FERC and RUS Accounting - Electric Construction Equipment Costs
Fair electric rates include overhead costs
A challenge in many utilities is correctly recording equipment used on projects. The main bottleneck is the flow of information from the field construction to the finance office - if the hours of use are not recorded, there’s no way that amounts can be added to projects. There are best practices in this area that can streamline the process and provide needed information with minimal work. Here are 5 ways to reduce headaches and congestion in this area.
1. Make equipment costs part of the labor loading rate
As labor is used on almost every utility construction project, using labor dollars is a natural vehicle for loading equipment costs. Applying equipment costs as a percentage adder to the labor loading rate is a method used to spread equipment costs. This method ends the need for hourly equipment use data to be provided from field crews to the finance office.
2. Invest in tech field tools tied to utility systems to record equipment hours of usage
Field tech tools are getting smarter and more efficient. Tools can interface directly with timekeeping systems (not to mention materials management, mapping, construction design, and fixed assets) and can record equipment hourly usage.
These are examples of some current technology areas used by field crews:
- Fleet management
- Timekeeping - crews and fleet
- Materials management
- Geographical information system (GIS) - mapping
- Asset management - life cycle, performance, fixed assets and property records
- Construction design access and as-builts reporting
- Real-world modeling
- On-line budget management
3. Automatically charge all projects with a loading of equipment costs based on the dollar value of the project
But equipment isn’t used on every project” you say? That’s true, but equipment is used on most projects AND is available for use on any project. Applying the “available for use” theory, each project should bear part of the cost of maintaining a stable of equipment. This overhead can be applied as a percentage loading on the project balance.
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4. Hold joint training sessions with finance and construction teams to develop better business processes for recording equipment overheads
Each department often wonders what the other department is doing “with all of that data” or “why do they need so much meaningless information?”
Joint business evaluation sessions between engineering, construction, and finance can lead to streamlining of forms and data requests. These sessions can also lead to understanding of each departments’ use of information. The goal is to spend the bare minimum amount of time getting the most necessary information (in this case hourly equipment usage data) to the right people to record on projects.
5. Spread equipment costs to all closed projects at the end of the year
A practice used is to accumulate equipment costs throughout the year, then take these actual costs and allocate them to closed projects. While I’d rank this under the category of “ok practice” vs. “best practice”, it is efficient in its application.
Update equipment costs annually and tighten business processes
While these 5 practices may or may not be practical to your utility’s business processes, the goal is to allocate equipment costs to construction projects so they include the full costs of placing assets into service. This will provide replacement funds for the historical cost of the asset through depreciation recovery - funds that can be applied towards asset replacement.
About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
Find out more about Utility Accounting & Rates 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 Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.