Integrating WMS – GIS to Support Asset Unitization: Part 2

July 10, 2011 — SSP Innovations

In the previous installment of Integrating Work Management Systems (WMS) with Geographic Information System (GIS) the initial stages of the asset unitization process were described. This included:

  • Compatible unit (CU) which includes the materials, labor, and equipment that represent standardized units of work
  • Federal Energy Regulatory Commission (FERC) system of accounts
  • Calculating the estimated cost percentage for a CU on a work request (WR)
  • Calculating the actual costs of a CU on a WR
  • Continuing Property Records (CPR) that tracks the current financial asset register which represents the current value of a utility’s installed assets at a point in time

To conclude the asset unitization series, this month’s installment will explain calculating a CU’s unit costs, exploring asset depreciation in more detail, applying CU retirements to the CPR, and describing how the asset unitization process relates to the cost of construction work in progress (CWIP).

After breaking down the actual costs of a CU on a WR the results are summarized and passed on to the CPR to calculate the unit costs by CU per year. This is done by taking the total CU cost for the reporting period (for example, one year) divided by the number of asset records that were installed. For example the unit cost of a 45’ wood pole would be $1050.

Fiscal Year Type CU Description FERC Total Qty Total Cost Unit Cost
2011 Install WD45 45′ Wood Pole 364 100 $105,000.00 $1,050.00

All utility assets that are added to the CPR begin depreciating on an annual basis after they have been installed. Each CU has a corresponding depreciation schedule which provides the number of years that the asset will retain value on the books. At the simplest level, straight-line depreciation will be used and the unit value of an asset will be decreased each year by an equal amount until it reaches $0. For example, the yearly depreciation expense of the 45’ wood pole with a depreciation schedule of 30 years would be $35. Note: some companies will use a ½ year depreciation expense convention for the first and last year of an asset.

CU Description FERC Unit Cost Depreciation Schedule Depreciation Expense
WD45 45′ Wood Pole 364 $1,050.00 30 Years $35.00

When a utility asset is retired from the field, an entry is recorded on the CPR and the net book value is calculated. The net book value is the asset’s total cost minus the accumulated depreciation. When an asset has a net book value of $0 it means the asset has been fully depreciated. In the case of retiring a 45’ wood pole in 2021 that was installed in 2011 the net book value would equal $700. This is the original unit’s cost of $1050 minus the accumulated depreciation of $350 (10 years * $35). The net book value of $700 would be taken off the balance sheet and the loss would be recorded on the income statement. Note: some companies will factor salvage value and disposal costs into the net book value.

The last topic to conclude this asset unitization series is how the asset unitization process relates to the cost of construction work in progress (CWIP). CWIP is a balance sheet account that tracks the actual cost (labor, equipment, and materials) of assets on work requests/jobs that have not been completed. These costs remain in CWIP until the job has been completed and the asset unitization process is completed for each given asset.

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