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:
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, 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:
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)
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.