The energy transition is many things. It is a fundamental transformation in how utilities generate, transmit and distribute electricity. It is an embrace of new technologies and advanced digital capabilities. But at its core, the energy transition is ultimately about meeting customers' demands, especially when it comes to decarbonization and environmental sustainability.
For example, a recent global survey of 34,000 consumers asked the question explicitly: How important is sustainability to you when selecting a service provider? Sixty-five percent of respondents named it a top priority, with many claiming they search for proof that companies are serious about sustainability.
Customer prioritization of sustainability also manifests in public policy. For example, Minnesota recently passed legislation requiring its utilities to use 100 percent carbon-free electricity by 2040, joining more than 20 other states that have embraced similar goals.
Prospective workers also increasingly demand meaningful climate action. One-in-five U.K. adults has rejected a job offer because they were dissatisfied with a company’s environmental, social and governance (ESG) commitments, according to a survey KMPG. Many American workers share the same attitude: A survey found that 70 percent of American workers were more likely to accept a job with an employer with a strong environmental record. More than 10 percent of millennial respondents said they would be willing to take a pay cut to work at an environmentally sustainable company.
Earning a return on critical decarbonization investments
Utilities are tasked with much of the hard work required to build a decarbonized and sustainable future. They must make, track and report on those critical investments while delivering what customers have always expected: grid safety and reliability at reasonable rates. For regulated utilities, making these essential investments depends on justifying the rates charged to customers. Put simply, delivering on decarbonization depends on a sustainable utility business model – one built around transparent, real-time data that can be shared with an expanding set of stakeholders, including regulators, auditors, investors, employees and customers.
Unfortunately, most utilities haven’t modernized their tools to proactively account for investments in sustainability as well as safety, reliability and operations. “Many companies are relying on an expensive third-party system or using cumbersome Excel spreadsheets, or some combination of both,” said Maureen Bolen, chief growth officer at Utegration, a full-service consulting and solution provider specializing in technology and SAP-certified products for utilities and energy companies. “That means as you’re performing work in the field, whether it’s capital work or operations and maintenance work that was approved a long time ago, you have no idea where you are in the lifecycle of that financial asset.”
That lack of transparency about utility investment costs has ramifications. Many regulated utilities can’t communicate the costs associated with their infrastructure investments supporting decarbonization, which exposes them to the risk that they won’t be able to monetize those investments. “When utilities go in to defend their rate case to the public utilities commission, they will be challenged to get approval without the ability to communicate measurable benefits to decarbonization,” Bolen said. “Currently, the data about the investments is spread across multiple disparate systems, poorly integrated and with lots of data lag. They can’t get the information they need in real time, and it threatens their rate recovery.”
Moving reporting and accounting into the ERP
There is an alternative solution that eliminates the need to rely on Excel spreadsheets and a range of disparate systems. Utegration’s Finance4U creates a single source of truth for financial and regulatory reporting inside a utility’s SAP S/4HANA enterprise resource planning (ERP) system. Instead of the labor-intensive, error-prone and time-consuming effort involved with collecting and reconciling all the data needed for rate cases and GAAP and FERC accounting, Finance4U lets utilities do everything inside the ERP.
Imagine, for example, a utility invests in an energy storage system to integrate more variable renewable generation, like wind and solar. That energy storage is a physical asset, but also a financial asset that has costs associated with its development and construction. “That financial asset sits within the ERP construct that says everything you’re doing to this asset physically is collecting costs,” Bolen said. “We create that financial asset and manage that asset in Finance4U. This means you are able to monetize all the work you’re doing faster, so you can get it into the rate base quickly and start returning cash to the business.”
Finance4U tracks in real time the asset under construction, including allowance for funds used during construction (AFUDC), and moves those construction costs into plant more efficiently, in less time. This approach enables utilities to move from reactive to proactive accounting. For instance, month-end batch postings and reconciliation are replaced by real-time transactions. Granular transaction details and reporting are available in the ERP.
“With that financial asset in place, you do all the accounting in real time,” Bolen said. “The work is getting done and it’s automatically updating the financial asset. This allows utilities to compute all the accounting that goes along with that activity: The regulatory accounting and reporting and the asset accounting life cycle.”
As an energy and home services company, Houston-based NRG Energy doesn’t need to do rate recovery to earn a return on its investments. Nevertheless, NRG must complete regulatory reporting and a wide array of complex accounting and reporting tasks as part of its operations throughout the U.S. and Canada. “For all these competitive markets, we have trade market operations, risk management, hedging, derivatives, our normal taxing and banking and our lease accounting,” said Kalim Tippitt, IT senior director for SAP and Enterprise Applications at NRG. “There’s probably a lot more complicated stuff than a typical utility has to do.”
Adding to that complexity is the fact that NRG has completed several acquisitions, including Direct Energy and Vivint Smart Home. For Tippitt, who oversees the S/4HANA ERP and all of NRG’s corporate IT systems, an important priority in all his work is simplification. “How do we apply efficiencies? How do we apply automation? How do we streamline processes? How do we remove manual components and how do we make sure auditors understand what we are doing so they can sign off on everything?” Tippitt said.
One way NRG has achieved greater simplicity and efficiency is by integrating Finance4U as part of the company’s larger S/4HANA migration. The fact that Finance4U allowed NRG to bring its asset accounting directly into their ERP has reduced complexity and made the company’s accountants more efficient. “If our accountants are spending time extracting data or combining data from multiple systems, that’s a fail,” Tippitt said. “I can get more data to more people because it’s inside SAP instead of worrying about licensing and giving people access to a third-party system. We’re able to leverage our SAP footprint to get a single pane of glass and real-time view of what’s happening.”
In important ways, Finance4U also fits NRG’s corporate strategy and culture. “When we first started talking about Finance4U, it became obvious that integrating it was a logical progression for us,” Tippitt said. “We’re very fast moving and complex. We have a lot of change going on at any one time. From a systems perspective, we want to have that single source of truth of one system that has everything tightly integrated. Finance4U fits into that nicely.”