Part 3: Capital Expenditures and the FERC Module

Wrapping up our look at the FERC module and capital expenses, we'll use another real-world example.

Let's say we have not one, but two capital orders for the month. The first one has $1M in it. But the second one has $100K posted to it, and it settles to a cost center. Thus, the second order is expense by definition, because all orders settling to a cost center are expensed. Now, let's assume further that the order type is designed for expense. Furthermore, the order was created, but for some unexplained reason, the regulatory indicator never got assigned and was left blank.

When it comes time to run the trace, this second order, having no regulatory indicator, will still need to be translated to the FERC or RUS chart of accounts. The trace is designed with two back-up translation rules in such an event, as follows:

If the regulatory indicator is blank or invalid then:

1. The trace looks to the responsible cost center on the order.


2. If found, the regulatory indicator on the cost center (looked-up on CSKS) is used. This will most often be an expense regulatory indicator.

If there is no responsible cost center assigned to the master record on the order (table AUFK), then:

1. The regulatory indicator is assigned from the default indicator shown on ZFERCR010 (run using ZE_FERCTRACE.) This is the regulatory assignment of last resort.


2. The assigned default is set to CAPT for all instances.

Our second expense order in this example, having a blank regulatory indicator, would then trace the debits to the Holding Account, but would never get an offsetting credit. Why? Because the order is not going to be capitalized. Rather, the order really should have had another valid O&M regulatory indicator, but it was blank and went to 'CAPT' by default. So there in will sit in the Holding Account without ever getting an offsetting credit for the $100K.

What can you do about such a discrepancy? By looking at results by month, you may find a timing problem between what the trace is saying should be capitalized and when the direct post is seeing the actual settlement.

If you can verify that all five conditions for capital orders are validated, there may be at least one order each month that has a blank regulatory indicator. To pinpoint that, reverse one of the FERC periods for the given year in QAS. When re-running the trace, change the default regulatory indicator to another O&M regulatory indicator. Changing nothing else, run the trace, trace post, direct post, and drill-down as normal. Check the balance in the Holding Account for any change. If it changed, then one of the orders supporting the Holding Account was blank, causing the discrepancy.

Got it all straight? Good, this is not easy stuff. Thoroughly confused? Not a problem, we can help.

Part 2: Capital Expenditures and the FERC Module

Continuing our look at the FERC module, let's walk through a hypothetical example of the process it uses to settle capital expenditures.

Suppose we have only one capital order for the month. It has $1M of cost in the order prior to settlement. The trace will see the $1M in the order, check that the regulatory indicator is 'CAPT', and use the rule in the trace translation table to convert the $1M to the Holding Account. And there it will sit waiting for a credit. Since the FERC module cannot capitalize costs, it must park this amount somewhere until the CO module (the only SAP module that can capitalize orders) settles the $1M and sends a credit (via the direct post) to the Holding Account. The Holding Account will have a zero balance if the following occurs for this one order:

1. The order has an order type designed for capitalizing costs.


2. The order has the regulatory indicator 'CAPT'.


3. The order has a settlement rule sending 100% of the order costs to CIP or PIS on the balance sheet.


4. The order settles in the same month the charges were originally posted to the order.


5. No back-dated charges to the order occurred after the initial settlement (this can be assured by closing the prior period).

If these five conditions above are met, the Holding Account will be zero for the month in our example. But what if it's not? Stay tuned for Part 3.

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.