Public Utility Accounting
A Public Power System's
Introduction to the Federal Energy
Regulatory Commission Uniform
System of Accounts
Copyright © 2012 by the American Public Power Association
All rights reserved.
Published by the American Public Power Association
2451 Crystal Drive - Suite 1000
Arlington, VA 22202-4804
i
Table of Contents
Acknowledgements .................................................................................................................... iii
Chapter 1—Introduction ......................................................................................1
Purpose of this Guide ....................................................................................................................... 3
Are Utilities Required to Use the FERC Accounting System? ....................................... 3
Benefits of Using the FERC Uniform System of Accounts .................................................... 4
Capital versus O&M – Why Does this Matter? ....................................................................... 5
Common Example of a Utility’s Account Structure ................................................................ 5
Chapter 2—Accounting Information for Public Power Systems .......................... 7
Uses and Users of Electric Utility Accounting Information ................................................... 9
Origin of FERC Uniform System of Accounts ..................................................................... 11
The Different Types of Electric Utilities ................................................................................ 13
Accounting for Public Power Systems ................................................................................... 15
Why Public Power Systems Should Use the FERC USOA ..................................................... 16
Implementation of the FERC USOA ......................................................................... 17
FERC USOA—An Activity Based System ................................................................. 18
Chapter 3—FERC Uniform System of Accounts: Instructions .......................... 19
Overview of Instructions ......................................................................................................... 21
Definitions ................................................................................................................................ 21
General Instructions ............................................................................................................................... 22
Understanding the FERC Numbering System ....................................................................... 25
Electric Plant Instructions ....................................................................................................... 26
Operating Expense Instructions ..................................................................................................... 29
Capitalization Policies ............................................................................................................. 30
Sample Utility .......................................................................................................................... 31
Chapter 4—FERC Uniform System of Accounts: Balance Sheet .................... 33
Balance Sheet ................................................................................................................................. 35
Assets and Other Debits ........................................................................................................................ 37
Utility Plant .........................................................................................................................................................37
Other Property and Investments ..................................................................................................... 41
Current and Accrued Assets ........................................................................................................... 41
Deferred Debits ................................................................................................................................ 42
Liabilities and Owners' Equity ....................................................................................................... 43
Proprietary Capital ................................................................................................................................... 43
Long-term Debt (including bond ratings and factors that impact) ................................................... 44
Other Noncurrent Liabilities .................................................................................................... 44
Current and Accrued Liabilities............................................................................................... 44
Deferred Credits........................................................................................................................ 45
A USOA Balance Sheet ................................................................................................................ 45
ii
Chapter 5—FERC USOA: Income Statement Accounts ..................................... 49
Income Statement ................................................................................................................................... 51
Utility Operating Income....................................................................................................................... 54
Operating Revenues ........................................................................................................................ 55
Operation and Maintenance Expenses .......................................................................................... 56
Other Utility Operating Income and Expenses ....................................................................... 62
Other Income and Deductions ....................................................................................................... 62
Interest Charges .............................................................................................................................. 63
Extraordinary Items ........................................................................................................................ 64
A USOA Income Statement .......................................................................................................... 65
Chapter 6—Introduction to Accounting Applications ...................................... 71
Human Resources/Payroll ............................................................................................................ 73
Accounting for Labor Costs ........................................................................................................... 74
Labor Accounting Illustration ........................................................................................................ 75
Labor Loadings ................................................................................................................................ 77
Labor Clearing Accounts ................................................................................................................ 78
Materials and Supplies Inventory ......................................................................................................... 79
Accounting for Materials and Supplies ......................................................................................... 79
Materials Inventory Illustration ...................................................................................................... 79
Materials Loadings .......................................................................................................................... 83
Transportation and Power Operated Equipment Usage .................................................................... 84
Accounting for Transportation and Equipment Costs ................................................................. 84
Transportation Accounting Illustration.......................................................................................... 86
Chapter 7—Introduction to Accounting for Utility Property .......................... 87
Work Order (Capital Project) Accounting .................................................................................. 89
Components of Construction Cost ................................................................................................. 90
Overheads Capitalized..................................................................................................................... 92
Allowance for Funds Used During Construction......................................................................... 93
Retirement Work Orders ................................................................................................................. 95
Work Order Unitization......................................................................................................................... 95
Property Retirements ............................................................................................................................. 98
Chapter 8—Introduction to Basic Rate Design ............................................... 101
Objectives of Rate Design .......................................................................................................... 103
Key Rate Design and Funding Concepts .................................................................................. 104
Understanding Costs .................................................................................................................... 104
Common Rate Mechanisms ....................................................................................................... 105
Sources of Information
iii
Acknowledgements
This Public Utility Accounting guide was originally written by Brian Farber, with Burns & McDonnell
in Kansas City, Missouri.
The manual was updated in 2012 by Jerry McKenzie, with MGT of America, Inc. In
updating this publication, Jerry brought to bear his thirty plus years of knowledge of electric
utility accounting, as well as specific experience working with both public power systems as
well as investor-owned electric utilities.
Public Utility
Accounting
Chapter 1
Introduction
Chapter 1--Introduction
Public Utility Accounting Page 3
Purpose of this Guide
The purpose of this guide is to provide the management and staff of public power systems with an overview
of generally accepted electric utility accounting practices within the Federal Energy Regulatory
Commission (FERC) prescribed Uniform System of Accounts (USOA). The guide discusses why
and how this accounting system should be implemented by public power systems. The FERC USOA is
similar to most other prescribed systems of accounts and is the most widely used and referenced
accounting system by the nation's electric utilities. As such, it serves as the industry standard that
provides valuable comparative information, often used for benchmarking and other similar
performance measurement and analysis.
The FERC USOA does not preclude a utility from tailoring its accounting system to its needs, but,
as mentioned above, provides a standard framework on which each utility's accounting system is to be
based. This framework of standard accounting facilitates the financial comparison of utilities at either a
summary level or at a significant level of detail. Unique systems of accounts and accounting procedures
are often established within the FERC framework by each utility. This design allows them to meet
the information requirements of that utility's system and, if appropriate, those of specific local
regulatory jurisdictions under which they are regulated. Although this guide is not intended to define all
specific detailed accounting practices which may apply to public power utilities, it does provide a
general representation of the standard application of the FERC USOA by the industry today.
This guide provides an introductory view of various uses of electric utility financial information, with a
detailed review of the FERC USOA and how these information requirements can be met under the
FERC system. It also discusses the implementation of the USOA by public power systems. The guide will
address the following areas:
Origin and purpose of the USOA;
Reasons why public power systems should use the USOA; and
Structure of and instructions for using the USOA
In addition, the guide serves as an introduction to specific accounting applications under the FERC
USOA. Much of the information provided in this guide is available in various utility industry publications
and general reference materials. This guide attempts to bring this information together, as it relates to
public power systems, in a concise form. A list of some of these sources, which were used in the
preparation of this guide, is included in the Sources of Information.
Are Utilities Required to Use the FERC Uniform System of
Accounts?
Many public utility accountants ask whether all utilities are required to adopt the uniform system of
accounts. The simple answer is no. Specifically, the FERC says the USOA is applicable to all licensees
subject to the Commission's accounting requirements under the Federal Power Act, and to all public
utilities subject to the provisions of the Federal Power Act. It is applicable to public utilities that own
or operate facilities subject to the Federal Power Act, and to licensees engaged in the generation and
sale of electric energy for ultimate distribution to the public. Readers should note that a Public Utility as
Chapter 1--Introduction
Page 4 Public Utility Accounting
defined here means any person who owns or operates facilities subject to the jurisdiction of the
Commission under the Federal Power Act (section 201(e) of said act). The USOA also applies to
agencies of the United States engaged in the generation and sale of electric energy for ultimate
distribution to the public, so far as may be practicable, in accordance with applicable statutes.
It is clear from the FERC's definition that many public power systems that do not have a license
agreement with the federal government for energy resources are not required to adopt the uniform
system of accounts. But other jurisdictions may mandate that a particular electric utility follow
FERC’s uniform system of accounts. In some cases, either the state statutes or city ordinances mandate
that USOA be adopted. Although most public power systems are locally regulated by an elected or
appointed board of consumer- owners, in six states they are also regulated by the state public service
commission. Some bond covenants used in obtaining external sources of financing commit the electric
utility to adopt the FERC Uniform System of Accounts. Consequently, these additional jurisdictions and
covenants have the effect of enlarging the number of electric utilities subject to the FERC USOA.
For regulated utilities, the FERC Uniform System of Accounts or the similar
.
National Association of
Regulatory Utility Commissioners' (NARUC) Uniform System of Accounts have been adopted in
virtually every state with minor exceptions necessary to meet particular state requirements. Rural
electric cooperatives are required to maintain their accounting records in accordance with the Rural
Utility Services (RUS) Uniform System of Accounts, which is similar to that required by the FERC.
In fact, except for specific instances in which RUS prescribes other accounting, any changes in the
FERC Uniform System of Accounts are considered changes in the RUS system.
Benefits of Using the FERC Uniform System of Accounts
For those public power systems that are not required to adopt the FERC Uniform System of Accounts,
there is the question of the USOA's value to a publicly owned electric utility. This guide, although
not all-encompassing, outlines for public power systems some of the significant benefits of using the
USOA.
One reason to adopt the FERC system for voluntary compliance is comparability. By using the industry
standard chart of accounts, a utility accountant (and management) can effectively compare operating
statistics with those of other utilities. These measurements of operating efficiency can be extremely
helpful in identifying operational (financial) problems at an early stage. When examining utility costs, it
is very beneficial to use the same "language" in defining costs that other utility accountants use. In the
absence of this common "language," comparisons of such costs as "administrative and general expenses,"
can be very misleading.
Nearly all electric utilities are required to complete some form of a standardized annual report to an
oversight body, generally at the state level. These forms are often organized in a format consistent
with the FERC Uniform System of Accounts. Those electric utilities not using this system of
accounts are required to convert their financial data into the FERC format. This can be a very
expensive and tedious task with considerable risk that the conversion process will not be
completed accurately.
Another issue to consider when evaluating the use of the FERC system is the ability of internal
management, as well as external consultants, to use the utility financial data in performing a
variety of studies. Computer software that has been developed to assist staff or those from the
Chapter 1--Introduction
Public Utility Accounting Page 5
outside in performing rate studies, cost-of-service studies, depreciation studies, benchmark (cost)
evaluations, and other such studies are generally all based off of the FERC Uniform System of
Accounts. Once again, the cost to convert existing data to the FERC system or to develop
information required in these studies can be prohibitive.
A final consideration is offered for those electric utilities that will require external financing for
construction projects in the future. In the event a bond rating agency is requested to provide a rating, it will
be necessary to provide financial information to the rating analyst. As there is the expectation that this
information be provided in the traditional FERC format, alternative presentation formats may create a
sense of uncertainty, adversely affecting the rating process, resulting in more expensive debt.
Capital Versus O&M—Why Does This Matter?
Many times, even those utilities that utilize the FERC Uniform System of Accounts often question why
proper, consistent coding even matters. As an introduction to the importance of the FERC Uniform
System of Accounts, let’s consider the impact of a significant cost misclassified as an operation and
maintenance (O&M) cost when in reality it was a cost that should have been capitalized. Why does this
matter? Because the error has shifted costs from what should have been an addition to our balance sheet
over to an immediate full impact on the income statement. If properly capitalized the impact on the
income statement would only be by a certain amount each year, through depreciation (depending upon
useful life).
As noted above, if this cost were erroneously charged to an O&M account, the costs would impact the
utility’s income statement immediately, thereby reducing net income. Asset values would also be
understated. Although this is an issue that all utilities should be concerned with, it is particularly
important to investor-owned utilities who normally earn an allowed rate of return based upon their
investment in assets serving customers. So, this error has not only reduced the utility’s net income, a
figure certainly a factor in obtaining debt, meeting debt coverage ratios, as well as having a significant
impact on stock price (for an investor-owned utility), but asset values have been understated as well,
thereby reducing return on investment.
Common Example of a Utility’s Account Structure
It is a common misunderstanding that a utility’s entire account structure is required by FERC. In reality,
most public power systems that follow the Uniform System of Accounts record additional data, beyond
what FERC requires. Because most municipally-owned electric utilities are also part of other
governmental entities, they must also report costs at a level that will meet the needs of the Governmental
Accounting Standards Board (GASB).
In fact, the vast majority of the American Public Power Association’s membership consists of electric
utilities that represent “enterprise funds” within a City’s overall jurisdiction. Although these enterprise
operations are to operate independently from the City (some with separate Boards, Councils, or
Commissions), they sometimes share accounting systems, structures, and designs. This often times
results in the electric utility “fitting in” the FERC account within a prescribed structure as defined
by the City.
Chapter 1--Introduction
Page 6 Public Utility Accounting
The following represents an example of an account structure for a public power system:
Account Level Examples
Level 1 – Fund General Fund, Electric Fund, Water Fund
Level 2 – Dept/Cost Center Production, Transmission, Distribution
Level 3 – Resource Labor, M&S, Fuel, Contracts
Level 4 – Activity FERC Uniform System of Accounts
Level 5 – Location/Project Specific Plant, Region, or Project
As is depicted in the table above, public power systems tend to capture more information within their
accounting systems than just FERC. This is obviously due to the necessity to satisfy the needs of the
governmental unit in which they are part along with the need to have comparable industry financial
information.
Public Utility
Accounting
Chapter 2
Accounting Information for
Public Power System
Chapter 2—Accounting Information for Public Power Systems
Public Utility Accounting Page 9
0
ver the last few decades, the world has experienced a period many refer to as the "Age of
Information" or the "Information Revolution." With the rapid technological changes in the computer
information processing industry and the increased emphasis on efficiency, competitiveness, and profit in
the world business community, more and more financial information is being required and
generated. The electric utility industry is no different in terms of the increased desire for financial
information.
Uses and Users of Electric Utility Accounting Information
The requirements for information to be provided by electric utilities come from many different
parties. Every utility has both internal and external information requirements it must meet. Internal
users of financial accounting information include utility managers and employees. Externally, the
electric utility must meet the information requirements of various regulatory and government agencies,
governing boards, national and state industry associations, customers, creditors and bondholders.
Accurate and timely financial accounting information is essential to the effective management of an
electric utility. Financial data must be collected, summarized and reported to provide utility manage-
ment and staff with the information required to make decisions regarding the organization's
activities. Managers use financial information to evaluate results and to formulate decisions regard-
ing both immediate and long-term plans for the organization. Financial information accumulated on a
detailed functional basis and by responsibility area (organizational, business or budget unit) provides
managers with measures of actual performance when compared to budgets. This accounting
information often serves as the basis for future plans and budgets, resource requirements and
commitments, and strategic plans, goals and objectives.
Many utilities, including some public power systems, as well as investor-owned and electric
cooperative utilities, are subject to regulation by federal, state, and local regulatory bodies. This can
include:
1) The Federal Energy Regulatory Commission (FERC);
2) State Public Service, Commerce, or Corporation Commissions;
3) Securities and Exchange Commission (SEC);
4) Internal Revenue Service (IRS);
5) Energy Information Administration (EIA) – former requirement;
6) Nuclear Regulatory Commission (NRC); and
7) Rural Development Utilities Program.
Each of these agencies places information requirements on the electric utilities within its
jurisdiction. The information required varies with the regulatory agency. The FERC and the state
commissions primarily regulate the operations of an electric utility as they relate to the utility's general
rate levels. Detailed accounting data are necessary for these regulatory commissions to monitor
effectively the financial position of the utility, their effectiveness and performance, and to make
decisions regarding the utility's rates. Utilities that issue debt and other financial instruments to the public
may also be subject to the information reporting requirements of the Securities and
Exchange Commission. The SEC requires that pertinent information regarding a financing issue be
disclosed. Bond, credit, and security ratings are heavily influenced by the financial information
reported. Utilities that are subject to taxation by varying levels of taxing authorities must be able to
provide information documenting their tax liability for various income, property, employment, and
Chapter 2—Accounting Information for Public Power Systems
Page 10 Public Utility Accounting
receipts taxes. Additionally, utilities with ownership in nuclear generating facilities are subject to the
reporting requirements of the Nuclear Regulatory Commission.
Many public power utilities are not rate regulated (except by local authorities) and therefore are not
required to follow a prescribed accounting format for their operations. This is referred to as “Home
Rule” regulation since local Councils, Boards, or Commissions serve as the regulatory body. With no
single mandatory accounting standard to follow, accounting practices and procedures can vary
significantly among those utilities. However, in 1977 the Energy Information Administration
(EIA), a sub-unit within the U.S. Department of Energy, was established and given the responsibility to
collect and report financial and operating information on electric utilities. The EIA used to publish on an
annual basis, a summary of financial data for many public power systems "...to provide federal and state
governments, industry and the general public with current and historical data that can be used for policy-
making and decision-making purposes related to publicly owned electric utility systems." The EIA
used to gather this data on its Form EIA-412, which was required to be submitted by all public
power systems with 120,000 megawatt hours in annual sales to ultimate consumers or sales for
resale for each of the two previous years. Although, the EIA-412 survey was terminated in 2003,
most electric utilities continue to track and report this information today.
As mentioned earlier, those involved in the financial markets also are significant users of the financial
information provided by electric utilities. Utilities' periodic reports to creditors and bondholders provide a
means for financiers and investment security rating agencies to assess the utility's ability not only to repay
borrowed funds, but also to provide creditors with a reasonable return on their investments. This involves an
assessment by the creditors of the risk of investing in a particular electric utility which is formulated based
on the financial data available. The SEC was mentioned previously as a user of utility financial information
in the regulation of public financing. In addition, the Rural Development Utilities Programs administered by
the U.S. Department of Agriculture, reviews specific financial information before extending loans to those
utilities under its program.
Equally important is the information required by electric utility customers. The financial accounting system
is the primary information source for the utility's cost-of-service analyses. These studies determine the
amount of revenue which must be collected from each of the utility's various classifications of
customers to adequately recover the utility's costs. This establishes what is referred to as “revenue
requirements” which often provides the basis for establishing the retail rates charged to utility customers.
Data supporting the utilities' revenue requirements often are scrutinized by both individual customers
and public consumer groups representing the customers' interests. In addition, for municipally (publicly)
owned utilities, the customers are also the utility owners. Financial information published by the utility is
used by the public to evaluate benefits that municipal ownership of the utility provides. This information
is also used to monitor the activities and performance (benchmark) of the utility and the public officials
with oversight responsibilities.
All parties having an interest in the financial performance of an electric utility evaluate the available
financial information in relation to similar information received from other electric utilities. That is
why it is extremely beneficial to have as much standardization as possible in the collection,
classification, summarization, and reporting of utility financial information. Generally, the accounting
principles promulgated by the accounting profession in the form of statements from the Financial
Accounting Standards Board (FASB), statements from the Governmental Accounting Standards Board
(GASB), and other accounting professional organizations provide rules and guidelines by which
general accounting information is reported by business entities in the United States. However, because
of the unique (monopolistic) nature of the electric utility industry and the variety of uses of utility financial
information, further detailed guidelines are necessary to provide consistency in the financial accounting
information reported by each electric utility.
Chapter 2—Accounting Information for Public Power Systems
Public Utility Accounting Page 11
Origin of FERC Uniform System of Accounts
The need for consistency and comparability of financial accounting information from electric utilities was
first recognized by regulatory bodies in the 1920s. Because the electric utility industry was developed with
individual utilities having monopoly status, regulatory agencies were also established to regulate the
electric utilities and the rates charged to customers to ensure that they were fair and reasonable. For the
regulators to accomplish this objective, charts of accounts were often prescribed for the utilities under
the regulator's jurisdiction. In 1922, the National Association of Regulatory Commissioners (NARUC)
recommended uniform account classifications to the various state regulatory commissions. However,
for the most part, the various state commissions had developed their own charts of accounts to be used
by the electric utilities which they regulated and there was little consistency between the systems of
accounts used by the various states.
The Federal Power Commission (FPC) was originally formed by the Federal Power Act of 1920. Its
original scope of responsibility was the regulation of hydroelectric projects on navigable streams. This
authority was expanded in 1935 such that all electric utilities that sold wholesale power in interstate
commerce were placed under the regulatory jurisdiction of the FPC and were subject to rate review by the
Commission. The FPC was given additional oversight responsibilities regarding utility operations and
administration. A portion of the responsibility granted to the Commission included the authority for the
establishment of a system of accounts to be followed by all the utilities it regulated. Since a large number of
the existing electric utilities fell under the jurisdiction of the FPC, the issuance of the original Uniform
System of Accounts (USOA) in 1937 enhanced the Commission’s ability to review the operations of the
electric utilities. Because many of the utilities in the various states were subject to this new USOA, the state
regulatory commissions began adopting the system as well.
In 1977, the Federal Power Commission was succeeded by the Federal Energy Regulatory
Commission (FERC), a sub-unit of the Department of Energy. Most of the responsibilities and
authority of the FPC were assumed by the FERC. The USOA issued under the FPC was continued
under the FERC jurisdiction. Changes to the USOA have been and continue to be made from time to
time. Each revision requires the issuance of a rule making docket, which is followed by public hearings
and a comment period. An accounting order must then be issued by the FERC to make the revision
effective.
The FERC USOA is generally considered the standard accounting system for the electric utility
industry. The USOA is found in its entirety in the Code of Federal Regulations, Title 18 -
Conser vatio n of Power and Water Resources, Subchapter C – Accounts, Federal Power
Act, Part 101. The USOA includes a brief description of its applicability, definitions of utility terms,
the chart of accounts, detailed descriptions of each account, general instructions regarding the use of the
system of accounts, the basis for recording various transactions, and instructions specific to accounting
for electric plant and for operating expenses. The FERC USOA is widely used by both publicly owned
and privately owned electric utilities. It captures expenditure data on a functional-cost or activity basis where
unique accounts are defined within the categories of power production, transmission, regional market,
distribution, customer accounts, customer service and informational, sales, and administrative and general.
Within each of those categories, separate accounts are established for operating expenses versus
maintenance expenses. The FERC USOA also provides for classification of expenditures into capital and
noncurrent expense categories. The following section of the USOA is provided to illustrate the format of the
chart of accounts within the USOA.
Chapter 2—Accounting Information for Public Power Systems
Page 12 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
4. Distribution Expenses
Operation
Maintenance
580 Operation supervision and engineering
581 Load dispatching (Major only)
581.1 Line and station expenses (Nonmajor only)
582 Station expenses (Major only)
583 Overhead line expenses (Major only)
584 Underground line expenses (Major only)
585 Street lighting and signal system expenses
586 Meter expenses
587 Customer installations expenses
588 Miscellaneous distribution expenses
589 Rents
590 Maintenance supervision and engineering
(Major only)
591 Maintenance of structures (Major only)
592 Maintenance of station equipment (Major
only)
592.1 Maintenance of structures and equipment
(Nonmajor only)
593 Maintenance of overhead lines (Major only)
594 Maintenance of underground lines (Major
only)
594.1 Maintenance of lines (Nonmajor only)
595 Maintenance of line transformers
596 Maintenance of street lighting and signal
systems
597 Maintenance of meters
598 Maintenance of miscellaneous distribution plant
The above list provides the prescribed account detail for electric distribution expenses. The accounting detail is
defined on an electric utility functional basis. Each account captures the cost associated with a specific
operational or maintenance activity. At its core, the FERC structure represents an activity-based accounting
system. Monitoring costs at this level provides (internal) utility management, as well as (external)
regulatory officials, creditors, investors and other interested parties with valuable
operational insight and facilitates the effective management of resources.
The USOA also provides detailed descriptions of the activities for which the financial impacts are to be
included in each account. A sample description for one account in the above list of distribution expense
accounts, account 586, Meter expenses, is shown on the page that follows.
'
Chapter 2—Accounting Information for Public Power Systems
Public Utility Accounting Page 13
UNIFORM SYSTEM OF ACCOUNTS
586 Meter Expenses
This account shall include the cost of labor, materials
used and expenses incurred in the operation of customer
meters and associated equipment.
Items
Labor:
1. Supervising meter operation.
2. Clerical work on meter history and associated
equipment record cards, test cards, and reports.
3. Disconnecting and reconnecting, removing and
reinstalling, sealing and unsealing meters and other
metering equipment in connection with initiating
or terminating services including the cost of
obtaining meter readings, if incidental to such
operation.
4. Consolidating meter installations due to
elimination of separate meters for different
rates of service.
5. Changing or relocating meters, instrument
transformers, time switches, and other
metering equipment.
6. Resetting time controls, checking operation of
demand meters and other metering equipment,
when done as an independent operation.
7. Inspecting and adjusting meter testing equipment.
8. Inspecting and testing meters, instrument
transformers, time switches, and other metering
equipment on premises or in shops excluding
inspecting and testing incidental to maintenance.
Materials and Expenses:
9. Meter seals and miscellaneous meter supplies.
10. Transportation expenses.
11. Meals, traveling, and incidental expenses.
12. Tool expenses.
NOTE: The cost of the first setting and testing of a
meter is chargeable to utility plant account 370,
Meters.
The above account description illustrates the level of detailed guidance which the USOA provides.
The structure and content of the USOA is reviewed in greater detail in subsequent chapters of this
guide.
The Different Types of Electric Utilities
Before going into detail regarding accounting treatment for Public Power Systems, it is critical that
readers recognize and understand that there are various (and vastly different) types of electric
utilities. All electric utilities are not structured the same, nor do they operate within the same
business model and this can cause confusion for those new to the industry.
