Internal Audit Report 


Comprehensive Operational Audit 
SeaTac Utilities 
January 1, 2010 to December 31, 2010 





Issue Date: June 7, 2011 
Report No. 2011-10

Internal Audit Report 
Sea-Tac Utilities 
January 1, 2010 Through December 31, 2010 

Table of Contents 
Transmittal Letter .................................................................................................................................... 3 
Executive Summary ................................................................................................................................ 4 
Audit Report ............................................................................................................................................. 5 
Background .............................................................................................................................................. 5 
Department Highlights and Accomplishments .................................................................................... 6 
Audit Scope and Methodology ............................................................................................................... 6 
Conclusion ............................................................................................................................................... 8 












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Internal Audit Report 
Sea-Tac Utilities 
January 1, 2010 Through December 31, 2010 


Transmittal Letter 
We have completed a comprehensive operational audit of the Sea-Tac Utilities. The purpose of
the audit was to determine if management has adequate controls to assure effective operations
in compliance with applicable rules and regulations. We reviewed information relating to
calendar year 2010. 
Management has the primary responsibility to establish and implement effective controls. Our
role was to assess and test those controls in order to establish whether the controls were
adequate and operating effectively. 
We conducted the audit using due professional care. The audit was planned and performed to
obtain reasonable assurance that department controls are adequate and operating effectively as
intended in the aforementioned areas. 
Sea-Tac Utilities has adequate and effective controls to ensure operations are effective and in
compliance with applicable requirements.
We extend our appreciation to the management and staff of the Sea-Tac Utilities, Aviation
Business Development, and Aviation Finance & Budget for their assistance and cooperation
during the audit. 


Joyce Kirangi, CPA 
Internal Audit, Director 






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Internal Audit Report 
Sea-Tac Utilities 
January 1, 2010 Through December 31, 2010 

Executive Summary 

Audit Scope and Objective  The purpose of the audit was to determine if management has
implemented adequate controls to assure that: 
1. Utility billing is complete, accurate and in accordance with the tariff. 
2. Costs in the utility rate calculation are relevant, reasonable and complete. 
We reviewed information relating to fiscal year 2010. 

Background  The Aviation Sea-Tac Utilities was created in 2001 and currently serves electric,
water, natural gas, heating oil, sewer, and solid waste utilities. There are two classes of
customers, namely internal (e.g., Port departments) and external (e.g., tenants) customers. The
department generates approximately $6 million in annual tenant direct billing revenues and
incurs approximately $14 million per year in operating expenses. Expenses not covered by
direct billing are recovered through internal billings.
The Sea-Tac Utilities is responsible for establishing rates and paying bills. It develops short
and long-term strategies for cost management in coordination with airport development plans.
Rates for utilities are developed to recover operating, capital and cost of capital expenses.
The department takes the lead role in the management and administration of utilities
conservation projects in order to reduce energy and utility costs. It is also the responsibility of
the department to ensure that utilities needs are fully integrated into all airport planning. 

Audit Result Summary  Based on the audit procedures performed, Sea-Tac Utilities has
adequate and effective controls to ensure complete and accurate billings in compliance with the
tariff. We found the costs in the tariff calculation to be relevant, reasonable and complete. 






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Internal Audit Report 
Sea-Tac Utilities 
January 1, 2010 Through December 31, 2010 

Audit Report 

Background 
The Aviation Sea-Tac Utilities was created in 2001. The department currently serves the
following utilities to internal (e.g., Port departments) and external (e.g., tenants) customers: 
Electricity              Sewer                 Natural Gas 
Water             Solid Waste          Heating Oil 

The following departments provide support to Sea-Tac Utilities Department: 
Aviation Maintenance for meter installation, maintenance and readings 
Aviation Business Development for calculating billing amount 
Aviation Finance and Budget for allocations and cost of capital components of Utility
rates 
Sea-Tac Utilities department has over 100 customers and generates direct billing to tenants of
approximately $6 million in revenues annually while incurring approximately $14 million in
operating expenses. Operating expenses not directly billed are recovered through the Landing
Fee and Terminal Fee charges. The department also has internal (indirect) billing to the Port
departments for their own consumption. 
Sea-Tac Utilities Department is responsible for establishing rates, paying bills, customer
service and communication with tenants and utility providers. Developing short and long-term 
strategies for cost management and coordination with airport development plans is also part
of its responsibility. Rates for utilities are developed by the department to recover operating,
capital and cost of capital expenses. The department takes the lead role in the management
and administration of utilities conservation projects in order to reduce energy and utility costs.
The department is tasked to ensure that utilities needs are fully integrated into all airport
planning. 
Audit Objective 
The purpose of the audit was to determine if management has implemented adequate controls
to assure that: 
1. Utility billing is complete, accurate and in accordance with the tariff. 
2. Costs in the utility rate calculation are relevant, reasonable and complete. 

