Report 2013-109 All Recommendation 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 for Legislative Action

To ensure proper oversight of balancing accounts to protect ratepayers from unfair rate increases, the Legislature should amend the California Public Utilities Code, Section 792.5, to require the California Public Utilities Commission (commission) to develop a risk-based approach for reviewing all balancing accounts periodically to ensure that the transactions recorded in the balancing accounts are for allowable purposes and are supported by appropriate documentation, such as invoices.

Description of Legislative Action

AB 2168 (Chapter 805, Statutes of 2016) requires the California Public Utilities Commission to develop a risk-based approach for reviewing those balancing accounts periodically to ensure that the transactions recorded in the balancing accounts are for allowable purposes and are supported by appropriate documentation.

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

Description of Legislative Action

AB 2168 was introduced on February 17, 2016, and would require the commission to develop a risk-based approach for reviewing those balancing accounts periodically to ensure that the transactions recorded in the balancing accounts are for allowable purposes and are supported by appropriate documentation.

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

Description of Legislative Action

Legislation has not been introduced to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Recommendation #2 To: Public Utilities Commission

To ensure that it has the necessary information to provide appropriate oversight of the balancing accounts, the commission should maintain accurate and timely information on utility balancing accounts. Specifically, it should review the accuracy and completeness of the data it has obtained from utilities to ensure that it has a complete list of balancing accounts.

1-Year Agency Response

Since April 30, 2013, the Commission's Energy Division requires the utilities to file updated lists of balancing accounts and balances in each balancing account every quarter. The quarterly updates ensure that the Commission will have timely information on utility balancing accounts. Energy Division now tracks balancing accounts added/closed by the Commission in various cost recovery decisions for electric and gas. For the balancing accounts established before this tracking, Energy Division staff did the accuracy verification for each of the large energy utilities through a review of two past general rate case decisions and two past Energy Resource Recovery Account (ERRA) decisions as most of the balancing accounts get added/deleted through these proceedings. Each reviewer made a list of balancing accounts added/closed by each decision and checked the utilities' most recent quarterly balancing account update against this list. Any discrepancies were resolved by follow up with the utility. This verification ensures that no active balancing accounts are missing from the list and the list contains only those balancing accounts that are duly authorized by the Commission.

The Division of Water and Audits now receives semi-annual reports of all balancing account balances as of June 30th and December 31st each year along with amended reports within 45 days of the Commission either establishing a new balancing account or closing a current balancing account. Division of Water and Audits staff verifies that each utility's report is complete and accurate to ensure the Division has a complete list of balancing accounts. In addition, staff verifies that the balancing accounts reported match those contained in the utility's official tariffs kept on file.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

Since April 30, 2013, the Commission's Energy Division requires the utilities to file updated lists of balancing accounts and balances in each balancing account every quarter. The quarterly updates ensure that the Commission will have timely information on utility balancing accounts. Energy Division is developing a practice of having staff confirm that each utility's report is complete and accurate to ensure that no active balancing accounts are missing from the list and the list contains only those balancing accounts that are duly authorized by the Commission.

The Division of Water and Audits has begun receiving semi-annual reports of all balancing account balances as of June 30th and December 31st each year along with amended reports within 45 days of the Commission either establishing a new balancing account or closing a current balancing account. Because of operational constraints faced by the utilities, the Division of Water and Audits granted an additional 30 days from the original deadline for reporting balances, and an additional 15 days for notification of establishing new balancing accounts or closing a current balancing account. The first reports were due August 15, 2014. Division of Water and Audits staff is now confirming that each utility's report is complete and accurate to ensure the Division has a complete list of balancing accounts.

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

Although the commission's energy division provided documentation to demonstrate that it requires utilities to provide updates on balancing accounts and related balances, it did not provide any documentation to support that it verified the accuracy and completeness of the information the utilities provided. Further, as the commission's water division indicates in its response, it is only now in the process of confirming the accuracy and completeness of the utility's reports.

60-Day Agency Response

Since April 30, 2013, the Commissions Energy Division requires the utilities to file updated lists of balancing accounts and balances in each balancing account every quarter. The quarterly updates ensure that the Commission will have timely information on utility balancing accounts. Energy Division is developing a practice of having staff confirm that each utilitys report is complete and accurate to ensure that no active balancing accounts are missing from the list and the list contains only those balancing accounts that are duly authorized by the Commission.

