestible information that can be easily accessed across the organization. Having access to this data means organizations can better prepare for the unexpected, which can translate into a concrete competitive and credibility advantage over the long term.