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Kentucky Utilities Company/Louisville
Gas & Electric Company
In early 2004 Liberty completed
a focused management audit evaluating the operational and managerial
aspects of the fuel procurement functions of Kentucky Utilities
Company (KU) and Louisville Gas and Electric Company (LG&E),
or collectively (the Utilities). For both KU and LG&E, this
audit applied to their Kentucky retail electric businesses only.
The work was performed for the Kentucky Public Service Commission (Commission).
The
overall objective of this audit was to examine all operational and
managerial aspects of the fuel procurement functions of KU and LG&E,
including the organizational structure and the operational
interrelationship of fuel procurement management among LG&E Energy,
KU and LG&E. Although the greatest effort was to focus on coal
procurement, the procurement of natural gas and fuel oil for the
Utilities’ peaking units was included as well.
The
following six areas of inquiry were incorporated into Liberty’s work
plan for this audit:
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Review KU’s and LG&E’s monthly FAC filings, beginning in January
2001, to determine whether KU’s and LG&E’s fuel transactions have
been disclosed in accordance with applicable regulations. Also,
determine if the applicable regulations provide for adequate
disclosure of all fuel transactions.
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Review the bid solicitation and evaluation process to ensure a low
cost and reliable coal supply.
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Review the fuel vendor evaluation process to assure continued
supplier quality and reliability to the maximum extent possible.
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Appraise the organizational separation of regulated and
non-regulated affiliates in relation to the fuel procurement
function.
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Review the reasonableness of fuel inventory levels and fuel
inventory targets for each generating station.
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Review the Utilities’ compliance with all applicable Kentucky and
Securities and Exchange Commission requirements for affiliate
transactions focusing only on the Utilities’ fuel procurement
practices.
Areas of concern were identified for each of the companies, and
suggestions for improvements were made for each. Liberty provided
detailed recommendations for the resolution of identified areas of
concern and provided detailed advice to the Commission regarding
strategies for implementing these recommendations.
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