FERC accounting - Do you want some special sauce on your electric rates?

Electric work orders are the not-so-secret sauce that drives electric rates. Using work orders for projects is the industry best practice and based on standards established by the Federal Energy Regulatory Commission (FERC). Still, if all costs are not recorded, the customers will not fully reimburse your electric utility or cooperative for the total costs of capital replacement. Cash flow will suffer, directly impacting customer service and system reliability. Here’s our Top 5 reasons why using FERC Accounting leads to better work orders and project accounting.

Basic project management system insights

Here are some insights into what goes into a great work order process:

1. Include all cost types in each work order to ensure proper cost recovery. The four significant costs are:

• Labor

• Materials

• Outside contractors

• Overheads

2. Overhead costs can account for twice as much as other construction costs. All overheads represent the cost of doing business in the utility. These costs include:

• Labor overheads

• Materials management

• Equipment

• Administrative and general support

• Cost of capital

3. Overhead costs should be reviewed and adjusted annually. Adjusting more frequently thank that may skew construction costs during the year.

4. The flow of information from the field to the office, and the office to the field is a common bottleneck. Map key processes, train your construction crew and finance team to understand what the other group does and minimize unnecessary information clutter.

5. Standard units are the foundation of an effective work order close and unitization process. Where the costs are classified drives how they are included in customer rates. This is the same approach for projects that are internally funded, debt funded, or grant funded.

This is the first step in updating electric project management accounting systems

These insights are a high-level starting point for evaluating your electric project management accounting systems. Digging into the details is the next step in determining effective processes and best practices. 

About Russ Hissom - Article Author

Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power and 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.