Press Release

HARRISBURG – Most of Pennsylvania’s large utility companies have adequate corporate governance controls and auditing practices in place which, if consistently followed, would reasonably control corporate conduct and ensure an objective financial reporting process, according to results of a corporate audit survey released today by the Public Utility Commission (PUC).

The survey, announced by the PUC in February in the aftermath of the Enron collapse, gathered information provided by the state’s 27 largest utilities.

"I would like to thank the participating companies for their willingness to voluntarily open their corporate and audit practices to Commission scrutiny," said PUC Chairman Glen R. Thomas. "This demonstrates their confidence in the propriety of their practices."

The survey collected information, for example, on how boards of directors were evaluated, how they were compensated and whether they were prohibited from doing business with the company. Also, companies were asked if they had formal code-of-conduct and ethics policies in place and if confidential hotlines were available for reporting violations.

Overall, the survey found that most boards of directors’ audit committees follow policies endorsed by the PUC’s Bureau of Audits, the New York Stock Exchange and the U.S. Securities and Exchange Commission. The majority of the audit committees are comprised of directors who are independent of management and the companies. Also, most companies have internal auditing departments.

One significant area of concern identified from the survey was the role played by the companies’ independent auditors in providing both audit and non-audit services. Most of the companies had been receiving, and paying for, substantial amounts of non-audit services from the same outside firms that provided the annual independent audit. The survey found that approximately 78 percent of the overall fees paid to outside auditing firms during 2000 and 2001 were for services other than the annual audit.

Also, approximately half of the companies surveyed said they did not have policies that require the board to approve expenditures or loans above certain dollar amounts.

Since the collapse of Enron, Congress has passed the Sarbanes-Oxley Act, which prohibits firms conducting annual audits from also performing most non-audit services. The law also severely limits loans made to directors and company executives. The Commission expects the new federal law to successfully address most of the major concerns outlined in the report released today.

Based on the results of the survey, the PUC has compiled a list of preferred practices for Pennsylvania’s utilities to use in gauging the effectiveness of their corporate controls. Many of the practices have been recommended for years in management and operations audits conducted by the PUC’s Bureau of Audits staff and outside consultants.

Some of the preferred practices include establishing toll-free hotlines for reporting violations; barring directors from conducting significant levels of business with the company; and developing policies regarding full disclosure of off-balance sheet transactions.

Also, audit committees, not company management, should be responsible for selecting an external audit firm. Companies should periodically rotate their external audit firm to ensure objectivity and should fully disclose all fees paid to external auditing firms, whether for audit or non-audit services.

A complete copy of the PUC review, including an executive summary, is available on the PUC website on the main page under Special Announcements. The review also includes the collective response of all companies to individual questions, a list of the companies surveyed, and the list of preferred corporate-governance controls and audit-related practices.

# # #

Docket No.  D-02SPS013