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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

Response to the Audit


September 1, 2016

Elaine Howle, State Auditor
California State Auditor's Office
621 Capitol Mall, Suite 1200
Sacramento, CA 95814

SUBJECT: Response to the State Auditor’s Draft Report, “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”

Dear Ms. Howle,

The California Public Utilities Commission (CPUC) provides the following response to the September 1st, 2016, draft audit report from the State Auditor entitled, “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.” We take the audit recommendations very seriously and intend to comply with the recommendations as outlined below:

Our goal is to make necessary changes to policies, process, practices and procedures to address all of the audit report recommendations and to bring our practices into conformity with state procedures, requirements, and norms.

Audit Recommendations (in italics) and CPUC Responses:

1. To ensure that the choice of a vendor is sufficiently justified and that the vendor represents best value, the CPUC should explain in its final decision how the vendor was the most qualified in all cases when the CPUC does not competitively select the vendor it directs utilities to contract with.

Response: The CPUC agrees with this recommendation. The CPUC will establish a process to include a justification in the formal Commission decision whenever the Commission is directing a utility to hire a specific vender/contractor. Staff will recommend that the Commission adopt this as a formal policy through the Commission Policy and Governance Committee.

2. To avoid the appearance of inappropriate relationships, the CPUC should adopt a policy to prohibit commissioners from accepting gifts from regulated utilities and energy companies and free travel from organizations with significant ties to regulated utilities and other parties with financial interests in CPUC proceedings.

Response: The CPUC agrees that the appearance of inappropriate relations should be avoided. As the audit report recognizes, the Commissioners’ acceptance of identified gifts is consistent with state law. The Commission’s Legal Division will continue to analyze Commissioners’ acceptance of gifts on a case-by-case basis, and such analysis will continue to examine whether any such gift raises appearance issues. We cannot, however, agree with the audit recommendation. Such a policy would need to be considered and adopted by the full Commission. This audit recommendation will be forwarded to the full Commission for discussion. The CPUC will inform the State Auditor of policies adopted.

3. To ensure that its contracting practices align with state requirements and best practices, the CPUC should take the following actions:
  • Update, distribute and follow its contracting procedures manual. The manual should identify specific responsibilities for both contracts office staff and project managers, and it should provide specific guidance about the processes the CPUC will employ to do the following:

    • Fully justify civil service exemptions
    • Conduct market research for exempt contracts
    • Fully support the need for additional funding
    • Ensure that it does not change the scope of work too significantly for the original
    • Monitor contractor performance against criteria included in its contracts
    • Avoid sole-source contracts when it is able to solicit competitive bids for services.

Response: The CPUC agrees with the recommendation.

The CPUC has already initiated several activities as of mid-June 2016 to address the recommendations set forth in this audit report.

4. Provide immediate refresher training to its contract analysts and contracts office manager and establish a regular schedule of annual training for them to attend.

Response: The CPUC agrees with the recommendation. Due to the State-wide implementation of FI$CAL, DGS deferred Procurement and Contracts Academy Training for approximately one year to utilize training resources for the new FI$CAL program and the CPUC was therefore unable to provide the refresher training as we desired. A limited number of classes have been offered through 2016 but more classes are being offered beginning 9/2016. The CPUC will schedule contracts staff and management to attend “top 10” courses for certification and complete the required refreshers courses every three years.

5. Designate a limited number of project managers for each division at the CPUC and provide those individuals with training on the CPUC’s processes related to contracting, including how to monitor progress of a contractor’s work.

Response: The CPUC agrees with this recommendation. The Commission will develop a plan for limiting the number of project managers for each division by December 2016, and complete training for project managers.

6. Implement a supervisory review by the contracts office manager of proposed contracts and contract amendments to occur before contracts and amendments go to vendor for signature.

Response: The CPUC agrees with this recommendation. Supervisory review of contracts by the Contract Manager and Branch Chief prior to Deputy Executive Director review and approval has been in place since May 2016. The process continues to be reviewed, refined and clarified.


7. The CPUC should update its general policy on responding to record requests so that the policy aligns with state law. The CPUC should develop and follow procedures to regularly track and review records requests it has not fully responded to and determine whether it can provide information.

Response: The CPUC agrees with this recommendation. In Rulemaking (R.) 14‑11‑001, the Commission is currently examining its procedures for responding to requests pursuant to the California Public Records Acts and will adopt policies that align with state law. As the audit report notes, Commission staff assigned to the processing of the Public Records Act requests have taken steps to track and review open records requests. Staff will continue to do so to ensure that the Commission is in compliance with statutory guidelines.

8. The CPUC should use its contract database to track the procurement method for each contract.

Response: The CPUC agrees with this recommendation. The current contract database is not capable of tracking the procurement method for each contract. The Contracts Office will work with the Information Technology Services Branch to find a mechanism to capture the procurement method, add this information to the database, and develop a report capability. Estimated completion will be December 31, 2016.