In the United States, the electric utility industry is comprised of a variety of entities with different
ownership structures, and in some cases operating characteristics. From an ownership standpoint,
generally speaking there are utilities with private ownership and those with public ownership. In
addition to differences in ownership structure, these utilities can also play a different role within the
industry. Although together they collectively generate, transmit and distribute virtually all electricity
in the Country, some organizations focus on different aspects of utility service.
A listing and brief description of the various types of electric utility organizations found in the U.S. is
outlined below:
Chapter 2—Accounting Information for Public Power Systems
Page 14 Public Utility Accounting
Investor Owned Utilities (IOU’s). Although this is the smallest group in terms of the number of
utilities (with just over 200 IOU’s in the United States), this group represents the largest segment
of the industry in terms of customers served (approximately 68%). Generally, IOU’s provide
distribution, transmission, and often, but not always, generation services for their customers. These
privately owned utilities issue stock to investors, sell bonds, etc. and are typically regulated at the
state level. Although the names of the regulatory entities may vary from state to state, the two
most common are known as the Public Utilities Commission (PUC) and the Public Service
Commission (PSC). These commissions grant an IOU an exclusive service territory and they have
control over the retail rates charged by the IOU’s for the services provided within their
jurisdictions. The commission’s role also includes ensuring that the IOU’s are responsive to
customer requests and that they are properly maintaining utility infrastructure. IOU’s are
normally required to utilize the FERC Uniform System of Accounts.
Rural Electric Cooperatives. There are just over 875 coops in the United States serving about 13%
of the customer base. Most coops serve rural communities with large service territories, but with
relatively small numbers of customers. This presents a somewhat unique challenge for them in
that they must serve a broad area with generally low usage. Only a small number own generation
and they traditionally receive a major portion of their funding through low interest loans from
various Rural Electric programs. In some cases they are partially regulated by PUC’s or PSC’s
and are governed by a Board of Directors elected by their members. Members are usually small
cities, incorporated areas, etc. so their ownership is local. These utilities are often referred to as
REC’s or REA’s (Rural Electric Administration) and most utilize the FERC Uniform System of
Accounts.
Municipally Owned Utilities (MOU’s). There are just over 2,000 community owned utilities
in the United States and they serve about 15% of the electric customers. Although some of
these are large organizations (such as the Los Angeles Department of Water and Power), that
serve millions of customers and some of the largest cities in the Country, the vast majority
are quite modest in size. In fact, 1,400 of these utilities serve communities with populations
of 10,000 or fewer. Unlike IOU’s these utilities are not owned by investors but rather by the
local citizens and businesses that they serve. Because these utilities are publicly owned, they
are generally exempt from regulation by state regulatory commissions. A few states do
subject municipal utilities to some form of regulatory oversight but the vast majority “home
rule” prevails. This means the local Council, Board, Commission, etc. serves in the capacity
of “regulator”. While some municipal utilities are considered to be “full service” providers
(meaning that they not only transmit and distribute electricity but they also have generation
capability), many are known as “wires only” utilities. This is because they purchase their
power needs from others and are responsible for distributing it to the ultimate end user
(customer). Most municipal (public owned) systems use the FERC Uniform System of
Accounts (or variations of that system), since it represents the industry standard for electric
utilities.
Power Marketers. Currently there are just over 170 organizations that serve as power
marketers or brokers within the utility industry. Often referred to as PMA’s (Power
Marketing Associations), this group also includes Federal Government entities who built and
operate (or license others to operate) many of the hydroelectric generators and a major part
of the transmission system in the United States. Federal PMA’s generally restrict their sales
to wholesale customers, typically publicly owned systems. They sell power to federal and
state agencies and a few very large industrial customers. Some states also have local power
marketing agencies that are responsible for obtaining (and in some cases selling) the power
needs for their members (generally cities or communities). For these entities, there is
Chapter 2—Accounting Information for Public Power Systems
Public Utility Accounting Page 15
somewhat limited regulation by FERC. Most follow the criteria established by the FERC
Uniform System of Accounts.
Independent Power Producers (IPP). Within the past decade a majority of new power
generation facilities have been constructed by what are referred to as Independent Power
Producers (IPP’s) or a Non-utility generator (NUG). IPP’s or NUG’s may be privately-held,
owned by corporations, cooperatives, power agencies, municipal utilities, investor owned
utilities, or combinations of the above. There are about 1,700 IPP projects in the United
States.
As can be seen from the descriptions of the different types of electric utilities, there is a great deal of
diversity within the industry and all electric utilities are not alike. Although there can be a vast
amount of structural and operational differences between utilities, the one common denominator is
that most use the FERC Uniform System of Accounts or some variation of that system. It is the
industry standard.
Accounting for Public Power Systems
Public power systems that do not follow the FERC USOA in the accounting for their organizations
often are unable to satisfy the unique and varied information requirements. This is primarily due to
the fact that many public power utilities operate as a unit of a municipal, state, county, or other
governmental body. With this form of organization, it is common that the accounting for these
utilities is performed within the accounting systems and structures of that governmental entity.
In governmental accounting, the primary accounting unit is referred to as a fund. The National
Committee on Governmental Accounting defined a fund and pointed out its significance in the
following terms:
Governmental accounting systems should be organized and operated on a fund basis. A
fund is defined as an independent fiscal and accounting entity with a self-balancing set of
accounts recording cash and/or other resources together with all related liabilities,
obligations, reserves, and equities which are segregated for the purpose of carrying on
specific activities or attaining certain objectives in accordance with special regulations,
restrictions, or limitations.
A governmental unit's funds fall into three primary classes: governmental funds, trust and
agency funds, and proprietary funds. Governmental funds record activities that are unique
to governmental units—those units supported by taxation, grants, and similar revenues. Trust and agency
funds record amounts the government is holding as trustee or agent. Proprietary funds record
activities that are self-supporting and resemble commercial activities. These activities are also commonly
referred to as “business-type” activities. It is the proprietary classification of funds that generally
describes the manner in which most public power systems are organized and accounted for.
The National Committee's definition quoted above emphasizes the separate and distinct character of a
fund. Specific activities or objectives are attributable to a fund. The fiscal and accounting unit is
independent. The set of accounts is self-balancing, and the resources and related liabilities are
segregated. However, it should not be interpreted that one governmental organization represents one
fund. In a governmental unit, the basic accounting entity is not the entire governmental unit, but
Chapter 2—Accounting Information for Public Power Systems
Page 16 Public Utility Accounting
rather, it is the individual fund.
Governmental agencies set up separate funds to record different kinds of activity. Although their
general purpose financial statements traditionally aggregate similar type funds, they do not eliminate inter-
fund transactions.
The accounting rules prescribed by governmental accounting standards usually require public power
activities to be recorded in enterprise funds (one of the proprietary funds). Enterprise funds use the same
basic accounting principles as private enterprises. However, those principles do not provide for the
unique information needs of the electric utility industry.
This leaves some public power utilities with an accounting system that was formulated based on the
needs of the governmental entity, not on the needs of the utility. Often these accounting systems are
responsibility-oriented and based on departmental organizations rather than on functional activities.
They capture expenditure information by what was purchased and by whom while the FERC USOA
captures expenditures based on the functional purpose for which they were incurred. The examples
provided in Chapters 4 and 5 illustrate some of the differences between governmental fund accounting
and the FERC USOA.
Why Public Power Systems Should Use the FERC USOA
Since the FERC USOA and other prescribed systems of accounts generally exist as a result of utility
regulation, many public power utilities that are not regulated ask why they should adopt the FERC USOA.
These public power systems often are seeking justification for asking their city governments to segregate
the accounting for the electric funds under a different accounting system than the governmental or fund
accounting system used for all other city departments.
Although the most compelling reason for an electric utility to use the FERC USOA is to meet the
requirements of the regulatory jurisdictions under which the utility falls, there are many additional
reasons for a public power utility to implement the FERC system. Following is a brief description of
several of these specific additional benefits.
Consistency. The FERC USOA provides standards for the accounting for the events of a public
power organization. Clearly defined accounting for various types of financial transactions
facilitates consistent treatment of those events from one occurrence to another and from one
period to another by the utility.
Capitalization Versus Expense. The FERC USOA provides guidelines which delineate the
treatment of various expenditures between capitalization and expense. This is
significant to electric utilities because of their relatively large capital investment in plant
and other facilities. Proper treatment of expenditures as capital or expense items may also
impact the rates that a utility charges its customers. Expenditures related to utility
operations that are expensed generally are recovered from the ratepayers in the current
revenue requirement. Those expenditures that are capitalized as assets are recovered by the utility
through its rates as the assets are depreciated. The FERC USOA provides for the functional
analyses of the relationship between plant investment and operation and maintenance
expenses.
Chapter 2—Accounting Information for Public Power Systems
Public Utility Accounting Page 17
Recoverable Costs. Generally, the standard practice in the electric utility industry is to include
all expenses incurred in the operation of a utility in the revenue requirement to be recovered
through the utility's rates. Expense items are often referred to as "above the line" and
"below the line" items, with the "line" meaning net income from utility operations. Items
above the line are included in the revenue requirement. Items below the line normally
represent non- operating income and expenses that are not recovered in the rates it charges its
customers. The FERC USOA provides a definition of the accounts and the financial activities
included in them that determine a utility's cost of service and revenue requirement.
External Information Requirements. As discussed earlier in this chapter, there are many
external users of financial information from a utility. The FERC USOA provides
uniformity in the preparation and presentation of this information between different
utilities. Outside organizations and individuals, such as regulatory agencies, rating
agencies, investors, industry groups, and customers use this information to evaluate the
operations of a utility. These groups expect the information to be comparable between
utilities, whether they are public power or investor owned. The American Public Power
Association uses such data to compile its annual Selected Financial and Operating Ratios of
Public Power Systems, which is used by utilities to assess their performance.
Internal Management Information. The FERC USOA provides for tracking a greater level of
detail in the accounting records than many public power systems have available to them
through their local government accounting systems. This added detail gives public power
managers more information regarding the costs of operations to support future decision-
making. It also provides greater flexibility in reporting this information at varying levels of
summarization. The FERC USOA classification of accounts on a functional basis provides a
logical organization for operations budgets and the corresponding comparison of actual results.
Although the FERC USOA does provide all of these benefits to a public power utility, the most often
cited purpose for utilities to follow the FERC system is the aspect of comparability. With the
deregulation of the electric utility industry and the ongoing movement toward segregating the
power generation, transmission, and distribution functions of utility service with separate pricing, the
utility needs to be able to compare its performance with that of its competition and this requires that the
utility keep its accounting records on a basis comparable to the general standards in the industry.
Implementation of the FERC USOA
The conversion of the existing chart of accounts used by a public power utility to a new FERC-based chart
of accounts is the first step in the implementation of the FERC USOA. The detailed accounting
information for municipal electric utilities is often captured on a divisional responsibility, incurred cost
basis. The same account numbers are used to account for the same activity within each division or department
of the utility. These accounts are defined on the basis of the type of resource or cost element incurred, i.e.,
labor, supplies, services, etc. In contrast, the FERC Uniform System of Accounts captures expenditure
data on a functional, applied-cost basis where unique accounts are defined within functional categories.
Each unique account represents a separate functional work area or activity to which the expenditure was
applied.
These differences in the definitions of the detail accounts between a public power system's current
accounting system and the FERC USOA can make it difficult to accomplish an exact conversion of
Chapter 2—Accounting Information for Public Power Systems
Page 18 Public Utility Accounting
accounts and balances from an existing system to the FERC system. Since expenditures are often not currently
identified at the level of functional detail provided in the USOA, it may not be feasible to convert historical
expenditure data to the complete FERC system. Therefore, switching to the FERC USOA is
normally easiest when the implementation is done prospectively, with no attempt to convert historical
accounting records.
However, since balance sheets are perpetual, some conversion of the asset, liability, and equity accounts is
necessary when implementing a new accounting system. Analysis of the balances in the various balance sheet
accounts must be performed by the public power utility to segment existing account balances to the accounts
provided in the USOA.
Implementation of the FERC USOA can be a challenge for public power systems. However, if the utility
thoroughly educates its employees on the new chart of accounts, a successful implementation can be
achieved. The benefits obtained by the utility from using the USOA are more and more evident over
time. The difficulties of the transition from the old system to the new system can be a valuable
learning experience. Most importantly, the utility learns how to better utilize the information
generated from the FERC-based accounting system in the operation and management of its public
power system.
FERC USOA—An Activity Based System
As noted in the previous section, governmental fund accounting is structured to provide resource-based
accounting information, whereas the FERC USOA is activity-based. The differences between the two
methods are probably best exemplified by comparing how each one answers the question of “what does it
cost when a customer flips on his lights?” Governmental fund accounting answers the question based upon
the resources consumed – how much was spent on labor, benefits, materials and supplies, contractual
services, etc.
The FERC Uniform System of Accounts on the other hand answers the question based upon the activities
required to serve the customer – how much was spent to generate the electricity, transmit it to the system,
distribute it to the customer, read the meter, produce the customer’s bill, and the support costs (payroll, data
processing, human resources, general administration) associated with those activities. The FERC USOA
breaks each of these functional activities down into sub activities such as, the cost of fuel, load
dispatching, station expenses, and overhead versus underground line expenses for example.
Although both types of accounting systems provide valuable information regarding the operations of
the utility, the FERC USOA is geared towards providing management with the cost elements associated
with its products and services. This activity based approach serves as a valuable tool for understanding,
managing and controlling costs and profitability. As such, the FERC USOA is used to support strategic
decisions regarding pricing, outsourcing, and the identification and measurement of process
improvement initiatives. Granted it is very important to know how much was spent to hire one more
employee, but it is probably more important to know what activities are driving the need to hire that
employee in the first place.
Public Utility
Accounting
Chapter 3
FERC Uniform System of Accounts:
Instructions
Chapter 3—FERC Uniform System of Accounts Instructions
Public Utility Accounting Page 21
As stated in the previous chapter, the Federal Energy Regulatory Commission (FERC) Uniform
System of Accounts (USOA) is prescribed in the Code of Federal Regulations (CFR), Title 18,
Part 101. The USOA not only provides a listing of the nearly 450 defined accounts, but it also includes
detailed descriptions of the various financial activities that are to be recorded under each account. In
addition, it outlines instructions and definitions for use in applying the system of accounts by electric
utility systems. The specific sections of the USOA are:
1. Commission Order of Applicability
2. Definitions
3. General Instructions
4. Electric Plant Instructions
5. Operating Expense Instructions
6. Balance Sheet Chart of Accounts & Descriptions
7. Electric Plant Chart of Accounts & Descriptions
8. Income Chart of Accounts & Descriptions
9. Retained Earnings Chart of Accounts & Descriptions
10. Operating Revenue Chart of Accounts & Descriptions
11. Operation & Maintenance Expense Chart of Accounts & Descriptions
Each of these sections will be discussed further in this and the succeeding two chapters with the
exception of the Commission Order of Applicability which references the authority granted by
the Federal Power Act to the Commission. This authority was discussed previously in Chapter 2.
It is important to note that the USOA provides for a very detailed accounting by electric utilities. It
attempts to prescribe treatment for as many of the various utility activities as possible. Also, it was
initially designed primarily for larger utilities. Therefore, not all of the accounts, descriptions,
explanations, and instructions will apply to a specific utility. This is particularly true for smaller
publicly owned utilities. In fact, in some cases, these small systems go through a process where they
convert their accounting records over to an abbreviated FERC-based system. In many cases this can be
done with a limited amount of effort.
Definitions
The first section in the USOA defines a series of basic terms which are used prevalently in general
accounting and the utility industry. A list of the terms for which definitions are provided is shown
in the table below. The terms included on the list are used throughout the descriptions of the individual
accounts and in the instructions sections of the USOA. There is a wide variety of areas of
accounting and utility operations from which the terms originate. A significant number of the terms
defined relate to issues of accounting for property, plant and equipment, some of which are fairly
specific to the utility industry. Another large group of the terms listed relate to issues concerning the
financing and organizational ownership of utilities. The remaining terms are primarily generic
accounting concepts.
Chapter 3—FERC Uniform System of Accounts Instructions
Page 22 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
Definitions
1. Accounts
2. Actually issued
3. Actually outstanding
4. Amortization
5A. Associated (affiliated) companies
5B. Control (controlling, controlled by, under
common control with)
6. Book cost
7. Commission
8. Continuing plant inventory record
9. Cost
10. Cost of removal
11. Debt expense
12. Depreciation
13. Discount
14. Investment advances
15. Lease, capital
16. Lease, operating
17. Licensee
18. Minor items of property
19. Net salvage value
20. Nominally issued
21. Nominally outstanding
22. Nonproject property
23. Original cost
24. Person
25. Premium
26. Project
27. Project property
28. Property retired
29. Public utility
30. Regional market
31. Regulatory assets and liabilities
32A. Replacing or replacement
32B. Research, development and demonstration
33. Retained earnings
34. Retirement units
35. Salvage value
36. Service life
37. Service value
38. State
39. Subsidiary company
40. Utility
The actual definitions for this list of terms are not duplicated here. Many of the definitions provided
in the USOA are lengthy and would not contribute to the purpose of this guide. The list is pro-
vided to inform the reader that further detailed explanation of these terms may be found in the
CFR as they are encountered in using the USOA. Definitions of terms will be discussed throughout
this guide as needed.
General Instructions
The USOA includes a set of rules and explanations on how electric utilities are to apply or follow several
basic accounting concepts. The areas covered by these general instructions are listed in the table below.
Similar to the list of definitions previously discussed, the list of general instructions covers a diverse
range of subjects. These instructions represent guidance on how the utility accounting records are to be
organized and 'maintained. They also specify how certain issues, subject to possible variations in
treatment by different utilities, are to be accounted for and reflected in financial statements. Several
of the items covered in the instructions are reviewed below.
Chapter 3—FERC Uniform System of Accounts Instructions
Public Utility Accounting Page 23
UNIFORM SYSTEM OF ACCOUNTS
General Instructions
1. Classification of utilities
1.1. Major
1.2. Nonmajor
2. Records
3. Numbering system
4. Accounting period
5. Submittal of questions
6. Item lists
7. Extraordinary items
7.1 Prior period items
8. Unaudited items
9. Distribution of pay and expenses of employees
10. Payroll distribution
11. Accounting to be on an accrual basis
12. Records for each plant
13. Accounting for other departments
14. Transactions with associated companies
15. Contingent assets and liabilities
16. Separate accounts or records for each
licensed project
17. Long-term debt: premium, discount and expense,
and gain or loss on reaquisition
18. Comprehensive interperiod income tax allocation
19. Criteria for classifying leases
20. Accounting for leases
21. Allowances
22. Depreciation accounting
23. Accounting for other comprehensive income
24. Accounting for derivative instruments & hedging
25. Accounting for asset retirement obligations
General instruction number 1, Classification of utilities, differentiates between major and non-
major utilities, indicating that size is based on the number of annual sales units. How a utility is defined
determines whether it is required to use certain accounts (major utilities are required to use more
accounts). However, most utilities utilize the accounts defined for the major utilities whether they meet
the criteria or not, as this approach provides a greater level of accounting information and financial
comparability to other utilities. Likewise, this approach is beneficial to public power utilities that
elect to use the USOA since their purpose for using the FERC system is to achieve these benefits.
Each logical section of the FERC USOA provides accounts to be used by major and nonmajor
utilities. Indications are included for specific accounts which are to be used by one type of utility or the
other.
General instruction number 3, Numbering system, outlines the account coding system
prescribed in the USOA. The account coding system is generally a three-digit numbering system with
different ranges of numbers representing certain types of accounts, as follows:
Account No. Range Type of Accounts
100 - 199 Assets and other debits
200 – 299 Liabilities and other credits
300 – 399 Plant accounts
400 – 432, 434 – 435 Income accounts
433, 436 – 439 Retained earnings accounts
440 -459 Revenue accounts
500 – 599 Production, transmission, and distribution expenses
900 – 949 Customer accounts, customer service and informational,
sales, and general and administrative expenses
Chapter 3—FERC Uniform System of Accounts Instructions
Page 24 Public Utility Accounting
Not every number in these ranges is used to designate an account. Some numbers were skipped for
future use and others previously used have been eliminated. Also, although the numbering system is
generally based on three-digit numbers, the USOA includes some accounts which have been
prescribed with a 1-digit decimal extension, such as account number 426.1, Donations.
This system serves as a guideline for assigning accounts in a utility's accounting system. However, the
utility may establish additional accounts or build on the three digit numbers prescribed. To meet the
various information requirements discussed in Chapter 2 and to provide utility management with the
necessary information for decision-making, further breakdown of the individual FERC accounts
may be desirable. This is often done by adding decimal positions to the prescribed numbers. Account
numbers 501.001, 501.002, and 501.003 would provide additional detail of accounting charges to FERC
account 501 Fuel, such as type of fuel (coal, oil, etc.) or power plant location (Plant 1, Plant 2,
etc.). The key requirement of general instruction number 3 is that utilities keep their financial
records such that, at a minimum, they are able to provide information according to the prescribed
account numbers. For further insight into the FERC numbering system refer to the “Understanding
the FERC Numbering System” section within this Chapter.
General instruction number 6, Item lists, addresses the application of the item lists included in the account
descriptions within the USOA. Many of the account descriptions provided include lists of specific items
that are to be included in those accounts. (An example of such a list was provided for the Meter
Expenses account 586 in Chapter 2). Although the accounts and corresponding definitions prescribed by
FERC in the USOA are fairly comprehensive, they are not exhaustive. Care should be exercised in
determining the proper account in which to record an item, basing it not only on the list for a par-
ticular account, but also on the text description for the account.
General instructions 9, Distribution of pay and expenses of employees, and 10, Payroll distribution,
require that utilities account for labor costs by charging payroll costs associated with actual time spent on
various activities to the accounts established for tracking the cost of those activities. It requires that
supporting data for the account distribution of those costs be maintained. This is required to ensure that
the proper amounts are classified as operating expense, non-operating expense, capital construction,
capital removal, and deferred charges. If direct assignment of labor costs based on the activities
performed is impractical, those costs may be distributed to the proper accounts based on a study of time
spent on those activities from a representative historical period. The accounting for and distribution of
payroll costs will be discussed further in Chapter 6 of this guide.
Instruction number 11, Accounting to be on accrual basis, requires that utilities follow "accrual basis
accounting" as differentiated from "cash basis accounting". Under cash basis of accounting the total
outflow of cash during the period is considered the expense incurred. In contrast, the accrual basis of
accounting modifies this approach by adopting the revenue realization principle: Revenue is realized when
earned and the matching principle is used to indicate that expenses may be incurred and matched against
revenue even though no cash outflow has occurred. Revenues earned and expenses owed before they are
paid must be estimated and recorded; revenues received and expenses paid before they are due must be
deferred.
The most familiar example of accrual basis accounting is the recognition of depreciation expense.
Depreciation expense represents the systematic write-off of expenditures for an asset which is capi-
talized over the life of that asset. The expense related to an asset is recognized ratably over the asset's life
rather than completely at the time of the initial cash outflow. This matches the expenditures to the
same periods in which it generates revenues.
Chapter 3—FERC Uniform System of Accounts Instructions
Public Utility Accounting Page 25
As mentioned previously, many public power systems are accounted for under the Governmental
Accounting Standards Board (GASB) which requires accrual accounting for enterprise funds.
However, some public power systems, especially smaller ones, still use cash basis accounting.
General instruction number 13, Accounting for other departments, requires that electric utilities that
also operate other utility departments (gas, water, etc.) maintain separate accounts for the specific
activities of these other utilities in order to properly reflect the results of operations of each utility
department. This instruction is particularly significant to public power systems because they often are
located within a municipal government’s organization structure with all of its utilities together as one
department. Utilities are allowed under this instruction to account for common or general activities which
apply to the utility as a whole (not specific electric or gas, etc.) without departmentalizing the dollars
associated with them. However, from a rate making standpoint, costs associated with common or general
activities are often allocated to the various utility service areas and some utilities actually do use separate
accounts for these costs.
General instruction 17, Long-term debt: premium, discount and expense, and gain or loss on
reacquisition, provides specific accounting treatment for the various aspects of long-term financing
issues. It also provides extensive descriptions of optional methods for recognizing the reacquisition of
outstanding long-term debt and the associated gains and losses. For small public power systems, the two
most significant provisions of this instruction are: (1) that the premiums, discounts, and expenses related
to long-term debt must be maintained in separate accounts for each class and series of debt issued, and (2)
that the same three items are not to be included as a cost of construction (see Allowance for Funds Used
During Construction in the Electric Plant Instructions later in this chapter).
The other general instructions provide additional specific guidance in the general use of the FERC
USOA. However, several of these general instructions likely will not apply to smaller public power sys-
tems, e.g. instruction numbers 12, Records for each plant, 18, Comprehensive interperiod tax
allocation, etc. The reader should take time to review these additional instructions in the CFR to
gain a basic understanding of their provisions.
Understanding the FERC Numbering System
The numbering system used within the FERC USOA is comprised of different groupings or ranges of
accounts necessary to prepare the two fundamental financial statements of an electric utility – the balance
sheet and the income statement. For the balance sheet, account numbers starting with a “1” (the 100
series) represent assets and other debits, while liabilities and other credits begin with a “2” (the 200 series).
Income statement accounts begin with a “4” and they range from 400 through 435.
