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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 Utilitiesí peaking units was included as well. 

The following six areas of inquiry were incorporated into Libertyís work plan for this audit:

  1. Review KUís and LG&Eís monthly FAC filings, beginning in January 2001, to determine whether KUís and LG&Eís fuel transactions have been disclosed in accordance with applicable regulations.  Also, determine if the applicable regulations provide for adequate disclosure of all fuel transactions.

  2. Review the bid solicitation and evaluation process to ensure a low cost and reliable coal supply.

  3. Review the fuel vendor evaluation process to assure continued supplier quality and reliability to the maximum extent possible.

  4. Appraise the organizational separation of regulated and non-regulated affiliates in relation to the fuel procurement function.

  5. Review the reasonableness of fuel inventory levels and fuel inventory targets for each generating station.

  6. Review the Utilitiesí compliance with all applicable Kentucky and Securities and Exchange Commission requirements for affiliate transactions focusing only on the Utilitiesí 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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