Preparing for Greater Regulatory Scrutiny

Regulatory reporting—also referred to as FERC (Federal Energy Regulatory Commission) reporting—for utilities running SAP is a critical but not widely understood aspect of a utility company’s business and the ERP that supports it. For most utilities, preparing for rate cases involves a daunting process to identify the cost of service data required by regulators. This exercise has become even more serious in recent years because of increasing regulatory scrutiny and the significant costs utilities face when a rate case is delayed or challenged.

In this environment, utilities not only need systems in place to make accurate regulatory financials readily available, but also need even more granular cost data to establish truly defensible rate cases. The good news is that implementing such a system doesn’t just satisfy external audiences; it helps internal stakeholders to better understand asset reliability, customer service, and ultimately, the cost of running the business.

When it comes to consulting services and software solutions for FERC reporting on SAP, Utegration has a bit of expertise to offer. In the mid-1990s, our team actually designed the first FERC reporting functionality for utilities on SAP, and has focused on helping utilities manage the intricacies of regulatory reporting ever since. 

We created this guide to help utilities who are looking to increase their understanding of FERC reporting options on SAP, optimize regulatory reporting on SAP ECC, modernize FERC reporting as part of their move to SAP S/4HANA, and more.

Table of Contents:

FERC Reporting on SAP: An Overview

North American electric, gas, and water utilities of all sizes must typically comply with the Uniform System of Accounts from the Federal Energy Regulatory Commission (FERC), the National Association of Utility Regulatory Commissioners (NARUC), and/or their respective state Public Utility Commissions. Utilities must respond to data requests and file periodic rate cases with these external authorities. Multi-jurisdictional utilities—that is, those operating in more than one state—are often responsible for reporting several regulators, and as such are often continuously in a state of responding to interrogatories or preparing for rate cases.

Utilities running the SAP ERP have historically faced a number of challenges getting timely and accurate regulatory accounting data from their SAP systems into the formats required by their regulators. In addition, as utilities are facing increasingly stringent compliance requirements as regulators ask for more granular cost data and documentation to support it.

Meeting these tougher regulatory reporting requirements is eminently possible in SAP with the right planning and design. Utegration’s consulting and software development teams have more than 150+ years of collective experience helping utilities resolve regulatory accounting challenges. Through our knowledge, services, and solutions utilities can transform responding to regulatory interrogatories and preparing from a major headache to a manageable effort with easily repeatable results.

Best Practices for FERC Reporting on SAP

Utilities running SAP can implement a number of accounting best practices that help optimize regulatory reporting, including shortening their cost flow, unbundling benefits and taxes from labor rates, and charging orders instead of cost centers. Learn more here: Six Tips to Optimize Accounting

In addition, for more than a decade, Utegration’s regulatory reporting experts have advocated what we call a “CO-centric” model of regulatory accounting for utility companies on SAP. The “CO” refers to the SAP Controlling module, which contains valuable cost data that our customers use to support FERC balances. This delivers numerous benefits that, ultimately, improve a utility’s responsiveness to regulatory inquiries and strengthen its rate case position.

The traditional approach to FERC accounting on SAP only utilizes Finance (FI) module documents, which contain primary costs, to derive regulatory account data. This design—which some of our leadership originally developed for Pacific Gas & Electric 25 years ago when regulation was expected to be phased out—has some inherent weaknesses: FI, CO and FERC do not reconcile; the trace algorithm is error-prone; and complex cost flows can become opaque and difficult to understand and explain.

In contrast, a modern, CO-centric model traces all primary and secondary costs; eliminates reconciling differences between SAP FI, CO, and FERC; and simplifies cost flow complexity with little disruption to current business processes. As a result, utilities gain a faster monthly FERC close, improved rate case support, and greater end-user self-sufficiency for regulatory reporting activities. And since GAAP and FERC match, there’s one version of the truth for both internal and external reporting. Utilities on either SAP ECC 6.0 or SAP S/4HANA can realize the benefits of supporting regulatory account balances with Controlling module cost data.

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FERC Reporting on SAP S/4HANA

As more utilities are planning for SAP S/4HANA, Finance, Accounting, Rates, and IT professionals are asking questions about regulatory reporting on SAP’s latest platform. While the FERC module our leadership developed is still delivered with S/4HANA, utilities today require more cost transparency and traceability than it alone can provide.

To make truly meaningful progress in S/4HANA, utilities either need to optimize the FERC module and its derivation/batch design, or replace it with a line item, real-time design—ideally one that does not give up the FERC reporting benefits previously enjoyed in ECC.