It is important to note that the FERC account structure was designed to consist of two distinct layers of
accounts as well. The lower level serves the purpose of supporting, or providing more detail on some of
the accounts traditionally shown on the FERC balance sheet or income statement – hence they “roll up” to
a higher level account. Not all of the higher level accounts, those traditionally shown as line items on the
balance sheet or income statement, have these supporting accounts.
Only two accounts on the FERC balance sheet have a series of supporting accounts and they are account
101 Electric Plant in Service and account 107 Construction Work in Progress. In many utilities, as assets
are constructed they go through a process often referred to as “unitization” or the assigning of asset costs
to units of property. Under the FERC system, until an asset is actually serving customers (in service or
considered to be used and useful), the item is not shown on the balance sheet as Account 101 Electric
Chapter 3—FERC Uniform System of Accounts Instructions
Page 26 Public Utility Accounting
Plant in Service. Rather it is to be charged to Account 107 Construction Work in Progress, commonly
known as CWIP. It is during this unitization process that many utilities assign costs to the 300 series of
Electric Plant Accounts. Once an item is deemed to be in service, amounts are simply transferred from
the 107 CWIP account to the 101 Electric Plant in Service account. Balances remain in the same 300
accounts originally charged during the unitization process, so in essence, the total amount of the 300 series
of accounts supports the total amounts shown in accounts 101 and 107. This lower level of detail (the 300
series of accounts) ultimately provides a breakdown of the Electric Plant in Service by functional level –
production plant, transmission plant, distribution plant, general plant, etc.
There are three accounts on the FERC income statement which have supporting accounts. The first is
Account 400 Operating revenues. Initially, operating revenues, consisting of sales of electricity, and other
operating revenues, are charged to the account range of 440 through 457.2. For instance, sales of
electricity to residential customers are recorded in account 440 Residential sales, with sales to other
utilities charged to account 447 Sales for resale – both of these items “roll up” to Account 400.
The other two FERC income statement accounts with a supporting series’ are both expense items -
Account 401 Operation expense and Account 402 Maintenance expense. The 500 and 900 series of
accounts serve in this capacity with each individual account designated within the USOA as to whether it
“rolls up” to Operation expenses (401) or Maintenance expenses (402).
Another important characteristic of the numbering system as it impacts the income statement is the use of
the first digit of the operation and maintenance support accounts to distinguish between costs directly
related to providing electricity and those that are more indirect or considered as support by their nature.
Generally speaking, the direct costs all begin with a “5” whereas indirect or support activities are charged
to accounts within the 900 series. Furthermore, the support activities can be segregated between internal
support for employees, such as payroll or data processing versus those activities that are in support of
external customers, such as customer service or billing. Support for internal customers normally are
charged to Administrative and General Expense accounts (920 – 935), with external support recorded in
accounts 901 - 917.
Grasping the significance of the numbering system that is built into the FERC USOA and the
interrelationships of the accounts to each other can greatly enhance a utility accountant’s ability to
properly code expenditures.
Electric Plant Instructions
As noted previously, the USOA provides a lengthy, detailed description of the prescribed accounting
for electric utility plant. A listing of the electric plant instructions is shown in the table below. The
descriptions that accompany the instructions in the USOA provide great detail as to the classification
of electric utility plant in service and the types of expenditures that are to be included in the costs of
electric plant. The instructions also provide additional definitions of terms not previously defined
in the definition section of the USOA. An understanding of these terms is necessary in order to
understand the prescribed accounting for plant in service.
Chapter 3—FERC Uniform System of Accounts Instructions
Public Utility Accounting Page 27
UNIFORM SYSTEM OF ACCOUNTS
Electric Plant Instructions
1. Classification of electric plant at effective
date of system of accounts (Major)
2. Electric plant to be recorded at cost
3. Components of construction cost
3.1 Contract work
3.2 Labor
3.3 Materials and supplies
3.4 Transportation
3.5 Special machine service
3.6 Shop service
3.7 Protection
3.8 Injuries and damages
3.9 Privileges and permits
3.10 Rents
3.11 Engineering and supervision
3.12 General administration capitalized
3.13 Engineering services
3.14 Insurance
3.15 Law expenditures
3.16 Taxes
3.17 Allowance for funds used during construction
3.18 Earnings and expenses during construction
3.19 Training costs
3.20 Studies
3.21 Asset retirement costs
4. Overhead construction costs
5. Electric plant purchased or sold
6. Expenditures on leased property
7. Land and land rights
8. Structures and improvements
9. Equipment
10. Additions and retirements of electric plant
11. Work order and property record
system required
12. Transfers of property
13. Common utility plant
14. Transmission and distribution plant
15. Hydraulic production plant (Major)
16. Nuclear fuel records required (Major)
There are at least two major reasons why the FERC has included this level of detail in the instructions for
electric plant. First, the utility industry is one of the most capital intensive industries in the economy, and the
majority of this capital investment is in plant in service. Therefore, it is essential that a utility have a
significant level of detailed information regarding the costs associated with its plant to facilitate prudent
management and control of its primary assets.
Second, the purpose for the extensive requirements prescribed for accounting for electric plant is the regulation
of utility rates. Many regulated utilities have their rates determined based on an allowed level of return on rate
base. The return on rate base represents the utility's allowed level of margins resulting from the revenues
derived from its utility service rates, less all of its expenses of operations. The major component of a utility's
rate base is the original cost of its plant in service less accumulated depreciation on that plant. Therefore,
the accounting for electric plant has a direct bearing on the establishment of a regulated utility's rates.
These detailed accounting instructions prescribed in the USOA provide utilities and regulators with
guidelines as to how the cost of plant in service is accounted for on the utility's books. The instructions
provide guidance in several different areas of accounting for electric plant including proper recognition
of the original cost of the property plus the costs of plant additions, improvements, and replacements.
It also includes the proper accounting treatment of electric plant which is retired from plant in
service, including the corresponding accumulated depreciation reserve and cost of removal.
The actual text of the instructions for accounting for electric plant is quite extensive within the
USOA. Several of the more pertinent instructions are described below. The reader is referred to the
USOA for detailed explanations of the electric plant instructions not covered in the following paragraphs.
Electric plant instruction number 2, Electric plant to be recorded at cost, requires that all electric plant be
recorded on the utility's records at the cost at which it was originally placed in utility service. Electric
plant acquired by a utility from another utility must be recorded at the cost to the original utility. Any
Chapter 3—FERC Uniform System of Accounts Instructions
Page 28 Public Utility Accounting
plant which is initially placed in service by the utility must be recorded at the cost to that utility. In
addition, this instruction requires that any non-refundable contributions received by the utility toward the
cost of electric plant must be credited to the same accounts to which the costs of that plant are charged.
A description of the various types of expenditures that are to be included in the cost of electric
plant is given in electric plant instruction number 3, Components of construction cost. As can be
seen in the table on the previous page, there are 21 categories of expenditures that are to be included as
components of the cost of construction of electric plant. Many of the items included on the list of
components, such as engineering, administration, and insurance, are considered overhead costs.
Overhead costs represent expenditures that are necessary for support of the electric plant construction
activity. However, they do not represent direct costs of constructing an item of plant. The
assignment of overhead costs to construction is discussed in Chapter 7.
One of the more confusing elements of construction cost is defined in part 17 of electric plant
instruction 3, Allowance for funds used during construction. The allowance for funds used during
construction (AFUDC) provides for capitalizing the cost of financing electric plant while it is
under construction. Generally accepted accounting principles dictate that all costs associated with creating
and readying an asset for service are to be capitalized in the cost of that asset. Due to the complexity
and magnitude of some electric plant facilities, the construction of these assets often requires
extended periods of time. Often, a utility has significant investment tied up in electric plant facilities
under construction. There is a cost to the utility associated with the invested funds either in the form of
interest on borrowed funds or lost income on equity funds. AFUDC includes the net cost for the
construction period of borrowed funds used for construction purposes and a reasonable rate on other
funds when so used that is allocated to the cost of construction of electric plant. Instruction 3.17
defines the formula and elements for calculating the AFUDC. It should be noted that this
instruction is oriented toward investor-owned utilities. However, it can be applied to publicly
owned systems as well.
Electric plant instruction number 4, Overhead construction costs, requires that all overhead costs
in support of electric plant construction be charged to each individual plant job or unit.
Overheads such as engineering, supervision, general office salaries and expenses, insurance and taxes
should be charged to specific electric plant as possible. However, since the nature of overheads is that
they cannot be attributed directly to specific construction projects, some methodology for allocation of
these costs is necessary. Instruction 4 indicates that periodically studies should be conducted to
determine the portion of supervisory employees' time spent in support of capital projects. The
result of such a study is to be used as the basis for making a reasonable allocation of overheads
incurred during a specific time period to each electric plant unit under construction during that time
period. This allocation should provide an equitable distribution of those costs.
Electric plant instruction number 5, Electric plant purchased or sold, details the accounts to be used
when plant is purchased or sold. In particular, it identifies the accounting for any differences between
the original cost of plant acquired from another utility and the acquisition price.
Electric plant instructions numbers 7, Land and land rights, 8, Structures and improvements, and 9,
Equipment, define specific costs associated with these three categories of electric plant that are to be
included in the cost of each of these items in the electric plant accounts. Instruction 7 includes a list of
24 expenditure items to be included in the cost of land, and instruction 8 includes a list of 66 items to be
included in the cost of structures. Although these descriptions are not expected to be all inclusive,
the information contained in these three instructions provides thorough guidance as to the prescribed
accounting for these categories of the electric plant.
Chapter 3—FERC Uniform System of Accounts Instructions
Public Utility Accounting Page 29
Plant instruction number 10, Additions and retirements of electric plant, defines the procedures to be
followed in accounting for changes in the recorded cost of electric plant in service caused by the
addition or retirement of items of electric plant. The instruction indicates that all items of electric
property are considered as either retirement units or minor items of property. These two terms
were defined previously in the definitions section of the USOA. The text of this instruction
provides guidance as to the proper accounting for the original cost of plant and the associated
accumulated depreciation when either a retirement unit or a minor item of property is added to plant in
service or retired from plant in service.
Related to the issue of accounting for additions and retirements is the procedures for accumulating
costs while additions and retirements are in progress. Electric plant instruction number 11, Work order
and property record system required, indicates that each activity or project for either the construction or
the retirement of electric plant in service must have unique work order or job orders established for
collection of costs and salvage values associated with each project. Instruction 11 requires the utility to
have a system to keep track of these work orders and the costs therein that identifies the total cost for
each work order, the sources of those costs, and the electric plant accounts to which the plant is either
charged or credited. In addition, the utility is required to have a system for accumulating all of its
electric plant in service by electric plant account so as to show the amounts of the annual additions
and retirements and the number and cost of the various units of property currently in service.
The FERC USOA recognizes the inherent importance of accounting for electric plant. The
prescribed methodology for plant accounting is complex, but the information it provides is
extremely important in the management of an electric utility. A simplified discussion and illustration of
the accounting for a capital construction project of electric plant in service is presented in Chapter 7 of
this guide.
Operating Expense Instructions
The third group of instructions provided under the FERC USOA, are the operating expense
instructions. These instructions are identified in the table below.
UNIFORM SYSTEM OF ACCOUNTS
Operating Expense Instructions
1. Supervision and Engineering (Major
Utilities)
2. Maintenance
3. Rents
4. Training Costs
There are only four operating expense instructions because of the specificity of the descriptions of the
various operating expense accounts. These instructions describe the proper accounting treatment of
miscellaneous activities that are appropriately included in multiple accounts within the FERC USOA
depending on the functional area to which they relate. They are provided as general instructions so
that their provisions are not repeated under each detail account to which they apply.
Operating expense instruction number 1, Supervision and engineering, requires that all payroll and
personal expenses of employees and outside contractors who are involved in supervising and directing
the operation and maintenance of a particular utility function, must be charged to the supervision and
engineering account for that utility function. For example the expense detail account number 580 is
Chapter 3—FERC Uniform System of Accounts Instructions
Page 30 Public Utility Accounting
the supervision and engineering expense account for the electric distribution operations function. Item
lists of labor activities and types of expenses that are to be included in the supervision and engineering
accounts are defined under this instruction.
The second operating expense instruction, Maintenance, provides for the inclusion of all labor, materials,
overheads and any other expenses incurred in performing maintenance work to the various operating
expense maintenance accounts defined in the FERC USOA. Instruction number 2 also includes a list
of the work operations that are generally associated with utility plant. Other activities that are specific to
certain types of plant are defined under the applicable detail account. Another significant provision of
this instruction is the treatment of the salvage value of materials, recovered as part of maintenance
activities, as an offset against the cost of the maintenance activity to the maintenance detail expense
account.
Operating expense instruction number 3, Rents, defines specifically what costs associated with leased
property are to be included in the rents accounts under the various functional expense categories. This
instruction also requires that rent income received from the subletting of property leased by a utility be
accounted for as rent revenue, in operating revenue, that operations and maintenance costs associated
with leased property be accounted for the same as if the property were owned by the utility, and that any
capital additions to leased property be treated as defined in electric plant instruction number 6,
Expenditures on leased property.
Operating expense instruction number 4, Training costs, provides for all expenses related to training
in the areas of plant operations and maintenance for facilities under construction to be charged to the
appropriate functional operations and maintenance expense accounts. However, when the training costs
are incurred to facilitate the utilization of plant facilities not currently used by the utility, they are to be
treated' as defined in category 19 of electric plant instruction number 3, Components of construction cost.
Capitalization Policies
It should be noted that the FERC USOA is silent regarding capitalization policies or thresholds. For those
that are unfamiliar with capitalization policies, they define circumstances (usually dollar threshold
amounts) when something that would normally be capitalized and recorded as an asset on the balance
sheet, would be fully expensed in the current accounting period. As noted earlier, when something is
capitalized the full amount is included on the balance sheet as an asset but only a portion of the cost is
charged on the income statement through depreciation (the amount dependent upon useful life). Although
capitalization policies are common amongst municipal utilities, the dollar threshold amounts are not
consistent.
This issue is raised here as it is important to recognize the impact of capitalization policies on utility
financial statements. Those with relatively high capitalization thresholds (compared to others) will show
less net income in the current period as well as lower overall asset values. A lack of consistency between
utilities can make benchmarking and other similar analysis extremely difficult or results potentially
misleading. Utility accountants, management and staff must remember to take this into consideration
whenever comparisons of this nature are made.
Chapter 3—FERC Uniform System of Accounts Instructions
Public Utility Accounting Page 31
Sample Utility
In Chapter 4 of this guide, the structure of the FERC USOA for the balance sheet accounts, the assets, liabilities,
and capitalization for electric utilities is reviewed. As part of this review, a discussion of the electric plant
detail accounts is provided. Chapter 5 discusses the structure of the income and expense chart of accounts
under the USOA. This includes a review of the revenue detail, operation and maintenance expense detail,
and the administrative and general expense detail accounts.
In order to illustrate the use of the USOA, financial accounting data for a sample utility will be used. The
examples included are not all-inclusive and do not represent how every public power system should
follow the USOA. The examples are used to point out important considerations in implementation of
the USOA and to provide an illustration of how a utility that does not use the FERC system might compare
under the USOA.
For purposes of the discussion in this guide, it is assumed that the Sample Public Power Utility has the following
characteristics:
6,500 total customers, 5,500 residential customers
$9.0 million in annual revenues
$16.6 million in total assets
$0.8 million annual capital budget
160,000 MWh in annual sales
System energy requirements 1/3 generated, 2/3 purchased
Example trial balances and financial statements for the Sample Public Power Utility are referenced in
Chapters 4 and 5 to illustrate the application of the FERC USOA.
Public Utility
Accounting
Chapter 4
FERC Uniform System of Accounts:
Balance Sheet Accounts
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Public Utility Accounting Page 35
Balance Sheet
The Federal Energy Regulatory Commission (FERC) Uniform System of Accounts (USOA)
provides a detailed chart of accounts for the assets, liabilities, and owners' equity of electric
utilities. These are the components of a utility's balance sheet. The balance sheet is one of the required
financial statements issued by a utility. It shows the financial condition of the utility as of the specific
point in time identified in the statement. The balance sheet summarizes the basic accounting
equation:
Assets equals Liabilities plus Owners' Equity
Stated another way:
Assets minus Liabilities equals Owners' Equity
Following are definitions' of these primary components of the balance sheet:
Assets—The rights and resources that have future benefit in use; they can be expressed
in monetary terms and are the results of enterprise transactions.
Liabilities—Obligations that must be satisfied through the disbursement of assets or
the rendering of services.
Owners' Equity—Ownership claims against the net assets of the enterprise that are
residual in nature and do not require eventual liquidation.
The third component listed above, owners' equity, is a nebulous concept as it relates to public power
systems. Because public power utilities are usually owned by a governmental entity, such as a
municipality, the net amount of the utility's assets less its liabilities represents an asset of that governmental
unit. Therefore, the ownership or equity investment in the utility belongs to the citizens of that unit.
A balance sheet trial balance for the Sample Public Power Utility, introduced in Chapter 3, is shown on the
table on the following page. This trial balance includes the non-uniform account numbers and definitions which
might be used by a similar public power utility before implementing the FERC USOA. As illustrated on the
trial balance, the three account categories described above are identified.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Page 36 Public Utility Accounting
BALANCE SHEET
TRIAL BALANCE
Sample Public Power Utility
Non-Uniform System
Account
Existing Description
Arnount
Assets
10100
Investment Pool – Operating
$1,880,000
10102
Investment Pool - Bond Sinking Fund
37,000
10300
Petty Cash
1,000
11120
Allowance for Doubtful Accounts
(5,000)
11190
Accounts Receivable – Customer Sales
900,000
11191
Accounts Receivable – Other
125.000
11300
Interest Receivable
429,000
11700
Unbilled Utility Accounts Receivable
755,000
13000
Due from Other City Funds
0
13500
Fuel Stock – Coal
173,000
13601
Stores Expense Undistributed
831,000
14310
Prepaids
6,000
15100
Electric Plant In Service
23,845,000
15200
Advances to Other Funds
44,000
15600
Completed Construction Not Classified
0
15900
Construction Work In Progress
0
16000
Accumulated Depreciation
(12,377,000)
Total Assets
$16,644,000
Liabilities
20200
Accounts Payable
$191,000
20205
Withholdings Payable
20,000
20250
Sales Tax Payable – Utilities
40,000
20435
Accrued Interest Expense
11,000
20800
Due to City Funds
83,000
22400
Accrued Vacation Payable
90,000
23500
Bonds Payable
2,200,000
Total Liabilities
$2,635,000
Fund Equity
25100
Reserve for Sinking Fund
$400,000
26200
Contributed Capital
45,000
27000
Unappropriated Retained Earnings
13,089,000
27000
Current Net Income
475,000
Total Fund Equity
$14,009,000
Total Liabilities and Fund Equity
$16,644,000
Note that on the table above that the owners’ equity portion of the trial balance is titled “Fund”
Equity. Recall the previous discussion in Chapter 2 regarding government or fund accounting
systems in which it explains that public power utilities have a different kind of ownership as they are
normally a part of a governmental unit.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Public Utility Accounting Page 37
However, the concept is the same: the net of the assets and the liabilities represents the residual equity
or value of the utility entity.
The balance sheet trial balance on the previous page indicates that the Sample Public Power Utility has
total assets of $16,644,000, total liabilities of $2,635,000, and total fund equity of $14,009,000. In the table,
net income of $475,000 (discussed in Chapter 5) must be added to the balance sheet to make the
accounting equation balance. Net income at the end of each fiscal period becomes an addition to the
retained earnings on the balance sheet because it represents new equity created during the period.
Assets and Other Debits
The assets are always shown first on the balance sheet. The primary classifications of assets as defined by the
USOA are:
Utility Plant;
Other Property and Investments;
Current and Accrued Assets; and
Deferred Debits.
Utility Plant
The table on the page that follows lists the utility plant accounts defined in the USOA. These
accounts are those in the range from 101 to 120.6. Utility Plant is the first asset category defined in
the USOA and it is normally shown first on the utility's balance sheet. The utility industry is
unique in this regard as most other industries list their long-term assets such as plant and equipment last
on their balance sheet. This difference is due to the capital intensive nature of the utility industry with
the most significant portion of that capital being invested in utility plant.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Page 38 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
1. Utility Plant
101 Electric plant in service (Major only)
101.1 Property under capital leases
102 Electric plant purchased or sold
103 Experimental electric plant unclassified
(Major only)
103.1 Electric plant in process of reclassification
(Nonmajor only)
104 Electric plant leased to others
105 Electric plant held for future use
106 Completed construction not classified—
Electric (Major only)
107 Construction work in progress—Electric
108 Accumulated provision for depreciation of
electric utility plant (Major only)
109 Reserved
110 Accumulated provision for depreciation and
amortization of electric utility plant
(Nonmajor only)
111 Accumulated provision for amortization of
electric utility plant (Major only)
112 Reserved
113 Reserved
114 Electric plant acquisition adjustments
115 Accumulated provision for amortization
electric plant acquisition adjustments (Major
only)
116 Other electric plant adjustments
118 Other utility plant
119 Accumulated provision for depreciation and
amortization of other utility plant
120.1 Nuclear fuel in process of refinement,
conversion, enrichment and fabrication
(Major only)
120.2 Nuclear fuel materials and assemblies—
Stock account (Major only)
120.3 Nuclear fuel assemblies in reactor (Major
only)
120.4 Spent nuclear fuel (Major only)
120.5 Accumulated provision for amortization of
nuclear fuel assemblies (Major only
120.6 Nuclear fuel under capital leases (Major
only)
The Utility Plant classification includes assets such as property, plant, and equipment that are used in
the utility's operations. These assets are categorized as either electric plant or as other plant.
Electric plant covers all assets that are used in the generation, transmission, and distribution of
electricity. It also includes plant and equipment that is used to support utility operations. Items such as
computers, transportation equipment, office furniture, etc. fall into this category. General plant
items are often considered as "common" plant, assets that could be shared with other types of utilities,
(such as the water department) within the utility department organization. Plant assets are
further categorized in different asset accounts depending on whether those assets are under
construction or completed, owned or leased, and in service or leased to others or held for future
use.
The other major component under the Utility Plant classification of the FERC USOA is the
provision for depreciation and amortization of property, plant and equipment. Depreciation and
amortization represent the systematic write-off of the cost of the utility plant over the applicable lives
of those assets. Depreciation relates to tangible assets and amortization is for the intangible assets.
The depreciation and amortization amounts recognized are also separated between electric
plant and other plant as are the plant investments.
Each of the USOA accounts listed are defined in detail in the Code of Federal Regulations (CFR,
Title 18, Part 101). This detail includes descriptions of some financial transactions relating to
utility plant which are to be recorded in each account. Also, the electric plant instructions reviewed
in Chapter 3 provide guidance in the proper accounting for utility plant. One of the most impor-
tant aspects of the prescribed treatment of utility plant by the FERC USOA is the requirement in the
second electric plant instruction that all electric plant acquired as an operating unit or system be
recorded at its original cost. This means that the plant is to be recorded at the cost to initially
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Public Utility Accounting Page 39
place it in service, even if by a different owner. If the operating unit or system was acquired from
another utility, the new owner must record it at the original owner's cost and recognize the difference
from the amount of the purchase as an acquisition adjustment. This feature is also unique to the util-
ity industry. Organizations in other industries record assets at their cost to acquire them and place
them into service.
The USOA also defines subsidiary account breakdowns for certain accounts within its structure.
Utility plant detail accounts are used to maintain more detailed records regarding the various
classifications of plant. The detail plant accounts, which range from 301 to 399.1, are listed by
functional areas on the next few pages. As for all accounts, the USOA provides descriptive
information regarding what is to be included in each plant account with lists of specific asset
items and components under each account description. These detail descriptions and listings of
items are supplemented by the information provided in the electric plant instructions
described in Chapter 3.
Accounting for utility plant under the FERC USOA is very detailed due to the significant impact
that plant in service can have on the ratemaking process. The USOA is fairly specific in its
definition of the level of detailed records which are to be maintained as to plant in service, how
items capitalized are to be treated related to maintenance performed and improvements made
during the assets lives, as well as, how the plant is to be recorded when it is retired from service.
All items of property are defined, in whole or in parts, as units of property (retirement units). All
assets added to or retired from service must be accounted for in the utility's detailed plant records
by retirement units within the plant detail accounts. Although the USOA provides the utilities
some latitude in defining their retirement units, it provides a definition of the minimum breakdown
that must be kept as retirement units. These retirement units are listed, by the detail plant accounts,
in the CFR, Title 18, Part 116.
UNIFORM SYSTEM OF ACCOUNTS
1. Intangible Plant
301 Organization
302 Franchises and consents
303 Miscellaneous intangible plant
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Page 40 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
2. Production Plant
A. Steam Production
310 Land and land rights.
311 Structures and improvements.
312 Boiler plant equipment.
313 Engines and engine-driven generators.
314 Turbogenerator units.
315 Accessory electric equipment.
316 Miscellaneous power plant equipment.
317 Asset retirement costs for steam production plant
B. Nuclear Production
320 Land and land rights (Major only).
321 Structures and improvements (Major only).
322 Reactor plant equipment (Major only).
323 Turbogenerator units (Major only).
324 Accessory electric equipment (Major only).
325 Miscellaneous power plant equipment (Major only).
326 Asset retirement costs for nuclear production plant
(Major only).
