BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2168| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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, AB 2168 Page 2 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 AB 2168 Page 3 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. AB 2168 Page 4 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 AB 2168 Page 5 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 AB 2168 Page 6 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 **** END ****