Part 1: Capital Expenditures and the FERC Module

This is the first of a three-part posting about tracing capital expenditures and the SAP IS-U/FERC module (which as you may know, HPC America originally developed in 1994). We recently helped a customer troubleshoot some mystery data, and thought our approach would be worth sharing.

When utilities build a new generation plant, overhaul an existing one, or make some other type of capital improvement, the associated work orders are of course capitalized in SAP. The IS-U/FERC module uses a special account to trace all the labor, materials, outside contracts, and employee expenses to a single expense account&mdashwhat we'll refer to here as the Holding Account. Then, to capitalize (i.e., reverse) the costs in the Holding Account, the order(s) are settled, meaning the expense is credited and the capital account on the balance sheet is debited. This happens once at the end of each month.

The order settlement action creates an offset to the Holding Account used by the trace for capital orders. So, in theory, the Holding Account has a zero balance at the close of each month. When that is not the case, it's a sign that something is wrong. Stay tuned for Part 2 for advice on handling such a scenario.

So why doesn't the FERC module just trace to the capital account in the first place and forget about having to clear the Holding Account? Well, the FERC module is not allowed to capitalize costs. Only the Controlling module (CO) can do this. By having only one source for capitalizing costs, the FERC ledger will show the same net income as the natural account ledger used for Generally Accepted Accounting Principles (GAAP) reporting.

As such, the true purpose of the Holding Account is to ensure the total expense dollars are EXACTLY the same between the natural and regulatory (FERC or RUS) chart of accounts. The Holding Account is comprised of two sources: traced costs to regulatory indicator 'CAPT' (usually debits); and direct post costs (usually credits) for all capital orders that settle externally to the balance sheet to either Construction in Progress (CIP) or Plant in Service (PIS). These two sources - trace and direct - happen at different times, hence the difference in the account is always the result of these two processes.

Next time: a real-world example.