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California State Auditor Report Number : 2016-104

California Public Utilities Commission
It Should Reform Its Rules to Increase Transparency and Accountability, and Its Contracting Practices Do Not Align With Requirements or Best Practices

September 22, 2016 2016-104

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the California Public Utilities Commission’s (CPUC) contracting practices and the contracts that the CPUC ordered four energy utilities to enter into. In addition to entering into its own contracts for services, the CPUC has broad authority to direct utilities to enter into contracts, which it orders through public proceedings.

This report concludes that to increase the transparency and accountability of its contracting directives, the CPUC must change the rules that govern the circumstances in which commissioners can participate in its proceedings and the entities and individuals who must report private communications about those proceedings. In our audit, we found that a commissioner—the then‑president of the CPUC—participated in approving a $152 million contract despite evidence that suggested that he was unable to act impartially towards a ratepayer advocate group’s request to deny the contract. Further, we found that private communications about a $25 million contract were not reported because the CPUC does not require commissioners to disclose when they have engaged in private discussions about the CPUC’s public proceedings. We also found that the CPUC often does not follow state requirements or best practices when it issues and oversees its own contracts for services. This includes a failure to conduct market research to ensure that it obtains the best value in cases where competitive bidding is not required.

We recommend that the Legislature require the CPUC to adopt new standards requiring commissioners to recuse themselves if their impartiality is reasonably questioned and to report the content of private communications they hold related to CPUC proceedings. We also recommend that the CPUC change the way it oversees its own contracts to ensure that it receives the best value when it contracts out for services.

Respectfully submitted,

State Auditor

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