Utility Companies Face Heavy Scrutiny by Regulators
Utilities will have to make significant investments in compliance infrastructure and new regulatory requirements, in order to bring their organizations up to par with the new industry standards, according to a new study from Ernst & Young.
Under 2005’s Energy Policy Act, the Federal Energy Regulatory Commission (FERC) was granted the authority to enforce the nation’s energy priorities. At the top of their list is ensuring electric system reliability. Meanwhile, cost pressures, combined with a previously lax regulatory environment, led to minimal infrastructure investment by power companies.
Ernst & Young LLP conducted a Regulatory Compliance Survey of senior executives responsible for corporate regulatory compliance, from ninety-five companies including twelve utilities, to asses how compliance programs are structured, implemented and managed.
According to E&Y, today’s utility companies need to establish a compliance reporting function, yet the survey found that utilities placed less emphasis on reporting to the board and reported less information than other industries. Utility companies also reported a disconnection between compliance policy and practice, which can lead to lost opportunities for both the regulated and deregulated sides of the company.
Generally, executive management are supposed to serve as an example for a company, but the survey found that compared to other industries the compliance frameworks for utilities are less likely to incorporate expected leadership behaviors. Two out of three utilities have not developed or are still working on documenting processes for anticipating and addressing future compliance risks and updating programs for new rules and regulations.
According to the study, companies should require compliance training for all employees, especially boards and senior management. However utilities seem to be lacking in new-hire compliance programs. The report also found that companies should not burden their internal audit departments with the task of industry compliance. Utilities have brought their financial reporting internal controls and monitoring procedures into compliance with Sarbanes-Oxley (SOX), but their internal audit departments typically lack the subject matter knowledge to handle regulatory compliance.
E&Y suggests that utilities need to create a stronger more comprehensive compliance model and should bring in the expertise to make this happen.
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