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PUC Staff Seeks To Impose Discount On POR Program Which Has Had 0% Discount Since Inception

Staff Says Utility Should Audit Retail Suppliers' Compliance With POR Program Rules (Review For Errors, Compliance With Commodity-Only Receivables)

September 27, 2017

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Copyright 2010-17
Reporting by Paul Ring •

Staff of the Public Utilities Commission of Ohio, in a report concerning recommendations in a Duke Energy Ohio electric distribution rate case, said that Duke should institute a discount for its purchase of accounts receivables (POR, or PAR as used by Staff) program, citing credit and business risk to ratepayers

Since its inception, adopted under an electric security plan several years ago, Duke's electric POR program has had no discount

Under the Duke program, the receivables purchased from the CRES supplier are to be from competitive retail electric service, which is defined in the company's certified supplier tariff as any service involved in supplying or arranging for the supply of electric energy to end-use customers that has been declared competitive pursuant to the Ohio Revised Code or an order of the Commission (which generally means non-commodity services are excluded).

Uncollected supplier charges are recovered by Duke in Rider UE-GEN. Rider UE-GEN enables Duke to recover uncollectible accounts expense related to generation service. Rider UE-GEN is nonbypassable except for those accounts designated as not participating in the POR program.

Staff said in its recommendations that, "The Company needs to incorporate credit and business risk into the PAR program. Without credit and business risk incorporated into the PAR program, ratepayer revenues mitigate these risks."

"The lack of a discount rate for CRES suppliers prevents CRES suppliers from performing their due diligence regarding their customers’ credit. Likewise, the Rider UE-GEN insulates the revenues of the Company from both its customers and the CRES customers’ credit. The Company recovers a 0.4729 percent discount rate in the Rider UE-GEN. The credit and business risk of CRES suppliers should not be the responsibility of the Company’s ratepayers. Therefore, Staff recommends a discount rate for the PAR program," Staff said

Staff further said that suppliers' participation in the POR program should be audited, for calculation errors, as well as for compliance with program rules, such as the prohibition on non-commodity costs as part of the purchased receivables

"Staff has found that the Company relies heavily on signed agreements, computer applications (math checks), collateral levels and credit ratings of CRES providers in the PAR program. The Company, however, does not actively use common auditing, testing, and sampling tools specifically in regards to the purchase of receivable program. Furthermore, the Company does not perform analytical procedures, consider fraud, or incorporate business risk into its PAR program internal controls," Staff said

"Although the Company is permitted to audit and inspect supplier receivables, no audits were conducted for years 2014, 2015, 2016, or 2017. The Company is also able to receive CRES internal audit reports regarding the receivables, yet the Company did not perform such reports for years 2014, 2015, 2016, and 2017. Furthermore, the Company has not received any external auditor management letters regarding CRES receivables for years 2014, 2015, 2016, and 2017. Finally, the Company has not discovered any errors in supplier receivables for the years 2014, 2015, 2016, or 2017," Staff said

"The Company is relying solely on a math check for rate ready billing as the control to verify amounts on customer bills. Bill ready billing has no such math check," Staff said

"Internal controls are important tools for management in the creation of financial statements to ensure that management’s presentation is accurate and free from fraud. The Company has within its agreements with CRES providers multiple opportunities to ensure that the terms of the agreements are fulfilled and that the errors or fraud are discovered or avoided," Staff said

"Furthermore, although the Company’s shareholders may have no financial concern regarding the PAR program, ratepayers might," Staff said

"Staff recommends that the Company utilize the existing controls and reviews permitted within the PAR program including: auditing and inspecting CRES supplier receivables and books for errors, compliance, and/or fraud, reviewing CRES supplier internal and external audit reports and management letters for discovered problems, randomly sampling bills for excluded charges, and performing analytical procedures,"Staff said

"The Company has not discovered any errors in supplier receivables for the years 2014, 2015, 2016, and 2017 and likely will not without looking," Staff said

"Staff recommends that during the Company’s next annual review of Rider UE-GEN, the Company perform a comprehensive audit of the PAR program, particularly sampling CRES charges for excluded receivables," Staff said

Case No. 17-0033-EL-ATA

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