C. Hydraulic Production
330 Land and land rights.
331 Structures and improvements.
332 Reservoirs, dams, and waterways.
333 Water wheels, turbines and generators.
334 Accessory electric equipment.
335 Miscellaneous power plant equipment.
336 Roads, railroads and bridges.
337 Asset retirement costs for hydraulic plant
D. Other Production
340 Land and land rights.
341 Structures and improvements.
342 Fuel holders, producers, and accessories.
343 Prime movers.
344 Generators.
345 Accessory electric equipment.
346 Miscellaneous power plant equipment.
347 Asset retirement costs for other prod. Plant
UNIFORM SYSTEM OF ACCOUNTS
Transmission and Distribution Plant
3. Transmission Plant
350 Land and land rights.
351 [Reserved].
352 Structures and improvements.
353 Station equipment.
354 Towers and fixtures.
355 Poles and fixtures.
356 Overhead conductors and devices.
357 Underground conduit.
358 Underground conductors and devices.
359 Roads and trails.
359.1 Asset retirement costs for transmission plant
4. Distribution Plant
360 Land and land rights.
361 Structures and improvements.
362 Station equipment.
363 Storage battery equipment.
364 Poles, towers and fixtures.
365 Overhead conductors and devices.
366 Underground conduit.
367 Underground conductors and devices.
368 Line transformers.
369 Services.
370 Meters
371 Installation on customers' premises.
372 Leased property on customers' premises.
373 Street lighting and signal systems.
374 Asset retirement costs for distribution
plant.
UNIFORM SYSTEM OF ACCOUNTS
5. Regional Transmission and Market Operation Plant
380 Land and land rights.
381 Structures and improvements.
382 Computer hardware.
383 Computer software.
384 Communication equipment.
385 Miscellaneous regional transmission and
market operation plant.
386 Asset retirement costs for regional
transmission and market operation plant.
387 Reserved.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Public Utility Accounting Page 41
UNIFORM SYSTEM OF ACCOUNTS
6. General Plant
389 Land and land rights.
390 Structures and improvements.
391 Office furniture and equipment.
392 Transportation equipment.
393 Stores equipment.
394 Tools, shop and garage equipment.
395 Laboratory equipment.
396 Power operated equipment.
397 Communication equipment.
398 Miscellaneous equipment.
399 Other tangible property.
399.1 Asset retirement costs for general plant.
The accounting for utility plant is complex. This brief discussion provides a basic introduction to
the level of detail that is required by the USOA.
Other Property and Investments
The second classification of assets included on the balance sheet of an electric utility is Other
Property and Investments. The table below presents the accounts defined in the USOA in this
classification which includes accounts in the range of 121 to 129. These accounts generally
include assets that are long-term in nature similar to utility plant. Accounts are provided for
nonutility property and the related depreciation and amortization account. Nonutility
property includes assets that may be categorized as property, plant, and equipment. These assets
are often held for investment purposes. Likewise, this classification includes long-term investments in
other companies and equity in affiliated companies. Accounts are also provided for recording cash
investments that have been established and segregated for specific long-term purposes such as
bond sinking funds and plant renewals and replacements.
UNIFORM SYSTEM OF ACCOUNTS
2. Other Property and Investments
121 Nonutility property.
122 Accumulated provision for depreciation and
amortization of nonutility property.
123 Investment in associated companies (Major
only).
123.1 Investment in subsidiary companies (Major
only).
124 Other investments.
125 Sinking funds (Major only).
126 Depreciation fund (Major only).
127 Amortization fund – Federal (Major only).
128 Other special funds (Major only).
129 Special funds (Nonmajor only).
Public power utilities will primarily use this classification for the recording of these specific-
purpose funds. For those utilities that are part of a municipal government organization, non-utility
property and other types of general investments are likely to be considered activities of the other city
departments such as the city finance department.
Current and Accrued Assets
Current assets follow the long-term assets on the utility balance sheet. Current assets are cash and
other liquid assets that can reasonably be expected to be converted to cash, sold or consumed
within one year or the normal operating cycle, whichever is longer. This normally includes cash,
short-term investments, receivables, inventories, and prepaid expenses. The table below shows
the accounts in the USOA for current and accrued assets with numbers ranging from 130 to 176.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Page 42 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
3. Current and Accrued Assets
130 Cash and working funds (Nonmajor only).
131 Cash (Major only).
132 Interest special deposits (Major only).
133 Dividend special deposits (Major only).
134 Other special deposits (Major only).
135 Working funds (Major only).
136 Temporary cash investments.
141 Notes receivable.
142 Customer accounts receivable.
143 Other accounts receivable.
144 Accumulated provision for uncollectible
accounts - credit.
145 Notes receivable from associated companies.
146 Accounts receivable from associated companies
151 Fuel stock (Major only).
152 Fuel stock expenses undistributed (Major only).
153 Residuals (Major only).
154 Plant materials and operating supplies.
155 Merchandise (Major only).
156 Other materials and supplies (Major only).
157 Nuclear materials held for sale (Major only).
158.1 Allowance inventory.
158.2 Allowances withheld.
163 Stores expense undistributed (Major only).
165 Prepayments.
171 Interest and dividends receivable
(Major only).
172 Rents receivable (Major only).
173 Accrued utility revenues (Major only).
174 Miscellaneous current and accrued assets.
175 Derivative instrument assets.
176 Derivative instrument asset - Hedges
As was indicated previously, the current assets and the other asset classifications are secondary to the
utility plant classification due to the magnitude of a utility's investment in plant. It was also men-
tioned that this is unique to the utility industry. An important account in Current and Accrued
Assets is fuel stock. This inventory account is crucial to the accounting for generation expense.
Deferred Debits
The final classification of assets on the balance sheet is the deferred debits. Deferred debits include various costs
which are accumulated for later accounting treatment. Figure 4-8 provides the deferred debit accounts
defined in the USOA. These accounts range from 181 through 190.
UNIFORM SYSTEM OF ACCOUNTS
4. Deferred Debits
181 Unamortized debt expense.
182.1 Extraordinary property losses.
182.2 Unrecovered plant and regulatory study costs.
182.3 Other regulatory assets.
183 Preliminary survey and investigation charges
(Major only).
184 Clearing accounts (Major only).
185 Temporary facilities (Major only).
186 Miscellaneous deferred debits.
187 Deferred losses from disposition of utility
plant.
188 Research, development, and demonstration
expenditures (Major only).
189 Unamortized loss on reacquired debt.
190 Accumulated deferred income taxes.
The prime example of a deferred debit is Clearing accounts. Specific clearing accounts can be
established to record all costs associated with particular events or activities. Then, at a later time such
as month end, those costs accumulated in each clearing account are transferred to an array of other asset
and expense accounts based on some defined allocation methodology. For example, a clearing
account may be created for accumulating the costs of owning and operating a vehicle fleet utilized by the
electric utility. Those costs might include gas, oil, maintenance, depreciation, and repairs. At the end
of each month, the costs accumulated in the clearing account would be cleared by transferring
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Public Utility Accounting Page 43
them to a work in progress (capital) account or the operations and maintenance expense accounts
(discussed in Chapter 5) which represent the functional activities the vehicles were used to accomplish.
The costs might be allocated to those activities based on the ratio of the miles driven for each activity to the
total of all miles driven.
Liabilities and Owners' Equity
The other half of the balance sheet provides the detail of the capitalization of an entity in support of its assets in
the form of liabilities and owners' equity. The FERC USOA identifies the following classifications for this
part of the balance sheet:
Proprietary Capital;
Long-term Debt;
Other Noncurrent Liabilities;
Current and Accrued Liabilities; and
Deferred Credits.
Proprietary Capital
Proprietary capital is the equity of the entity. For an investor-owned utility, this equity is represented by the
capital paid in by its shareholders plus the undistributed earnings from the operations of the utility that
accumulate over time. For a public power utility, since there are no shareholders, the equity is limited
to undistributed earnings accumulated from its operations.
The table below lists the proprietary capital accounts, numbers 201 to 219, from the USOA. Note
that most of the accounts are related to common and preferred stocks. The accumulated earnings are
identified only as appropriated or unappropriated. Since public power utilities do not have private
ownership, the stock accounts would not be used. Therefore, the only proprietary capital most
public power systems would normally have would be in the retained earnings accounts.
UNIFORM SYSTEM OF ACCOUNTS
5. Proprietary Capital
201 Common stock issued
202 Common stock subscribed (Major only).
203 Common stock liability for conversion (Major
only).
204 Preferred stock issued.
205 Preferred stock subscribed (Major only).
206 Preferred stock liability for conversion (Major
only).
207 Premium on capital stock (Major only).
208 Donations received from stockholders (Major
only).
209 Reduction in par or stated value of capital
stock (Major only).
210 Gain on resale or cancellation or reacquired
capital stock (Major only).
211 Miscellaneous paid-in capital.
212 Installments received on capital stock.
213 Discount on capital stock.
214 Capital stock expense.
215 Appropriated retained earnings.
215.1 Appropriated retained earnings–
Amortization reserve, federal.
216 Unappropriated retained earnings.
216.1 Unappropriated undistributed
subsidiary earnings (Major only).
217 Reacquired capital stock.
218 Noncorporate proprietorship
(Nonmajor only).
219 Accumulated other comprehensive
income.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Page 44 Public Utility Accounting
Long-term Debt
The long-term debt accounts of the USOA that range from 221 to 226 are shown in the table
below. These accounts provide for recording of the principal of bond indebtedness issued by
the utility. Bond issuance premiums and discounts also fall into this classification. Although there
are provisions for additional forms of long-term debt, the revenue bonds or first mortgage bonds
are the most often used debt financing vehicle by public power systems. General instruction 17,
discussed in Chapter 3, requires that each debt issue be recorded in separate accounts by series.
UNIFORM SYSTEM OF ACCOUNTS
Liabilities and Other Credits
6. Long-term Debt
221 Bonds.
222 Reacquired bonds (Major only).
223 Advances from associated companies.
224 Other long-term debt.
225 Unamortized premium on long-term debt.
226 Unamortized discount on long-term debt -
debit.
7. Other Noncurrent Liabilities
227 Obligations under capital lease-non-
current.
228.1 Accumulated provision for property
insurance.
228.2 Accumulated provision for injuries
and damages.
228.3 Accumulated provision for pensions
and benefits.
228.4 Accumulated misc. operating
provisions.
229 Accumulated prov. for rate refunds
230 Asset retirement obligations.
Other Noncurrent Liabilities
The FERC USOA provides a brief series of account numbers from 227 through 230, as listed in the
table above, for various special other noncurrent liabilities. These accounts are primarily for recording
estimates of future liabilities in several categories. Account 228 is defined in the USOA to have four sub-
accounts from 228.1 to 228.4. These accounts are to be used to accumulate expense provisions for items such
as losses to property and personal injuries not covered by insurance, and not expected to be paid in one year.
The USOA provides a special instruction that the 228 accounts are to be used only when authority is granted
to recover the amounts recorded therein through the utility's rates. Use of account 229 is also subject to
utility rate provisions as it is to be used for establishing reserves for refunds of revenues collected
based on rates which include amounts subject to refund. Another noncurrent liability account, 227, is
intended to provide for the special provisions of accounting for capital leases. General instruction
numbers 19 and 20 discussed in Chapter 3 describe the use of this special account.
Current and Accrued Liabilities
Current liabilities follow the capitalization and long-term liabilities on the utility balance sheet.
Current liabilities include obligations that can reasonably be expected to be liquidated or converted to
other current liabilities within one year or the normal operating cycle, whichever is longer. This
normally includes accounts payable, current debt instruments or the current portion of long-term debt, and
liabilities for items such as customer deposits, interest costs, and taxes. The table below shows the accounts in
the USOA for current and accrued liabilities that range from 231 to 245.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Public Utility Accounting Page 45
UNIFORM SYSTEM OF ACCOUNTS
8. Current and Accrued Liabilities
231 Notes payable.
232 Accounts payable.
233 Notes payable to associated companies.
234 Accounts payable to associated companies.
235 Customer deposits.
236 Taxes accrued.
237 Interest accrued.
238 Dividends declared (Major only).
239 Matured long-term debt (Major only).
240 Matured interest (Major only).
241 Tax collections payable (Major only).
242 Miscellaneous current and accrued
liabilities.
243 Obligations under capital leases-current.
244 Derivatives instrument liabilities.
245 Derivative instrument liabilities-Hedges.
Deferred Credits
The final classification of liabilities on the balance sheet is the deferred credits. Deferred
credits include various obligations for which the utility is liable, but are not expected to be paid
within one year. The table below provides the deferred credit accounts defined in the USOA.
These accounts are in the range of 251 through 283. The accounts in this classification primarily
relate to deferred tax obligations due to differences in the timing of recognition of certain items
for income tax return presentation versus financial statement presentation.
The account in this classification which is most likely to be used by public power utilities is account 252,
Customer advances for construction. This is a liability for monies contributed by customers, (as a deposit for
utility construction) that are refundable, either wholly or partially. Any nonrefundable balance
must be credited to the proper plant account corresponding to the type of plant constructed. This type
of security on the investment in facilities is used by larger utilities and some public power systems follow
this practice as well.
UNIFORM SYSTEM OF ACCOUNTS
9. Deferred Credits
251 Reserved.
252 Customer advances for construction.
253 Other deferred credits.
254 Other regulatory liabilities.
255 Accumulated deferred investment tax credits.
256 Deferred gains from disposition of utility
plant.
257 Unamortized gain on reacquired debt.
281 Accumulated deferred income taxes-
accelerated amortization property.
282 Accumulated deferred income taxes-
other property.
283 Accumulated deferred income taxes-
Other.
A USOA Balance Sheet
At the beginning of this Chapter a balance sheet trial balance for the Sample Public Power Utility was
presented. This trial balance lists the non-uniform accounts which might be used by a small public
power utility for keeping track of its assets, liabilities, and owners' equity. Now that the accounts defined in the
FERC USOA for the balance sheet classifications have been introduced, the table on the following page is
provided to demonstrate how the Sample Public Power Utility's balance sheet trial balance might compare.
Notice how few of the accounts from the USOA are used by this utility. This indicates that the USOA
provides for a significantly greater level of detail in recording the financial activity of a utility. Also, note that
on the table below the FERC account numbers have been expanded to five digits by adding zeroes to the right
as a subaccount number. This allows the utility to maintain additional detailed accounting information beyond
what is required by the USOA.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Page 46 Public Utility Accounting
BALANCE SHEET TRIAL BALANCE - ACCOUNT CONVERSION
Sample Public Power Utility
Non-Uniform System
FERC Uniform System of Accounts
Account
Existing Description
Account
FERC Description
Amount
Assets
10100
Invest Pool – Operating
13600
Temporary Cash Investments
$1,880,000
10102
Invest Pod - Bond Sinking Fund
13400
Other Special Deposits
37,000
10303
Petty Cash
13500
Working Funds
1,000
11120
Allowance for Doubtful Accounts
14400
Accumulated Provision for Uncollectible
Accounts – Credit
(5,000)
11190
Accounts Receivable - Customer Sales
14200
Customer Accounts Receivable
900,000
11191
Accounts Receivable – Other
14300
Other Accounts Receivable
125,000
11300
Interest Receivable
17100
Interest and Dividends Receivable
429,000
11700
Unbilled Utility Accounts Receivable
17300
Accrued Utility Revenues
755,000
13000
Due from Other City Funds
14610
Accounts Receivable from Associated
Companies
0
13500
Fuel Stock – Coal
15100
Fuel Stock
173,000
13601
Stores Expense Undistributed
16300
Stores Expense Undistributed
831,000
14310
Prepaids
16500
Prepayments
6,000
15100
Electric Plant In Service
10100
Electric Plant In Service
23,845,000
15200
Advances to Other Funds
14500
Notes Receivable from Associated Companies
44,000
15600
Completed Construction Not Classified
10600
Completed Construction Not Classified -
Electric
0
15900
Construction Work In Progress
10700
Construction Work In Progress - Electric
0
16000
Accumulated Depreciation
10800
Accumulated Provision for Depreciation of
Electric Plant
(12,377,000)
Total Assets
$16,644,000
Liabilities
20200
Accounts Payable
23200
Accounts Payable
$191,000
20205
Withholdings Payable
24200
Miscellaneous Current and Accrued Liabilities
20,000
20250
Sales Tax Payable – Utiltiies
24100
Tax Collections Payable
40,000
20435
Accrued Interest Expense
23700
Interest Accrued
11,000
20800
Due to City Funds
23400
Accounts Payable to Other City Funds
83,000
22400
Accrued Vacation Payable
24200
Miscellaneous Current and Accrued Liabilities
90,000
23500
Bonds Payable
22100
Bonds
2,200,000
Total Liabilities
$2,635,000
Fnd Equity
25100
Reserve for Sinking Fund
25300
Other Deferred Credits
$400,000
24200
Contributed Capital
20700
Premium on Capital Stock
45,000
27000
Unappropriated Retained Earnings
21600
Unappropriated Retained Earnings
13.089,000
27030
Current Net Income
21600
Current Net Income
475,000
Total Fund Equity
$14,039,000
Total Liabilities and Fund Equity
$16,644,000
A formal balance sheet format similar to one used by many utilities, is presented on the following page. It
includes notations for each line item of the USOA accounts. Although the FERC USOA does not
require a specific format for the balance sheet, most utilities present their balance sheet similar to this format.
Chapter 4—FERC Uniform System of Accounts: Balance Sheet Accounts
Public Utility Accounting Page 47
Assets and Other Debits: FERC USOA Accounts Amount
Utility Plant
Electric Utility Plant In Service 101-106, 116, 118, 120.1-120.4, 120.6 23,845,000$
Less: Accumulated Depreciation 108-111, 114, 115, 119, 120.5 (12,377,000)
Net Plant in Service 11,468,000$
Construction Work In Progress 107 -
Net Electric Utility Plant 11,468,000$
Other Property and Investments 121-129 -$
Current and Accrued Assets
Cash and Short-term Investments 130-136 1,918,000$
Receivables
Notes 141 -
Customers, Less Doubtful Accounts 142, 144 895,000
Interfund 145, 146 44,000
Other 143, 171-173 1,309,000
Inventories
Fuel 151-152 173,000
Materials and Supplies 153-157, 163 831,000
Allowances 158 -
Prepayments 165 6,000
Total Current and Accrued Assets 5,176,000$
Other Assets 181-190 -$
Total Assets and Other Debits 16,644,000$
Liabilities and Other Credits
Capitalization
Equity
Paid-in Capital 201-214, 217, 218 -$
Retained Earnings 215, 216 (Includes current net income $475k)- 13,609,000
Long-term Debt 221-226 2,200,000
Total Capitalization 15,809,000
Other Noncurrent Liabilities 227-229 -
Current and Accrued Liabilities
Payables
Notes 231 -$
Accounts 232 191,000
Interfund 233, 234 83,000
Customer Deposits 235 -
Accrued Taxes 236 -
Accrued Interest 237 11,000
Dividends Declared 238 -
Current Maturities of Long-term Debt 239 -
Tax Collections Payable 241 -
Other 242, 243 150,000
Total Current and Accrued Liabilities 435,000$
Other Liabilities 252-283 400,000$
Total Liabilities and Other Credits 16,644,000
BALANCE SHEET
Sample Public Power Utility
Public Utility
Accounting
Chapter 5
FERC Uniform System of Accounts:
Income Statement Accounts
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 51
Income Statement
In Chapter 4, the balance sheet accounts defined in the Federal Energy Regulatory Commission
(FERC) Uniform System of Accounts (USOA) for use by electric utilities were presented. This chapter
will present the USOA accounts associated with the utility income statement.
Similar to the balance sheet, the income statement is one of the required financial statements issued
periodically by utilities. It reports the net operating results of the utility over a specified period of time,
usually in the form of net income. The USOA defines accounts for utility revenues and expenses. These
are the components used to derive the utility's net income on the income statement. Following are
definitions of these primary components of the income statement:
Revenues - Increases in net assets arising from services rendered or products sold.
Expenses - Asset costs that expire in an attempt to obtain revenues.
Income - Excess of the revenues over expenses for a given period of time.
An income statement trial balance for the Sample Public Power Utility is provided over the next two
pages. Similarly to the balance sheet trial balance shown in Chapter 4, the trial balance presented here
reflects the account assignment which might be in use by a public power utility which does not follow the
FERC system today. The pages present the account breakdown of the utility's revenues and expenses,
with the expense detail shown by department. The Sample Public Power Utility has total revenues of
$9,284,000 and total expenses of $8,809,000, resulting in net income of $475,000. This net income
corresponds with the amount of net income as discussed in Chapter 4 covering the balance sheet. At the
fiscal year end, the net income amount is transferred to retained earnings, resulting in both the balance
sheet and income statement trial balances being “in balance.”
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 52 Public Utility Accounting
INCOME STATEMENT TRIAL BALANCE
Sample Public Power Utility
Non-Uniform System
Account
Existing Description
Amount
Revenues-
35000
Residential Sales
$2,337,000
35001
Commercial Sales
2,931,000
35002
Industrial Sales
3,124,000
35009
City Department Sales
229,000
35010
Interdepartmental Sales
324,000
36210
Interest on Pooled Operating Cash
152.000
37000
Customer Forfeited Discounts
25,000
37003
Sale of Assets
1,000
37050
Bad Debts Recoveries
1,000
37058
Misc. Sales – Other
150,000
37065
Reconnection Charges
8,000
37090
Other Revenue
2,000
Total Revenues
$9,284,000
Expenses -
Dept. 11 - Electric Production
7008
Supervision and Engineering
$453,000
7100
Vehicle Expense
2,000
7600
Fuel – Coal
46,000
7601
Fuel – Gas
2,626,000
7620
Station Expenses – Boiler Plant
10,000
7625
Station Expenses – Cooling Tower
140,000
7655
Supplies
1,000
7656
Plant – Water
108,000
7657
Plant – Steam
6,000
7659
Plant – Sewer
26,000
7775
Coal Handling Costs
2,000
8050
Buildings
1,000
8101
Boiler Plant
220,000
8102
Electric Plant
172,000
8640
Small Tools and Equipment
4,000
8650
Supplies
1,000
8900
Maintenance - Miscellaneous
7,000
9000
Depreciation
325,000
9050
Purchased Power
2,183,000
Total Department 11
$6,333,000
Expenses-
Dept. 13 - Electric Distribution
7008
Supervision and Engineering
$35,000
7100
Vehicle Expense
15,000
7640
Customer Service Expense
11,000
7655
Supplies
1,000
7660
Safety Equipment
5,000
7700
Miscellaneous Operation Costs
2,000
8000
Supervision and Engineering
35,000
8050
Buildings
4,000
8620
Station Equipment
1,000
8621
Overhead Lines
130,000
8622
Underground Lines
46,000
8630
Street Lighting and Signal Systems
36,000
8635
Meters
32,000
8640
Line Transformers
6,000
8645
Tools and Equipment
16,000
8900
Miscellaneous
2,000
8950
PCB Testing and Disposal
17,000
9000
Depreciation
298,000
Total Department 13
$692,000
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 53
INCOME STATEMENT TRIAL BALANCE
Sample Public Power Utility
Non-Uniform System
Account
Existing Description
Amount
Expenses -
Dept. 14 – Customer Accounts
7600
Customer Account Costs
$64,000
7650
Uncollectible Accounts
3,000
Total Department 14
$67,000
Expenses-
Dept. 15 – Administration and General
7005
PERA
$62,000
7006
Social Security
63,000
7007
Health and Life Insurance
117,000
7009
Medicare
15,000
7028
Administrative and General
285,000
7029
Data Processing Service
78,000
7030
Office Supplies and Expenses
1,000
7033
Administration – Subscriptions and Memberships
7,000
7034
Travel, Conferences and Schools
2,000
7036
Fire and Extended Coverage Insurance
48,000
7037
Worker’s Compensation
27,000
7038
Communications
5,000
7039
Legal Fees
1,000
7040
Transfer to City
489,000
7041
General Liability Insurance
46,000
7042
Vehicle Insurance
4,000
7044
Boiler and Machinery Insurance
44,000
7050
Vacation, Sick and Other Pay
178,000
7055
Cost of Sales – Private Customer
68,000
7058
Cost of Sales - Other
1,000
7060
Miscellaneous General Expenses
1,000
7080
Permits, Fees and Leases
9,000
7085
Obsoletes/Surplus Inventory
4,000
8450
Office furniture and Equipment
1,000
8800
Building
1,000
9001
Interest Expense - Bonds
144,000
9005
Consultant Fees
14,000
9065
Bond Discount
2,000
Total Department 15
$1,717,000
Expenses-
Dept. 16 – Capital Outlays
5005
Buildings
$5,000
5010
Machinery and Equipment
27,000
5015
Vehicles
16,000
5020
Tools and Work Equipment
22,000
5025
Office Furniture and Equipment
2,000
5050
Improvements – Computer Mapping
4,000
5100
Construction Work In Progress
28,000
5302
Meters and Regulators
30,000
5305
Overhead Conductors and Devices
56,000
5306
Underground Conductors and Devices
151,000
5307
Downtown Mall Project - PUC
15,000
5308
South Substation
146,000
5309
Boiler Plant Improvements
40,000
5350
Line Transformers and Switches
75,000
5355
69 KV Transmission Line (East)
5,000
5356
69 KV Transmission Line (West)
14,000
5360
Northside Substation
157,000
5391
Capitalization of Fixed Assets
(793,000)
Total Department 16
$0
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 54 Public Utility Accounting
The primary classifications of revenues and expenses on the income statement as defined in the USOA include
the following:
Utility Operating Income;
Other Income and Deductions;
Interest Charges; and
Extraordinary Items.
