Under The Microscope

While all but the smallest energy companies operate under Securities Exchange Commission (SEC) regulations, investor owned utilities have additional oversight administered by state regulated utility commissions. The primary function of the state commissions is to determine a utility’s revenue requirement and to establish consumer rates. To set reasonable rates that provide utilities an opportunity to earn a reasonable return, commissions need to determine the utility’s costs for providing service in their state including both the costs associated with the rate base, the utility’s investment in facilities and related capital costs; and its operating expenses, labor, overhead, and other recurring costs.

These statewide commissions add further financial scrutiny above and beyond SEC regulations that apply to all companies. As a governing body tasked to assess and approve utility rate plan increases their responsibility to the consumer is to ensure that lax controls by a utility company are not rewarded with price increases. Most utilities file for general rate increases every two to five years. While the review may occur every two to five years, most utilities recognize the need for annual expense controls and audits. Internal audits are designed to flag weak expense processes and to introduce improved control mechanisms. These audits are a part of the life of living in a regulated industry. Tapping into the data to respond to auditors can be time consuming if not captured and stored carefully.

This added regulatory scrutiny doesn’t remove the regulations initiated in Sarbanes Oxley (SOX) passed by U.S. Congress in 2002. SOX is designed to protect investors from fraudulent accounting activities by corporations. Its intent is to detect and deter fraudulent or improper financial reporting by concentrating on issues related to the preparation of financial statements, issuer reporting/disclosure, and audit failures. These regulations have very narrow remediation windows when material deficiencies are identified which creates a high interest in insuring corporate governance is executing with a high degree of efficiency and accuracy.

The oversight of two governmental agencies creates an enormous need for exactness and precision in how utilities manage, audit and report the financial health of their mobile service and infrastructure costs. Mobile assets and their associated service costs are inherently challenging to control. At its core is a common problem of not having clear oversight over hundreds, thousands, or even tens of thousands of mobile assets. Our focus and expertise is in the management and fiscal control of this rapidly growing expense item on energy company’s books.

Based on our experience assisting many utility companies over the past ten years, we have adapted our approach and focused our business processes to reflect an ever-increasing need for precision and control for clients. We have also developed best practices to insure our Utility customers are achieving Best-in-Class performance, including metrics to measure that performance.

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