BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 2168|
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                                   THIRD READING 


          Bill No:  AB 2168
          Author:   Williams (D) 
          Amended:  6/30/16 in Senate
          Vote:     21 

           SENATE ENERGY, U. & C. COMMITTEE:  10-0, 6/21/16
           AYES:  Hueso, Morrell, Cannella, Gaines, Hertzberg, Lara,  
            Leyva, McGuire, Pavley, Wolk
           NO VOTE RECORDED:  Hill

          SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           ASSEMBLY FLOOR:  78-0, 5/5/16 - See last page for vote

           SUBJECT:   Public Utilities Commission Audit Compliance Act of  
                     2016


          SOURCE:    California Public Utilities Commission
          
          DIGEST:   This bill requires the California Public Utilities  
          Commission (CPUC) to periodically review balancing accounts of  
          utilities based on a risk-based approach to ensure transactions  
          are for allowable purposes.  This bill also deletes the  
          requirement that the reports of the inspections and audits of  
          utilities be furnished to the State Board of Equalization (BOE).
          
          ANALYSIS:  

          Existing law:

          1)Requires the CPUC to inspect and audit the books and records,  
            for regulatory or tax purposes, of every electrical, gas,  








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            heat, telegraph, telephone, and water corporation serving over  
            1,000 customers at least once every three years and provide  
            the inspections and audits to the BOE for the its use in the  
            assessment of public utilities.  (Public Utilities Code  
            §314.5)


          2)Requires the CPUC to review the balancing accounts, not less  
            than semiannually, of electrical corporations to ensure timely  
            recovery of prospective procurement costs incurred pursuant to  
            an approved procurement plan.  Until January 1, 2006, the CPUC  
            shall ensure that any over-collection or under-collection in  
            the power procurement balancing account does not exceed five  
            percent of the electrical corporation's actual recorded  
            generation revenues for the prior calendar year excluding  
            revenues collected for the Department of Water Resources.   
            Requires the CPUC to determine the schedule for amortizing the  
            over-collection or under-collection in the balancing account  
            to ensure that the five percent threshold is not exceeded.   
            After January 1, 2006, this adjustment shall occur when deemed  
            appropriate.  (Public Utilities Code §454.5(d)((3))





          3)Requires the CPUC, whenever authorizing a change in rates  
            reflecting costs that are passed through to customers, to  
            require public utilities to maintain balancing accounts that  
            reflect the costs and revenues, whether negative or positive,  
            and that the CPUC take into account any adjustment any  
            positive or negative balance remaining in the balancing  
            account at the time of a subsequent rate adjustment.  (Public  
            Utilities Code §792.5)



          4)Requires the CPUC to periodically audit, or direct that an  
            independent audit be periodically conducted for, all  
            significant transactions, as specified by the CPUC, between a  
            water corporation with more than 2,000 service connections, or  
            an electrical, gas, or telephone corporation, and every  
            subsidiary or affiliate of, or corporation holding a  
            controlling interest in, that water, electrical, gas, or  







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            telephone corporation.  The CPUC, in this connection, may  
            utilize the services of an independent auditor, who shall be  
            selected and supervised by the CPUC, or may direct a water  
            corporation with more than 2,000 service connections, or an  
            electrical, gas, or telephone corporation, to utilize the  
            services of an independent auditor, who shall be selected and  
            supervised by that water, electrical, gas, or telephone  
            corporation.  (Public Utilities Code §797)



          5)Establishes an Office of Ratepayer Advocates (ORA) to  
            represent and advocate on behalf of public utility customers  
            with a goal to obtain the lowest possible rate for service  
            consistent with reliable and safe service levels with a  
            primary focus on residential and small commercial customers.   
            (Public Utilities Code §309.5)

          This bill:

          1)Establishes the Public Utilities Commission Audit Compliance  
            Act of 2016 and states that the Legislature finds and declares  
            the need to amend statute related to the CPUC in order to  
            institute the legislative recommendations of the State  
            Auditor.

