3. 9/27/2018 USAID ENERGY SECURITY PROJECT 3
BASIS FOR REGULATORY ACCOUNTING
THE REGULATION OF PUBLIC UTILITIES
“An important component of any economic regulatory activity is the determination
of industry-specific accounting rules.”
FRAMEWORK TO INTERHATIONAL FINANCIAL REPORTING STANDARDS
“Governments and their agencies are interested in the allocation of resources and,
therefore, the activities of enterprises. They also require information in order to
regulate the activities of enterprises and may specify different or additional
requirements to accounting for their own purposes.”
4. 10/16/2018 4
Regulatory Reporting Requirements
The Regulatory Reporting Requirements include both financial and non-financial
information, classified as follows:
• Information for the purposes of tariff setting - information required under this
section shall be derived from the adopted tariff methodology and shall be
recorded and reported directly by the utility accounting information system (AIS)
• Information for the purposes of monitoring utility performance - information
required under this section shall be derived from the adopted benchmarking
approach and the utility performance standards set by the regulator in the issued
licenses
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
5. 10/16/2018 5
Regulatory Reporting Requirements
Information for the purposes of tariff setting
• Balance Sheet Accounts (Non-Current Assets, Current Assets, Equity, Non-
Current Liabilities, Current Liabilities)
• Income Statement Accounts (Revenues, Expenses)
• Management Accounts
• Off-Balance Sheet Accounts
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
6. 10/16/2018 6
Regulatory Reporting Requirements
Information for the purposes of tariff setting
Depth of Classification - Levels of Breakdown (e.g. expenses)
– xx - Operating, Non-Operating, Extraordinary, Prior period
– xxx - Cost of Sales, Sales and Marketing,Administrative, Other
– xxx - Goods,Works, Services
– xxxx - Electricity, Heat
- xxxxx - Materials and Supplies, Payroll, Depreciation, etc
- xxxxxx – Operation, Maintenance
- xxxxxxx - 110kV, 35kV, 6/10kV, 0.4kV
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
7. 10/16/2018 7
Regulatory Reporting Requirements
Benchmarking:
• Measuring utility performance in a specific function against other utilities that are
known to be superior performers in similar functions
• Understanding how those utilities achieve such outstanding results
• Providing incentives and/or using penalties to make utilities change current
practices to incorporate this understanding and improve performance
Standards of Performance
• Reliability of supply (SAIDI, SAIFI), power quality (voltage, frequency, harmonics,
etc.), customer service (complaints, time to connect new customers, etc.)
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
8. 10/16/2018 8
Regulatory Reporting Requirements
Why the information requirements under section benchmarking and performance
standards form an integral part of the foundations of USOA?
The greater part of the utility benchmarks and standards of performance are not
defined (or only partially defined) in monetary units and cannot be calculated based
on information recorded and reported by the utility accounting information system.
However, information required for the purposes of monitoring utility performance
can be and shall be reconciled against items of information recorded in the USOA.
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
9. 10/16/2018 9
Objectives of USOA
• Primary objective - Licensees’ Accounting Information Systems can easily generate all the
reports using information extracted from the accounting General/Subsidiary Ledgers
• Secondary objectives:
– Conform to financial best practices, while being consistent with the Accounting
Standards of Ukraine and the Law on Accountancy.
– Support variety of internal and external reporting requirements for different users of
accounting and financial information;
– Provide a platform that can change as requirements change;
– Integrate budget, financial, tax and regulatory reporting;
– Provide flexibility for future organization change
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
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USOA Design
• Identify non-regulatory reporting requirements to USOA, including
– Management information requirements;
– Tax information requirements;
– Shareholders and creditors information requirements.
• Integrate regulatory and non-regulatory reporting requirements
• Analyze legacy chart of accounts
• Develop draft USOA – detailed classification of the assets, liabilities, revenues and
expenses in each account group
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
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Transition Arrangements
• Develop Instructions to USOA - detailed instructions for the use of each USOA
account and sub-account in the process of recording and reporting business
transactions.
• Revise regulatory reporting forms based on USOA - the forms shall indicate the
accounts numbers for each item of information
DEVELOPMENT AND IMPLEMENTATION OF
UNIFORM SYSTEM OF ACCOUNTS (USOA)
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Regulatory Accounting Policies
• Recognition and depreciation/amortization of tangible and intangible assets;
• Capitalization of borrowing costs;
• Government grants;
Regulatory Disclosure Requirements
• The Regulator may impose additional industry-specific disclosure requirements for
regulatory purposes.
• All methods of disclosure might be used: parenthetical explanations, notes, cross-
reference and contra items and item breakdowns or supporting schedules.
REGULATORY ACCOUNTING POLICIES
AND DISCLOSURE REQUIREMENTS
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Regulatory audit techniques
➢Document examination;
➢Interviews with staff and managements; and
➢Site visits and inspections.
Regulatory audit Objectives
➢Check proper segregations of regulated and non-regulated costs;
➢Examine whether the reported costs are “reasonable”,“necessary” and “in the
public interests”, and the Licensee makes “prudent” investments in “useful assets”;
➢Assess whether the License’s systems of internal controls guarantee that the
financial information and standards of performance are reported truthfully.
REGULATORY AUDITS
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Types of Regulatory Audits
➢ Focused (“agreed-upon”) audit procedures – e.g. audit of segregation of utility
and non-utility costs, audit of procurement and construction contracts, etc.
➢ Audit of internal controls - discover material weaknesses in the internal control
structure like lack of segregation of duties, lack of or shared responsibilities,
inadequate financial controls, etc.
➢ Full-scope audit
REGULATORY AUDITS
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UNITED STATES
• US GAAP, Federal Power Act (FPA)
• Code of Federal Regulation (CFR), volume 18 states: .. the Federal Power Commission acting
pursuant to authority granted by FPA ….adopts the accompanying system of accounts
entitled “ Uniform System of Accounts prescribed for Public Utilities and Licensees
subject to the provisions of FPA “, and the rules and regulations contained therein.
BULGARIA
• IFRS, Energy Law
• USOA developed for electricity and gas distribution companies and district heating
companies with USAID support
ARMENIA
• IFRS, Energy Law
• USOA developed for the electricity distribution companies and water utilities
INTERNATIONAL EXPERIENCE
16. PHOTO:CREATIVECOMMONS
This product is made possible by the support of the American People through the United States Agency for
International Development (USAID). The contents of this presentation are the sole responsibility of Tetra Tech
ES, Inc. and do not necessarily reflect the views of USAID or the United States Government.
ENERGY SECURITY PROJECT
Senior Energy Economist:
Krassimir Kanev
krassimir.kanev@tetratech.com
