The Public Utility Commission has completed audits and “efficiency investigations” of six utilities and identified close to $50 million in real and projected savings for their customers. The results are included in the PUC’s annual report for fiscal year 2025-26, which is now available for public viewing (https://www.puc.pa.gov/pcdocs/1946676.pdf).
$41 million of the savings come from an investigation of First Energy Penelec’s efforts to implement a list of fifteen recommendations from its 2022 audit. The investigation showed implementation of seven of the recommendations and action on the other eight.
One interesting finding is the PUC’s recommendation regarding its “FE-PA” initiative, specifically that the utility “disclose and explain increases in operating costs attributed to the fallout from executive misconduct in…future base rate filings.”
From the report:
SUMMARY OF MANAGEMENT EFFECTIVENESS AND OPERATING EFFICIENCY
The PUC Auditors found that FE PA effectively or substantially implemented seven of the selected 15 recommendations of the 2022 Audit Report and has acted on the remaining eight recommendations.
Among the more notable improvements are:
- FirstEnergy has realized approximately $174 million in operating and maintenance expense savings through its strategic planning initiatives, FE Forward and FE Forward Refresh, with an approximated $41 million savings being allocated to FE PA
- FirstEnergy has cooperated with investigations and met its settlement agreement obligations and has made progress in enhancing it ethics and compliance culture
- New internal controls over financial reporting were implemented and tested which resulted in unmodified opinions from its independent auditor throughout the review period
- FirstEnergy implemented a new process for engaging with third-party collections agencies to drive improved collections performance
Although these accomplishments are commendable, the PUC Auditors identified further opportunities for improvement. Specifically, FirstEnergy and/or FE PA should:
- Maintain focus to comply with obligations of executed settlement agreements
- Disclose and explain increases in operating costs attributed to the fallout from executive misconduct in FE PA’s future base rate filings
- Identify further opportunities for improvement through the 2024 Ethical Perceptions Survey fostering the continuous improvement model
- Develop and implement a procedure to review and update the relevant affiliated interest agreements on file with the PUC following any change to the cost allocation processes
- Evaluate the effectiveness of the enhanced pole attachment fee collection processes to identify additional process improvements to increase pole attachment fee collection and reduce write-offs
- Improve electric reliability performance by implementing remedial programs and best practices that will effectively address the top outage causes
- Include overtime management language, such as minimum call-out acceptance expectations and maximum allowable overtime levels, in renegotiated union contracts throughout FE PA
- Complete initial and ongoing system inspections and remediation
- Develop and implement a workforce planning model based on historic overtime and storms data and periodically adjust staffing levels to optimize overtime management which may save approximately $4.3 million in labor costs, annually
- Develop and implement a schedule for routine penetration testing, including engagements with external resources, at FirstEnergy’s facilities in Pennsylvania based on risk and facility criticality
- Investigate the root causes for FirstEnergy’s distribution centers and FE PA’s operating divisions consistently missing inventory turnover targets and implement strategies to meet goals which could potentially save $147,000 – $1.1 million in carrying costs, annually
- Review, update, and finalize the FEU Materials Management Guidelines and establish and implement a routine review process
- Perform collection level benchmarking to establish appropriate smart targets and implement strategies to encourage collection agencies to meet the targets
- Develop and implement individualized, attainable safety targets for FE PA’s operating divisions to drive performance toward corporate-level safety metrics
- Focus additional resources to support improved safety performance through enhanced safety training and procedural compliance in response to safety incident root cause analysis which could potentially save up to $575,000, annually, through a reduction in lost hours due to accidents
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