Utility performance and regulatory compliance are increasingly visible in the utility industry. “Doing more with less” is a common refrain. Regulatory bodies and public service commission regularly issue orders for Management Reviews and utilities themselves internally review their operations for efficiencies.
The depth needed to evaluate performance depends on the level of maturity model at your utility. If your utility practices continuous improvement, this may be a common activity. If your utility is new to this concept, then a more rigorous review will be needed. In any case, regular performance reviews are something that should not wait for regulatory or oversight action.
Industry standards and gap analysis tools
The general technical approach in the utility industry is based on the Management Audit Manual prepared by the National Association of Regulatory Utility Commissioners (NARUC) whose guide covers all major utility cycles, including:
The manual is widely accepted by State Commissions in their oversight role of utility operations. The manual is also an excellent tool to use in the preparation of the workplan scope for a management audit. The manual contains step by step guidance as to procedures to be followed, interview questions, etc. that make the process systematic and provides ample evidence to support conclusions on current performance and gaps that need to be addressed.
Basic project design, information sources and key deliverables
This section of the article reads like a checklist, but is easily translated into a workplan, information sources and key deliverables.
The basic project design is:
- Determine the current state of utility operations. This is facilitated by these steps:
- Interview key process owners
- Perform walk-throughs of key controls to not only understand the process but to test the current state
- Summarize results
- Analyze results for improvement recommendations
- Develop mitigation programs to address gaps in performance
Information sources will include:
- SOX documentation
- Written policies and procedures
- Intercompany service level agreements (of affiliated companies, internal service companies, etc.)
- Business process maps
- Network diagrams
- Segregation of duties and role definition
- Governance charters
- Strategic plans
- Physical security control documentation
- Any documentation that can assist in understanding current operations, roles and responsibilities
Key deliverables for this project should include:
- Process flows (either narrative or using flowcharts)
- Interview notes
- Network system process documentation
- Review of current policies and procedures
- Improvement recommendations in all areas reviewed
At this point in the project, the next key step is to determine re-engineering, remediation and mitigation for areas defined as having performance gaps. Estimates will need to be made as to resources (timing, staffing, software needs, budget) needed to carryout activities to close performance gaps.
Performance of this project will be a comprehensive review of utility operations. It will be time-intensive and utilize a fair amount of internal and/or external resources to complete (especially if using outside consultants).
This is an exercise that should not wait for a commission order or oversight body request. If your utility has an internal audit group, portions of this project should be part of each year’s audit plan. The type of analysis that is performed in a performance audit can only help operations and contribute towards achieving utility strategic goals. Some specific positive outcomes will include:
- Determining the effectiveness of current operations and evaluation key business processes against industry best practices
- Determining compliance with regulatory oversight decisions and orders
- Improving policies and procedures, ensuring they are specific and contribute towards strategy
- Evaluating internal controls and determining material weaknesses, significant deficiencies and control weaknesses
- Obtaining information for allocation of resources to remedy performance gaps and to consider system changes for more efficient workflows
For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.