Utility Operating Income
The Utility Operating Income portion of the FERC USOA identifies both the revenue and expense
accounts which relate to a utility's basic operations to provide electric service to its customers. The
Utility Operating Income accounts are netted together on the income statement to calculate the net operating
income of the utility's operations. For utilities which are rate regulated, the net operating income on the
utility income statement serves as the delineation between expenses which are generally allowed by
regulators to be recovered by the utility through its retail rates and those expenses which are not. The
recovery of these costs is based on the direct relation of the costs to the utility's ability to provide electric
utility service to the customers. This is referred to as the above- and below-the-line concept. Expenses
included in the accounts under the Utility Operating Income classification are considered to be above-
the-line. Those expenses which fall in accounts in the other income statement classifications are
considered to be below-the-line. Many public power systems follow this same concept in establishing the
rates charged to their customers.
On the following page, the accounts in the range from 400 through 414 are listed, with their titles as
prescribed in the USOA. These accounts make up the Utility Operating Income classification. Each of the
accounts from 408 through 411 are defined with one-digit sub-accounts which allows for multiple sub-
categories within the three-digit primary accounts.
It is important to note the disparity in the specificity of the accounts defined in this Utility Operating
Income section of the USOA. Operating revenues, operation expenses, and maintenance expenses
represent very broad categories of financial events for utilities whereas accounts such as account 412,
Revenues from electric plant leased to others, are very specific. This will become more evident as
the discussion of these accounts continues.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 55
UNIFORM SYSTEM OF ACCOUNTS
1. Utility Operating Income
400 Operating revenues.
401 Operation expense.
402 Maintenance expense.
403 Depreciation expense.
404 Amortization of limited-term electric plant.
405 Amortization of other electric plant.
406 Amortization of electric plant acquisition
adjustments.
407 Amortization of property losses, unrecovered
plant and regulatory study costs.
407.3 Regulatory debits.
407.4 Regulatory credits.
408 Reserved.
408.1 Taxes other than income taxes, utility
operating income.
409 Reserved.
409.1 Income taxes, utility operating income.
410 Reserved.
410.1 Provisions for deferred income taxes,
utility operating income.
411 Reserved.
411.1 Provision for deferred income taxes-
Credit, utility operating income.
411.3 Reserved.
411.4 Investment tax credit adjustments,
utility operations.
411.6 Gains from disposition of utility plant.
411.7 Losses from disposition of utility plant.
411.8 Gains from disposition of allowances.
411.9 Losses from disposition of allowances.
412 Revenues from electric plant leased to
others.
413 Expenses of electric plant leased to
others.
414 Other utility operating income.
Operating Revenues
The first account listed in the table above is account 400, Operating Revenues. As the title
of this account implies, it is used to accumulate the dollars earned through the provision of
normal electric utility service and the performance of electric utility functions. As was
mentioned above, this is a broad definition which does not, by itself, provide any level of detailed
information about the revenues of an electric utility. However, similar to the detail provided
for accounting for utility plant as discussed in Chapter 4, the USOA also provides a subsidiary
account breakdown of utility operating revenues. Figure 5-2 shows this detail account definition
for revenues.
The table on the following page presents two categories of revenues: Sales of Electricity and Other
Operating Revenues. The accounts for sales of electricity are in the range from 440 to 449.1
and provide a breakdown of the revenues according to the common classifications of
customers served by utilities, i.e. residential, commercial, etc. Therefore, these accounts
are to include the revenues earned for the actual provision of electricity to the end-use
customer. The amounts recorded in these accounts should represent the product of the
applicable utility rates per unit of electricity and the number of electricity units, either energy
in kilowatt hours (kWh) or demand in kilowatts (kW). They also include other amounts billed
to the customer related to the recovery of the costs of providing electric service, such as cus-
tomer service and facilities charges, when the amounts of those charges are defined in the
rate schedules. The items included in accounts 450 through 457.2 for Other Operating
Revenues represent various other types of revenues realized by an electric utility in the course
of its operations that do not result from the direct sale of electricity. Examples of items in this
category include bill payment discounts missed by customers, rental income received on utility
property, sales of water and water power, and compensation for transmission service for
electricity of other parties.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 56 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
Operating Revenues
1. Sales of Electricity
440 Residential sales.
442 Commercial and industrial sales.
444 Public street and highway lighting.
445 Other sales to public authorities (Major ony).
446 Sales to railroads and railways (Major only).
447 Sales for resale.
448 Interdepartmental sales.
449 Other sales (Nonmajor only).
449.1 Provisions for rate refunds.
2. Other Operating Revenues
450 Forfeited discounts.
451 Miscellaneous service revenues.
453 Sales of water and water power.
454 Rent from electric property.
455 Interdepartmental rents.
456 Other electric revenues.
456.1 Revenues from transmission of electricity.
457.1 Regional transmission service revenues.
457.2 Miscellaneous revenues.
Operation and Maintenance Expenses
The two accounts which follow operating revenues on the list under Utility Operating Income
on the table on the previous page are accounts 401, Operation expense and 402, Maintenance
expense. Operation expenses are the expenditures required on an ongoing basis to support
the day-to-day operational activities of the utility. Maintenance expenses are the
expenditures related to the upkeep of the capital plant, property, and equipment to ensure its
capability to continue its intended function in support of the ongoing operations of the
utility.
The USOA also provides ranges of detail accounts which are subsidiary to the operations
and maintenance accounts. Both the operation and the maintenance expense account
numbers fall within the ranges of 500 to 598 and 901 to 935. However, the accounts in these
ranges are organized in the FERC USOA on a utility function basis. Therefore, the operation
and the maintenance detail accounts for each function fall in subsets of the ranges previously
mentioned.
These functional areas and the corresponding account ranges are as follows:
Operations Maintenance
Function Accounts Accounts
Steam Power Generation 500-509 510-515
Nuclear Power Generation 517-525 528-532
Hydraulic Power Generation 535-540.1 541-545.1
Other Power Generation 546-550.1 551-554.1
Other Power Supply 555-557
Transmission 560-567.1 568-574
Regional Market Expenses 575.1-575.8 576.1-576.5
Distribution 580-589 590-598
Customer Accounts 901-905
Customer Service & Info. 906-910
Sales 911-917
Administrative & General 920-933 935
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 57
The 500 series accounts include all of the direct electric operations and maintenance expenses
and the 900 series accounts provide for the utility customer service and administration
activities. There are no maintenance accounts associated with the other power supply, customer
accounts, customer service, and sales functions because the USOA assumes that no utility plant is
associated with these activities. Detail account listings for each of the above electric utility
functional areas are listed on the next few pages.
As can be seen from the detailed listings, expenses associated with the generation of
electricity are separated into four categories based on the general technologies for producing
power, i.e. steam (fossil), nuclear, hydro, and other (generally combustion technologies but
this represents an area that is expanding with newer technologies). The accounts listed
under operations and under maintenance in each of these functional classifications are
similar. However, the USOA assigns unique account numbers to each not only to allow for
separate accounting of each technological area, but also to tailor the account descriptions
to include appropriate terminology and special nuances for each. In regard to the accounts
for power production, many small public power utilities will only need to use the last group
of accounts because they purchase all of their system energy requirements. Those utilities
that have only small amounts of generating capacity, usually natural gas or oil-fired peaking
units, also use the accounts in the Other Power Generation category. Although the steam
(fossil), nuclear, and hydro categories apply to some public power systems, those accounts are
less likely to be used by smaller utilities than the Other Power Generation and Other Power
Supply Expenses accounts.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 58 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
1. Power Production Expenses – Steam Power Generation
Operation
500 Operation supervision and engineering.
501 Fuel.
502 Steam expenses (Major only).
503 Steam from other sources.
504 Steam transferred - Credit.
505 Electric expenses (Major only).
506 Miscellaneous steam power expenses
(Major only).
507 Rents.
508 Operation supplies and expenses
(Nonmajor only).
509 Allowances.
Maintenance
510 Maintenance supervision and engineering
(Major only).
511 Maintenance of structures (Major only).
512 Maintenance of boiler plant (Major only).
513 Maintenance of electric plant (Major only).
514 Maintenance of miscellaneous steam plant
(Major only).
515 Maintenance of steam production plant
(Nonmajor only).
UNIFORM SYSTEM OF ACCOUNTS
1. Power Production Expenses – Nuclear Power Generation
Operation
517 Operation supervision and engineering
(Major only).
518 Nuclear fuel expense (Major only).
519 Coolants and water (Major only).
520 Steam expenses (Major only).
521 Steam from other sources (Major only).
522 Steam transferred – Credit (Major only).
523 Electric expenses (Major only).
524 Miscellaneous nuclear power expenses
(Major only).
525 Rents (Major only).
Maintenance
528 Maintenance supervision and engineering
(Major only).
529 Maintenance of structures (Major only).
530 Maintenance of reactor plant equipment
(Major only).
531 Maintenance of electric plant (Major only).
532 Maintenance of miscellaneous nuclear plant
(Major only).
UNIFORM SYSTEM OF ACCOUNTS
1. Power Production Expenses – Hydraulic Power Generation
Operation
535 Operation supervision and engineering.
536 Water for power.
537 Hydraulic expenses (Major only).
538 Electric expenses (Major only).
539 Miscellaneous hydraulic power
generation expenses (Major only).
540 Rents.
540.1 Operation supplies and expenses
(Nonmajor only).
Maintenance
541 Maintenance supervision and engineering
(Major only).
542 Maintenance of structures (Major only).
543 Maintenance of reservoirs, dams and
waterways (Major only).
544 Maintenance of electric plant (Major only).
545 Maintenance of miscellaneous hydraulic
plant (Major only).
545.1 Maintenance of hydraulic production
plant (Nonmajor only).
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 59
UNIFORM SYSTEM OF ACCOUNTS
1. Power Production Expenses – Other Power Generation
Operation
546 Operation supervision and engineering.
547 Fuel.
548 Generation expenses (Major only).
549 Miscellaneous other power generation
expenses (Major only).
550 Rents.
550.1 Operation supplies and expenses
(Nonmajor only).
Maintenance
551 Maintenance supervision and engineering
(Major only).
552 Maintenance of structures (Major only).
553 Maintenance of generating and electric
plant (Major only).
554 Maintenance of miscellaneous other power
generation plant (Major only).
554.1 Maintenance of other power production
plant (Nonmajor only).
UNIFORM SYSTEM OF ACCOUNTS
1. Power Production Expenses – Other Power Supply Expenses
Operation
555 Purchased power.
556 System control and load dispatching
(Major only).
557 Other expenses
Detailed within the tables that follow are the USOA accounts in the transmission, regional
market, and distribution functional areas. There is a significant amount of duplication between
the operation and maintenance accounts defined for transmission and those defined for
distribution. This is because many of the activities in these two utility functions are similar. For
example, transmission operation account 563, Overhead line expenses, and distribution
operation account 583, Overhead line expenses, include the same types of activities except
that they apply to different utility functions. The transmission function includes all plant
from the point of generation or receipt of power supply to the entrance to the
distribution system. The distribution system includes all other plant required for delivery of
power to customers. There also are similarities within each of the two functions between the
operation accounts and the maintenance accounts. For example, distribution operation account
583, Overhead line expenses, and distribution maintenance account 593, Maintenance of overhead
lines, represent different types of activities but all apply to the distribution system. Most of the
distribution accounts apply to all public power utilities. The same is true for the transmission
expenses of those utilities that have transmission facilities.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 60 Public Utility Accounting
UNIFORM SYSTEM OF ACCOUNTS
2.Transmission Expenses
Operation
Maintenance
560
Operation supervision and engineering.
568
Maintenance supervision and engineering
561.1
Load dispatch – Reliability.
(Major only).
561.2
Load dispatch – Monitor and operate
569
Maintenance of structures (Major only).
transmission system.
569.1
Maintenance of computer hardware.
561.3
Load dispatch – Transmission service
569.2
Maintenance of computer software.
and scheduling.
569.3
Maintenance of communication equip-
561.4
Scheduling, system control and
ment.
dispatch services.
569.4
Maintenance of miscellaneous regional
561.5
Reliability planning and standards
transmission plant.
development.
570
Maintenance of station equipment (Major
561.6
Transmission service studies.
only).
561.7
Generation interconnection studies.
571
Maintenance of overhead lines (Major only).
561.8
Reliability planning and standards
572
Maintenance of underground lines (Major
development services.
only).
562
Station expenses (Major only).
573
Maintenance of miscellaneous transmission
563
Overhead line expense (Major only).
plant (Major only).
564
Underground line expenses (Major only).
574
Maintenance of transmission plant
565
Transmission of electricity by others
(Nonmajor only).
(Major only).
566
Misc. transmission expenses (Major only).
567
Rents.
567.1
Operation supplies & expenses (Nonmajor).
UNIFORM SYSTEM OF ACCOUNTS
3. Regional Market Expenses
Operation
Maintenance
575.1
Operation supervision.
576.1
Maintenance of structures and improve-
575.2
Day-ahead and real time market
ments.
administration.
576.2
Maintenance of computer hardware.
575.3
Transmission rights market
576.3
Maintenance of computer software.
administration.
576.4
Maintenance of communication
575.4
Capacity market administration.
equipment.
575.5
Ancillary services market
576.5
Maintenance of miscellaneous market
administration.
operation plant.
575.6
Market monitoring and compliance.
575.7
Market facilitation, monitoring and
compliance services.
575.8
Rents.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 61
The functional categories of expenses included in the accounts listed in the tables below are
more administration oriented and the activities covered by these accounts are generally not con-
sidered to be part of the production and delivery of electricity. However, these customer
service and administrative expenses are part of the overall operations required by the utility to
serve its customers. The accounts in the Customer accounts expenses function represent
common customer service administrative activities. However, the Customer service and
informational expenses and Sales expenses categories are not used as frequently by public
utilities similar to the Sample Public Power Utility. These accounts provide for costs
associated with promotion and advertising of the utility programs and the use of electricity. The
Administrative and General Expenses function includes a variety of costs which are incurred by a utility
which support all facets of its operations.
UNIFORM SYSTEM OF ACCOUNTS
4.Distribution Expenses
Operation
Maintenance
580
Operation supervision and engineering.
590
Maintenance supervision and engineering
581
Load dispatching (Major only).
(Major only).
581.1
Line and station expenses (Nonmajor).
591
Maintenance of structures (Major only).
582
Station expenses (Major only).
592
Maintenance of station equip. (Major only).
583
Overhead line expenses (Major only).
592.1
Maintenance of structures and equipment
584
Underground line expenses (Major only).
(Nonmajor only).
585
Street lighting and signal system expenses.
593
Maintenance of overhead lines (Major only).
586
Meter expenses.
594
Maintenance of underground lines (Major
587
Customer installations expenses.
only).
588
Miscellaneous distribution expenses.
594.1
Maintenance of lines (Nonmajor only).
589
Rents.
595
Maintenance of line transformers.
596
Maint. of street lighting & signal systems.
597
Maintenance of meters.
598
Maintenance of misc. distribution plant.
UNIFORM SYSTEM OF ACCOUNTS
5. Customer Accounts Expenses Operation
908
909
Customer assistance expenses (Major only).
Informational and instructional advertising
expenses (Major only)
901
Supervision (Major only).
910
Miscellaneous customer service and
902
Meter reading expenses.
informational expenses (Major only).
903
Customer records and collection expenses.
7. Sales Expenses
904
Uncollectible accounts.
Operation
905
Miscellaneous customer accounts expenses
(Major only).
911
Supervision (Major only).
6. Customer Service and Informational
Expenses Operation
912
Demonstrating and selling expenses (Major
only).
906
Cust. service and informational expenses
(Nonmajor only).
913
Advertising expenses (Major only).
907
Supervision (Major only).
916
Miscellaneous sales expenses (Major only).
917
Sales expenses (Nonmajor only).
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 62 Public Utility Accounting
Other Utility Operating Income and Expenses
The remainder of the accounts defined in the USOA, under the Utility Operating Income
classification don’t have additional subsidiary detail accounts, as do the operating revenues,
operation expenses and maintenance expenses.
Accounts 403 through 407 provide for various depreciation and amortization expenses for the
periodic write-offs of capital and various deferred assets associated with utility property. Account 408
is defined to accumulate expenses associated with various taxes paid by a utility, other than income
taxes.
The accounts from 400 through 408 are the primary ones in the Utility Operating Income
classification which will be used by small public power systems. The 409 through 411.4 accounts
relate to accounting for current and deferred income taxes which normally would not be
applicable to public power systems. Accounts 411.6 through 411.9 track the gains and losses on
the disposition of plant and allowances. Accounts 412 and 413 are defined for special revenues and
expenses related to the leasing of electric utility plant to others. Again, these accounts along with
account 414, for miscellaneous income, are not used frequently by public power systems.
Other Income and Deductions
The second classification area on the utility income statement is Other Income and Deductions. The table
on the following page lists the accounts defined in the USOA for this classification. Like the Utility
Operating Income section, this section includes both revenues and expenses. However, this
classification provides for the accounting of the net profit or loss on activities of the utility which are not
pursued as a part of the normal operations of providing electric utility service to customers.
Nonutility activities include things such as selling merchandise like appliances and light bulbs,
performing contract services, and rental income from leasing of nonutility property. This
category also includes other forms of income such as investment income and other expenses
that are not usually accepted as required operating expenses by regulators, such as charitable donations
and civic and political involvement of the utility. Finally, this classification includes accounts
UNIFORM SYSTEM OF ACCOUNTS
8.Administrative and General Expenses
Operation
928
Regulatory commission expenses.
920
Administrative and general salaries.
929
Duplicate charges - Credit.
921
Office supplies and expenses.
930.1 General advertising expenses.
922
Administrative expenses transferred -
Credit.
930.2 Miscellaneous general expenses.
923
Outside services employed.
931
Rents.
924
Property insurance.
933
Transportation expenses (Nonmajor only).
925
Injuries and damages.
926
Employee pensions and benefits.
Maintenance
927
Franchise requirements.
935
Maintenance of general plant.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 63
for recognizing the current and deferred income tax implications of the added net income earned
from the non-operating activities of the utility.
The Other Income and Deductions classification includes accounts for many issues affecting public
power systems. In particular, these accounts provide for the accounting of various
interdepartmental or inter-fund activities between the electric department and the other municipal
departments. An example is the use of electric department employees to perform work for the
parks department. In considering the use of the accounts in this classification, public power utilities
should review the previous discussion of the above and below-the-line concept. In the
definition of that concept, the expenses provided for in the accounts within this category would be
below-the-line and therefore, not included in the utility's revenue requirement.
Interest Charges
On the income statement, Interest charges follow the Other Income and Deductions classification
section. The accounts as defined in the USOA relating to interest are listed on the following
page. This section includes all interest costs on both long-term and short-term debt issued to
finance the capital activities and the on-going operations of the utility.
It
also includes the
amortization expenses of gains and losses on reacquired debt and other expenses incurred associ-
ated with debt financing. For most utilities, including public power systems, the interest on long-term
debt makes up the majority of the total expenses in this classification.
UNIFORM SYSTEM OF ACCOUNTS
2.Other Income and Deductions
Other Income
426
Reserved.
415
Revenues from merchandising, jobbing,
426.1
Donations.
and contract work.
426.2
Life insurance.
416
Costs and expenses of merchandising,
426.3
Penalties.
jobbing, and contract work.
426.4
Expenditures for certain civic, political
417
Revenues from nonutility operations.
and related activities.
417.1
Expenses of nonutility operations.
426.5
Other deductions.
418
Nonoperating rental income.
418.1
Equity in earnings of subsidiary
Taxes Applicable to Other Inc & Ded
companies (Major only).
408.2
Taxes other than income taxes, other
419
Interest and dividend income.
income and deductions.
419.1
Allowance for other funds used during
409.2
Income tax, other income and
construction.
deductions.
421
Miscellaneous nonoperating income.
409.3
Income taxes, extraordinary items.
421.1
Gain on disposition of property.
410.2
Provision for deferred income taxes,
other income and deductions.
Other Income Deductions
411.2
Provision for deferred income taxes-
421.2
Loss on disposition of property.
Credit, other income and deductions.
425
Miscellaneous amortization.
411.5
Investment tax credit adjustments,
non-utility operations.
420
Investment tax credits.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 64 Public Utility Accounting
Interest charges account 432, Allowance for borrowed funds used during construction –
Credit, (AFUDC) is used to account for the offset of interest which is capitalized to
construction projects. The concept of AFUDC was introduced in Chapter 3, under the Electric
Plant Instructions section. Any amount credited to this account reflects a reduction in the long-
term debt interest expense deducted in current net income. However, many small public power
utilities do not use this account because they are not often involved in long-term construction
projects in which AFUDC can become a significant component of the overall project cost.
Extraordinary Items
The final area defined by the USOA for inclusion on the income statement is Extraordinary
Items. There are only two accounts in this classification as shown in the table below, one for income
and one for expenses.
UNIFORM SYSTEM OF ACCOUNTS
4.Extraordinary Items
434
Extraordinary income.
435
Extraordinary deductions.
An extraordinary item is defined in accounting as follows:
Extraordinary Items are events and transactions that are distinguished by their unusual nature and by
the infrequency of their occurrence. Thus, both of the following criteria should be met to classify
an event or transaction as an extraordinary item:
(a) Unusual nature—the underlying event or transaction should possess a high
degree of abnormality and be of a type clearly unrelated to, or only
incidentally related to, the ordinary and typical activities of the entity, taking
into account the environment in which the entity operates.
(b) Infrequency of Occurrence—the underlying event or transaction should be
of a type that would not reasonably be expected to recur in the
foreseeable future, taking into account the environment in which the entity
operates.
The USOA further defines an extraordinary item as one which would significantly distort the
current year's income computed before Extraordinary Items, if reported other than as an
extraordinary item. Under the USOA, the amount of such an item should be greater than
approximately five percent of the net income (before the effect of the item) to be classified as
extraordinary. Due to these highly restrictive definitions, public power systems rarely recognize an
event as an extraordinary item.
UNIFORM SYSTEM OF ACCOUNTS
3.Interest Charges
427
Interest on long-term debt.
430
Interest on debt to associated
companies.
428
Amortization of debt discount and expense.
431
Other interest expense.
428.1
Amortization of loss on reacquired debt.
432
Allowance for borrowed funds used
429
Amortization of premium on debt-Cr.
during construction – Credit.
