To ensure that it efficiently and effectively monitors energy utilities balancing accounts to protect ratepayers from unfair rate increases, the commission should direct its Energy Division to perform in-depth reviews of balancing accounts to verify that account balances contain only allowable transactions and are supported. These reviews should include ensuring that transactions recorded in a balancing account are supported by appropriate documentation, such as invoices.
As recommended by the State Auditor, Energy Division developed a risk based review approach and selected 18 balancing accounts for in-depth review. The reviews were done with the primary goal to ensure that the entries in the accounts were for allowable purposes and were supported by appropriate documentation (e.g. invoices and time cards when necessary). The risk based selection criteria include quarter end balances exceeding a certain threshold, balancing accounts with activity in the top 25th percentile and excessive volatility among others. The risk based criteria will be revised based on our experience with the in-depth reviews. For each balancing account selected for in-depth review, staff reviewed and confirmed the utility's authorization to establish the account along with the pertinent information on the amounts authorized and the approved amortization. In addition to an examination of a sample of invoices, the review focused to verify that the allocation of overheads, the application of the franchise fee and uncollectibles (FF&U) factor and interest rate used were in accordance with the Commission's authorizing decisions. In performing the review at the invoice level, a particular area of focus was transactions with affiliated companies to ensure ratepayers were not subsidizing affiliated businesses. The review process was conducted following the Balancing Account Review Procedures document that was submitted with the 6-month update.
Energy Division has been working with the Division of Water and Audits staff to learn about their review procedures. To develop staff expertise in performing these reviews, Energy Division staff has had meetings with each of the large electric and gas utilities to get familiarity with their accounting systems and how they book third party vendor costs and utility overhead costs and if and how they account for Franchise Fees and Uncollectibles (FF&U). Energy Division has developed draft review procedures after having looked into the review procedures established by the Division of Water and Audits. The Risk based approach and the draft procedure for review is attached. Additionally, staff will be looking for affiliate transactions in balancing accounts to make sure the costs are booked properly.
Energy Division is planning to start the review process in the middle of September. This will be an on-going process. Energy Division will prioritize these reviews by giving highest priority to those accounts that the utilities will seek amortization of in advice letters that are going to be filed in September. As these advice letters must go into effect on January 1, 2015, these need to be the first priority. Energy Division will be examining a sample of invoices using our initial risk based approach. The risk based approach may be revised after we gain experience with these reviews.
The Commissions Energy Division has not yet performed the in-depth invoice level review for balancing accounts. However it is preparing and planning to perform such in-depth reviews. Energy Division will be working with the Commissions Division of Water and Audits and get guidance to perform these reviews. Energy Division is going to look into the review procedures established by the Division of Water and Audits for possible use for its in-depth review of balancing accounts and will be examining a sample of invoices using a risk based approach. Energy Division is developing an appropriate risk based approach.
†Response Type refers to the interval in which the auditee is providing the State Auditor with their status in implementing recommendations made in an audit report. Auditees must submit a response regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year or subsequent to one year.
*Agency responses received after June 2013 are posted verbatim.