BEFORE THE STATE OF NEW YORK PUBLIC SERVICE COMMISSION In the Matter of Consolidated Edison Company of New York, Inc. Cases -E-000 and -G-00 May 0 Prepared Testimony of: Staff Management Audit Panel Henry Leak, III Public Utility Auditor III Office of Accounting, Audits and Finance Peter Lavery Utility Analyst Trainee I Office of Accounting, Audits and Finance State of New York Department of Public Service Three Empire State Plaza Albany, New York -0
Cases -E-000 and -G-00 0 0 Introduction and Qualifications Q. Please state your names, employer, and business address. A. Our names are Henry Leak, III and Peter Lavery. We are employed by the New York State Department of Public Service (Department). Our business address is Three Empire State Plaza, Albany, New York. Q. Mr. Leak, what is your position in the Department? A. I am employed as a Public Utility Auditor III, and work as a project manager in the Management and Operational Audit Unit of the Office of Accounting, Audits and Finance. Q. Please describe your educational background. A. I received a Bachelor of Science in Accounting from the State University of New York at Albany in. Q. Please summarize your professional experience. A. Prior to joining the Department, I performed financial audits for a variety of public and private organizations while employed by a CPA firm, Peat Marwick and Mitchell, from to. I worked in the Utility Management Audit
Cases -E-000 and -G-00 0 0 Section until, when I transferred to the Operational Audit Section in the Office of Utility Efficiency and Productivity. I then transferred to the Office of Accounting and Finance in. In 00, I transferred to the Management Audit unit to assist in the reinitiation of the traditional management audit program in New York State. In 0, the Office of Accounting and Finance was renamed to the Office of Accounting, Audits and Finance, and the Management Audit unit was renamed to the Management and Operations Audit section. Q. Have you performed or supervised management and operations studies of New York State utilities? A. Yes. Since I began working at the Department and up to the present, I have either managed consultant-performed management and operations audits or worked as part of a team on staffperformed audits. Q. Have you previously testified before the Commission? A. Yes, I last testified in rate cases regarding the Consolidated Edison Company of New York,
Cases -E-000 and -G-00 0 0 Inc. (Con Edison or Company), specifically, in Cases -E-000, -G-00 and -S-00. Q. Mr. Lavery, what is your position in the Department? A. I am employed as a Utility Analyst Trainee I in the Management and Operations Audit Unit of the Office of Accounting, Audits and Finance. Q. Please describe your educational background. A. I hold a Bachelor of Science in Business Administration from the State University of New York at Albany. Q. Please describe your professional experience. A. Prior to joining the Department, I managed a portfolio of New York State assisted housing contracts at CGI Federal, on behalf of the Department of Housing and Urban Development. I performed detailed reconciliations of monthly payments to property owners, and analyzed budget requisitions for property rental adjustments and contract renewals. I have been employed by the Department since July 0. Since July 0, I have worked on various ongoing management and operations audits as an assistant project manager, including oversight of the current
Cases -E-000 and -G-00 0 0 comprehensive management and operations audit of Con Edison. Q. Have you previously testified before the Public Service Commission? A. No. This is my first testimony before the Commission. Q. Will the Management Audit Panel (the Panel) refer to, or otherwise rely upon, any information provided by the Company during the discovery phase of this proceeding in its testimony? A. Yes. The Panel has relied upon the response to Staff Information Request (IR) DPS-. Q. Is the Panel sponsoring any exhibits in this proceeding? A. Yes. We are sponsoring one exhibit, Exhibit (MAP-). Q. What is the purpose of the Panel s testimony in this proceeding? A. Public Service Law, Section (), requires that upon the application of a gas or electric corporation for a major change in rates the Commission shall review that corporation s compliance with the directions and
Cases -E-000 and -G-00 0 0 recommendations made previously by the Commission, as a result of the most recently completed management and operations audit. Accordingly, the Panel s testimony will address the Company s overall compliance with the directions and recommendations made by the Commission Order Directing the Submission of an Implementation Plan, in Case 0-M-0, issued August 0, 00. The Commission s Order required the Company to submit an implementation plan for the recommendations provided in the Final Report, Management Audit of Consolidated Edison Company of New York, Inc. (Report), dated June, 00 within days of the Order. In addition, the Order required the Company to submit periodic updates every four months until all audit recommendations have been implemented and accepted by Staff. The audit was performed by The Liberty Consulting Group (Liberty). Case 0-M-0 Audit Implementation Compliance Q. Please briefly describe the management and operations audit performed on Con Edison by Liberty.
Cases -E-000 and -G-00 0 0 A. On February, 00, the Commission authorized the issuance of a request for proposal (RFP) for an independent third-party consultant to conduct a comprehensive management and operations audit of Con Edison s electric, gas, and steam businesses, with a specific focus on the Company s construction program planning processes and operational efficiency. In addition, with respect to the construction program planning, the audit focused on a feedback loop that consisted of eight elements, including: corporate mission, objectives, goals, and planning; long-term system load forecasting; supply procurement; long-term system planning; capital and operation and maintenance budgeting; program and project planning and management; work force management; and performance and results measurement and management. On May, 00, the Commission approved the selection of Liberty to perform the audit. On August 0, 00, the Commission issued the Order Directing the Submission of an Implementation Plan for the recommendations provided in Liberty s Report.