429.1
Amortization of gain on reacquired debt-Cr.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 65
A USOA Income Statement
The next three pages present an income statement trial balance for the Sample Public Power
Utility. This trial balance showed a non-uniform account structure for revenues and expenses
which is similar to that used by a public power system that does not use the FERC systems of
accounts. The tables show the comparison of the income statement accounts under the USOA with the
sample account structure.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 66 Public Utility Accounting
INCOME STATEMENT TRIAL BALANCE - ACCOUNT CONVERSION
Sample Public Power Utility
Non-Uniform
System
FERC Uniform System of Accounts
Page 1 of 3
Account
Existing Description
Account
FERC Description
Amount
Revenues
35000
Residential Sales
44000
Residential Sales
$2,337,000
35001
Commercial Sales
44200
Commercial and Industrial Sales
2,931,000
35002
Industrial Sales
44200
Commercial and Industrial Sales
3,124,000
35009
City Department Sales
44500
Other Sales to Public Authorities
229,000
35010
Interdepartmental Sales
44800
Interdepartmental Sales
324,000
36210
Interest on Pooled Operating Cash
41900
Interest and Dividend Income
152,000
37000
Customer Forfeited Discounts
45000
Forfeited Discounts
25,000
37003
Sale of Assets
42110
Gains on Dispositions of Utility Plant
1,000
37050
Bad Debts Recoveries
90400
Uncollectible Accounts
1,000
37058
Misc. Sales - Other
42100
Miscellaneous Non-operating Income
150,000
37065
Reconnection Charges
45100
Miscellaneous Service Revenues
8,000
37090
Other Revenue
45600
Other Electric Revenue
2,000
Total Revenues
$9,284,000
Expenses
Department 11 – Electric
Production
7008
Supervision and Engineering
50000
Operation Supervision and Engineering
$453,000
7100
Vehicle Expense
50600
Miscellaneous Steam Power Expense
2,000
7600
Fuel – Coal
50100
Fuel – Steam Generation
46,000
7601
Fuel – Gas
54700
Fuel – Other Generation
2,626,000
7620
Station Expenses – Boiler Plant
50200
Steam Expense
10,000
7625
Station Expenses – Cooling Tower
50500
Electric Expense
140,000
7655
Supplies
50600
Miscellaneous Steam Power Expense
1,000
7656
Plant – Water
50600
Miscellaneous Steam Power Expense
108,000
7657
Plant – Steam
50300
Steam from Other Sources
6,000
7659
Plant – Sewer
50600
Miscellaneous Steam Power Expense
26,000
7775
Coal Handling Costs
50100
Fuel – Steam Generation
2,000
8050
Buildings
55200
Maintenance of Structures
1,000
8101
Boiler Plant
51200
Maintenance of Boiler Plant
220,000
8102
Electric Plant
51300
Maintenance of Electric Plant
172,000
8640
Small Tools and Equipment
50600
Miscellaneous Steam Power Expense
4,000
8650
Supplies
51400
Maintenance of Miscellaneous Steam
Plant
1,000
8900
Maintenance – Miscellaneous
51400
Maintenance of Miscellaneous Steam
Plant
7,000
9000
Depreciation
40300
Depreciation Expense
325,000
9050
Purchased Power
55500
Purchased Power
2,183,000
Total Department 11
$6,333,000
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 67
INCOME STATEMENT TRIAL BALANCE - ACCOUNT CONVERSION
Sample Public Power Utility
Non-Uniform
System
FERC Uniform System of Accounts
Page 2 of 3
Account
Existing Description
Account
FERC Description
Amount
Expenses
Department 13 – Electric
Distribution
7008
Supervision and Engineering
58000
Operation Supervision and Engineering
$35,000
7100
Vehicle Expense
58800
Miscellaneous Distribution Expense
15,000
7640
Customer Service Expense
58700
Customer Installations Expense
11,000
7655
Supplies
58800
Miscellaneous Distribution Expense
1,000
7660
Safety Equipment
58300
Overhead Line Expense
5,000
7700
Miscellaneous Operation Costs
58800
Miscellaneous Distribution Expense
2,000
8000
Supervision and Engineering
59000
Operation Supervision and Engineering
35,000
8050
Buildings
59100
Maintenance of Structures
4,000
8620
Station Equipment
59200
Maintenance of Station Equipment
1,000
8621
Overhead Lines
59300
Maintenance of Overhead Lines
130,000
8622
Underground Lines
59400
Maintenance of Underground Lines
46,000
8630
Street Lighting and Signal
Systems
59600
Maintenance of Street Lights and Signal
Systems
36,000
8635
Meters
59700
Maintenance of Meters
32,000
8640
Line transformers
59500
Maintenance of Line Transformers
6,000
8645
Tools and Equipment
59800
Maintenance of General Distribution
Plant
16,000
8900
Miscellaneous
59800
Maintenance of General Distribution
Plant
2,000
8950
PCB Testing and Disposal
59800
Maintenance of General Distribution
Plant
17,000
9000
Depreciation
40300
Depreciation Expense
298,000
Total Department 13
$692,000
Expenses
Department 14 – Customer
Accounts
7600
Customer Account Costs
90300
Customer Records and Collection
Expenses
$64,000
7650
Uncollectible Accounts
90400
Uncollectible Accounts
3,000
Total Department 14
$67,000
Expenses
Department 15 –Admin/General
7005
PERA
92600
Employee Pensions and Benefits
$62,000
7006
Social Security
40810
Taxes Other Than Income Taxes
63,000
7007
Health and Life Insurance
92600
Employee Pensions and Benefits
117,000
7009
Medicare
40800
Taxes Other Than Income Taxes
15,000
7028
Administrative and General
93020
Miscellaneous General Expenses
285,000
7029
Data Processing
92300
Outside Services Employed
78,000
7030
Office Supplies and Expenses
92100
Office Supplies and Expenses
1,000
7033
Admin. – Subscr/Memberships
92100
Office supplies and Expenses
7,000
7034
Travel, Conferences and Schools
92100
Office Supplies and Expenses
2,000
7036
Fire and Extended Coverage
Insurance
92400
Property Insurance
48,000
7037
Worker’s Compensation
92600
Employee Pensions and Benefits
27,000
7038
Communications
93020
Miscellaneous General Expenses
5,000
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 68 Public Utility Accounting
INCOME STATEMENT TRIAL BALANCE - ACCOUNT CONVERSION
Sample Public Power Utility
Non-Uniform
System
FERC Uniform System of Accounts
Page 3 of 3
Account
Existing Description
Account
FERC Description
Amount
Expenses
Department 15 – A&G
continued
7039
Legal Fees
92300
Outside Services Employed
$1,000
7040
Transfer to City
92700
Franchise Requirements
489,000
7041
General Liability Insurance
92400
Property Insurance
46,000
7042
Vehicle Insurance
92400
Property Insurance
4,000
7044
Boiler and Machinery Insurance
92400
Property Insurance
44,000
7050
Vacation, Sick and Other Pay
92000
Administrative and General Salaries
178,000
7055
Cost of Sales - Private Customer
42100
Miscellaneous Nonoperating Income
68,000
7058
Cost of Sales – Other
42100
Miscellaneous Nonoperating Income
1,000
7060
Miscellaneous General Expenses
93020
Miscellaneous General Expenses - Other
1,000
7080
Permits, Fees and Leases
93100
Rents – Administrative and General
9,000
7085
Obsolete/Surplus Inventory
42120
Loss on Disposition of Property
4,000
8450
Office Furniture and Equipment
93500
Maintenance of General Plant
1,000
8800
Building
93500
Maintenance of General Plant
1,000
9001
Interest Expense Bonds
42700
Interest on Long-term Debt
144,000
9005
Consultant Fees
92300
Outside Services Employed
14,000
9065
Bond Discount
42800
Amortization of Debt Discount and
Expense
2,000
Total Department 15
$1,717,000
Expenses
Department 16 – Capital
Outlays
5005
Buildings
10700
CWIP
$5,000
5010
Machinery and Equipment
10700
CWIP
27,000
5015
Vehicles
10700
CWIP
16,000
5020
Tools and Work Equipment
10700
CWIP
22,000
5025
Office Furniture and Equipment
10700
CWIP
2,000
5050
Improvements – Computer
Mapping
10700
CWIP
4,000
5100
Construction Work In Progress
10700
CWIP
28,000
5302
Meters and Regulators
10700
CWIP
30,000
5305
Overhead Conductors and
Devices
10700
CWIP
56,000
5306
Underground Conductors and
Devices
10700
CWIP
151,000
5307
Downtown Mall Project – PUC
10700
CWIP
15,000
5308
South Substation
10700
CWIP
146,000
5309
Boiler Plant Improvements
10700
CWIP
40,000
5350
Line Transformers and Switches
10700
CWIP
75,000
5355
69 KV Transmission Line (East)
10700
CWIP
5,000
5356
69 KV Transmission Line (West)
10700
CWIP
14,000
5360
Northside Substation
10700
CWIP
157,000
5391
Capitalization of Fixed Assets
10700
CWIP
(793,000)
Total Department 16
$0
Total Expenses
$8,809,000
Net Income
$475,000
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Public Utility Accounting Page 69
Note that several accounts from the sample trial balance are reclassified when converted to
the FERC USOA system. For example, account 36210, Interest on Pooled Operating Cash,
is listed under Revenues in the Sample Public Power Utility's current account structure. How-
ever it is assigned to account 41900, Interest and Dividend Income, in the USOA as part of the
Other Income and Deductions classification. Similarly, Bad debt - recoveries, account 37050, is
also listed as a revenue item, but is a reduction to expense account 90400 under the USOA.
Probably the most significant illustration of this kind of misclassification is that the capital
outlays are included as expenses rather than as construction work in progress in balance sheet
account 10700.
For many public power systems, such as the Sample Public Power Utility, the detailed
accounting for expenditures is captured by division or department responsibility area, using
what is termed as an 'incurred cost' basis. As shown above, the same account numbers are used
to account for the same activity within each organizational area. For example, account 7008,
Supervision and Engineering, is used in both the Electric Production Department and the
Electric Distribution Department. These accounts are defined on the basis of the type of
resource or cost element incurred, i.e., labor, supplies, services, etc.
In contrast, the FERC USOA captures expenditure data on a functional, 'applied cost' basis
where unique accounts are defined within the functional categories as illustrated above.
Each unique account represents a separate functional work area or activity to which the
expenditure was applied. The systems of accounts used by the Sample Public Power Utility
identify expenditures by
what
is purchased and by whom; the FERC system identifies
expenditures by the purpose for which they are incurred.
The table on the next page provides a more formal income statement presentation often used by
utilities in published financial reports. This table also includes an identification of the FERC USOA
accounts which are summarized on each line of the income statement.
Chapter 5—FERC Uniform System of Accounts: Income Statement Accounts
Page 70 Public Utility Accounting
FERC USOA Accounts Year End Amt.
Utility Operating Income:
Revenues:
Sales of Electricity 400: 440 - 449 8,945,000$
Other Operating Revenues 400: 450 - 456 35,000
Total Operating Revenue 8,980,000$
Operating Expenses:
Fuel Used For Generation 401: 501, 547 2,674,000$
Power Purchased 401: 555 - 557 2,183,000
Other Operating Expenses 401: 500, 502 - 508, 517 - 525,
535- 540, 546 - 550, 560 - 567,
580 - 589, 901 - 933 1,768,000
Maintenance 402: All 728,000
Depreciation 403 - 407 623,000
General Taxes 408 78,000
Income Taxes(or Payments In-Lieu-Of) 409 - 411 or 927 489,000
Total Operating Expenses 8,543,000$
Other Operating Income 412 - 414 -$
Net Operating Income (Loss) 437,000$
Other Income and Deductions:
Interest Income 419 152,000$
Allowance for Equity Funds Used During Constr. 419.1 -
Other - Net 408.2, 409.2, 410.2,
411.5, 420, 415 - 418,
421 - 426.5 32,000
Net Other Income and Deductions 184,000$
Net Income Before Interest Charges 621,000$
Interest Charges:
Interest on Long-term Debt 427 144,000$
Other Interest Charges 428 - 431 2,000
Allowance for Funds Used During Construction 432 -
Total Interest Charges 146,000$
Net Income (Loss) 475,000$
INCOME STATEMENT
Sample Public Power Utility
Public Utility
Accounting
Chapter 6
Introduction to Accounting Applications:
FERC Uniform System of Accounts
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Public Utility Accounting Page 73
The first five chapters of this guide discussed the need for a standardized system of accounting for
electric utilities and reviewed the content of the Federal Energy Regulatory Commission (FERC)
Uniform System of Accounts (USOA). This chapter will introduce several basic accounting
applications and illustrate the use of the USOA for those applications.
In the arena of automated or computerized accounting systems, a group of related processes performed
in those systems is sometimes referred to as an application. These processes provide the means by which
information is entered, formulated, formatted, recorded, and in some cases, forwarded to other
systems. For many organizations, each application area is actually processed in a separate computer
software system (sometimes referred to as feeder systems), with only the accounting information
being passed on to the general accounting systems.
Each individual system normally exists primarily to record, accumulate, summarize and report
information relating to its specific area, with the secondary purpose of providing accounting data.
For example, a human resources/payroll system accumulates and maintains information pertaining to all
of the employees of the utility. This would include personal information regarding each employee,
and additional information about their family, benefits status, educational background, experience, work
history (job titles), current pay rate, compensation history, etc. This information is used by human
resources personnel to manage the work force and the utility's employee benefits plans. It is not
needed in the utility's general accounting system. However, the pay and benefits data is used to
produce the utility's payroll. Since the payment of the periodic payroll does have accounting impacts,
the resulting payroll cost information must be provided to the general accounting system to be
properly reflected in the utility's financial statements.
For electric utilities, every application has its own set of unique, FERC-based financial accounting
information which it produces to support the general accounting function. It is the accounting
impacts of the processes performed in these applications for electric utilities that will be illustrated in
this chapter. The various accounting applications often used by electric utilities include:
Human Resources/Payroll
Accounts Payable
Materials and Supplies Inventory
Transportation/Power Operated Equipment Usage
Customer Billing/Accounts Receivable
Work Order/Plant Accounting
General Journal Entries
Since this guide is intended as an introduction to the FERC USOA, not all of these accounting
applications are covered here. Three selected applications from the list above are reviewed in the
following sections. The reviews of the applications presented here are not intended to cover
comprehensively all aspects of the accounting activity within those applications. Simple examples
are included to illustrate basic principles of FERC accounting for each application.
Human Resources/Payroll
Payrolls are normally generated by a human resources/payroll system, using a personnel database that
includes salary information for all employees. The hours worked by employees and the associated payroll
costs are distributed to the proper accounts corresponding to the activities on which those hours were spent.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Page 74 Public Utility Accounting
The payroll process produces paychecks issued to the employees based on the total hours worked by each
employee multiplied by their hourly salary. The payroll process also provides an account distribution of
those labor costs, summarized by account, for the entire payroll.
Accounting for Labor Costs
The proper accounting for labor costs by electric utilities is addressed throughout the FERC
USOA. The General, Electric Plant, and Operating Expense Instructions sections discussed in
Chapter 3 of this guide provide certain specific requirements for recording labor costs. General
instructions numbers 9, Distribution of pay and expenses of employees, and 10, Payroll Distribution,
were briefly reviewed in a previous chapter. These two instructions stress the importance of proper
categorization of labor costs among the various expense and asset classifications on the utility's
financial statements. The reason for this is that payroll costs represent significant expenditures for a
utility and the impact that the accounting treatment of these expenditures has on a utility's retail rates
can be substantial. Treatment of a labor expenditure as an expense item or as an asset item
determines whether that expenditure is completely recovered by the utility in its current period
rates or recovered ratably over a period of years. Electric plant instruction 3, Components of
construction costs, includes a description of the type of labor for which the costs are to be
included in capitalized construction costs. In addition, operating expense instructions numbers 1,
Supervision and engineering, 2, Maintenance, and 4, Training costs, include accounting
for specific types of labor activities.
Further definition of the proper accounting assignment of labor charges for operations and
maintenance activities, as well as those that are to be capitalized, is included in the detailed
descriptions provided for each detail account in the USOA. To the extent possible, labor hour
costs are to be charged directly to the accounts to which the activities performed correspond. The
detail account definitions are specific as to the activities to be included in each account.
Each functional area of expense (electric transmission operation, electric distribution maintenance,
etc.) includes a Supervision and engineering account. The proper use of these accounts is defined
in both the detail account descriptions and the first operating expense instruction. Each of these
accounts is to include only labor for the general supervision or direction of the applicable functional
area. Supervision of a specific activity within that area is to be charged directly to the account
corresponding to that activity.
Labor activities which do not relate to the functional operating areas as defined in those
accounts are provided for in the administrative and general expense accounts. This generally
includes the salaries of management and administrative personnel, which are chargeable to general
utility operations but not to specific operating functions.
There are times when an activity performed by utility employees is correctly chargeable to more
than one account. The costs associated with these activities require allocation to the proper
accounts based on some prescribed factors. These labor costs can be accumulated in a special
deferred asset account and then transferred to the various appropriate accounts based on defined
percentages or other statistically based factors. For example, labor hours spent by employees in
receiving safety training could be charged to any of the various functional accounts to which the
employees charge their regular productive hours. This is logical because the training received
allows the employees to perform these productive activities more safely and efficiently. Therefore,
the pay for these hours for safety training may be allocated to the different productive activity
accounts based on the percentage of productive hours charged to each account relative to the
total of all productive hours.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Public Utility Accounting Page 75
Labor Accounting Illustration
To illustrate these points, three sample weekly time sheets for employees of the Sample
Public Power Utility are shown on the page that follows. Listed below are the assumed hourly
salaries for the three individuals for whom time sheets are shown on the page.
Al Foreman $17.00/Hour
Bob Manager $24.00/Hour
Charlie Supervisor $19.00/Hour
The tables provide the labor cost distribution for this group of employees for a one week
period. This labor cost distribution shows that these employees charged their labor for the week
to a total of seven different accounts. They expended labor hours in supervision of both specific
activities and of general functional operating areas, e.g. Al Foreman charged labor to account
58300, Overhead line expenses, for hours spent supervising line patrol activities and to account
58000, Operation supervision and engineering, for functional supervision activities. Likewise,
Charlie Supervisor charged labor to account 59300, Maintenance of overhead lines, for time
spent supervising tree trimming work and to account 59000, Maintenance supervision and
engineering, for general distribution maintenance supervision. Also, Bob Manager charged
most of his labor hours for the week to detail account 92000, Administrative
and
general salaries,
for time spent on general utility administration which was not chargeable to other specific
operating activities.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Page 76 Public Utility Accounting
Employee Name: Al Foreman
Work Description Account M T W TH F
Supervision of Patrolling of Lines 58300 6 5 4 5
Investigating Service Complaints 58700 3 3 1
Distribution Operating Supervision 58000 2 8 1 2
Totals 8 8 8 8 8
Employee Name: Bob Manager
Work Description Account M T W TH F
Utility Administration 92000 8 8 4 6
Distribution Supervision Clearing 18401 6 4 2
Investigate Service Complaints 58700 2
Totals 8 8 8 8 8
Employee Name: Charlie Supervisor
Work Description Account M T W TH F
Distribution Maintenance Supervision 59000 8 3 5 4
Distribution Supervision Clearing 18401 6 5 3 2
Supervision of Tree Trimming 59300 2 2
Totals 8 8 8 8 8
Week of August 1
TIME SHEET - SAMPLE PUBLIC POWER UTILITY
TIME SHEET - SAMPLE PUBLIC POWER UTILITY
Week of August 1
TIME SHEET - SAMPLE PUBLIC POWER UTILITY
Week of August 1
A labor cost distribution summary for this group of employees for the period is shown in the
table below. Final dollar amounts charged to accounts have been determined by applying
each individual employee’s hourly rate to the hours per their timesheets.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Public Utility Accounting Page 77
Account Description Hours Amount
18401 Clearing accounts - Distribution supervision 28 592$
58000 Operation supervision and engineering 13 221
58300 Overhead line expenses 20 340
58700 Customer installation expenses 9 167
59000 Maintenance supervision and engineering 20 380
59300 Maintenance of overhead lines 4 76
92000 Administrative and general salaries 26 624
Totals 120 2,400$
LABOR COST DISTRIBUTION - Week of August 1
Sample Public Power Utility
Labor Loadings
Another important aspect of the processing and accounting for payroll is the labor loadings. Labor
loadings are the systematic allocation of payroll costs associated with various categories of non-
productive labor, and certain other expenses which represent indirect compensation in the form of
benefits to employees. Nonproductive labor costs include vacations, sick, and holiday pay, and lost time
pay due to inclement weather and transportation and equipment failure. Employee benefits include
items paid by the utility on behalf of the employees such as unemployment and social security taxes,
pension plans, and group insurance. Since the nonproductive labor costs and the employee benefits costs
can’t be directly associated with specific operating and capital activities, they are allocated to the
accounts that the productive labor is charged to, as an added cost (loading) to those accounts.
When employee benefits costs are allocated, only the portion allocated to capital activities is charged to the
same accounts that productive labor is charged to; the portion allocated to operating activities is charged to
specifically defined accounts, not to the accounts corresponding to the productive activities. For
example, social security taxes paid by the utility on the wages it pays for labor hours spent on capital
projects are assigned to those same projects. However, the social security taxes associated with
wages for operating activities are assigned to account' 408.1, Taxes other than income taxes, utility
operating income rather than to operating and maintenance expense accounts. These loadings are
frequently applied as a percentage of the direct labor cost of the productive labor charged to each
account. This percentage is normally based on the ratio of historical costs of these nonproductive labor
hours plus the employee benefits to the total productive labor costs for some past period.
The table below illustrates the impact of labor loadings on the accounting distribution of labor costs. It
shows the addition of the loadings to the summary labor cost distribution presented on the prior page.
The loading for nonproductive labor was assumed to be equal to 15 percent of the bare labor costs and the
loading for employee benefits was assumed at the rate of 10 percent of the bare labor charges. Thus, the
total amount charged to the individual accounts includes an additional 25 percent in labor loadings above
the direct cost of labor:
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Page 78 Public Utility Accounting
Nonprod Empl.
Labor Bene. Loaded
Account Description Hours Amount 15% 10% Amount
18401 Clearing accts - Distr. supervision 28 592$ 89$ 59$ 740$
58000 Operation supervision and eng. 13 221 33 22 276
58300 Overhead line expenses 20 340 51 34 425
58700 Customer installation expenses 9 167 25 17 209
59000 Maintenance supervision and eng. 20 380 57 38 475
59300 Maintenance of overhead lines 4 76 11 8 95
92000 Administrative and general salaries 26 624 94 62 780
Totals 120 2,400$ 360$ 240$ 3,000$
Loadings
LOADED LABOR COST DISTRIBUTION - Week of August 1
Sample Public Power Utility
In order to further explain the accounting for loading amounts associated with nonproductive labor,
the costs of vacation pay provides a good example. The amount of vacation pay factored into the
calculation of the loading rate is usually based on the total historical amount of vacation hours taken by all
employees, adjusted for changes in the employment base and the levels of vacation earned by the
current employees. Through the loading process, the costs of the vacation pay expected to be issued are
charged to the various expense arid capital accounts with the actual productive labor charges.
Therefore, the costs of the vacation pay are recognized without regard to, when the vacation is actually
taken by the employees. This represents a cost "accrual" basis of accounting for vacation (see general
instruction number 11, Accounting to be on accrual basis, discussed in Chapter 3). When the
cost is charged through the loadings, a corresponding liability is set up in FERC account 242,
Miscellaneous current and accrued liabilities, to reflect the value of vacation pay accrued but not
actually paid to employees yet. When the employees actually take vacation and reflect vacation
hours on their time sheets, the pay issued for those hours is charged against the liability account, thus
reducing the outstanding vacation pay due.
Labor Clearing Accounts
From the previous examples, the reader can see that two of the employees of the Sample Public
Power Utility also charged a portion of their labor hours to account 18401 which is defined for this
illustration as a clearing account for distribution supervision activities. This account can be used to
illustrate the process of clearing labor costs (and any other types of accumulated costs) to
multiple expense accounts. Since this clearing account was defined to account for "Distribution
supervision", it is assumed that these costs will be allocated between distribution accounts 58000,
Operation supervision and engineering, and 59000, Maintenance supervision and engineering. Also,
it was assumed that
the
$740.00 in loaded labor costs to this clearing account (see the Loaded
Labor Cost Distribution table above) are to be allocated based on the ratio of the direct
hours charged to accounts 58000 and 59000, individually, to the total hours charged to both
accounts. From the labor distribution data from the table, these ratios are determined to be
13/33 and 20/33, for accounts 58000 and 59000, respectively. Application of these ratios to the
total charges to account 18401 results in allocations of $291.52 to account 58000 and $448.48 to
account 59000. The total charges to account 18401 would be cleared to zero and the $740.00 balance
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Public Utility Accounting Page 79
would be transferred to the two expense accounts as calculated. This clearing process normally is
done as part of the monthly accounting closing routine.
The labor loading percentages and clearing account allocation factors used in these examples were
selected for illustrative purposes only. There are many alternative methods and bases for
performing these processes. Each public power utility should determine which methods are
most appropriate for its system.
Materials and Supplies Inventory
The materials and supplies inventory normally includes records of the number and value of various
parts, components, and materials on hand which are needed to construct and maintain electric plant and
other general use facilities used in the operations of the utility. Utilities may also keep inventory records
for miscellaneous office supplies. The inventory records are necessary because utilities must purchase the
materials and supplies in advance in order to have the items available when needed.
Accounting for Materials and Supplies
Since it is normally not known at the time materials items are purchased what activity they will be
used for, the costs cannot be charged to the proper expense or capital accounts until the items
are issued from the materials storeroom. Therefore, the accumulated cost of items on hand
represents an asset of the utility. The inventory value is maintained on the utility accounting
records in asset account 154, Plant materials and operating supplies.
When utilities purchase various inventory items, the quantity and costs associated with those
items are added to the inventory amounts and values for each unique item in the inventory
records. The inventory for specific items is decreased when quantities of items are issued out of
the materials and supplies on hand. The FERC USOA allows utilities to maintain the inventory
value for each item using the cumulative average cost, first-in-first-out, or any other costing method
considered generally accepted accounting practice. However, most utilities keep inventory values at
average cost. Under this method, the accumulated total cost of all units on hand of an individual
item is divided by the total number of units on hand to calculate the average cost per unit of that
item. Therefore, when items are issued from the inventory, the inventory value for each specific
item is reduced by the quantity issued for each item multiplied by the current inventory average
cost for the item. This inventory reduction represents the transfer of corresponding amounts to the
various operating, maintenance, and construction accounts relating to the activities for which the
materials are issued.
Materials Inventory Illustration
The table on the page that follows presents a sample excerpt of a Materials Inventory Summary
for the Sample Public Power Utility. The table shows beginning of period inventory records for
four unique items of material commonly used by electric utilities. It then lists several purchases of
additional units of these same items and illustrates the impacts on the inventory values and number of units on
hand in the inventory records for each of the four items due to the addition of the purchased units. Note
how the price per unit for each item has changed from the beginning inventory to the ending
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Page 80 Public Utility Accounting
inventory. This reflects the impact of the purchase price of the additional units on the average cost of
the inventory on hand for each item.
