November 15, 2022
FERC to Modernize the Uniform System of Accounts
Managing Director, Regulatory Reporting
The Federal Energy Regulatory Commission (FERC) is planning a major modernization of the Uniform System of Accounts (USoA) to encompass renewable energy and electricity storage.1 Changes to the accounting numbers is a rather rare event. The last update was almost a decade ago. So it’s important to understand how a revision could affect utilities and their rate recovery processes.To break this down, FERC has proposed new FERC account numbers in four key areas that will result in:
- Creating new accounts for wind, solar and other non-hydro renewable assets
- Establishing a new functional class for energy storage accounts
- Codifying the accounting treatment of Renewable Energy Credits (RECs)
- Creating new accounts for computer hardware, software, and communications equipment
The changes planned are contained in what is referred to as a Notice of Proposed Rulemaking (NOPR) where comments are due from interested participants by November 17, 2022. Interestingly, Gerald Williams, the FERC Director and Chief Accountant, is also seeking guidance on accounting for hydrogen technology. Advancements in new technologies are accelerating in part due to recent passage of the Inflation Reduction Act that incentivizes frontier decarbonization investments and aggressive net-zero goals by mid-century proposed by Congress and governments around the world.
The Impact of USoA Modernization
These proposed accounting reforms in the U.S. are resulting primarily from new technologies in the generation resource mix while ensuring electricity rates remain “just and reasonable” by FERC under the Federal Power Act. The new account numbers will update 18 CFR Part 101 governing electric utilities under FERC jurisdiction.
FERC filers would be subject to recording costs to the new accounts for Form Nos. 1, 1-F, 3-Q (electric) and Form 60 for service companies.
The new accounts are affecting capital plant and operating and maintenance (O&M) functional accounts. A brand new functional area will be established for energy storage assets rather than the current practice of recording storage in separate functions for generation, transmission and distribution. The NOPR suggests making this change in recording storage assets will alleviate the burden of reclassifying assets among different plant accounts having different depreciation rates. With its own function, energy storage would also have dedicated plant and O&M expense accounts.
Examples include new 300 series accounts from 338.20 through 338.30 for wind production plant as follows:
338.20 Land and land rights; 338.21 Structures and improvements; 338.22 Reserved; 338.23 Wind turbines; 338.24 Wind towers and fixtures; 338.26 Collector system; 338.27 Generator step-up transformers (GSU); 338.28 Inverters; 338.29 Other accessory electrical equipment; 338.30 Computer hardware.
The NOPR also calls attention to Renewable Energy Credits (RECs) to require dedicated accounts for tracking REC inventory. For definition, a REC is a tradable, non-tangible commodity that represents proof that 1 MWh of electricity was sourced from a renewable generator such as a wind turbine, photovoltaic array or other renewable source that was fed into the electric grid. Because RECs certify electricity from a renewable source, utilities need to track REC inventory to comply with state-mandated net-zero emission goals among other energy efficiency targets. New FERC accounts for recording RECs will make it easier for state and federal regulators to identify this important trading commodity.
Finally, the NOPR proposes the creation of new FERC accounts for computer hardware, software and communications equipment to better identify the recorded costs of computing platforms that have become increasingly more prevalent throughout the digital transformation taking place at companies regulated by the FERC and to place a spotlight on such costs for ratemaking purposes.
How Utilities Can Prepare to Meet New Demands
As the granularity of reporting increases with revisions such as the NOPR is proposing, it is increasingly clear that utilities must refine their work order systems and methods to capture FERC accounting details also at a more granular level.
At Utegration, we prepare our clients to meet the demanding record-to-report process with our Finance4U® certified SAP add-on solutions that run inside your S/4HANA ERP. In fact, our Finance4U solutions actually go beyond the record-to-report process to cover all the business processes necessary to record FERC entries and recover costs in a rate case with full compliance and support from their financials.
We call this extended process Plan-to-Recovery™, and we welcome the opportunity to discuss how this comprehensive and proactive approach to financial and regulatory management can help prepare your utility for FERC’s Uniform System of Accounts (USoA) revisions – not to mention all the other changes we see coming in this quickly changing environment.
We welcome the opportunity to discuss how to prepare for FERC’s Uniform System of Accounts revisions – not to mention all the other changes on the horizon.