Press Release

PUC Announces Management Efficiency Investigations Saved Utilities Up to $22.9 Million in Annual Savings, $1.8 Million in One-Time Savings for FY 2005-06

Published on 11/9/2006

Filed under: Electric Gas Water and Wastewater Telecommunications Transportation and Safety

Audits also Project a Potential for Up to Another $54.7 Million in Annual, One-Time Savings

HARRISBURG – The Pennsylvania Public Utility Commission (PUC) today released a 2005-06 annual report on management audits (MAs) and management efficiency investigations (MEIs) that showed that the PUC has helped utilities save millions of dollars through voluntary improvements to operations, service reliability and safety by regulated utility companies.

            “Part of our responsibility at the Commission is to serve as the fiscal watch dog for the state’s utilities and work with them to implement changes that will save money in the short and long term,” said Commission Chairman Wendell F. Holland. “The improvements we have recommended during the Fiscal Year have saved utilities millions of dollars and are designed to ensure more reliable service by cost-effective utilities.”

             The Commission voted 4-0 to make the audit report public and directed the companies to proceed with their plans to implement the recommendations in the audit report.

             The PUC Bureau of Audits conducted two MAs and six MEIs in 2005-06. MAs determine the extent to which a utility has contained costs, developed reasonable long and short-range plans for the company’s continued operations, provided adequate service to its customers and provided proper management and organizational structure. MEIs, in part, review utility efforts in implementing previous MA recommendations.

             In Fiscal Year 2005-06, MAs were completed on Duquesne Light Co. and Columbia Water Co. The Duquesne Light audit found that the company could realize $6 million in annual savings and $32.1 million in one-time savings by implementing the Commission’s recommendations. The potential annual benefits are attributable to reducing customer accounts receivable write-offs, reducing long-term arrearages, increasing collection agency recovery rates and eliminating the carrying cost of obsolete inventory. The one-time benefits are associated with recommendations to collect the full amount of interest due on an affiliate loan, decrease the materials inventory and decrease long-term customer arrearages.

            The audit of Columbia Water found qualitative benefits that could be achieved including the establishment a minority vendor program, modification of the Board’s Audit Committee to more closely conform to the spirit of current corporate governance practices and long-term replacement goals and plans.

            The PUC conducted MEIs of: PG Energy; PPL Corp. (PPL Electric Utilities Inc., North Penn Gas and PFG Gas Inc.); T.W. Phillips Gas and Oil Co.; and the York Water Co. The MEIs evaluated a combined total of 50 recommendations from prior MAs and determined that 21 (42 percent) of the prior recommendations were effectively implemented, with the companies taking some action on the 29 remaining recommendations.

            Staff found that PG Energy, PPL and T.W. Phillips have collectively achieved more than $22.9 million in annual savings from implementing past MA recommendations. They also have collectively achieved one-time savings of more than $1.8 million, according to the report.

            The PG Energy annual savings are attributable to a reduction in supervisor positions and inventory levels. The PPL annual savings are attributable to things such as the implementation of a more equitable, three-factor cost allocation method and a reduction in inventory carrying costs. The T.W. Phillips annual savings are primarily a result of a reduction in annual interest expense and increased recovery of final customer accounts.

            The York Water MEI found that the company was realizing qualitative benefits through its implementation of the PUC recommendations. The Commission also proposed that further improvements could be made and developed eight follow-up recommendations, which were accepted by the company. Under those recommendations, the company could realize $54,400 in annual savings and $362,600 in one-time savings.

            The Pennsylvania Public Utility Commission balances the needs of consumers and utilities to ensure safe and reliable utility service at reasonable rates; protect the public interest; educate consumers to make independent and informed utility choices; further economic development; and foster new technologies and competitive markets in an environmentally sound manner.

            For recent news releases, audio of select Commission proceedings or more information about the PUC, visit our Web site at www.puc.state.pa.us.

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Docket No. D-06MEI039

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