The Commissions Division of Water and Audits has sent a letter to all Class A and B water and sewer utilities requesting semi-annual reporting of all balancing account balances as of June 30th and December 31st each year along with amended reports within 30 days of the Commission either establishing a new balancing account or closing a current balancing account. The first reports are due July 15, 2014 reporting on balancing account balances as of June 30, 2014. Division of Water and Audits staff will confirm that each utilitys report is complete and accurate to ensure the Division has a complete list of balancing accounts. See April 15, 2014 letter from Bruce DeBerry to all Class A and B water and sewer utilities.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #3 To: Public Utilities Commission

To ensure that it has the necessary information to provide appropriate oversight of the balancing accounts, the commission should maintain accurate and timely information on utility balancing accounts. Specifically, it should regularly update its list of balancing accounts when the commission issues decisions authorizing opening new balancing accounts or closing existing balancing accounts, when utilities file balancing account updates, and when the commission performs reviews of balancing accounts.

1-Year Agency Response

See Response #2 above. On April 30, 2013, the Commission's Energy Division imposed a requirement on energy utilities to provide updated lists of balancing accounts and balances every quarter and has been receiving the quarterly updates. Quarterly updating is sufficient to maintain timely information on utility balancing accounts. It should capture any new balancing accounts closed/authorized by the Commission in the last quarter. In addition, the data base will record and track when utilities file advice letters for balancing account amortizations and when a balancing account was reviewed last. Energy Division staff will continue to verify the accuracy of the balancing account lists submitted by the utilities every quarter going forward using Energy Resource Recovery Account (ERRA) and General Rate Case (GRC) decisions, as issued, as a sample check.

The Division of Water and Audits has established a comprehensive spreadsheet data base to record and update utilities' semi-annual reports. In addition, the data base records and tracks when utilities file advice letters for balancing account amortizations and when the Commission reviews balancing account balances as part of the general rate case proceeding for Class A and B water and sewer utilities. The database includes the vintage and balance of each balancing account.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

See Response #2 above. The requirement imposed by the Commission's Energy Division on April 30, 2013 on energy utilities, to provide updated lists of balancing accounts and balances every quarter, should be sufficient to maintain timely information on utility balancing accounts. It should capture any new balancing accounts closed/authorized by the Commission in the last quarter. In addition, the database will record and track when utilities file advice letters for balancing account amortizations and when a balancing account was last reviewed.

The Division of Water and Audits has established a comprehensive spreadsheet database to record and update utilities' semi-annual reports. In addition, the data base will record and track when utilities file advice letters for balancing account amortizations and when the Commission reviews balancing account balances as part of the general rate case proceeding for Class A and B water and sewer utilities.

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

The commission did not provide any documentation to support that it is updating the databases to identify opening of new balancing accounts or closing of existing balancing accounts, and when the commission performs reviews of balancing accounts.

60-Day Agency Response

The requirement imposed by the Commissions Energy Division on April 30, 2013 on energy utilities to provide updated lists of balancing accounts and balances every quarter should be sufficient to maintain timely information on utility balancing accounts. It should capture any new balancing accounts closed/authorized by the Commission in the last quarter. Energy Division will also maintain a comprehensive spreadsheet data base to record and update utilities semi-annual reports. In addition, the data base will record and track when utilities file advice letters for balancing account amortizations and when a balancing account was reviewed last.

The Commissions Division of Water and Audits will also maintain a comprehensive spreadsheet data base to record and update utilities semi-annual reports. In addition, the data base will record and track when utilities file advice letters for balancing account amortizations and when the Commission reviews balancing account balances as part of the general rate case proceeding for Class A and B water and sewer utilities.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #4 To: Public Utilities Commission

To ensure that it has the necessary information to provide appropriate oversight of the balancing accounts, the commission should maintain accurate and timely information on utility balancing accounts. Specifically, it should use the list to guide its efforts to oversee balancing accounts more effectively, by using a risk-based approach to select a sufficient number of balancing accounts, as well as those with the most potential impact on ratepayers, for review each year to provide appropriate coverage over all regulated utilities.

