Four Reasons Not to Charge Cost Centers

Back in the mid-1990s, when utilities expected regulation would be phased out and compliance with Title 18 would no longer be necessary, we saw charging cost centers as highly convenient. This was how non-regulated companies ran, and the practice was fully embraced by utilities.

Fast forward 20 years, and the situation is quite different: regulation is actually more stringent, and utilities spanning multiple jurisdictions face even greater scrutiny. Today, while cost centers are useful on the back end for summarizing orders, comparing budget to actual, and establishing a framework for accountability, they are decidedly not effective on the front end for at least four reasons:

1. Poor transparency. Charges to cost centers are less transparent than charges to work orders, and therefore make understanding, explaining, and justifying FERC-relevant costs far more difficult.

2. Increased processing time. In our experience, tracing costs from cost centers to work orders to FERC accounts doubles the processing time for the regulatory accounting close. Charging work orders directly speeds up the trace and simplifies the close.

3. Less control and flexibility. Once dollars are in a cost center, they must follow that cost center's labor. This can cause problems when below-the-line expenses are traced to above-the-line accounts. Adjustments to move non-labor from one cost center to another can inadvertently redistribute dollars to unintended FERC accounts. So while charging cost centers is convenient, it means giving up the control and flexibility inherent in charging orders directly. A utility can mitigate some of the risk by allocating cost center charges out to other receivers using assessments in Controlling. This practice, however, makes tracing costs from their origin even more complex as receivers are sometimes just other cost centers. The tracing can even become circular as the receiver may charge costs back to the original sender. This potential confusion is avoided if orders are charged directly, configured for each business transaction.

4. Unnecessary complexity. Charging cost centers makes labor rates more difficult to calculate because non-labor is also in the cost center, in amounts that vary by cost center. In contrast, excluding non-labor costs from cost centers allows labor rates to be set uniformly across cost centers for similar roles.

If you've been charging cost centers and are experiencing some or all of these challenges, contact HPC to learn how you can modernize your cost model to address today's tougher external reporting standards.

Perfect year-end gift for your SAP Accounting team: HPC JETS

As 2014's year-end close approaches, your Accounting managers will face any number of onerous tasks: making sure suppliers are paid on time; checking budget variances and finding errors dating back to the beginning of the year; tending to year-end accounting accruals that always seem to hit in the last quarter; and taking care of last minute journal entries just in time to get to the office holiday party.

You can eliminate at least one big year-end headache — correcting mischarged orders, cost centers, and other cost objects — with the HPC Journal Entry Transfer Solution (JETS). HPC JETS is a cost adjustment application for SAP that increases the speed and integrity of cost corrections directly in SAP ECC 6.0. It's ABAP-based and looks and feels just like the SAP GUI you already know and love. When your accountants see it in action, they'll nod their heads in appreciation and say, "I wish we'd had this last year." No more reliance on lump-sum journal entries that are difficult to explain to auditors.

So, give your team a gift that will not only make this year-end less stressful, but also every monthly close thereafter more efficient and accurate: HPC JETS.

Even better, as our gift to you, all HPC JETS evergreen perpetual licenses purchased before December 31, 2014, will include up to 80 hours of HPC's consulting services at no additional charge. That amount should cover most standard implementations.

Contact us to schedule a personal demonstration, or watch an online video demo of JETS v2.0.

Guest lecture at SFSU - "ERP's Changing Role in the Age of Connected Everything"

On Wednesday, November 19 from 6:30-8:00pm, HPC CEO Jerry Cavalieri will speak to San Francisco State University MBA program's BPM class about "ERP's Changing Role in the Age of Connected Everything."

Cavalieri will discuss how ERP has become foundational to the enterprise, and how businesses will adopt new BPM strategies that re-define and modernize their ERP to adapt in the social, mobile, and cloud IT architectures of today and the future. ERP is here to stay, but must adapt in ways that require more agility and flexibility than ever before. The way corporations deploy and evolve their ERP systems will determine their level of competitive advantage and profitability. The key to success is a long-range IT roadmap and careful execution to thrive and stay ahead of the competition.