BEGINNING INVENTORY:
Unit of Price Total
Item Description Units Measure per unit Cost
101 Poles, Wood, Class 1, 50 ft. 60 Ea. $235.00 14,100$
111 Brackets, Armless, Steel 18 inch 125 Ea. 34.75 4,344
112 Crossarm, Wood, 8 ft. 30 Ea. 57.20 1,716
120 Conductor, No. 2 ACSR 55,000 M/Ft. 101.45 5,580
Totals 25,740$
PURCHASES:
Unit of Price Total
Item Description Units Measure per unit Cost
101 Poles, Wood, Class 1, 50 ft. 35 Ea. $250.00 8,750$
111 Brackets, Armless, Steel 18 inch 20 Ea. 30.00 600
112 Crossarm, Wood, 8 ft. 15 Ea. 55.00 825
111 Brackets, Armless, Steel 18 inch 10 Ea. 35.00 350
120 Conductor, No. 2 ACSR 24,000 M/Ft. 104.00 2,496
120 Conductor, No. 2 ACSR 19,000 M/Ft. 110.00 2,090
111 Brackets, Armless, Steel 18 inch 10 Ea. 36.00 360
Totals 15,471$
ENDING INVENTORY (before issues):
Unit of Price Total
Item Description Units Measure per unit Cost
101 Poles, Wood, Class 1, 50 ft. 95 Ea. $240.53 22,850$
111 Brackets, Armless, Steel 18 inch 165 Ea. 34.27 5,654
112 Crossarm, Wood, 8 ft. 45 Ea. 56.47 2,541
120 Conductor, No. 2 ACSR 98,000 M/Ft. 103.73 10,166
Totals 41,211$
MATERIALS INVENTORY SUMMARY - Before Issues
Sample Public Power Utility
Electric materials are usually issued out of a materials storeroom as they are required for various
construction and maintenance projects. When they are issued, a record is made of how many units of each
item are disbursed and to which project or account they are to be charged. This record serves as the
source of information for updating the inventory records and provides for an account distribution to be
passed to the general accounting records for materials and supplies issued from inventory. On the next
page, three sample materials issue tickets for projects of the Sample Public Power Utility are presented for
illustrative purposes.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Public Utility Accounting Page 81
MATERIAL ISSUE TICKET - SAMPLE PUBLIC POWER UTILITY
Employee Name: Dave Lineman
Qty. Qty. Qty.
Description Item Account Issued Returned Salvaged
50 Ft. Wood Pole 101 10701 14
8 Ft. Wood Crossarms 112 10701 14
MATERIAL ISSUE TICKET - SAMPLE PUBLIC POWER UTILITY
Employee Name: Ernie Electrician
Qty. Qty. Qty.
Description Item Account Issued Returned Salvaged
8 Ft. Wood Crossarms 112 59310 10
Conductor 120 59310 5,000
Conductor 120 59320 2,000
MATERIAL ISSUE TICKET - SAMPLE PUBLIC POWER UTILITY
Employee Name: Dave Lineman
Qty. Qty. Qty.
Description Item Account Issued Returned Salvaged
50 Ft. Wood Pole 101 10701 1
Conductor 120 10701 25,000
8 Ft. Wood Crossarms 112 10701 4
Galvanized Brackets 111 10701 40
The table below shows the impact of the materials issue tickets on the inventory records.
The ending inventory before issues is the same as what was presented previously. It is
followed by a list of the total issued items and their associated value. At the bottom of the
table, the revised ending inventory illustrates the change in the inventory records after
deducting the materials issued. Note that the average inventory value for each item is the
same before and after deducting the materials issues even though the total inventory value
decreased. This is because the materials were issued at the existing average cost for each
item.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Page 82 Public Utility Accounting
ENDING INVENTORY (before issues):
Unit of Price Total
Item Description Units Measure per unit Cost
101 Poles, Wood, Class 1, 50 ft. 95 Ea. $240.53 22,850$
111 Brackets, Armless, Steel 18 inch 165 Ea. 34.27 5,654
112 Crossarm, Wood, 8 ft. 45 Ea. 56.47 2,541
120 Conductor, No. 2 ACSR 98,000 M/Ft. 103.73 10,166
Totals 41,211$
ISSUES:
Unit of Price Total
Item Description Units Measure per unit Cost
101 Poles, Wood, Class 1, 50 ft. 15 Ea. $240.53 3,608$
111 Brackets, Armless, Steel 18 inch 40 Ea. 34.27 1,371
112 Crossarm, Wood, 8 ft. 28 Ea. 56.47 1,581
120 Conductor, No. 2 ACSR 32,000 M/Ft. 103.73 3,320
Totals 9,879$
ENDING INVENTORY (after issues):
Unit of Price Total
Item Description Units Measure per unit Cost
101 Poles, Wood, Class 1, 50 ft. 80 Ea. $240.53 19,242$
111 Brackets, Armless, Steel 18 inch 125 Ea. 34.27 4,283
112 Crossarm, Wood, 8 ft. 17 Ea. 56.47 960
120 Conductor, No. 2 ACSR 66,000 M/Ft. 103.73 6,846
Totals 31,332$
Sample Public Power Utility
The table below provides the materials issue cost distribution for accounting for these materials
issues. It summarizes the costs of the materials issued by the expense and capital accounts
to which the materials were charged. The total cost of materials charged to the various
accounts matches the total cost of the materials issued and deducted from the inventory
values.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Public Utility Accounting Page 83
Account Description Amount
10701 Construction work in progress - project 01 8,588$
59310 Maintenance of overhead lines - repairs 1,084
59320 Maintenance of overhead lines - relocate 207
Totals 9,879$
MATERIALS ISSUES COST DISTRIBUTION - Week of August 1
Sample Public Power Utility
Materials Loadings
Similar to payroll costs, materials costs charged to the various capital, expense, and deferred charges
accounts are normally subject to loadings for other related costs which cannot easily be charged
directly to specific activities and accounts. These loadings normally include at least two
categories of costs: exempt materials and stores expenses.
Exempt materials, by definition, are 'exempt' from receiving loadings. This is because they are,
in fact, loadings (or overhead costs) themselves. Electric utilities use thousands of unique
materials, parts, equipment and supplies in their ongoing operations. These items can range from
small nuts and bolts to large transformers. The management of the inventories of this vast
number of items is a large task. Therefore, due to the comparably insignificant value of smaller items
such as screws, washers, nuts and bolts, which are stored in the physical inventory, the accumulated
costs and unit counts for those items may not be maintained on an individual basis. Their value is
accounted for, in total, separately from the other inventory, usually in a separate sub account
under account 154. The accumulated value of these items is then allocated to the accounts to
which the materials issues are charged. This loading of the cost of exempt materials is a cost effec-
tive substitute to keeping track of every different item, and it does not result in any significant
inaccuracies in the accounting for the materials.
The second type of materials loading is stores expenses. Stores expenses include the costs associated
with owning, managing, and maintaining an inventory. There are labor costs associated with receiving
items purchased, stocking them, and issuing them. Storage facilities which are costly to own and
operate include land, buildings, fences, shelving, lighting and air conditioning and other expenses.
Other equipment such as forklifts, elevators, booms, and computers may also be required. Some
utilities allocate a portion of their purchasing and accounting staff costs to the stores expenses to reflect
their participation in the acquisition and accounting of materials and supplies. Since these costs relate
to the materials inventory but are not attributable to specific activities, they are normally allocated as a
loading on the materials issued to the various accounts charged. They are accumulated in FERC
account 163, Stores expense undistributed.
The loadings for exempt materials and stores expenses are usually calculated as percentages of the total
costs accumulated in each category to the total value of materials issued during a historical period. These
percentages are then applied to the issued materials cost to determine the amount of the loadings. The
table below extends the materials issues cost distribution presented earlier to include these loadings.
For illustrative purposes, loading rates of 5 and 15 percent were assumed for exempt materials and
stores expenses, respectively.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Page 84 Public Utility Accounting
LOADED MATERIALS ISSUES COST DISTRIBUTION - Week of August 1
Exempt Stores
Mat'l Exp. Loaded
Account Description Amount 5% 15% Amount
10701 Construction work in progress - project 01 8,588$ 429$ 1,288$ 10,306$
59310 Maintenance of overhead lines - repairs 1,084 54 163 1,301
59320 Maintenance of overhead lines - relocate 207 10 31 248
Totals 9,879$ 494$ 1,482$ 11,855$
M&S Loadings
Sample Public Power Utility
Transportation and Power Operated Equipment Usage
Accounting for the costs associated with operating and maintaining transportation and power operated
equipment poses problems somewhat similar to those for materials inventory. Transportation
equipment includes cars, trucks, vans, and trailers, among other modes of transportation. Power
operated equipment includes equipment used in construction and maintenance work such as
trenchers, cranes, backhoes, compressors, etc.
Accounting for Transportation and Equipment Costs
The FERC USOA requires that the cost associated with the use of transportation and power
operated equipment be allocated appropriately to the various activity accounts for which the
equipment is used. The difficulty with this requirement is that it is not possible to determine
how much of the operating cost of the equipment is directly expended while in use. For
example, assume that a line truck that is used for distribution maintenance activities is filled up
with gasoline that cost $15. Before the truck requires another fill-up it is driven to transport a
line crew to four different job locations. The question arises as to how to account for the cost of
the gas. It could be charged to the first job on which the truck is used or it could be charged to a
general or miscellaneous expense account and not allocated to specific activities/accounts.
Another option is to divide the cost between the accounts for all four of the jobs on which the
vehicle was used.
The first option, to charge the gas cost completely either to the first job worked on by the line crew
or to a general expense account, is undesirable because the costs are not matched properly with the
activities for which the expenditures were incurred and that benefit from the expenditures. The
second option provides the desired result as it does match the costs to the appropriate
activities. However, this option presents the following additional considerations:
The activities on which the vehicle or equipment will be used
are not known at the time of the expenditure.
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Public Utility Accounting Page 85
The expenditure could benefit many different activities to which
it would have to be allocated.
There are expenditures made over the course of the life of a
vehicle or item of equipment that have varying lengths of
benefits.
These additional considerations cause the direct allocation of the expenditures for each equipment
asset to be extremely cumbersome. Therefore, many electric utilities account for their equip-
ment usage through clearing accounts. Clearing accounts provide the means for the utility to
accumulate related costs which cannot be readily charged directly to specific capital and expense
accounts and then to transfer or clear them to appropriate accounts at a later time using some
logical method of allocation. Account 184 is defined in the FERC USOA as the clearing
account to be used. Utilities will establish subaccounts within account 184 for each specific type
of cost that they desire to accumulate for clearing. An example of the use of clearing accounts was
discussed earlier in this chapter in the discussion of accounting for payroll.
Clearing accounts for transportation and power operated equipment may be set up by vehicle
or by type of vehicle. If a utility has a large number of equipment items, it may choose to
accumulate the operation and maintenance costs by classifications, such as, cars, light trucks, heavy
trucks, trailers, etc. The costs that are accumulated in these accounts will include gas, oil, tires,
batteries, repairs, scheduled maintenance, engine overhauls, insurance, taxes, licenses, and any
other expenditure incurred in the ongoing use of the equipment. Some utilities also charge the
depreciation expense associated with the transportation and power operated equipment to these
clearing accounts so that the capital cost of the assets is allocated to the end-use accounts.
Clearing of costs accumulated in these accounts to the accounts for which the equipment was used is
done periodically, usually monthly. The basis for the clearing of the costs is normally statistical infor-
mation regarding the level of usage for the equipment during the total period and for each
activity. For transportation vehicles, this is most often miles driven. Use of power operated
equipment is usually measured in hours. The miles and hours of use for each equipment item (or
classification, consistent with the definition of the clearing accounts used) must be recorded to
facilitate this clearing process. This is usually done on transportation usage forms provided to
employees or as additional entries on the time sheets.
The clearing process can be as simple as dividing the costs accumulated in the clearing accounts
during the period for each vehicle or classification of equipment by the corresponding total miles
driven or hours used during the period and then multiplying that rate per unit of usage by the
usage charged to each activity. For example, if a truck is driven 2,000 miles during a month and
the total costs of gas, oil, maintenance, repairs, etc. accumulated during the month is $1,000,
each mile would be charged at a rate of $0.50 per mile ($1,000 / 2,000 miles). If the truck was
used for three different activities, the mileage associated with each activity (totaling 2,000) would
be multiplied by $0.50 to determine the transportation expense to that activity. In this way, the
total $1,000 would be allocated to the three accounts related to the three activities and the clearing
account balance would be reduced to zero (see previous clearing account discussion).
There is a problem inherent in the clearing methodology just described. For transportation
and power operated equipment, operation and maintenance expenditures are not level over time.
Therefore, there is likely to be major fluctuations from period to period in the amount of
expenditures accumulated in the clearing accounts. The result is that use of an item one month
may be charged at a significantly different rate than it was in a prior month for a similar level of
Chapter 6—Introduction to Accounting Applications: FERC Uniform System of Accounts
Page 86 Public Utility Accounting
usage. If a truck has an engine overhaul once every five years, the utility would not want to allocate
the entire cost of that work to the activities for which the truck was used in the period that it was
returned to use. This also would hinder the matching of the expenditures to all of the activities
which benefit from it.
The transportation clearing process provides more reasonable results if charge rates are
determined for each vehicle or classification of equipment based on accumulated costs and usage
over a longer historical period of time. A new charge rate for each clearing account could be
calculated every month based on a twelve-month rolling average of costs and usage. Another
option would be to calculate the charge rates once each year based on 24 or 36 months of actual
historical data. Any clearing rate calculation can be used that provides an equitable match of the
expenditures associated with the equipment to the functions or activities for which the equipment
is used.
Transportation Accounting Illustration
The table below provides a sample calculation of transportation and power operated equipment operation
and maintenance charge rates for the Sample Public Power Utility. The expenditures are assumed to
be for a rolling twelve-month average and are listed by type and totaled for each classification of
equipment. Total mileage and hours of use for all vehicles and equipment in each class are shown. At
the bottom of the table are the calculated charge rates which would be applied to the usage of the
equipment from each classification to determine the allocation of related operation and maintenance
costs to be charged to the various capital and expense accounts for the current month.
Cars Trucks Vans Trailors Hvy Equip
Description 4 12 2 5 22
Gasoline and oil 5,760$ 28,800$ 3,840$ -$ 5,500$
Wipers, batteries, tires 1,000 3,400 500 800 7,000
Repairs 2,400 12,000 2,400 400 34,000
Scheduled maintenance 1,600 7,200 1,600 550 2,500
Major overhaul 1,500 4,100 - - 25,000
Insurance 3,200 9,000 1,600 900 11,500
Depreciation 6,000 40,000 5,000 1,000 100,000
Totals 21,460$ 104,500$ 14,940$ 3,650$ 185,500$
Equipment Usage:
Unit of measure Miles Miles Miles Hours Hours
Number of units 60,000 216,000 40,000 5,000 26,400
12 month average cost per unit of use $0.358 $0.484 $0.374 $0.730 $7.027
TWELVE MONTHS ENDING AUGUST
TRANSPORTATION EQUIPMENT COST BY CLASS
Sample Public Power Utility
Public Utility
Accounting
Chapter 7
Introduction to Accounting for Utility
Property: FERC Uniform System of
Accounts
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Public Utility Accounting Page 89
This utility accounting guide would not be complete without a discussion of the accounting for utility
property, plant and equipment. The importance of the proper accounting for utility plant, as
defined in the Federal Energy Regulatory Commission (FERC) Uniform System of Accounts
(USOA), was discussed previously in Chapter 4 of this guide. To reiterate, two of the major reasons
for the FERC's emphasis on accounting for utility plant are the magnitude of the capital investment in
plant by electric utilities and the significance of the value of plant in service in determining the rate
of return earned by utilities.
Due to the significance of utility plant in the operations of an electric utility and on the utility's
finances, the USOA provides specific direction on how utilities are to account for their plant. The
electric plant instructions from the FERC were introduced in Chapter 3. These instructions cover 16
topics related to proper accounting treatment of various events associated with utility plant. Also
included in the USOA are definitions of selected utility terms which were also introduced in Chapter
3. Several of the definitions provided serve as background information to support the detailed
guidance defined in the electric plant instructions. In Chapter 4, the structure of the detail plant
accounts was reviewed. The descriptions provided in the USOA for the various plant accounts define
the proper account assignment and treatment of various events related to utility plant. The FERC
system also prescribes (in the Code of Federal Regulations, Title 18, Part 116) the minimum
acceptable level of retirement units for which plant cost data must be maintained by a utility in its plant
records. Retirement units will be discussed later in this chapter. All of this extensive consideration of
and direction for accounting for utility plant by the FERC causes it to be one of the most complex
and confusing aspects of utility accounting.
This chapter presents an overview of the accounting for electric plant within the requirements of the
FERC USOA. A simple example of work order accounting is also presented to illustrate this complex
feature of the FERC USOA.
Work Order Accounting
The electric plant instructions of the USOA dictate that a utility maintain a system of records that
details separately the accumulation of costs associated with construction and retirement of electric plant,
in the form of work orders or job orders. Work orders and job orders normally represent temporary
codes established to track costs and activities associated with specific projects, which are typically
capital in nature, only for the duration of each project.
No system for work orders and job orders is prescribed in the USOA. An electric utility is free to
implement a work order system and a work order numbering scheme that best meets its needs.
However, minimum record keeping requirements for such systems are defined by the FERC. For
example, a work order system must maintain information associated with each work order as to the:
Nature of the additions and/or retirements of electric plant;
Total cost;
Sources of costs; and
Electric plant accounts to which additions/retirements are charged or
credited.
The difference between work orders and job orders is not specifically defined in the USOA. However, a
dollar value such as $10,000 might be used as a cutoff with larger dollar projects being accounted for
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Page 90 Public Utility Accounting
on work orders, and smaller jobs accounted for on job orders. Job orders usually represent smaller
capital projects which are recurring in nature and plant accounting is done for the projects as a group
under a "blanket" work order. Although the remainder of this discussion will refer only to work
orders, the concepts presented also apply generally to job orders and blanket work orders as well.
The USOA requires separate accounting for the costs of construction and retirement activities.
Construction work includes the costs associated with the construction or acquisition of utility property,
plant, and equipment, and other assets, and is accounted for in FERC account 107, Construction
work in progress-Electric. Retirement work represents the costs incurred in the removal of utility
assets from service and the net salvage value realized from the final disposition of those assets, and
is accounted for in account 108, Accumulated provision for depreciation and amortization of
electric utility plant. Unique work orders should be established for each capital project. The FERC
system does allow retirements of electric plant to be included with the same work order as related
construction; but all costs relating to the retirement must be kept separate from those relating to the
construction. Therefore, it may be easier to use entirely separate work orders. In summary, a capital
construction work order is required when new plant or other asset is first constructed or acquired. A
retirement work order is required when existing plant is permanently removed from service. And
both a construction work order and a retirement work order are needed when existing plant is
replaced or upgraded.
Normally, when the need for a capital construction project is identified by an electric utility, an engineer
defines the project, creates an estimate of the costs to complete the project, and obtains a work order number
from the utility's accounting area. The engineer determines the information required to be recorded, as it
relates to the new work order. Once the necessary corporate approvals are obtained and the project is ready
to begin, all costs incurred with the project are charged to that work order number.
An illustration of a sample work order will be used in this chapter to develop various concepts
regarding accounting for utility property. Assume that a project is identified by the Sample Public Power
Utility to extend an overhead secondary distribution line to serve a new customer. Two new project
numbers were established: 2153 for the construction work and 5153 for the related retirement of exist-
ing property.
Components of Construction Cost
Electric plant instruction number 3, Components of construction cost, defines the various categories
of expenditures incurred by a utility that are to be included as components of the cost of construction
of electric plant in work orders established under account 107. In reviewing these components of
construction cost, it can be seen that there is a wide variety of cost components which are to be
included. The underlying accounting concept supporting this definition of construction costs is that
all costs associated with constructing an asset and preparing it for use, are to be included in the cost
of that asset.
The more significant items of cost included on the list in plant instruction number 3 are labor,
materials and supplies, and transportation, as these items normally make up the majority of the
direct costs of construction projects. These costs may be incurred internally by the utility in the
form of employee compensation, issuance of materials from the utility's storeroom, and use of
utility-owned trucks, vehicles and equipment. Examples of how these types of costs are
charged and accounted for were presented in Chapter 6. A work order number could be used as a
charge account on the time sheets and material issue tickets, as illustrated in Chapter 6, for the
accounting of internal labor hours and internal storeroom material issues. The corresponding cost
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Public Utility Accounting Page 91
loadings on internal labor and materials as described and illustrated in Chapter 6 would also be
charged to the work order. Alternately, these costs could be incurred as external payments, such as
for contract labor and services, direct purchases of materials or equipment for the project, or
rental of transportation and equipment owned by others. These expenditures would be paid by
the accounts payable function and charged directly to the project work order. Contract labor and
equipment and direct purchases of materials and supplies are charged to the applicable work order
at the time an invoice or other purchase authorization is processed for disbursement.
The table below provides a material listing for the Sample Public Power Utility's project to extend
overhead distribution facilities. This table shows not only the description and number of items of
material issued for the project, but also the labor costs associated with using the material.
(Remember, that this is an illustration. Small items of materials required to complete such a
project have been omitted for simplicity.) Note that the materials list indicates only labor cost
data for the removal of materials taken out of service. No materials costs would be incurred for the
retirement of property.
Construction Work Order - 2153
Retirement Work Order - 5153
Price Per Material Labor Per Labor
Description Units Unit Cost Unit Cost
Material Installed:
30 Foot Pole 2 70.00$ 140.00$ 115.00$ 230.00$
1/0 TX Conductor 300 0.56 168.00 1.00 300.00
10" Anchor 1 16.00 16.00 50.00 50.00
25 kVA Transformer 7200v/120/240 1 175.00 175.00
Totals 324.00$ 755.00$
Material Removed:
15 kVA Conv. 7200 Transformer 120/240 1 50.00$
100 A Cutout 1 20.00
9 kV Arrestor 1 20.00
Totals 90.00$
MATERIAL LISTING
Sample Public Power Utility
Various other costs that might be incurred in relation to a construction project and charged
directly to a capital work order are included in the components described in plant instruction
number 3. This includes items listed such as Special machine service and Shop service. Other types of
costs to be included in the cost of construction represent indirect costs that do not add to the
physical construction of plant, but are necessary in support of the project. These include items
such as (environmental assessment) Studies, privileges and permits, (site security) Protection,
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Page 92 Public Utility Accounting
insurance, and training costs (of staff) related to the operation and maintenance of the property
under construction.
For work order 2153 of the Sample Public Power Utility, assume that these indirect costs total $121.
The list of components of construction costs also includes several other indirect costs which are
allocations of overhead costs to construction work orders. Engineering and supervision, General
administration capitalized, and Allowance for funds used during construction are the primary work
order overheads. These cost components are discussed in detail in the following sections.
Overheads Capitalized
Engineering and supervision represents the portion of the pay and expenses of the engineers,
various technical staff, superintendents, and their assistants that is deemed to be applicable to
construction projects. Likewise, General administration capitalized represents the portion of the
pay and expenses of the officers and general administrative staff of the utility that is deemed to be
applicable to construction projects.
The activities of the engineering and administration staff for a utility, by nature, affect many
different events of the utility. For example, the accounts payable staff processes payments on behalf
of the utility for various items from construction materials to janitorial supplies; from computers to
coffee; and from trucks to pencils. The labor and expenses of the accounts payable department are
generally not charged directly to individual construction work orders or operating activities because
only small increments of time are spent handling each payment. It would be very difficult and
time consuming to assign the associated labor and expenses of processing each payment to the
project or activity to which the payments related.
In order to meet the objective of including all costs associated with a construction project in the
total cost of the resulting property, it is therefore appropriate to transfer or capitalize a portion of the
overhead costs to individual work orders.
Electric plant instruction number 4, Overhead construction costs, was discussed in Chapter
3.
This
instruction requires that where overheads cannot be charged directly to individual work orders,
periodic studies are to be conducted to assess the portion of engineering, supervisory, and other
administrative employees' time that is spent in support of construction. In the example of the
accounts payable function, once or twice a year, the accounts payable staff will keep track of how
their time is spent over some period of time such as a week or a complete pay period. This record
keeping is not done
on
an individual project/activity basis due to the burden this would cause.
However, to satisfy this requirement and the related requirement in general instruction number 9,
Distribution of pay and expenses of employees (discussed in Chapter 3), the time analysis
performed by the staff identifies labor hours spent on activities related to construction projects versus
operating activities. The result of this time study provides the utility with a basis for determining the
amount of utility overheads that should be added to construction.
There are alternative methods that can be used to allocate overhead costs to construction. An
extension of the work order example will provide an illustration of one logical approach. Assume
that the Sample Public Power Utility has annual payroll and expenses for the engineering and
administration staff of $180,000 (account totals for FERC 920 and 921). Based on the time study
performed last year, it was determined that 35 percent of the labor of these staff was attributed
to capital construction projects. Therefore, overheads of $63,000 ($180,000 X 0.35) can be
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Public Utility Accounting Page 93
allocated to construction. The capital expenditures for the current year total $730,000.
Therefore, an overhead charge rate of 8.63 ($63,000/$730,000) percent can be calculated. This
represents the rate that overheads are applied to individual construction work orders that will
result in spreading the total $63,000 of overheads to be capitalized among all of the current active
work orders.
From the material listing for construction work order 2153 shown above, the direct costs of
construction for work order 2153 are $1,079 ($324 in material and $755 in labor). The addition of
the indirect costs of $121 brings the total cost of the project before allocation of overheads to
$1,200. Applying the overhead charge rate of 8.63 percent, results in an addition of $104 to the
cost of the project and a revised total of $1,304. This example assumes that the project is started and
completed within one accounting period. Project work orders which have durations of
multiple accounting periods will be allocated these overheads at the end of each period based on the
new charges incurred to the work orders during the period. The figures used to calculate the overhead
charge rate were assumed to be annual numbers for the Sample Public Power Utility. Therefore, if
the amount of annual capital expenditures and the overhead rate are constant, the total overheads
applied to the active work orders during the 12 month period will match the amount determined to
be charged to capital, $63,000.