1-Year Agency Response

Energy Division developed its risk based approach in August 2014 as part of the Balancing Account Review Procedures document. This document was provided to the State Auditor as part of the 6 month update in September, 2014. The risk based criteria include the following:

1. Balancing accounts with quarter-end balances outside of ±10% or more of the currently authorized revenue requirement for a given account (ratio of balance to authorized revenue requirement).

2. Authorized revenue requirements that fall in the top 25th percentile of all accounts.

3. Volatile fluctuations in quarterly balances over time.

4. Accounts that have not been reviewed in the previous three reviews.

Balancing Accounts that meet the above identified risk-based criteria but are planned to be reviewed or audited by the Division of Ratepayer Advocates, the Division of Water and Audits, or by independent auditors are excluded. The risk based criteria will be revised based on our experience with the in-depth reviews.

The Director of the Division of Water and Audits has sent a memorandum to Division staff outlining the risk-based approach the Division will use in selecting balancing accounts for review each year that have the most potential impact in terms of rates on ratepayers. This risk-based approach is applicable to all Class A and B water and sewer utilities. Since the State Auditor's Report was first issued in March 2013, the Commission has processed three general rate case decisions along with two general rate case decisions pending that have reviewed the balances in the various utility balancing accounts for the five affected utilities. In addition, the Division of Water and Audits has reviewed and audited 20 utility balancing accounts representing the largest risk-based account balances for the utilities.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

Energy Division has met with the major energy utilities to understand the details of their accounting systems. Energy Division has also developed an initial risk based approach to select a sufficient number of balancing accounts with the most impact. The criteria include quarter end balances exceeding a certain threshold, balancing accounts with activity in the top 25th percentile and excessive volatility. Energy Division has also separated out revenue and cost balancing accounts to apply the risk based criteria. The risk based criteria will be revised based on our experience with the in-depth reviews. Energy Division will be focusing on balancing accounts which track actual costs or revenues to authorized costs first and select a sufficient size sample to perform an invoice level review. The attached Balancing Account Review Procedures document describes the risk based approach Energy Division is planning to use.

The Director of the Division of Water and Audits has sent a memorandum to Division staff outlining the risk-based approach the Division will use in selecting balancing accounts for review each year that have the most potential impact in terms of rates on ratepayers. This risk-based approach is applicable to all Class A and B water and sewer utilities. See April 15, 2014 memorandum from Division of Water and Audits Director Rami Kahlon to Division staff.

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

60-Day Agency Response

Energy Division is in the process of determining an appropriate risk based approach to select a sufficient number of balancing accounts with the most impact. No decision has been made yet. However, we have started the first step of separating out revenue and cost balancing accounts. Energy Division will be focusing on balancing accounts which track actual costs to authorized costs first and select a sufficient size sample to perform an invoice level review.

The Director of the Division of Water and Audits has sent a memorandum to Division staff outlining the risk-based approach the Division will use in selecting balancing accounts for review each year that have the most potential impact in terms of rates on ratepayers. This risk-based approach is applicable to all Class A and B water and sewer utilities. See April 15, 2014 memorandum from Division of Water and Audits Director Rami Kahlon to Division staff.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #5 To: Public Utilities Commission

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.

1-Year Agency Response

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.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

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.

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

60-Day Agency Response

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.

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

Recommendation #6 To: Public Utilities Commission

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 coordinate with the Office of Ratepayer Advocates (Ratepayer Advocates) to identify which balancing accounts Ratepayer Advocates plans to review during the year to avoid duplicating efforts.

6-Month Agency Response

Energy Division has set up quarterly meetings with both the Division of Water and Audits and the Office of Ratepayer Advocates (ORA) to determine which energy balancing accounts ORA is planning to review or has reviewed to avoid duplication of work. The most recent meeting was held on July 31, 2014. At this meeting, ORA shared with Energy division staff which balancing accounts they have finished auditing, which they are in the middle of auditing and which ones they plan to audit. Quarterly check-ins are very useful because ORA is able to share any changes they have made to their plans to review balancing accounts.

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

60-Day Agency Response

Energy Division is planning to set up quarterly meetings with both the Division of Water and Audits and the Office of Ratepayer Advocates (ORA) to determine which energy balancing accounts ORA is planning to review or has reviewed to avoid duplication of work. The first meeting was held on April 1, 2014. Quarterly check-in with ORA should work better because ORA would be able to share any changes they have made to their plans to review balancing accounts.

