METROPOLITAN EDISON COMPANY - Pennsylvania Public Utility ...

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Committee citing the internal controls over the accounting for capital projects as a“material weakness”. Further study was performed during 2004, with ED&CS focusedon evaluating the root cause for each identified cost misclassification issue. Financialreclassifications identified through December 2004 totaled an additional $17.1 million.Ultimately, in 2005, a mechanized tool was developed to identify impropercharges to O&M and transfer the amounts to appropriate capital accounts. KPMG, LLPwas engaged in March 2006 to identify opportunities to automate manual controls andmigrate from a manual detective to an automated preventive orientation. In April 2006,FirstEnergy engaged Ernst & Young, LLP to test certain key controls. In June 2006,FirstEnergy’s IAD completed its Second Quarter Assessment of Internal Controls OverFinancial Reporting. Part of this assessment was a review of the accounting issuesrelated to the accounting for capital projects. IAD reported the controls over financialreporting to be effective. IAD was performing its Third Quarter Assessment of InternalControls Over Financial Reporting at the time of BWG’s field work, so the Consultantrecommended that FirstEnergy provide a copy of the Third Quarter Assessment ofInternal Controls Over Financial Reporting, as well as the PricewaterhouseCoopers,LLP (PwC) management letter for the 2006 financial audit, to PUC Audit Staff when itbecame available.Follow-up Finding and Conclusion No. V-2 – FirstEnergy has correcteddeficiencies identified in its assessment of internal controls over financialreporting.Copies of the IAD’s Third Quarter Assessment of Internal Controls Over FinancialReporting as of September 30, 2006, the Internal Audit Department’s Fourth QuarterAssessment of Internal Controls Over Financial Reporting as of December 31, 2006,and the PwC report regarding internal control over financial reporting for the 2006financial audit were included in FirstEnergy’s Implementation Plan submitted to the PUCon June 29, 2007.The Third Quarter Assessment of Internal Controls Over Financial Reporting asof September 30, 2006, found that, overall, the internal controls over financial reportingwere effective as of September 30, 2006. More specifically:• 22 deficiencies were closed (remediated and tested) in the third quarter.• 39 deficiencies were open at final certification:‣ 36 control deficiencies, of which 23 had been resolved (i.e.,the remediation plan had been implemented and the new orresolved control(s) were pending operational effectivenesstesting by Internal Auditing).‣ One deficiency had not yet been classified (i.e., furtheranalysis was necessary before it could be determined if thisissue was limited to a deficiency).‣ Two significant deficiencies, of which one had beenresolved, with the new or resolved control(s) pendingoperational effectiveness training by Internal Auditing, and- 32 -
one had been considered a material weakness for OhioEdison and Penn Power, a remediation plan having beendeveloped with expected implementation by October 31,2006.‣ The 39 deficiencies open at final certification had beendocumented and reported as part of FirstEnergy’s report ofinternal control over financial reporting, and action planswere underway to remedy these deficiencies.The Fourth Quarter Assessment of Internal Controls Over Financial Reporting asof December 31, 2006, found that, overall, the internal controls over financial reportingwere effective as of December 31, 2006. More specifically:• 81 deficiencies were closed.• 23 deficiencies were open at final certification:‣ 21 control deficiencies, of which seven had been resolvedand 14 had remediation plans developed and documented,but not implemented as of the report date.‣ Two significant deficiencies, both of which had beenresolved, with the new or resolved control(s) pendingoperational effectiveness training by Internal Auditing.‣ The 23 deficiencies open at final certification had beendocumented and reported as part of FirstEnergy’s report ofinternal control over financial reporting, and action planswere underway to remedy these deficiencies.The Report of Independent Registered <strong>Public</strong> Accounting Firm issued byPricewaterhouseCoopers LLC states that the consolidated financial statements werepresented fairly through December 31, 2006, and that management’s assertion that theCompany had maintained effective internal control over financial reporting as ofDecember 31, 2006 was fairly stated based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission.Staff’s Follow-up Recommendation – None.- 33 -
Page 5: METROPOLITAN EDISON COMPANYPENNSYLV
Page 8 and 9: • Support Services• Human Resou
Page 10 and 11: • Developed and implemented forma
Page 12 and 13: FIRSTENERGY PENNSYLVANIA COMPANIESM
Page 24 and 25: III. AFFILIATE INTERESTSBackground
Page 26 and 27: In addition, subsidiary or related
Page 28 and 29: BWG recommended that a detailed, wr
Page 30 and 31: management. Other potential uses of
Page 32 and 33: IV. CORPORATE GOVERNANCEBackground
Page 34 and 35: V. FINANCIAL MANAGEMENTBackground -
Page 36 and 37: the internal audit was to determine
Page 40 and 41: VI. ELECTRIC RELIABILITYBackground
Page 42: Exhibit VI-1Metropolitan Edison Com
Page 45 and 46: provide additional details to the C
Page 47 and 48: Exhibit VI-6FirstEnergy Pennsylvani
Page 49 and 50: All three FE-PA Companies have had
Page 51 and 52: FirstEnergy is following the right
Page 53 and 54: Company, and The Toledo Edison Comp
Page 55 and 56: technicians. These strategies are u
Page 57 and 58: VIII. EMERGENCY PREPAREDNESSBackgro
Page 59 and 60: Routine periodic updating of the em
Page 61 and 62: Follow-up Finding and Conclusion No
Page 63 and 64: old excess inventory. Spare invento
Page 65 and 66: controls were automated. Moreover,
Page 67 and 68: Exhibit IX-6FE-PA CompaniesPercenta
Page 69 and 70: FE-PA Companies were unable to iden
Page 71 and 72: Staff’s Follow-up Recommendation
Page 73 and 74: Exhibit X-6Metropolitan Edison Comp
Page 75 and 76: Prior Recommendation - Develop a co
Page 77 and 78: Therefore, BWG suggested that First
Page 79 and 80: XI. CUSTOMER SERVICEBackground - Th
Page 81 and 82: Exhibit XI-2FE-PA CompaniesPercenta
Page 83 and 84: Exhibit XI-5FE-PA Companies Compare
Page 85 and 86: Exhibit XI-7FE-PA Companies Compare
Page 87 and 88: Follow-up Finding and Conclusion No
Page 89 and 90:
uilding, in an effort to protect re
Page 91 and 92:
Companies would submit a supplement
Page 93 and 94:
3. The "four-fifths" rule (underuti
Page 95 and 96:
Met-Ed has female underutilization
Page 97 and 98:
Exhibit XII-4Page 1 of 2FirstEnergy
Page 99 and 100:
The number of years that FirstEnerg
Page 101 and 102:
FE-PA Companies do track purchases
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