9. The CPUC should update its regulations to require parties joining a proceeding by filing a protest or response to an application, petition or CPUC rulemaking proceeding, or by filing comments in response to a rulemaking proceeding to fully disclose their interests.

Response: The CPUC does not agree with this recommendation to update its regulations because our current rules and practices already achieve the desired result. The Commission’s current Rules of Practice and Procedure already adequately address the issue of parties disclosing their interests in a Commission proceeding. The commission has several types of proceedings and our answer addresses each type. By definition, when a party files a protest of or a response to an application, petition, or CPUC-initiated rulemaking proceeding, or when a party files comments in the context of a rulemaking proceeding, the protest, response, or comments reveal the filer’s position on issues in the proceeding, which make clear the party’s interests in the matter. A new requirement for parties to independently disclose their interests would be redundant. Furthermore, when a Commission Order Instituting Rulemaking (OIR – a type of proceeding which often has no pre‑hearing discovery process) calls for comments, the Commission is seeking policy opinion and legal argument, where the credibility of the witness (including motivation/financial interest/etc.) is generally immaterial. Thus, in a rulemaking proceeding, there is no need for such disclosure. Finally, changing the Commission’s Rules of Practice and Procedure is a very lengthy process, which includes approval by the Office of Administrative Law. While the CPUC does update its Rules of Practice and Procedure periodically when necessary, this recommended change is both unnecessary and redundant.

10. The CPUC should ensure that it has accurate information about who is required to file statements of economic interests and then verify that all such persons file those statements when required. The CPUC should update and follow its retention policy for economic interest disclosures so that it is aligned to state law.

Response: The CPUC agrees with this recommendation. The Commission’s Filing Officer will take appropriate steps to ensure that the Commission retains all Form 700s in compliance with State Law.


Timothy J. Sullivan
Executive Director



To provide clarity and perspective, we are commenting on the CPUC’s response to the audit. The numbers below correspond to the numbers we have placed in the margin of its response.


We find the CPUC’s response to this recommendation confusing. The CPUC appears to state that it cannot agree with our recommendation because its commissioners need to consider and adopt a policy that would address our recommendation. The CPUC makes this assertion despite also stating that it agrees it should avoid the appearance of inappropriate relationships, which is precisely what our recommendation is meant to achieve. Further, the CPUC characterizes its ability to agree with and implement this recommendation much differently than it does for another recommendation that it addressed in its response letter. In response to our recommendation that it explain how it chose a vendor in all cases when it does not competitively select a vendor it directs utilities to contract with, the CPUC stated that it agreed with our recommendation and stated that its staff would recommend that the commissioners adopt such a policy. We are puzzled that the CPUC is able to agree with this recommendation, and in turn recommend the CPUC adopt it, but take a contradictory position in not believing that it can agree with the recommendation pertaining to gifts.


Although the CPUC states that supervisory review has been in place since May 2016, it also indicates that this process is still being reviewed, refined, and clarified. Therefore, we look forward to hearing in the CPUC’s 60‑day response to the audit recommendations more about how it has formalized this process, including how it will incorporate it into its new contracting manual.


The CPUC overstates our conclusion about how it tracks and reviews unresolved Public Records Act requests. We state that the CPUC inconsistently tracked the Public Records Act requests. As we note, this inconsistent tracking meant that the CPUC did not provide records as promptly as it could have in response to one of the requests we reviewed. The inconsistency of the CPUC’s tracking and monitoring led us to make the recommendation that it should regularly track and review its unresolved record requests.


Despite the CPUC’s objections, we continue to believe it is important for the CPUC to implement our recommendation. Although the CPUC states that its current rules and practices already achieve the desired result of getting parties to adequately disclose their interests in CPUC proceedings, the rules do not explicitly require that parties disclose those interests when filing a protest or response to an application or petition, or comments in response to a rulemaking. Because those interests are potentially relevant to the CPUC’s proceedings, we recommend that the CPUC take the prudent step to ensure that in the future all those who become a party to the CPUC’s proceedings through this method be required to disclose their interests.

Further, we find the CPUC’s assertion that a party’s interests are generally immaterial when the party responds to a CPUC Order Instituting Rulemaking to be unpersuasive. In our report, we discuss a CPUC proceeding in which the CPUC directed utilities to contract with a vendor that was a party to that proceeding. In that particular case, the CPUC proceeding was a rulemaking proceeding and the vendor became a party by commenting on an Order Instituting Rulemaking. As we discuss, despite the objections from all four energy utilities, the CPUC directed the utilities to contract with this vendor after the vendor volunteered to administer an outreach program—yet the CPUC did not provide an adequate justification as to how the CPUC knew the vendor represented the best possible value for ratepayers. We note that the cumulative result of this decision was that the vendor received contracts from the utilities totaling about $74 million. Although in this instance the vendor voluntarily disclosed its interest in the proceeding, this example shows that parties who participate in this type of proceeding can financially benefit as a result of participating and therefore their interests are material to these types of proceedings.

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