What you need to know: Marking a new era for the accounting of renewable energy sources and energy-storage facilities, regulated entities must begin to comply on January 1, 2025 with Order 898, issued by the Federal Energy Regulatory Commission (FERC).
Why it matters: FERC Order 898 not only represents a landmark overhaul of the uniform system of accounts by broadening its focus to include renewable energy sources but is also a testament to FERC’s commitment to aligning regulatory frameworks with advancements in renewable technologies.
Bottom line: Confirm readiness to meet the required compliance standards by the January 1, 2025 deadline.
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The momentum for a more sustainable and carbon-neutral future is driving significant changes in how regulated entities must account for energy generation, and some of the most sweeping are just months away from taking effect. Marking a new era for the accounting of renewable energy sources and energy-storage facilities, regulated entities must begin to comply on January 1, 2025 with Order 898, issued by the Federal Energy Regulatory Commission (FERC).
Ideally, regulated entities already have been preparing for the changes since the rules were finalized in June 2023. If they have not, it is imperative that businesses immediately dig into the rules to understand their implications and plan accordingly.
A Decade in the Making: The Significance of FERC Order 898
FERC Order 898 represents the first major update to the uniform system of accounts (USofA) since 2013, when FERC issued Order 784 to codify accounting treatment for energy storage and amended operational and statistical data reporting related to storage. FERC Order 898 not only represents a landmark overhaul of the USofA by broadening its focus to include renewable energy sources but is also a testament to FERC’s commitment to aligning regulatory frameworks with advancements in renewable technologies amid a global embrace of clean energy.
FERC stated that it sought to “account for rapid changes in technology and resource mix in the U.S. energy industry over recent decades” and that the rules would “provide uniformity, consistency and transparency in accounting and reporting for investments” in the technologies. The result of these aims is a reporting regime that emphasizes new account classifications for renewables, distinct classes for energy-storage facilities and updated terminology related to environmental credits.
By providing clear guidelines on hardware and software classification across all functions and subfunctions throughout industries, for instance, regulated entities can mitigate potential errors while bolstering accuracy in their financial reporting. Additionally, separate USofA accounts created specifically for solar, wind and other renewable production modes provide more accounting clarity for non-hydro renewable assets. That represents a significant step toward recognizing the growing importance of these energy sources.
Meanwhile, by establishing a new energy-storage classification, FERC agreed with industry commenters that such an addition would simplify and improve recordkeeping and reporting of the assets and related expenses. FERC concluded that it needed to revise USoA to formalize accounting treatment for renewable-energy certificates (RECs) to promote consistent reporting across all types of environmental credits.
Questions Regulated Entities Should Ask to Assess Readiness
As companies digest FERC Order 898, they are likely to encounter challenges around managing regulatory compliance in a well-controlled, efficient and cost-effective manner. Broadly speaking, the order may require companies to modify their existing FERC ledger, redesign FERC derivation logic and retrofit integration points with accounting feeder systems like project accounting. More specifically, we suggest that regulated entities consider the following questions as they plan for the order’s myriad accounting changes:
- System integration:
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- Has your organization integrated the new FERC account structures into existing enterprise resource planning (ERP) or accounting software? Do you have the expertise to address potential complexities?
- Can you ensure that all relevant data migrates correctly without disrupting ongoing operations?
- Training requirements:
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- How well is your staff versed in the new account classifications, compliance requirements and reporting standards introduced by FERC Order 898?
- Do you have the infrastructure to provide ongoing education that may be necessary to keep up with further regulatory changes?
- Data management complexity/increased reporting burden:
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- Does your company have the wherewithal to manage efficiently the larger volumes of data that will be generated as a result of more detailed account classifications?
- Similarly, do you have the bandwidth and sophistication to provide more comprehensive financial statements?
- Can you ensure data accuracy while handling increased complexity in transactions?
- Project management:
- Given the critical nature of compliance, can you establish and dedicate a project management team to oversee the transition to align functions while coordinating system and process changes?
Assess Readiness and Take Prompt Action to Address Any Gaps
The new accounting regime introduced by FERC Order 898 should provide clearer and more consistent guidelines for renewable-energy recordkeeping and reporting at a critical juncture in the global move toward sustainability. If they have not done so already, however, regulated entities need to begin implementing the new standards, processes and procedures as soon as possible to prepare for compliance in 2025. Those that do so will be in a better position to eliminate potential disruptions not only during the process of transitioning to the new rules but also when it’s time to file reports with the regulator.
Protiviti subject-matter experts Shelly Kalladanthyil, Joe Breithaupt and Juliana Rafla contributed to this blog post.
Protiviti works closely with businesses to understand their unique needs and provide tailored solutions designed to address the challenges that arise in this dynamic business environment, including helping companies prepare for regulatory changes.
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