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Updating a unit of property catalogue for a government utility



Recently a large southern utility, faced with improving reliability for an aging generation and transmission infrastructure, experienced ever increasing perplexity in decisions related to major equipment replacement accounting classification. First of a kind obsolescence projects further complicated accounting classification decisions driving the need for a review and revision of the company’s unit of property (UoP) catalogue. The UoP catalogue and capitalization policy determine if the cost of equipment replacements should be capitalized or expensed. A clearly defined catalogue created in accordance with FERC, GAAP and industry best practices simplify appropriate accounting classifications while minimizing the churn of capitalization decisions.

The utility enlisted the assistance of MCR to expedite completion of the catalogue review and update, ensure quality of the final deliverables and minimize overall cost. Project objectives focused around the development of a refined UoP catalogue to serve as the basis in determining capitalization of project costs. Leveraging benchmarking, in-depth understanding of plant engineering and strong financial analytics, MCR was able to successfully implement their new UoP framework.


A thorough review and update of a UoP catalogue was comprised of three stages:

  • Benchmarking and Gap Analysis
  • Catalogue Working Review and Update
  • Capital Impact Analysis

As the project progressed through each stage, there was an opportunity for deep functional business unit involvement, generating discussion on current shortcomings and potential opportunities.

Benchmarking and Gap Analysis

  • Quantitative analysis of materiality thresholds and capitalization practices at peer utilities formed the basis for the development of informed capitalization thresholds.
  • Gap analysis of unique assets identified in peer catalogues provided insights on areas where the client catalogue required greater detail.
    • Gap analyses were performed to pinpoint areas where unique assets identified in peer catalogues were not captured in the client catalogue.
    • Comparison with peer catalogues typically identified major areas for improvement in terms of detail and catalogue organization.
  • Bringing the utility in-line with industry best practice eliminated gaps in components, applied consistent criteria and supported a capitalization policy more accurately capturing material assets.

Catalogue Working Review and Update

  • The project team worked in cooperation with the client to develop a database.
    • Developed an MCR-supported database (integrated with client data), facilitates traceability of changes plus the reporting of current, added, removed or modified retirement units.
    • Reviewed proposed changes with business unit personnel to confirm proposed changes, as well as to provide a forum to capture insights on upcoming projects and historical issues.
  • The final database supported due diligence conducted to disposition new requests, closing catalogue gaps.

Capital Impact Analysis

  • The UoP update project caused some changes in both the scope and frequency of capital projects on fixed assets as defined by the UoP catalogue.
  • A capital impact assessment was performed to estimate the resulting shift in capitalization due to addition, deletion or modification of retirement units in the catalogue.
  • Client input and MCR industry cost data were aggregated and evaluated with Monte Carlo analysis to produce best-estimate shifts between O&M and capital.


Key project outcomes from the UoP Update Project were aligned with the three main project stages:

Benchmarking and Gap Analysis

  • Detailed benchmarking of the client catalogue with the MCR industry catalogue resulted in a comprehensive view of where client capitalization thresholds fit in both national and peer sub-groups, which drove defensible capitalization policy recommendations.
  • UoP count by major FERC account showed numerous catalogue gaps primarily characterized by level of detail, organization/classification (e.g. condenser/circ water boundaries), missing components, and erroneous FERC account assignment.

Catalogue Working Review and Update

  • The project resulted in over a 30% reduction in the number of property units, reflecting the level of repetition and detail in the legacy catalogues. This success was achieved while simultaneously increasing asset coverage, giving the utility more flexibility and ease in its capitalization decisions.
  • MCRs proprietary property unit account mapping produced a streamlined, implementable UoP catalogue, greatly decreasing contention and “churn” between Asset Accounting and the respective business units.

Capital Impact Analysis

  • The impact analysis resulted in an anticipated (conservative) shift from O&M to capital spending of roughly $40M per year, a number that was analytically derived via Monte Carlo analysis drawing upon client and MCR cost data.
  • As with all projects related to the manipulation of accounting treatment, great care was taken to ensure prudent, industry-supported changes to policy.

The resulting analyses and catalogue with supporting database were effectively transitioned to the client, initiating a planning phase to seamlessly integrate deliverables into the existing process.