The FERC and RUS Charts of Accounts Drive Electric Fixed Assets Accounting

The FERC Chart of Accounts sets the standard for electric fixed assets accounting. This case study details one utility's direct experience and execution. While the solution took time, the outcome was spot-on. If your electric co-op or utility is considering addressing deficiencies in its fixed assets or property records, this detailed 9-step approach will be a winner.

The Situation

A western US electric utility paid a payment in lieu of taxes (a property tax) to the local municipality based on the value of its fixed asset plant balances in its general ledger. Utility financial management knew that the processes for retiring fixed assets were not working well.

Fixed assets are retired at their historical installed costs for the year they were placed into service. The utility's financial management team knew that several issues were contributing to assets remaining on the books that were no longer serving customers. Information regarding assets retired on projects was not always provided to the accounting department, so the retirement from the general ledger was not being made. Additionally, the utility had thousands of record types, creating confusion with field crews as to what unit types were actually being retired. Because fixed assets and general ledger balances were overstated, it led to a higher tax than was appropriate.

The utility also included depreciation expense in its electric rates. The cash collected for depreciation expense is used to replace the assets being depreciated. If fixed assets are overstated, depreciation is artificially overstated and electric rates are higher than needed.

The utility's financial management philosophy was that customers should pay fair rates based on the cost to serve them — not rates that subsidize other activities, customer classes, or city departments. Utility management felt the utility should not have to pay a higher tax to the City than was appropriate.

Step-by-Step Implementation

Sounds easy? Maybe on paper, but this was a multi-year effort. Here's exactly how the utility went about it using a 9-step workplan.

What Is the Impact of the Journal Entries?

The journal entry itself is revenue neutral — it does not impact revenues, expenses, or operating income. In the longer-term, depreciation expenses will be reduced as the plant in service balance has been reduced. The impact on rate base is zero, as the declines in FERC Account 101.364 and 108.364 offset each other.

While this was a fair amount of technical detail, the approach to remedying inaccurate fixed asset records is Steps 1–8, with Step 9 needed regularly to remain vigilant in keeping the success and benefits of the project alive.

Is This a Do-It-Yourself Project?

The utility did use an outside consultant to oversee the project, help determine project steps, analyze business processes, and facilitate developing new processes — but the vast majority of the work was executed with dedicated in-house resources.