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Internal Audit Report 
Sea-Tac Utilities 
January 1, 2010 Through December 31, 2010 

Department Highlights and Accomplishments 
Management has placed an emphasis on economic and environmental stewardship with
efforts to reduce energy costs and increase energy efficiency. 
Energy Cost Reduction 
The Port was paying retail prices for electricity until management secured an
agreement with the Bonneville Power Administration (BPA). As  a preferential
customer, the department can acquire electricity at BPA's cost or in other words
wholesale prices.
Energy Efficiency 
Management initiated a number of projects to enhance energy efficiency. Some
examples include: new lighting technologies, upgrading mechanical systems for
heating and cooling as well as installation of charging stations for electrical ground
service equipment. 

Audit Scope and Methodology 
We utilized a risk-based audit approach from planning to test sampling. We performed a
multitude of information gathering methods including research, interviews, observations, and
analytical review in order to obtain a complete understanding of the Sea-Tac Utility operations. 
We conducted a risk assessment of the significant risks associated with SeaTac Utilities, and
identified the controls that have been implemented to mitigate those risks. We also evaluated
whether the established controls were carried out as intended. Based on this risk assessment,
we determined the area of audit focus. 
Our additional detailed audit procedures can be grouped and summarized into two categories
as follows: 
1)  Direct & internal (indirect) billing 
2)  Tariff calculation. 
We approached each audit area with the following methodology: 

1.) Direct & Internal (indirect) Billing 
The Aviation SeaTac Utility has two classes of customers: 
Tenants with meters or minimum monthly charges; these tenants are billed directly. 
Port departments for their own consumption, and tenant consumption of non-metered,
common area utility usage (e.g., ticketing areas that are billed internally or indirectly). 
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Internal Audit Report 
Sea-Tac Utilities 
January 1, 2010 Through December 31, 2010 

a.  Direct Billing 
To determine the completeness of direct utility billing, we reviewed utility connections
at the point of application for connection to the Port utility system. We selected a
sample of 22 electrical, water, and gas meter applications at random and traced
them to Maximo where a list of utility meters is maintained for monthly meter 
readings. 
For accuracy and tariff rate compliance, we selected a sample meter readings from
electric and water utilities. The two utilities consist of approximately 68% of the total
revenue from direct billings. The meter reading sample represented 17% and 12% of
electric and water customers from the month of July 2010. We traced the sample
through the following systems: 

PROPWorks--where meter reads are calculated into billing amounts. 
PeopleSoft--where billing and receivable transactions are recorded. 
We recalculated billing amounts from sampled meter reads. T he result was
compared to billed amounts to ensure that billings were correct and in accordance
with the Commission approved tariff. 
b.  Internal Billing 
Internal billings were reviewed for completeness and to ensure that the areas of nonmetered
electric and water utilities were included. 
Our objective was two-fold: 
To ensure that individual departments were properly charged for their own consumption. 
To ensure that costs associated with non-metered utility were ultimately recovered 
through secondary mechanisms (i.e., Landing Fees). We traced billed departments to
the cost pools of the secondary cost recovery mechanisms. 

2) Tariff Rate Calculation 
A tariff is a Commission approved document that includes, but is not limited to, a schedule of
utility rates and charges at the airport. 
To determine the completeness, reasonableness, and relevancy of utility costs in the tariff
calculation, we reviewed the following costs in 2011 tariff rate calculations: 
Direct charges from departments to the Sea-Tac Utilities (approximately 60% of the total
utility costs) 
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Internal Audit Report 
Sea-Tac Utilities 
January 1, 2010 Through December 31, 2010 

Departments directly charging into the utility costs were reviewed to ensure thatthose 
charges were appropriate. We reviewed the departments who support the utilities to
ensure that their related costs were included in the tariff rate calculations. 
Allocated costs (approximately 8% of the total utility costs) 
We compared allocated costs in the tariff rate calculation to the same costs in the
approved budget.
Depreciation (approximately 20% of the total utility costs) 
We conducted a two way match from the asset listing used in the tariff rate calculation to 
a separate download from PeopleSoft financial system.  We also reviewed the asset
listing for proper inclusion of utility assets and exclusion of non-utility assets. We also
recalculated the deprecation based on the Cost of Capital and compared it to the
deprecation in the tariff rate calculation. 
Cost of capital (approximately 10% of the total utility costs) 
The cost of capital is based on an expected rate of return on the utility assets. It is
derived from the net book value of the assets multiplied by the expected rate of return.
In addition to recalculating the depreciation, we also reviewed the Cost of Capital for the
past five years to determine if the expected increase/decrease in the account correlated
to the increase/decrease in assets acquired. We also compared the expected rate of
return used by the Port to the utilities industry for reasonableness. 
Conclusion 
Based on the audit procedures performed, Sea-Tac Utilities department has adequate and
effective controls to ensure complete and accurate billings in compliance with the tariff. We
found the costs in the tariff rate calculation to be relevant, reasonable, and complete. 





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