The presentation will also include a demonstration of SAP ECC Financials, and time for Q&A.

How Xcel Energy could have minimized rate case risk with HPC UFA

The recent news about Xcel Energy inadvertently including $460,000 in campaign expenses in a rate increase request illustrates one of the ways that HPC Utility Financials Accelerator (UFA) helps utility companies to properly identify below-the-line costs and minimize the risk of utility commission inquiries and public relations crises.

Per FERC regulations, all shareholder-funded donations and political contributions of any kind are to be recorded to account 426:

Expenditures for certain civic, political and related activities.
(a) This account must include expenditures for the purpose of influencing public opinion with respect to the election or appointment of public officials, referenda, legislation, or ordinances (either with respect to the possible adoption of new referenda, legislation or ordinances or repeal or modification of existing referenda, legislation or ordinances) or approval, modification, or revocation of franchises; or for the purpose of influencing the decisions of public officials.

To ensure that such costs are recorded below-the-line (i.e., borne by shareholders not ratepayers), utilities must assign the correct regulatory indicator on orders used to pay vendors. The translation of the indicator also needs show the correct FERC account of 426. This is not so easily done with the legacy FERC module alone, as most users won't take the time to query a range of accounts in the standard drill-down to resemble line item views. Or, they won't use the drill-down at all because it starts at the account level.

In contrast, using HPC UFA, accounting managers can spot such mistakes earlier using UFA's interactive P&L drill-down tool. Large or unusual payments are easier to identify because UFA enables users to detect variances at the line item level (such as A&G where we suspect Xcel's campaign expenses may have been charged incorrectly). UFA then facilitates the recasting of FERC results even after a period is closed. In this way, utilities running UFA can more accurately validate their financials before any external reporting to regulatory agencies.

SAP for Utilities 2014

It's that time of year again, and HPC is looking forward to learning and sharing at the annual SAP for Utilities conference in Hollywood, Florida. While our own HANA-based regulatory accounting solution for FERC reporting is in development, we'll be interested to see how others are leveraging in-memory to deliver tangible, practical benefits. In this regard, Vikki Pope and Dave Campbell's presentation for National Grid is definitely on our short list of speaking engagements to attend. And since we do quite a bit of work optimizing the integration of Financials and Work Management, we're also keen to listen to SCE's talk about fleet management, and SAP's Rory Shafer's thoughts on EAM solutions.

If you're roaming the show and want to chat about SAP FERC for the modern utility, as well as broader Financials and Asset Lifecycle Accounting issues, let us know at (510) 542-9558.

SAP Controlling Conference countdown

It's just one month before the 2014 Controlling conference in San Diego (Sept. 22-23) where HPC will demonstrate our NetWeaver-based cost adjustment solution for SAP ECC, the HPC Journal Entry Transfer Solution (JETS).

JETS enables authorized users to adjust primary and secondary costs directly in the ERP, improving data integrity, financial controls, and audit trails. Watch a demo video of HPC JETS that shows how to correct mischarged internal orders easily from the SAP GUI you already know and love.

Please contact us if you'd like to meet at Controlling 2014. We look forward to seeing you in San Diego!

SAP Financials Conference - HPC to demo cost adjustment solution

HPC will exhibit at the SAP Financials Conference in Orlando, Florida on March 18-20, 2014.

Meet us in Booth #940 to talk about your own pressing SAP FICO issues with our veteran SAP Financials consultants, and to see a live demo of HPC's cost adjustment application for SAP, the HPC Journal Entry Transfer Solution (JETS). HPC JETS is NetWeaver-based software that increases the speed and integrity of cost adjustments in SAP ECC 6.0, including corrections to mischarged orders, cost centers, and other cost objects.

Schedule an appointment with HPC at the 2014 SAP Financials Conference, and learn more about adjusting costs in SAP with HPC JETS.