Audit, Recommendations Released On Philadelphia Gas Works By PUC

The Public Utility Commission Thursday released a Stratified Management and Operations Audit Report of Philadelphia Gas Works that contains numerous recommendations which could generate an estimated $8.3 to $9.4 million in annual savings, along with a one-time savings of approximately $1.1 million as a result of effective implementation of its recommendations.

The Commission voted 5-0 to make the Audit Report and PGW’s Implementation Plan public. The Stratified Management and Operations Audit analyzed and evaluated management performance in 16 functional areas.

The audit was conducted by Schumaker & Company, Inc. on behalf of the Commission.

In a statement during the public meeting, Commissioner Robert F. Powelson emphasized that the Audit Report highlights a number of issues that are top priorities for the Commission, including the replacement of at-risk gas mains – which was also underscored by a PUC staff report about PGW infrastructure that was issued in April 2015.

“I am confident that PGW understands the grave importance of this issue and the Commission will continue to monitor these efforts,” said Commissioner Powelson.

While the Audit Report makes a total of 76 recommendations for improvement, it also notes that PGW has taken positive steps to address concerns that were raised during previous reviews.

All of the recommendations outlined in the 2015 audit fall within the categories of “moderate” and “minor” improvement, in contrast to the 2008 management audit of PGW, which identified two functional areas as needing “significant” improvement.

PGW’s implementation plan indicates full acceptance of 62 recommendations detailed in the audit, along with partial acceptance of 13 recommendations. Four of those items have already been fully implemented and PGW plans to complete the vast majority of other items by December 2016.

The only audit recommendation that was rejected by PGW related to reorganizing its governance structure, which includes overlapping and unclear roles and responsibilities of the Philadelphia Facilities Management Corporation and the Philadelphia Gas Commission.

The audit report recommended the combination of those two entities into a single Board, which could generate an estimated annual savings of approximately $500,000.

As noted in Commissioner Powelson’s statement, PGW did not disagree with this recommendation, but maintained that changes to the governance structure are beyond the capacity of PGW Management to address.

“This is an important area that needs action and I will continue to urge Philadelphia’s Mayor and City Council to address the inefficiencies and confusion of having two governing boards for PGW,” said Commissioner Powelson.

Some of the more notable recommendations include:

— Aggressively accelerating the replacement of high risk mains, specifically cast iron mains;

— Reducing the number of open leaks by outsourcing the excavation work and using PGW crews to make repairs;

— Performing disaster recovery tests semi-annually to adhere to established goals and objectives;

— Performing annual penetration testing and vulnerability assessments;

— Improving cycle count accuracy levels to at least 90 percent and increasing analysis on inventory turnover rates;

— Identifying and addressing increasing levels of customer disputes and PUC complaints;

— Placing greater emphasis on decreasing the number and amount of over-90-day-old customer accounts;

— Formalizing communication protocols between PGW groups to readily identify and remediate underbillings for gas service;

— Continuing to take steps to reduce PGW gas supply assets; and

— Measuring and reporting safety performance using standard industry benchmarks.

PGW, which is wholly owned by the City of Philadelphia and is the largest municipally-owned gas utility in the country, provides natural gas service to approximately 500,000 customers in Philadelphia.