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

Recommendation #7 To: Public Advocates Office

To further its mission to obtain the lowest possible rates for reliable and safe utility service for ratepayers through its reviews of balancing accounts, Ratepayer Advocates should use the commission's list of balancing accounts to guide its selection of the number, size, and type of balancing accounts to review so that its review coverage is more proportional across all utilities.

Annual Follow-Up Agency Response From October 2018

To help achieve our statutory mandate (Public Utilities Code Section 309.5), the Public Advocates Office (formerly the Office of Ratepayer Advocates)1 conducts an examination of investor-owned utility (IOU) balancing accounts using its most recent and relevant information. The Public Advocates Office obtains the most recent information on balancing and other accounts directly from the IOUs on a more timely basis than when the information is provided by the IOUs to the California Public Utilities Commission (Commission) through its annual reporting requirements. Furthermore, AB 2168 (Chapter 805, Statutes of 2016) requires the Commission to adopt procedures to prioritize their review of balancing accounts, and that these procedures "do not apply to the Public Advocates Office."

1 The Office of Ratepayer Advocates was renamed the Public Advocates Office of the Public Utilities Commission this year by SB 854 (Committee on Budget and Fiscal Review).

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

Annual Follow-Up Agency Response From October 2016

When conducting an examination of balancing accounts, it is important to use the most recent and relevant information. ORA obtains the most recent data on balancing and other accounts directly from the investor-owned utilities (IOU). This information is often timelier than information provided by the IOUs to the Commission through their annual reporting requirements. Furthermore, AB 2168 (Chapter 805, Statutes of 2016) requires the Commission to adopt procedures to prioritize their review of balancing accounts, and that these procedures "do not apply to the Office of Ratepayer Advocates".

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

Annual Follow-Up Agency Response From September 2015

As described to the California State Auditor in our letter of February 11, 2014, ORA's process for reviewing balancing accounts is based on an assessment of the potential for finding disallowances. There is no requirement in state law that ORA audit monitor utility accounts. ORA performs audits to determine the potential for ORA to recommend disallowances and to help our overall litigation strategy. It would not be efficient for ORA to simply try to audit balancing accounts in a random or proportional basis. Since the task is not part of our mandate by state law, there is no ability for ORA to perform this recommendation or to request resources to carry out this recommendation. Targeted audit reviews, based on a potential for discovering disallowances that the commission will accept, is the reason ORA performs any audits. This is the approach ORA will continue to take when determining which accounts to review.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

1-Year Agency Response

Ratepayer Advocates did not provide its one-year response to this recommendation. However, based on its previous responses to this recommendation, Ratepayer Advocates will not implement this recommendation.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

Ratepayer Advocates did not provide any documentation to support its latest response. As we noted in our report, during the audit Ratepayer Advocates was unable to provide us with any evidence of the approach it described—such as a written policy or methodology, or contemporaneous documentation of its reasons for determining which balancing accounts are most significant to its mission and that it will review.

6-Month Agency Response

Please see explanation from 60-Day Response.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

As we noted in our report, during the audit Ratepayer Advocates was unable to provide us with any evidence of the approach it described—such as a written policy or methodology, or contemporaneous documentation of its reasons for determining which balancing accounts are most significant to its mission. Ratepayer Advocates did not provide any documentation to support its latest response. Lacking this documentation, we are unable to evaluate or verify Ratepayer Advocates' assertion of employing an approach based on an assessment of the potential for finding disallowances.

60-Day Agency Response

As described to the California State Auditor in our letter of February 11, 2014, ORAs process for reviewing balancing accounts is based on an assessment of the potential for finding disallowances. That assessment is a function of the type of account, a preliminary review of the potential for disallowances and an overall litigation strategy. It would not be efficient for ORA to simply try to cover balancing accounts in a random or proportional basis. Resources are always limited and therefore targeted audit reviews based on a potential for discovering disallowances that the commission will accept is the preferred approach. This is the approach ORA will continue to take when determine which accounts to review.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

As we noted in our report, during the audit Ratepayer Advocates was unable to provide us with any evidence of the approach it described—such as a written policy or methodology, or contemporaneous documentation of its reasons for determining which balancing accounts are most significant to its mission. Ratepayer Advocates did not provide any documentation to support its latest response. Lacking this documentation, we are unable to evaluate or verify Ratepayer Advocates' assertion of employing an approach based on an assessment of the potential for finding disallowances.

