Report 2013-109 Recommendation 14 Responses

Report 2013-109: California Public Utilities Commission: Improved Monitoring of Balancing Accounts Would Better Ensure That Utility Rates Are Fair and Reasonable (Release Date: March 2014)

Recommendation #14 To: Public Utilities Commission

The commission should follow the requirement in state law to inspect and audit the accounting records of utilities it regulates within required time frames. If the commission chooses to continue to meet this requirement through the general rate case process, it should ensure that all utilities file a general rate case on a regular schedule so as to comply with the state law's audit requirement. However, the commission should follow alternate methods to comply with the audit requirement when a utility will not be filing for its general rate case in time to be audited within three or five years, depending on the timing of the required audit for that utility.

Annual Follow-Up Agency Response From November 2020

UAB disagrees that PU Code Section 792.5 references a requirement for a frequency of audits outlined in PU Code Section 314.5. Although UAB contends that it has employed appropriate measures to review all balancing accounts utilizing a risk-based approach within the required time frame specified in PU Code Section 792.5, it has also vigorously pursued efforts to satisfy the frequency of audits as stipulated in PU Code Section 314.5. UAB is currently in the process of filling current vacancies while simultaneously developing a workplan to address the frequency of our required workload. In addition, UAB is in the process of developing a legislative proposal to amend PU Code Section 314.5 to streamline and clarify the frequency of audit requirements.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Our recommendation is based on the requirement in Public Utilities Code, Section 314.5, which specifies the frequency of audits that the commission must perform. Until the Legislature changes this requirement, the commission must comply with it. The commission's statement about Public Utilities Code, Section 792.5, is unclear, as that section does not address the frequency of required audits.

Annual Follow-Up Agency Response From October 2019

Implemented - Pursuant to enacted revisions to PUC Section 792.5 effective June 27, 2018, Utility Audits Branch has employed measures to periodically review all balancing accounts utilizing a risk-based approach.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Our recommendation addresses a different part of the law that requires the commission to inspect and audit the accounting records, not only balancing accounts, of utilities it regulates within specific time frames. The commission did not provide any documentation to demonstrate that it has implemented our recommendation.

Annual Follow-Up Agency Response From October 2018

The Utility Audit Branch audits IOUs Balancing Accounts, Energy Efficiency Program for the four largest utilities, Water IOU's for Class B, C, D and Public Purpose program audits of Telcom and will begin the audits of the public purpose programs for the Energy areas. Over the last three years we have performed the following number of audits:1) 12 audits of the energy efficincy program for the 4 largest IOUs, 2) audited 58 balancing accounts totaling $4.2 billion for the two calendar years ended 12/31/2015 and 12/31/2016 and 33 balancing accounts totaling over $57 million on three energy utility companies (Bear Valley Electric Service, Liberty Utility, and Southerwest Gas Company) for the calendar year ended 12/31/2017 3) Utility audits has performed over 26 water audits of Water IOU's over the last three years. 4) From 2015-2017, 45 audits were completed for surcharges, and 5 were completed for MTS surcharges. From 2015-2017, 45 audits were completed for surcharges, and 5 were completed for MTS surcharges and 15 audit extension services from 2015-2018. . Audits of Telco public purpose programs surcharge audits and assisted with Lifeline audit. We have requested more staff to assume more auditing of the Water Utilities Class A, additional balancing accounts, Telco and more audits of other programs in the Energy Program Areas. Utility Audits will continue to work with ORA to ensure those IOUs that don't request GRCs are audited.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Annual Follow-Up Agency Response From November 2017

In accordance with Public Utilities Code Sec. 792.5, Energy Division completed sixteen balancing account reviews for the 2015/16 fiscal year, and is currently in the process of reviewing another sixteen balancing accounts for the 2016/17 fiscal year, with expected completion in December. When the 2016/17 reviews are complete, Energy Division will have reviewed 68 balancing accounts since the issuance of the State Auditor's report in 2014. These reviews cover accounts for the large and small electric and gas utilities.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

The commission's response does not address our recommendation. Specifically, the law does not allow the commission to meet the audit requirement through reviews of balancing accounts. The commission did not provide any additional documentation to demonstrate that it has implemented our recommendation.

Annual Follow-Up Agency Response From October 2016

With the four 3-year limited term positions granted in 2015/16 fiscal year to UAFCB, the Commission began to address the audit concern of the State Auditor. Two of the four filled positions focus on balancing account audits of energy utilities. Four audits were completed in August and four are underway. The other two filled positions are auditing the annual reports of small water companies that are on a five year audit requirement. Two audits were completed in September and three will done by December. The Commission will request that the limited term positions be made permanent starting July 1, 2018 and make a case for more positions to fully comply with the law's audit requirement.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From September 2015

All of the large energy utilities currently are on a 3 year GRC cycle and get audited as part of the general rate case (GRC) process. The smaller utilities have been on a longer than 3-year GRC cycle. The CPUC received budgetary authority for FY 15-16 to bring on additional auditing staff in an effort to comply with the audit requirements set forth in Public Utilities Code Section 314.5. We are in the process of filling these positions so that we will be able to comply with this recommendation, but until these incremental staff are online and fully trained, auditing of smaller utilities may still not meet the standards set forth in Section 314.5. We anticipate that full compliance may take five years once new staff are on board.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

All of the large energy utilities currently are on a 3 year GRC cycle and get audited as part of the general rate case (GRC) process. The smaller utilities are on a longer than 3-year GRC cycle. The Division of Water and Audits is now actively seeking to augment its staff in an effort to comply with the audit requirements set forth in Public Utilities Code Section 314.5. In the meantime, Energy Division will be performing risk based review of costs booked in smaller utilities' balancing accounts at the invoice level.

California State Auditor's Assessment of 1-Year Status: No Action Taken

6-Month Agency Response

The Division of Water and Audits is now actively seeking to augment its staff in an effort to comply with the audit requirements set forth in Public Utilities Code Section 314.5.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The Commission is aware that when a utility has a general rate case cycle longer than the audit interval specified in P.U. Code 314.5 (generally 3 years for larger utilities), and audits are delayed, and P.U. Code 314.5 is not complied with. The same is true of smaller utilities whose general rate case cycles are longer than the audit interval specified in P.U. Code 314.5. The Commission is looking into this problem and will decide whether to keep the utilities to specific general rate case intervals to comply with this requirement or to consider alternate methods. The Commission will seek Budget Change Proposals, as needed, to augment its staff in an effort to comply with the audit requirements.

California State Auditor's Assessment of 60-Day Status: No Action Taken

All Recommendations in 2013-109

Agency responses received are posted verbatim.