Allowance For Funds Used During Construction
The USOA defines the allowance for funds used during construction (AFUDC) as an additional
component of construction cost. AFUDC provides for the capitalization of the cost to a utility of
financing construction projects. This is consistent with the accounting principle of including all costs
associated with construction of an asset in the recorded cost of the asset. Although a specific
financing is often not associated with specific projects, AFUDC is allowed by the FERC to recognize
that the availability of capital for construction purposes does impose costs on the utility that should be
included in the cost of the asset constructed. This concept assumes that a utility's capital for
construction and operations is commingled and thus allows for the determination of the amount of
financing costs that may be charged to capital, based on the utility's total capitalization. Therefore, the
portion of the financing cost to be capitalized as AFUDC must be imputed.
The FERC USOA includes (in electric plant instruction number 3.17) a formula for calculating
AFUDC. AFUDC recorded by utilities cannot exceed that amount calculated using the defined for-
mula. Following are the formula and its elements as defined in the USOA:
Ai = s(S/W)+d(D/D+P+C)(1-S/W)
Ae = [1-S/W][p(P/D+P+C)+c(C/D+P+C)]
Ai = Gross allowance for borrowed funds used during construction rate.
Ae = Allowance for other funds used during construction rate.
S = Average short-term debt.
s = Short-term debt interest rate.
D = Long-term debt.
d = Long-term debt interest rate.
P = Preferred stock.
p = Preferred stock cost rate.
C = Common equity.
c = Common equity cost rate.
W = Average balance in construction work in progress plus nuclear fuel
in process of refinement, conversion, enrichment and fabrication.
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Page 94 Public Utility Accounting
The FERC instruction requires that the rates for AFUDC be calculated annually. The USOA
provides more detail as to how each of the elements in the formula, are to be determined.
AFUDC is defined to include costs of all financing, including long-term debt, short-term debt
and common equity. It includes the costs of borrowed funds used for construction purposes, and a
reasonable rate on other funds. Other funds generally refer to the equity funds that a utility may
have. No allowance for funds used during construction charge is allowed on expenditures for
construction projects which have been abandoned.
Since AFUDC represents a portion of the current interest costs of the utility that is transferred to
construction, it effectively increases the net income of the utility. The result is that these costs are
not realized in the current period but are deferred in the cost of the plant and charged to
expense through depreciation over the life of the asset.
Public power systems generally do not have common equity and would not have this
component of the AFUDC calculation. However, these utilities may have substantial interest
costs on combined long- and short-term debt. The formula above can be used by public power systems
to calculate an annual AFUDC rate for their systems, omitting the components referring to
common equity or other funds.
The application of the AFUDC rates to actual construction expenditures to determine the amounts
to be recognized for AFUDC is not clearly defined in the USOA. However, there are a few
general rules that most utilities follow in the application of the AFUDC rate:
AFUDC is applied only to projects with durations of greater than 30 days.
AFUDC is applied to construction only, not to the purchases of assets.
AFUDC is applied to accumulated construction expenditures as of the beginning
of the month.
If it is applied to current month expenditures, only one half of the regular rate is
applied to consider that expenditures were not outstanding for the entire month.
If construction is delayed or postponed for substantial lengths of time, AFUDC is
discontinued until construction resumes.
The example work order for the Sample Public Power Utility is not a candidate for the
application of AFUDC as it is a project of short duration, assumed to be less than 30 days. To
illustrate the application of AFUDC, assume that another project of the Sample Public Power Utility
is the construction of a new substation. This project is work order number 3246 and had
expenditures incurred during the first three months of the project of $10,000, $40,000 and
$15,000. Assume also that its calculated annual AFUDC rate is 8 percent and that the utility elects
to record AFUDC on current month charges at half of the normal AFUDC rate. The table below
shows the calculated AFUDC to be recorded to work order number 3246 for each month.
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Public Utility Accounting Page 95
Prior AFUDC AFUDC
Exp. Current Prior Total
Current Before Exp. Exp. Total Project
Month Expenditures AFUDC (Note 1) (Note 2) AFUDC Costs
1 10,000$ -$ 33$ -$ 33$ 10,033$
2 40,000 10,000 133 67 200 50,233
3 15,000 50,000 50 333 383 65,616
Note 1- Annual AFUDC rate of 8 percent calculated for one half of a month.
Note 2- Annual AFUDC rate of 8 percent calculated for a full month.
Sample Public Power Utility
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Work Order 3246
Retirement Work Orders
Retirement work orders are used to accumulate in account 108, the costs of removal of plant in service and
the corresponding salvage value realized from the disposition of utility property. Since nothing is
created with a plant retirement, most of the various components of construction cost described for
construction work orders do not apply to retirement work orders. The FERC USOA defines cost of
removal to include the costs of demolishing, dismantling, tearing down or otherwise removing
electric plant, including the costs of transportation and handling. Therefore, retirement work
orders normally have labor costs and, sometimes, associated transportation and equipment costs.
These costs are charged to retirement work orders in the same manner as they are charged to con-
struction work orders.
Retirements of electric plant when related to new construction can also often result in the
salvaging of materials or equipment which may be re-used by the utility or sold for use by
others. If materials are recovered which can be used for other construction, they may be
returned to the materials storeroom inventory. The USOA defines salvage as the amount
received for property retired, less any expenses of the sale, or the amount at which the material can
be placed in inventory.
Work Order Unitization
When construction and retirement projects are completed, the amounts of the accumulated
expenditures in the corresponding work orders are transferred from FERC account 107, Construction
work-in-progress-Electric to account 106, Completed construction not classified-Electric, pending the
unitization of the work orders. Unitization refers to the closing of the accumulated expenditures in
the completed work orders to the subsidiary electric plant accounts presented in Chapter 4, by retirement
units.
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Page 96 Public Utility Accounting
The USOA defines a Retirement unit as an item of electric plant for which, when removed from
service, the book cost of the item is deducted from the appropriate electric plant account. It further
delineates a retirement unit from Minor items of property, which are all of the associated components
and parts which make up a retirement unit. In the Code of Federal Regulations, Title 18, Part 116, the
FERC provides basic instructions regarding the classification of items of plant as retirement units and
lists the minimum definitions of retirement units within each electric plant account. Electric plant
instruction number 11, Work order and property record system required, in Part 101, requires that a
utility maintain a system of records that accumulates and tracks the costs and numbers of the various
retirement units in service and the annual additions and retirements of each unique item of property.
The USOA also defines the detailed information that must be maintained in the Continuing plant
inventory record system (commonly referred to as a CPR system). To be included in these records for
each different retirement unit are the description of the unit, its location, when it was placed in service, the
original cost of the unit, and the plant account to which it is classified. En masse cataloging for retirement units
that are relatively low cost or too numerous to track separately, should include the category description, the
quantity by vintage year, and the average cost for the category.
When a construction work order is unitized or closed, the costs accumulated in the work order are broken
down and allocated to the various retirement units of property that were created from the project. Normally, the
engineer who initiated the project provides notification of when the project is complete and how many units of
each type of retirement unit were constructed. The various direct costs such as labor costs based on hours
worked and materials used, are assigned directly to those units. Since the indirect costs and overheads cannot
be associated with individual units directly, these items are allocated to the various retirement units on some
logical basis. For example, the engineering and administrative overheads charged to the project can be
allocated to the various retirement units based on the percentages of the total payroll assigned directly to each
unit, or they may be allocated based on the percentages of the total project costs, excluding overheads,
assigned to each unit.
To illustrate the unitization process, the Sample Public Power Utility work order number 2153 for the overhead
line extension can be used. The total accumulated costs in the construction work order included $755 of labor
and $324 of material costs. In addition, there was $121 of various indirect costs plus engineering and
administrative overheads of $104 capitalized on the project. The total of the accumulated costs in the work
order was $1,304. The engineer on the project identified four unique retirement units for the project. The
table on the next page summarizes the unitization of work order 2153. In this case, each item of material
from the material listing is defined as a retirement unit. (Again, remember that this is an illustration and
that other minor items of property would normally be required for the construction but have been
omitted for simplicity.) Therefore, the material listing for the construction work order identifies the
direct charges, including materials and labor, by the four retirement units, which are carried forward to
the unitization summary. Note that for the item of conductor, 300 feet of material was charged to the
work order, and there are three retirement units. This indicates that the Sample Public Power Utility has
defined 100 feet of conductor as one retirement unit.
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Public Utility Accounting Page 97
Eng & Cost
Retirement Labor Mat'l Indirect Total B4 Admn Total Per Plant
Units Qty. Cost Cost Cost Ovrhd Ovrhd Cost Unit Acct.
30 Foot Pole 2 230$ 140$ 109$ 479$ 41$ 520$ 260$ 364
1/0 Cond. 100 ft. 3 300 168 - 468 40 508 169 365
10" Anchor 1 50 16 12 78 8 86 86 364
25 kVA Transf. 1 175 - - 175 15 190 190 368
Totals 755$ 324$ 121$ 1,200$ 104$ 1,304$
WORK ORDER UNITIZATION SUMMARY
Construction Work Order 2153
Sample Public Power Utility
The indirect costs have been attributed by the project engineer to be related only to the installation
of the pole and the anchor. Therefore, the $121 is to be allocated between those two units. Based
on the nature of the indirect charges, the utility accountant determines that these costs should be allocated
between the units based on the percentage of the costs of the materials assigned to each unit to the
total material costs charged to both units. The result of this is that $109 ($121*($140/$156)) will be
allocated to the poles and $12 to the anchor ($121*($16/$156)).
The engineering and administrative overheads of $104 are to be allocated to all four of the retirement
units based on the percentages of the total of all other costs, direct and indirect, allocated to each unit
to the total costs of the project, excluding the overheads. The calculation of the allocation of the
overheads is shown on the work order unitization summary shown above.
When work order unitizations, or closings, are completed, the quantities of each type of retirement
unit, the values determined to be associated with those units, and the appropriate FERC plant account
are recorded in the continuing plant inventory record system. A substantial amount of other
descriptive information regarding each unit is also entered into the system to enable the utility to track
closely the property on its system, as required by the FERC. At the same time, the balances of the
closed work orders are transferred from USOA account 106, Completed construction not classified-
Electric, to either account 101, Electric plant in service or account 118, Other utility plant, depending on
the nature of the asset.
Many public power systems with FERC based plant records perform the unitization or closing of
their work order immediately upon the removal of plant from service rather than delaying the
analysis. This effectively eliminates the need to transfer completed construction in and out of the 106
account. In these cases, capital work orders can be closed directly to account 101 from account
107. Small public power systems seldom have capital projects for which the unitization is complex
enough that it cannot be closed immediately. However, on those occasions, the 106 account is used.
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Page 98 Public Utility Accounting
Property Retirements
Retirement work orders are also closed upon completion. When utility plant is removed from
service, the unitization of the original construction is reversed. The original cost of the plant is deducted
from FERC accounts 101 and 118 as appropriate and the costs and quantity of the retirement units
removed from service are deducted from the appropriate plant accounts and unit counts in the contin-
uing plant inventory record system.
Where the closing of retirements is confusing is in regard to depreciation. As indicated previously,
retirement work orders fall within FERC account 108, Accumulated provision for depreciation and
amortization of electric utility plant. Depreciation is the systematic write-off of the book cost of
plant in service over the useful life of the property. The purpose of depreciation is to allocate the
expenditures associated with constructing plant assets to expense evenly over the accounting periods in
which the assets will produce corresponding revenues.
Under accounting depreciation rules, depreciation rates also are to include consideration of the net
salvage value (if the salvage value exceeds the cost of removal) or net cost of removal (if the cost of
removal exceeds the salvage value). Like the original cost, the cost of removal and salvage value
should be spread evenly over the life of the asset as together they represent net additions or
reductions to the total costs of the utility owning that plant. However, at the time depreciation is
begun for a unit of property, only estimates of the salvage value and cost of removal can be included.
Therefore, when depreciation rates are established for recording depreciation on property by a utility,
they are based on the original cost of the property plus estimates of the costs anticipated to remove the
property from service less estimates of the salvage value that will be realized upon disposal.
Consider as an example an asset that is still in service at the end of its original estimated useful life. It had
an estimated cost of removal exceeding the expected salvage value. Because the plant's estimated
service life is passed, it is fully depreciated, i.e. its original cost has been fully expensed through
depreciation. However, since the cost of removal is included in the depreciation rates, the plant asset
actually has a negative book value (original cost less accumulated depreciation). The accumulated
depreciation on the asset exceeds its original cost by the amount of the net cost of removal. When the
asset is removed from service and retired, the cost of removal in the retirement work order is charged to the
accumulated depreciation account and the salvage value recorded on the retirement work order is
credited to the accumulated depreciation account.
When property is retired the book cost associated with the asset on the utility's records is reversed from
electric plant by crediting that value to the plant account for which the asset is included. The asset's book
cost is also deducted from the accumulated depreciation account. According to electric plant
instruction number 10, Additions and retirement
of
electric plant:
If the retirement unit is of a depreciable class, the book cost of the unit retired and
credited to electric plant shall be charged to the accumulated provision for depreciation
applicable to such property. The cost of removal and the salvage shall be charged or
credited, as appropriate, to such depreciation account.
An example will illustrate the concepts of accounting for plant retirements. Assume that the Sample
Public Power Utility has a diesel generator that is being removed from service. The generator's original
cost was $780,000 and it had an expected salvage value of $20,000 at the end of its useful life of 40 years.
Chapter 7—Introduction to Accounting for Utility Property: FERC Uniform System of Accounts
Public Utility Accounting Page 99
However, the removal of the generator from service and the preparation for salvage was estimated to cost the
utility $40,000, due primarily to environmental requirements. The annual depreciation rate was determined to be
2.5 percent ([$780,000 cost - $20,000 salvage + $40,000 cost of removal]/40 year life), or $20,000. After 30
years, the utility determined that it needed to replace the diesel with greater generating capacity. However, the
utility was able to sell the generator for $200,000 rather than for the original estimate of $20,000. The
removal cost estimate of $40,000 turned out to be accurate.
The utility reversed the $780,000 original cost from its plant in service and the accumulated depreciation on its
books and in its continuing plant inventory records. It also charged the cost of removal and credited the
salvage value to the accumulated depreciation.
The accounting for utility property is complicated. Much has been written and is available to public
power systems for use in enhancing their plant accounting procedures. However, the Code of
Federal Regulations, Title 18 is still the most logical starting point for public systems in developing
an understanding of the need for detail plant accounting systems and how to move toward imple-
mentation of such a system.
Public Utility
Accounting
Chapter 8
Introduction to Basic
Rate Design
Chapter 8—Introduction to Basic Rate Design
Public Utility Accounting Page 103
It is the intent that this section of the manual will provide the reader with a general introduction to
rate design for electric utilities. There are several well written publications available on this topic, as
well as a few instructional courses offered that are devoted exclusively to utility rate structures,
methodology and determination. This Chapter will only touch on the basics, focusing more on general
concepts and current practices within utility rate design. Those interested in a more in-depth
discussion should contact the American Public Power Association or visit the APPA Academy
website.
Objectives of Rate Design
Although there are a multitude of factors that must be considered when developing electric
utility rates, those listed below are often considered to be the primary objectives of rate design:
Cost recovery;
Cost of service based;
Minimize risk through revenue stability;
Defendable;
Legal;
Fair/equitable; and
Easily understood.
As mentioned previously, there are many things that influence the design of electric utility rates, but
possibly the most important of these is cost recovery. Even though this sounds very simple and
obvious, due to the fact that a great deal of the revenue stream for an electric utility is dependent upon
weather conditions, it can be quite challenging for utility management and staff.
Since cost recovery is of paramount concern, most utilities establish rates on what is commonly
referred to as a “cost of service” basis. The determination of cost of service, or the calculation of
“revenue requirements”, is done at a customer class level. This process requires that all of the costs
associated with a given grouping of customers (that share like characteristics) be pooled together and
divided by the pooled usage of that same customer base. It is a common misconception, for those new
to the utility industry, that rates are strictly based upon actual specific customer costs. Although it is
true that most electric utility rates are based upon actual costs, it must be understood that rates are
determined using average costs. For instance, a utility may have a coal-fired power plant, a gas-fired
power plant, and ownership in a nuclear power plant, each of which cost different amounts to produce
a kilowatt of electricity. Traditional rate design will average these production costs. Another example
of this average costing concept is the recovery of storm damage costs. Normally, all customers pay a
portion of these costs rather than only those customers directly impacted by the storm.
Minimizing risk through revenue stability is another objective critical to electric utility rate design.
Structuring rates in a manner that protects the utility from significant fluctuations in weather patterns
is very important and instrumental to revenue stability.
In addition, a utility’s rates must meet the criteria of being defendable, legal under pertinent state and
federal laws, fair and equitable, and yet easily understandable. This is a daunting challenge given that
some of these factors are quite subjective. It is also extremely difficult to translate a very complex
utility business into rates that are easily understood by all.
Chapter 8—Introduction to Basic Rate Design
Page 104 Public Utility Accounting
Key Rate Design and Funding Concepts
Which rate design objectives are at the core of maintaining the financial stability and overall health
or “fiscal fitness” of an electric utility? Obviously, in order to remain as a viable business
enterprise, the utility needs to recover its costs. Not only must customer class revenue
requirements be properly determined, but rates must be structured in a manner that will minimize
risk to the utility with regards to fluctuations in cost and revenue streams. This means costs must
be carefully analyzed to determine whether, by nature, they are fixed, variable, or some
combination thereof.
The utility rate accountant should structure rates in a manner that adequately deals with issues such
as variations in weather conditions and the volatility of fuel prices. It is quite common for electric
utilities to generate the majority of its revenue in the summer months (cooling days), yet costs do
not occur with the same pattern due to the fixed versus variable nature of expenditures as was
mentioned earlier.
Therefore, in many ways, the key to attaining fiscal fitness is very much dependent upon a clear
understanding of the utility’s cost composition, the fixed/variable nature of those costs, and what
drives them.
Understanding Costs
In order to effectively set electric rates to meet the objectives outlined above and keep the utility in
a solid financial condition, it is paramount that the utility’s costs be clearly understood. The
composition of utility cost structures and the factors that influence or drive those costs must be
recognized.
What are the major components of cost commonly found within an electric utility?
Based upon national averages, most utilities have four primary cost components:
Fuel and/or purchased power;
Debt service and/or capital improvement;
Operation and maintenance costs other than fuel and purchased power; and
Transfers, payments in-lieu of taxes or similar items.
The single largest component of cost for most utilities is for fuel and/or purchased power costs.
National averages indicate that these costs comprise roughly 60% - 70% of the total operational costs
of the utility. Whether a utility is primarily generating its customer’s electricity requirements
themselves, or purchasing them from other utilities, this cost still represents a significant cost
contributor and plays a major role in rate design. Also, this cost can fluctuate considerably due to
changes in weather conditions and volatile fuel prices.
Representing between 10% - 20% of total costs, debt service and/or capital improvement costs are the
second largest component of total cost for most electric utilities. Unlike most businesses, an electric
Chapter 8—Introduction to Basic Rate Design
Public Utility Accounting Page 105
utility must build, operate, and maintain generally very expensive capital assets. This fact, coupled
with long construction periods for those assets often results in debt service and other capital related
costs being fairly significant.
Operation and maintenance costs other than fuel and purchased power comprise an additional 10% -
15% of the costs the average utility needs to recover through its rate structures. This includes salaries
and other personnel related costs, materials and supplies, and other consumables.
Finally, national averages reveal that somewhere between 5% - 15% of the costs to be recovered are
associated with transfers from the utility fund, payments in-lieu of taxes, and other similar costs.
Generally speaking, this category represents funds collected through electric rates charged to
customers whereby the revenue is passed on to the local governmental entity. As mentioned, these
costs can take on many different forms such as administrative transfers, franchise fees, or in-lieu of
payments.
Understanding the nature of the costs to be recovered allows the utility rate accountant to better match
rate mechanisms to those costs which, in turn, not only helps to ensure their ultimate recovery, but
also to minimize as much risk as possible to protect the utility during volatile times. The next section
addresses some of the rate mechanisms commonly utilized today, along with a discussion regarding
the matching of rates to a utility’s cost structure.
Common Rate Mechanisms
Although there are many different rate mechanisms commonly used today, most fit into one of two
main categories – base rates and pass-through rates. Base rate traditionally include:
Energy charges;
Demand charges; and
Customer charges.
Energy charges are often viewed as being designed to collect the variable costs associated with
providing power to customers. Rates will vary in price between various customer classes (residential,
commercial, industrial, etc.) and they are typically billed on a kilowatt-hour basis. There are many
different methods of assessing these charges. Some will employ what are referred to as “declining
block” or “inclining block” structures. In a declining block structure the rate per kilowatt-hour
decreases after certain blocks of consumption. For example a certain amount of cents per kilowatt-
hour for the first 500 kilowatt-hours with the rate dropping for kilowatt-hours 501 to 1,000 with a
further decrease after 1,000, and so on. Inclining block structures work just the opposite, with the cost
per kilowatt-hour going up with each new block. Other utilities will set energy charges based upon a
uniform or flat rate (rates that do not vary on a per kilowatt-hour basis), but possibly with different
rates for different customer classes. Time of use rates are yet another form of energy charges. Under
time of use pricing there are multiple rates for different blocks of hours within a day (24 hour period).
These rates are designed to encourage consumers to shift their consumption patterns to aid in
minimizing the total peak demands on the utility’s system.
Demand charges can be complex and confusing to explain. A simplistic definition of demand charges
is that they are generally assessed to larger customers (those with higher peak demands for power) and
are generally considered as an attempt to recover the utility’s fixed costs of providing the desired level
Chapter 8—Introduction to Basic Rate Design
Page 106 Public Utility Accounting
of power to a customer. Demand charges are normally charged based upon the peak demand for a
customer, measured based upon the maximum kilowatt (not kilowatt-hour) use during a given time
period (usually in 15 or 30 minute intervals).
Traditionally, customer charges are designed to recover the fixed costs associated with metering,
customer billing, records and collections, etc. and they are normally assessed as a fixed amount per
customer, per month.
Pass-through rates represent the other main category of electric rates. Unlike base rates which are
usually set and remain constant for quite some time (a year or more), pass-through rates are designed
to change monthly to match variations in certain cost elements within the electric utility – normally
fuel and purchased power (and certain transmission costs). Although rates of this nature go by many
different names, such as fuel adjustment clauses, power cost adjustments, fuel cost adjustment, etc.
they basically represent riders that allow the utility to pass along fluctuations in fuel and purchased
power costs to their customers on a more timely basis (commonly a one month lag).
Although there are many other rate methods used within the industry, those described above provide a
general introduction to those that are the most common. As mentioned previously, the intent of this
guide is only to introduce basic rate making concepts and methodologies to the reader. More detailed
information is readily available through other manuals, publications and instructional courses that are
devoted specifically to electric utility rate design. Those desiring more information are encouraged to
contact the American Public Power Association or visit the APPA Academy website.
Public Utility
Accounting
Sources of Information
American Institute of Certified Public Accountants. AICPA Professional Standards.
Chicago: Commerce Clearing House, 1978.
Berk, Joel, ed. Public Utility Finance & Accounting: A Reader. Tenafly, N.J.: Financial
Accounting Institute, 1984.
Energy Information Administration. Financial Statistics of Major U.S. Publicly Owned Electric
Utilities 1992. Washington, D.C.: Government Printing Office, 1994.
Financial Accounting Standards Board. FASB Accounting Standards Current Text.
Homewood, IL: Richard D. Irwin, Inc., 1995.
Griffin, Charles H., Thomas Howard Williams, and Kermit D. Larson. Advance
Accounting. 3d ed. Homewood, IL: Richard D. Irwin, Inc., 1977.
Governmental Accounting Standards Board. Codification of Governmental Accounting
amend Financial Reporting Standards. Stamford, CT: Governmental Accounting
Standards Board, n.d..
Gauthier, Stephen J., Paul E. Glick, and David E. Bean. Governmental Accounting
Auditing and Financial Reporting (GAAFR). Chicago: Governmental Finance
Officers Association, 1988.
Hahne, Robert L. and Gregory E. Aliff. Accounting for Public Utilities. New York: Matthew
Bender, 1989.
Kay, Robert S., CPA, et al. Handbook of Accounting and Auditing. 2d ed. Boston: Warren,
Gorham & Lamont, 1989.
Kieso, Donald E. and Jerry J. Weygandt. Intermediate Accounting.
2d ed. Santa Barbara: John Wiley and Sons, Inc., 1977.
National Committee on Governmental Accounting, Municipal Officers Association of the United
States and Canada. Governmental Accounting, Auditing, and Financial Reporting.
Chicago: National Committee on Governmental Accounting, Municipal Officers
Association of the United States and Canada, 1968.
Office of the Federal Register, National Archives and Records Administration. Code of Federal
Regulations, Title 18 Part 101 Uniform System of Accounts Prescribed For Public Utilities
And Licensees Subject To The Provisions Of The Federal Power Act. Superintendent of
Documents, U.S. Government Printing Office.
Reeser, Marvin P., et al. Introduction to Public Utility Accounting. 2d ed. Washington, D.C.:
American Gas Association, 1984.
Sueflow, James E. Public Utility Accounting: Theory and Application. East Lansing, MI: Institute
of Public Utilities, Michigan State University Press, 1973.
Whitman, Requardt & Associates. Handy Whitman Index. Baltimore: Whitman, Requardt &
Associates, 1995.