Recommendation #8 To: Public Advocates Office

To further its mission to obtain the lowest possible rates for reliable and safe utility service for ratepayers through its reviews of balancing accounts, Ratepayer Advocates should document the method used for its selection of balancing accounts to review.

Annual Follow-Up Agency Response From October 2016

ORA has revised its Audit Manual to provide staff with guidance to document the methodology applied for selecting balancing accounts to review when examining investor-owned utility financial records and documents. This practice will document why ORA has selected certain accounts and not others for review, consistent with its statutory mandate (PU Code Section 309.5). ORA will provide the State Auditor with the revised manual.

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

Annual Follow-Up Agency Response From September 2015

As described previously a Audit Guide was developed for use by ORA auditors based on the recommendation by the state auditor. I will be following this report with a letter describing implimentation history of the audit guide and enclose a copy of the guide for your review.

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

The audit guide that Ratepayer Advocates references in its response does not include the method it uses for selecting balancing accounts to review. Ratepayer Advocates did not provide additional documents to support its claim of full implementation.

1-Year Agency Response

Although Ratepayer Advocates provided an audit guide as support that it has implemented this recommendation, it did not provide its one-year response to this recommendation. However, it asserts that the audit guide it created addresses this recommendation.

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

We reviewed the audit guide that Ratepayer Advocates provided and found that the audit guide does not include requirements for its management or staff to document the method that Ratepayer Advocates used for selecting the balancing accounts to review.

6-Month Agency Response

ORA has developed an audit guide for use by internal auditors.

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

Ratepayer Advocates did not provide the audit guide it references to substantiate its claim of full implementation.

60-Day Agency Response

ORA is in the process of creating an audit guide to provide guidance on selection of balancing accounts for review. An internal draft guide has been prepared and is going through an internal review process with ORA's auditors and managers. I anticipate the guide to be completed within the next few weeks.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: Public Advocates Office

To further its mission to obtain the lowest possible rates for reliable and safe utility service for ratepayers through its reviews of balancing accounts, Ratepayer Advocates should coordinate with the commission's Energy Division to avoid duplicating review efforts.

6-Month Agency Response

ORA water and energy staff meet routinely with Division of Water and Audits and Energy Division to make them aware of the audits that ORA will be performing, so that these divisions can decide on which audits still need to be performed.

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

60-Day Agency Response

The "First Month of Full Implementation" is not relevent to this recommendation because the audits that ORA performs have always been available to the commission's other divisions. ORA's audits are part of the evidentiary record in a commission proceding and are therfore available to the commissions Energy Division and Division of Water and Audits. ORA is working with both divisions to make them aware of when we are performing audits and for which accounts, as an additional measure of certainty that they are monitoring the proceedings at the Commission.

California State Auditor's Assessment of 60-Day Status: Pending

Our recommendation aims to ensure that Ratepayer Advocates and the commission's Energy Division do not duplicate their efforts by reviewing the same balancing accounts. Although the reviews of balancing accounts may be available to the commission staff after they have been concluded, this approach would not be effective in avoiding duplication. In order to avoid duplication of effort, Ratepayer Advocates needs to inform the commission staff of the balancing accounts it plans to review as soon as it finalizes its review plans.

Recommendation #10 To: Public Advocates Office

To ensure that findings and conclusions resulting from the reviews of balancing accounts are appropriate, complete, and supported, Ratepayer Advocates should, within six months, develop policies that clearly describe how analysts are to document their reviews of balancing accounts, including all work reviewed and conclusions reached for each sampled item that supports their conclusions.

1-Year Agency Response

Ratepayer Advocates did not provide its one-year response to this recommendation.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Although Ratepayer Advocates provided some documentation, it did not provide a one-year response to this recommendation. Based on our review of the additional documentation it provided, it has developed an internal audit manual for use by all Ratepayer Advocates auditors. The manual sets forth the documentation requirements for the auditors. It also outlines the process for reviewing work, documenting conclusions, and supporting the recommended findings.

6-Month Agency Response

ORA has developed an internal audit manual for use by all ORA auditors. The manual sets forth what the auditor is to document and what the process is to review work and document conclusions and support the recommended findings.

