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tew (12.10.18) - Licensee performance monitoring and uniform system of accounts

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tew (12.10.18) - Licensee performance monitoring and uniform system of accounts

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tew (12.10.18) - Licensee performance monitoring and uniform system of accounts

  1. 1. Licensee Performance Monitoring and Uniform System of Accounts PHOTO:CREATIVECOMMONS 9/27/2018
  2. 2. REGULATORY ACCOUNTING DEVELOPMENTAND IMPLEMENTATION OF USOA REGULATORY ACCOUNTING POLICIES REGULATORY AUDITS INTERNATIONAL EXPERIENCE PRESENTATION SUMMARY 9/27/2018`1 2USAID ENERGY SECURITYPROJECT
  3. 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. 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. 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. 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. 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. 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. 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)
  10. 10. 10/16/2018 10 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)
  11. 11. 10/16/2018 11 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)
  12. 12. 10/16/2018 12 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
  13. 13. 10/16/2018 13 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
  14. 14. 10/16/2018 14 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
  15. 15. 10/16/2018 15 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. 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

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