Report 2012-118 Summary - July 2013
California Public Utilities Commission:
Despite Administrative Weaknesses, It Has Generally Awarded Compensation to Intervenors in Accordance With State Law
Our review of the California Public Utilities Commission's (commission) intervenor compensation program (program), revealed that the commission:
- Generally ensured that intervenors—individuals and groups that represent the interests of utility ratepayers—met statutory requirements before it issued awards.
- Requires and reviews detailed time logs and other documentation to support intervenors' requests for compensation and adjusts claims for inefficient work and excessive hours spent on certain activities.
- Awarded only 6 percent of the claims submitted during 2008 through 2012 for intervenor compensation within the required 75-day time frame—it was more than six months late for 30 percent of the claims awarded during that period.
- Does not have formal guidance on how to calculate interest appropriately for intervenor claim decisions issued after the 75-day deadline resulting in $40,000 in estimated overpayments of interest on awards.
- May be inappropriately compensating intervenors until it establishes market rates that comply with state law.
- Lacks any formal procedures for verifying the qualifications of intervenors appearing in proceedings and did not have evidence that its analysts had verified qualifications in the past.
RESULTS IN BRIEF
The California Public Utilities Commission (commission) is responsible for ensuring that California utility customers have safe, reliable utility service at reasonable rates, protecting utility customers from fraud, and promoting the health of California's economy. The commission's intervenor compensation program (program) is intended to ensure that intervenors—individuals and groups that represent the interests of utility ratepayers—have the financial resources to bring their concerns and interests to the commission at its proceedings. Intervenors advocate for a variety of ratepayers, including residential and small-business customers, minority groups, and the disabled. The commission awarded $25.5 million from 2008 through 2012 for 337 claims intervenors submitted. The commission awarded the majority of that compensation to a relatively small group of intervenors: 10 intervenors received 84 percent of the amount awarded during that time.
We found that the commission has a process in place to ensure that intervenors meet the necessary statutory requirements before it awards them compensation for work conducted during regulatory proceedings. Moreover, administrative law judges and program analysts (commission staff) generally ensured that intervenors met those requirements before the commission issued awards in the 20 compensation decisions we reviewed from 2008 through 2012. Specifically, as the law requires, commission staff consistently determined whether intervenors had demonstrated significant financial hardship. They also established that intervenors were utility customers or represented customers. Finally, before the commission awarded compensation to the intervenors, commission staff verified that the intervenors had substantially contributed to the proceedings.
In addition, the commission has a robust process for determining whether the costs and expenses intervenors claim are reasonable, as state law requires. Specifically, the commission requires intervenors to submit detailed time logs and other documentation to support their requests for compensation for the hours their staff worked and for travel expenses and other costs. The commission uses a desk review process that adjusts claims for inefficient work and excessive hours spent on certain activities. In our review of 20 compensation decisions, we found that the commission staff responsible for those adjustments reduced awards for a number of reasons, including inappropriately high hourly rates, excessive staff hours claimed, and lack of substantial contribution to the proceeding.
However, the commission did not issue most decisions awarding intervenor compensation in a timely manner during 2008 through 2012. Our review revealed that the commission regularly exceeded the 75-day deadline that state law imposes for awarding intervenor compensation. We found that the commission awarded funds within that required time frame for only 20 (or 6 percent) of the claims submitted during our five-year audit period. In fact, 101 (or 30 percent) of the payment decisions that occurred during the period were awarded more than six months late. However, the commission has never conducted any analysis to determine what is leading to the delays. Although commission staff were able to provide some reasons for delays, they do not track submitted claims in sufficient detail to identify where in the process these delays are occurring. Further, the frequency of the delays might discourage some intervenors from participating in the program. In addition, we estimated that delays in awarding compensation for the 20 decisions we reviewed resulted in approximately $34,000 in interest for those awards. Ratepayers ultimately paid this additional cost.