          2)Requires the CPUC to post reports of the inspections and  
            audits and other pertinent information on its Internet Web  
            site.

          3)Renames the reserve accounts to balancing accounts of a public  
            utility.

          4)Requires the CPUC 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 supported by documentation.

          5)Requires the CPUC to maintain an inventory of the balancing  
            accounts.

          6)Requires the CPUC to require the utility to record all related  
            costs and revenues in the balancing account.








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          7)Requires the CPUC to adopt balancing account review procedures  
            that prioritize the review of balancing accounts meeting  
            specified criteria.

          8)Authorizes the CPUC to forgo the review of a balancing account  
            if the ORA or an independent auditor plans to review or audit  
            the balancing account. 

          9)Requires the CPUC to annually provide the Legislature with an  
            update on the status of its review of public utilities'  
            balancing accounts by including in its annual report to the  
            Legislature or by posting it in a conspicuous area of its  
            Internet Web site, or both.

          Background

          Balancing account.  A balancing account is a tracking mechanism  
          used to ensure that a utility recoups from ratepayers costs the  
          CPUC has authorized and that ratepayers do not pay more than  
          they should.  If a balancing account has a balance - indicating  
          an over- or under-collection from ratepayers - the utility will  
          generally seek periodically to adjust future rates to either  
          refund or recoup the balance.  The CPUC has authorized over 300  
          balancing accounts, which vary by utility on activities such as  
          low-income energy efficiency, renewables, enhanced oil recovery,  
          pension expenses, water revenue adjustment and many others. 

          State Auditor issues report.  In March 2014, the State Auditor  
          issued a report (2013-109) which concluded that the CPUC lacks  
          adequate processes to provide sufficient oversight of utility  
          balancing accounts to protect ratepayers from unfair rate  
          increases.  State law requires the CPUC to review semiannually  
          certain balancing accounts.  However, the Auditor discovered  
          that the CPUC only reviews some balancing accounts when a  
          utility requests to incorporate the balance in that account into  
          future rates as a surcharge or a credit.  The Auditor noted the  
          need to develop more systematic process to review the balancing  
          accounts. 

          Risk-based approach.  The State Auditor's report included  
          several recommendations including a recommendation to the  
          Legislature to amend Public Utilities Code §792.5 to require the  
          CPUC to develop a risk-based approach for reviewing all  
          balancing accounts periodically to ensure that the transactions  







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          recorded in the balancing accounts are for allowable purposes  
          and are supported by appropriate documentation, such as  
          invoices.  The report also included a series of recommendations  
          to the CPUC in order to provide appropriate oversight of  
          balancing accounts and better protect the interests of  
          ratepayers.  This bill attempts to incorporate the State  
          Auditor's recommendations and require the CPUC to utilize a  
          risk-based approach that prioritizes review of balancing  
          accounts that may be more at risk of inappropriate transactions.  
           

          Related/Prior Legislation
          
          AB 825 (Rendon, 2015) would have deleted the requirement that  
          the reports of the inspections and audit of utilities by the  
          CPUC be furnished to the BOE for use in the assessment of  
          utilities.  The bill was vetoed by the Governor.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          SUPPORT:   (Verified7/28/16)


          California Public Utilities Commission (source)


          OPPOSITION:   (Verified7/28/16)


          None received


          ARGUMENTS IN SUPPORT:     The author contends that the statutory  
          change will protect ratepayers by ensuring that the transactions  
          recorded in balancing accounts are for allowable purposes and  
          are supported by appropriate documentation, such as invoices.   
          The author further states, AB 2168 is an outgrowth of the State  
          Auditor's audit of the CPUC's monitoring of utility-related  
          balancing accounts.

          ASSEMBLY FLOOR:  78-0, 5/5/16







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          AYES:  Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,  
            Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier,  
            Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,  
            Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger  
            Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,  
            Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,  
            Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,  
            Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Rendon
          NO VOTE RECORDED:  Beth Gaines, Jones-Sawyer

          Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
          8/3/16 18:56:58


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