Compatible Units Defined:
A Compatible Unit (CU) is a template used by utility companies to estimate routine, repetitive and primarily capital work such as line construction.
In the simplest form, a CU is comprised of Labor, Material and FERC accounting, but can include extended information related to work groups, vehicles/equipment/tools, etc. required to perform a unit of work.
Last time we looked at how a CU was structured to provide Labor and Material estimates. This time let’s take a closer look how CU’s simplify asset accounting to meet FERC requirements.
Managing FERC Accounting
In simplistic terms, FERC requires specific accounting requirements for capitalized expenditures through a “Uniform System of Accounts”. Actual costs of capital work in progress costs are captured in a 107 account then upon completion of the work those costs must be allocated to a Continuing Property Record(s) (Unit of Property).
Managing the application/allocation of actual costs to a unit of property (the process called unitization) is a difficult process for utilities. The use of CUs eases this burden considerably.
The initial CU estimate submitted at the end of the design process will provide an allocation model to the asset accounting system for distributing the actual costs as they are reported.
Once the construction is complete, then a “true-up” needs to occur in the form of an As-Built estimate. The original estimate is replaced with the as-built estimate and any reallocation/adjustments necessary are performed by the asset accounting system.
Compatible Unit Cost Allocation Example:
Let’s look at an estimate involving installing an underground primary line to a transformer and installing a service to a meter.
When the CUs are used to estimate the simple design, six units will be installed with various FERC codes.
All of the estimated costs are allocated to the units of property creating an initial cost allocation model. If, for example, each asset was to receive an equal portion of the costs, then each of the six assets would receive ~16.67% of the costs.
When actual costs are charged to the work order, they are stored in the CWIP, FERC 107 account while the work is in progress. The asset accounting system can then estimate how much of the collected costs would be allocated to each of the units of property by applying the cost allocation model to the current collected costs.
When the work is completed, and all the costs collected, an as-built estimate is prepared. In this example we’ll say that the pole was not needed, an existing pole was used. The as-built then would be revised to only 5 units of property. The new allocation model would be 20% to each unit of property.
The asset accounting system will capture the In-Service Date, the vintage year, and the allocated costs and then “unitize” the costs from the 107 account to the appropriate FERC accounts, 367, 368, 369, 370, etc. and begin the appropriate depreciation.
While the process is complicated, Compatible Units simplify the accounting. By creating the CU Estimate, the allocation model is defined, and it is “trued-up” with the creation of the As-Built Estimate.