Cases -E-000 and -G-00 0 0 Q. Is Staff satisfied that the Company s implementation efforts have satisfactorily addressed the audit recommendations and the Commission s directives? A. Yes, the Company has satisfactorily addressed the recommendations contained in the Report and the Commission s directives. Management and Operations Audit Staff from the Office of Accounting, Audits and Finance and Subject Matter Experts (SMEs) from the Office of Electric Gas and Water, Office of Accounting, Audits and Finance and the Office of Regulatory Economics worked with the Company throughout the entire audit implementation process to ensure that the Company properly addressed the audit recommendations. Throughout the implementation process, the Company provided written audit implementation updates every four months, as well as annual updates. Con Edison filed its latest and final implementation plan update with the Department on January, 0. In its January 0 implementation plan update, the Company reported that it had fully implemented all recommendations from the
Cases -E-000 and -G-00 0 0 Report. This update indicated the Company s completion of recommendation, requiring the Company to implement a work management system in the Electric Operations Organization. In order to implement this recommendation, the Company had to execute this project in several phases, with a few phases running concurrently, until its full deployment in December 0. Staff is now satisfied that the Company has satisfactorily implemented recommendation. Q. Are there any quantifiable benefits that will accrue to Con Edison s customers that are a direct result of the implementation of this work management system? A. Yes. On page of the Company s response to IR DPS-, contained in Exhibit (MAP-), the Company reports that the implementation of the work management system in Electric Operations has resulted in savings of approximately $ million of capital and O&M annually, which are reflected in the historic test year, and the rate year, respectively.
Cases -E-000 and -G-00 0 0 Q. At the time of Con Edison s January 0 implementation update filing, were there any recommendations still being reviewed by Staff? A. Yes. In its June 00 audit implementation plan update, the Company reported recommendation as complete. This recommendation required Con Edison to perform comprehensive resource analyses for all business units on a quarterly or semi-annual basis. Upon review of this recommendation, Staff was satisfied with the Company s implementation efforts; however, questions were raised during the Company s previous rate case, i.e., Cases -E-000 et. al., regarding Con Edison s workforce planning for external resources. Following the rate case, Staff continued to evaluate the Company s resource planning efforts. Throughout this ongoing evaluation, Staff determined that Con Edison continues to demonstrate significant improvement assessing external resources. One way it does this is through improved, integrated annual budgeting and strategic planning. Where necessary, the Company uses a centralized planning and
Cases -E-000 and -G-00 0 0 scheduling process to coordinate its use of internal employees and contractors across geographic regions, particularly in consideration of its gas main replacement work. Con Edison reports it is currently unable, however, to perform long term contractor versus in-house resource assessments on a routine basis, due to a lack of methods and tools available in the industry to perform such analyses. More sophisticated resource planning methods and tools are being developed throughout the industry, and are being assessed by the Company. Further, recognizing the continuing importance of workforce planning, the Company s resource planning efforts continue to undergo examination in two ongoing management and operations audits. In consideration of these ongoing evaluations, and the aforementioned improvements, Staff has determined that the Company has adequately satisfied the intent of recommendation, and that further review in the context of Case 0-M-0 is not necessary. Per the audit closeout letter, dated May, 0, Staff is satisfied that all of the 0
Cases -E-000 and -G-00 0 0 recommendations from this audit have been satisfactorily implemented. Company Involvement in Ongoing Audits Q. Is Con Edison the subject of any other recent management and operations audits? A. Yes. At this time, Con Edison is the subject of two multi-utility operational audits, and one comprehensive management and operations audit. The first operational audit is Case -M-0, the Review of the Accuracy and Effectiveness of Certain Reliability and Customer Service Systems at all Gas and Combination Gas and Electric Utilities in New York State that Provide Statistics to the Commission on the Services They Provide Customers. This audit was conducted by Overland Consulting and examined the accuracy of the programs and processes used at the companies to collect data on reliability, safety, and customer service, and the accuracy of the calculations of this data as reported to the Department and the Commission. The final report from this audit was released by the Commission on April 0, 0. The second operational audit is Case -M-0,
Cases -E-000 and -G-00 0 0 the Focused Operations Audit of the Internal Staffing Levels and the Use of Contractors for Selected Core Utility Functions at Major New York Energy Utilities. This audit is a focused operations audit of the internal staffing levels and the use of contractors for core utility functions at major New York energy utilities. The audit is being performed by Liberty Consulting Group and is examining the internal staffing of certain core utility functions, as well as the criteria and controls used for the use of external staffing. This audit is in the process of being completed and the final report is expected to be released later in 0. Lastly, the Company is the subject of Case -M- 000, the Comprehensive Management and Operations Audit of the Consolidated Edison Company of New York, Inc. and Orange and Rockland Utilities, Inc. (the Companies). This audit was performed by NorthStar Consulting and examined the Companies electric, gas, and steam businesses and operations. This audit commenced the start of the second cycle of comprehensive management and operations audits, and includes a
Cases -E-000 and -G-00 0 review of certain recommendations that have been implemented by the Companies in response to the previous management audit, Case 0-M-0. This audit also evaluated how well the Companies are positioned to respond to the evolving Reforming the Energy Vision policies. In addition, the management audit examined the Companies construction program planning in relation to the needs of its customers for reliable service, and an evaluation of the efficiency of the Companies operations. The final report was released shortly after the May 0 Commission Session. Q. Does this conclude the Panel s testimony at this time? A. Yes.