Regulated Utilities: Using EPCM for FERC Allocation and Reporting
Federal Energy Regulatory Commission (FERC) reporting is required for regulated utilities and is used to ensure that utilities comply with federal regulations and provide timely and accurate financial and operational information. As a part of the FERC reporting process, revenues and costs need to be allocated in a fair manner. The allocation method should be consistent with industry practices, and FERC requires detailed reports on the allocated results.
FERC auditors can thoroughly scrutinize these allocated results to validate that revenue and costs are assigned fairly and equitably. As such, detailed records need to be kept by utilities on the manner in which revenues and expenses are allocated (details on source pool of dollars, target FERC accounts, and drivers used for allocations). Many companies perform these FERC allocations in spreadsheets, databases, or legacy systems that do not provide easily accessible traceability into the details of the allocations resulting in finance members of the utility spending extra resources to de-construct the allocations and provide answers to FERC auditor questions.
FERC reporting of allocated results needs to be submitted in a specific format. If using spreadsheets, databases, or legacy systems to perform the allocations, reporting the results to FERC can be another manual, time-consuming process and prone to errors.
Why Oracle Cloud Enterprise PCM is the Right Tool for the Job for FERC Allocation Solutions
At Alithya, we have successfully implemented Oracle’s Enterprise Profitability and Cost Management (EPCM) allocation tool at multiple utilities for FERC allocations and reporting. These implementations have included the following benefits:
Let’s look at these benefits in more detail.
Traceability of Allocated Results Back to Source Details
With many legacy allocation systems, visibility is lacking into the allocation, input, driver, and output processes. These legacy systems include manually combining the allocated results together via spreadsheets which is time-consuming, and allocation details are lost. With the EPCM tool, users can maintain visibility and traceability into the original pre-allocated information throughout the allocation process. So when questions arise on the source, drivers, or allocation methodology used for FERC allocations, those questions can be answered quickly and confidently.
Systematic Process for Allocations
Many legacy allocation systems include manual steps throughout the process to successfully complete the allocations; this can be very time-consuming and error-prone. Most of these manual processes are related to allocation driver collection/calculation; with EPCM, a systematic approach can be used to collect and calculate drivers that are to be used for FERC allocations. With this systematic process, users can see the full details in EPCM of how these drivers were calculated and used to allocate revenues and costs.
With the EPCM tool, rule sequencing ensures the allocations are run in the proper order, and thus allocation results are as expected. With legacy systems, allocation steps could be missed or run out of order resulting in improper FERC results being reported. A systematic process for FERC allocations will tighten up controls, improve processing time and minimize potential errors.
Real-Time vs. Manual Rates Used for Allocations
Many legacy systems have limitations on dynamic calculations, so many drivers are manual rates calculated offline. At times there are requirements to calculate driver rates based on initial allocation results. With many legacy systems, this would require stopping the allocation process, calculating the driver rate offline, loading the driver rate back into the system, and then continuing the allocation process. With EPCM, this can be avoided by setting up dynamic calculations within the EPCM rules and processing the allocations without stopping and restarting the allocation process.
Shared Allocation Methodology Across All Management Cycles
Since many legacy allocation systems are manual, they are very time-consuming to complete and often only include allocations of Actual results. With EPCM, the allocation rules are built within the tool, and those allocation rules can be run across all management cycles (Actual, Budget, Forecast). This shared methodology of overall management cycles gives users the confidence that allocation results are based on a consistent set of rules and allows results to be compared between all management cycles.
Flexibility of Allocation Rule Updates
At times legacy allocation systems need IT involvement to update the allocation logic (an IT user needs to update the “code” for allocation logic or drivers to be updated). With EPCM, Finance users have the flexibility to update the allocation logic/rules within EPCM without the involvement of IT. This allows for a quicker turnaround of rule updates and flexibility to change the allocation logic.
Simplification of Reporting
As was mentioned earlier, with legacy allocation systems, the process is very manual and includes reporting the allocation results. FERC has strict requirements on how allocated results should be presented/reported. With legacy allocation systems, the FERC reporting can be very time-consuming due to the manual process of cobbling all the results into the proper format. With the EPCM tool, hierarchies and/or reports can be built to streamline the FERC reporting process.
FERC allocations are required for all regulated utilities, and results need to have revenues and costs allocated in a fair manner. FERC highly scrutinizes these allocated results; thus, utility companies need financial systems to perform the FERC allocations. EPCM is the right tool for FERC allocations as allocation results can be easily traceable to assist with FERC auditor questions, the allocation process is systematic to reduce allocation errors, dynamically calculated driver rates can be included in the EPCM allocation process to avoid delays, allocation results can be run for all management cycles, and the FERC reporting process can be streamlined using tools within the EPCM application.