More specifically, utilities should look for a FERC reporting solution on SAP S/4HANA that delivers the following benefits:

  • Allows Administration and Field Operations to enter financial transactions in terms they understand, very efficiently, and without any knowledge of regulatory accounting
  • Generates automatically the incredibly rich cost detail that Rates needs to strengthen rate cases, which is often more granular than the original inputs from employees in the field
  • Enables Accounting to perform critical functions directly in S/4HANA including allocating line items to satisfy utility accounting rules; adjusting cost objects before and after allocations, in a manner that preserves all original details; and rerunning FERC reporting data easily
  • Enables utilities with multiple lines of business and/or operations in multiple jurisdictions to split shared costs easily and transparently, directly within SAP S/4HANA
  • Generates full Financial Statements with drill-down to regulatory line items and supporting documentation, such as invoices
  • Identifies all cost flows traced from start to finish—and in reverse—with drill-down to details
  • Empowers Rates and Revenue Requirements to respond to regulatory interrogatories in an even more timely and confident manner
  • Provides the option to eliminate or minimize the use of costly third-party fixed asset accounting solutions by establishing an all-SAP solution for capital accounting

Utegration helps utilities realize many or all of these benefits either by optimizing the FERC module or by replacing it with a real-time FERC solution on S/4HANA that is certified by SAP as integrated with S/4HANA.

Optimizing FERC on SAP ECC

Utilities running the delivered FERC module often experience certain challenges due to that solution’s inherent limitations. Given that it’s more than 25 years old and was created at a time when regulation was anticipated to be phased out, this is not surprising. For example, FI, CO, and FERC do not reconcile at the cost object level (because FERC account balances are only based on primary costs in FI, not secondary costs in CO); the FERC trace algorithm can be prone to errors, which may stop it from running successfully; and use of FERC clearing to speed up the FERC trace can adversely affect cost transparency and traceability.

Starting in 2008 and as recently as 2018, our team saw an opportunity to alleviate many of the FERC module’s inherent limitations on SAP ECC with an add-on software solution designed to meet more stringent regulatory reporting requirements. This solution, Utility Financials Accelerator (UFA), builds on the FERC module to eliminate reconciling differences between FI, CO, and FERC at the cost object level, speed up the FERC trace by 50%, and provide an interactive drill-down from Net Income to individual FERC accounts, among many other benefits.

FERC Reporting Case Studies

Utegration’s team has helped utilities implement and optimize FERC reporting solutions on SAP since the 1990s. Read the FERC reporting case studies below to learn more about our customers’ unique and common challenges, and how Utegration delivered meaningful, measurable improvements to regulatory reporting on SAP.

  • Salt River Project’s (SRP) FERC reporting was difficult to understand, tie back to participation billing, support pricing, and fulfill audit requests. To address these issues and to increase readiness for SAP S/4HANA, SRP optimized its SAP ECC system with a “CO-centric” model of regulatory reporting through an efficient, five-month project. Improvements included an order of magnitude decrease in data volume, 50% faster FERC processing, and elimination of reconciling differences between GAAP and FERC. Even better, SRP ensured that its current financials in the ECC are consistent with how they'll look in S/4's Universal Journal. Read the case study.
  • Pepco Holdings (PHI) wanted to enhance its processes of categorizing and reporting accounting data, and selected Utility Financials Accelerator to deliver greater automation and less reliance on external Excel files outside of SAP. Just nine months after project kickoff, PHI achieved all of its initial objectives. Read the case study.
  • Rochester Public Utilities (RPU) wanted streamlined FERC reporting and automated assignment of costs to FERC accounts; a more accurate way to calculate actual labor charges; and a consolidated process for managing Fleet costs and equipment charges. Utegration's team optimized RPU’s delivered FERC module to achieve all of these goals and more. Read the case study.

History of the “FERC Module” for Utilities on SAP

In the mid-1990s, when Pacific Gas & Electric was starting the very first implementation of SAP at a U.S. utility company, the ERP did not include utility-specific accounting functionality. To deliver that, the co-founder of SAP, Hasso Plattner, invited his former colleague from Germany, Josef Heck of HPC AG, to come to California to build a regulatory reporting solution for PG&E.

Mr. Heck established HPC America in San Francisco, and the solution he co-designed became known as the “FERC module.” The other half of the design team was Jerry Cavalieri, then an accounting principal at PG&E and currently the Managing Director of Regulatory Solutions at Utegration.

Once the FERC module was completed at PG&E, it was acquired by SAP in 1996 for inclusion in the ERP to other utilities. Since that time, it has been the sole delivered regulatory reporting solution with SAP ECC and, still today, with SAP S/4HANA. Utilities throughout the United States use the FERC module to functionalize their costs and for cost of service ratemaking and reporting to state commissions, municipal boards, and FERC.

Prepare for Increased Scrutiny: Contact Utegration

To start addressing your utility’s goals for regulatory financials, contact us for an introductory call.