NCJ Number
66124
Journal
PUBLIC UTILITIES FORTNIGHTLY Volume: 101 Dated: (JUNE 8, 1978) Pages: 11-14
Date Published
1978
Length
4 pages
Annotation
ISSUES INVOLVED IN MANAGEMENT AUDITS OF UTILITY COMPANIES ARE DISCUSSED.
Abstract
DURING THE 1970'S, PUBLIC DISSATISFACTION WITH RAPIDLY RISING UTILITY RATES GENERATED CLOSER SCRUTINY OF UTILITY COMPANY EXPENDITURES AND OPERATIONS. WHILE ACCOUNTABILITY IS CERTAINLY A REQUIREMENT OF UTILITIES, NO AUDIT SHOULD BE CONDUCTED UNDER A PRESUMPTION OF MISMANAGEMENT. AN EFFECTIVE AUDIT REQUIRES COOPERATION BETWEEN AUDITORS, REGULATORS, AND COMPANY REPRESENTATIVES IN AN EFFORT TO PROVIDE NEEDED UTILITY SERVICES AT THE LEAST POSSIBLE COSTS. MANAGEMENT AUDITS SHOULD BE ORDERED ONLY AFTER A FULL HEARING ON THE NEED FOR SUCH AUDITS. SUCH A NEED COULD BE BASED ON REASONING THAT THE COMPANY HAS NEVER BEEN COMPLETELY SURVEYED OR A LONG PERIOD OF TIME HAS PASSED SINCE THE LAST THOROUGH REVIEW BY COMMISSION OR CONSULTANT. ANY THOROUGH AUDIT SHOULD ALSO INCLUDE AN EXAMINATION OF REGULATORY PRACTICES. THE COST PER KILOWATT-HOUR OF REGULATION IS A STATISTIC THAT SHOULD BE DEVELOPED. INQUIRY SHOULD ALSO BE MADE INTO THE ADEQUACY OF RATE CASE TREATMENT AND RATE OF RETURN. THE LONG-TERM EFFECTS OF 'BARE BONES' COST OF CAPITAL RATE TREATMENT SHOULD ALSO BE EXPLORED. OTHER IMPORTANT STUDY AREAS ARE THE CAUSE AND EFFECT OF MARKET PRICES FOR COMMON EQUITY THAT ARE WELL BELOW BOOK EQUITY, AND FREQUENCY AND COSTS OF RATE INCREASE APPLICATIONS. THE USEFULNESS OF ANY AUDIT DEPENDS ON THE AUDIT TEAM, WHICH SHOULD INCLUDE A REPRESENTATIVE OF THE REGULATORY AGENCY AND THE UTILITY MANAGEMENT, PROVIDING A STRUCTURE FOR COOPERATION AT EVERY PHASE OF THE ANALYSIS. DISAGREEMENTS BETWEEN THE PARTIES SHOULD BE SETTLED BEFORE THE FINAL REPORT IS SUBMITTED, OR BEFORE THE REPORT IS ACCEPTED BY THE SPONSORING AGENCY. (RCB)