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

Ratepayer Advocates did not provide the internal manual it references to substantiate its claim of full implementation.

60-Day Agency Response

These recommended elements will be part of the audit guide that ORA is creating.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #11 To: Public Advocates Office

To ensure that findings and conclusions resulting from the reviews of balancing accounts are appropriate, complete, and supported, Ratepayer Advocates should, within six months, develop a document retention policy for all documents related to, among other things, balancing account reviews for a minimum of three years after the completion of these reviews.

1-Year Agency Response

Ratepayer Advocates did not provide its one-year response to this recommendation.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Although Ratepayer Advocates provided an audit guide as support that it has implemented this recommendation, it did not provide its one-year response to this recommendation. Based on our review of the audit guide, Ratepayer Advocates' audit guide addresses document retention for all documents related to balancing account reviews for a minimum of three years after the completion of the reviews.

6-Month Agency Response

This has been implemented as part of the audit guide.

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

Ratepayer Advocates did not provide the audit guide it references to substantiate its claim of full implementation.

60-Day Agency Response

These recommended elements will be part of the audit guide that ORA is creating.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #12 To: Public Advocates Office

To ensure that findings and conclusions resulting from the reviews of balancing accounts are appropriate, complete, and supported, Ratepayer Advocates should, within six months, implement a formalized and documented method to ensure that supervisors approve analysts reviews of balancing accounts by checking the accuracy and completeness of the work that analysts prepare to support the conclusions of their reviews, including any proposed reductions in recoveries.

1-Year Agency Response

Ratepayer Advocates did not provide its one-year response to this recommendation.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Although Ratepayer Advocates provided an audit guide that it developed to support its implementation of this recommendation, it did not provide its one-year response to this recommendation. Based on our review of the audit guide, the audit guide addresses a formalized and documented method that supervisors must follow to approve analysts reviews of balancing accounts.

6-Month Agency Response

Implemented as part of the audit guide

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

Ratepayer Advocates did not provide the audit guide it references to substantiate its claim of full implementation.

60-Day Agency Response

These recommended elements will be part of the audit guide that ORA is creating.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #13 To: Public Utilities Commission

To ensure that findings and conclusions resulting from the reviews of balancing accounts are appropriate, complete, and supported, the commission's Division of Water and Audits should remind analysts to document their reviews properly and remind supervisors to formally indicate that they checked the accuracy and completeness of reviews.

60-Day Agency Response

The Division of Water and Audits has developed written balancing account review procedures for staff to follow in its review of utility balancing accounts. See documents for general procedures for balancing account and specific procedures related to review of WRAM/MCBA balancing accounts. In addition, the Division has developed a memorandum template to be used by all analysts reviewing utility balancing accounts that is intended to document the review process, as well as provide the analysts findings and conclusions from the review. A completed memorandum will be included in each work file involving a balancing account review. See the Balancing Account Review Memorandum Template to be used for all balancing account reviews. Finally, the Division of Water and Audits now requires all supervisors when signing off on the advice letter review route sheet to indicate in the Comment Section that they have reviewed the analysts work for accuracy and completeness.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

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

Recommendation for Legislative Action

The Legislature should amend California Public Utilities Code, Section 314.5, to remove the requirement that the commission provide audit reports to the California State Board of Equalization.

Description of Legislative Action

AB 2168 (Chapter 805, Statutes of 2016) Deletes the requirement that reports of the inspections and audits and other pertinent information be furnished to the State Board of Equalization for use in the assessment of the public utilities and instead requires the CPUC to post reports of the inspections and audits and other pertinent information on its Internet website.

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

Description of Legislative Action

AB 2168 was introduced on February 17, 2016, and would delete the requirement that reports of the inspections and audits and other pertinent information be furnished to the State Board of Equalization for use in the assessment of the public utilities and instead would require the commission to post reports of the inspections and audits and other pertinent information on its Internet website.

AB 2570 was introduced on February 19, 2016, and would delete the requirement that reports of the inspections and audits and other pertinent information be furnished to the State Board of Equalization for use in the assessment of the public utilities.

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

Description of Legislative Action

Legislation has not been introduced to address this specific recommendation

California State Auditor's Assessment of 6-Month Status: No Action Taken

All Recommendations in 2013-109

Agency responses received are posted verbatim.