The commission has also not issued guidance to its staff or utilities on how to calculate interest appropriately for intervenor claim decisions issued after the 75-day deadline. Although the utilities typically calculate interest and pay it along with the awarded amount, the commission does so as well for a small subset of awards using funds from ratepayer fees that utilities collect statewide. The lack of formal guidance has led the commission to employ a flawed interest computation methodology, resulting in miscalculations and, ultimately, overpayments of interest on awards. For example, on one $318,000 award, the accounting staff calculated $22,100 in additional interest by incorrectly determining the daily rate at which interest accrued on the award, among other errors. However, if the accounting staff had correctly calculated the amount of daily accrued interest, we estimate that the commission would have paid only $560. Commission records indicated that its accounting staff computed interest for 18 awards from March 2010 to May 2013, the period for which records were available. In reviewing $42,000 that commission records indicated it paid for the 10 largest interest payments, we estimate that the commission overpaid $40,000 in interest. If the commission had issued guidance to its accounting staff, these overpayments might have been prevented. Once we brought this issue to their attention, commission staff began developing guidance for internal use and for distribution to utilities.
In general the commission's compensation to intervenors has complied with state law for the 20 decisions we reviewed. However, we noted some areas in which the commission could do more to ensure that it appropriately compensates intervenors. Specifically, state law requires the commission to take into consideration the market rates paid to persons of comparable training and experience who offer similar services. A 2012 commission resolution indicated that the commission historically considered each request for an hourly rate individually, one proceeding at a time, until it completed a market rate study in 2005 (2005 study). Since then, the commission used an annual update process to adjust the hourly market rates it awards to intervenors. However, the commission has acknowledged it has faced difficulties in fully complying with the requirement and indicated that a comprehensive market rate study is necessary to ensure compliance with the law. For example, the commission found that the 2005 study contained insufficient data to capture all of the possible market rate ranges. To address this issue, the commission plans to hold another public workshop to discuss the updating process for hourly rate ranges, benchmark studies, and cost-of-living adjustments for 2014 and later years. However, until the commission establishes market rates that comply with state law, it may be inappropriately compensating intervenors.
Moreover, although program analysts (analysts) claimed that they had informal procedures to verify the qualifications of intervenors appearing in proceedings, the commission lacks any formal procedures for doing so and was unable to demonstrate that its analysts had performed such verifications in the past. A former analyst stated that in 2010 she began to verify qualifications by checking the California State Bar Web site for the membership status of each attorney appearing before the commission for the first time. Current analysts stated that, as of January 2013, they also call previous employers of each attorney or expert to ensure that each intervenor staff member has the experience he or she claims when participating in a regulatory proceeding for the first time. However, no formal guidance or procedures instruct the analysts to verify such qualifications, and the analysts could not provide any documentation showing that they had performed such verifications on past claims. The intervenor compensation program coordinator stated that, as of June 2013, the commission was in the process of drafting procedures to address this issue. However until those new procedures are in place, future analysts could omit the verification process from their review of claims, resulting in overcompensation to intervenors who may have overstated their qualifications.
Finally, in our review of the 20 compensation decisions, we found that the program fulfills a fundamental part of its purpose despite some administrative weaknesses. The Legislature has declared its intent that the program be administered in a manner that encourages the effective and efficient participation of all groups that have a stake in the public utility regulation process. A 1998 commission decision that made revisions to the program acknowledged the importance of receiving input from a socioeconomically, culturally, and geographically diverse public, and that decision indicated that one purpose of the program was to reduce barriers to participation such customers sometimes face. In our review of the 15 regulatory proceedings represented in the 20 compensation decisions, we found that organizations participating in the program represented a broad array of interests, including environmental concerns, low-income and minority ratepayers, and ratepayers in a specific geographic region, and many of these requested compensation for their contributions.
The commission should determine the cause of its lack of compliance with state law requiring it to issue award decisions within 75 days of the date an intervenor submits a compensation claim, and it should determine what actions to take to rectify the problem. The commission should ensure that it has sufficient information, such as detailed tracking information regarding claims, to identify where in the process delays are occurring. If the commission determines that the current 75-day statutory period is unreasonable, it should seek a change in state law.
To ensure that utilities and commission staff pay the correct amount of interest to intervenors, the commission should complete its effort to develop and distribute a methodology for calculating reasonable interest on award decisions issued after the 75-day deadline. The commission should follow the new procedure to ensure that it calculates interest payments appropriately. To the extent reasonable, the commission should recoup the interest overpaid to intervenors.
To comply fully with state law, the commission should conduct a comprehensive market rate study and update it periodically.
Commission staff should complete their effort to develop formal procedures to verify and document the qualifications of intervenors' attorneys and experts. The commission should implement the new procedures to ensure that it awards intervenors an appropriate hourly rate based on verified qualifications.
The commission agreed with our recommendations and outlined the steps it has taken or plans to take to implement them.