BILL ANALYSIS Ó
AB 2570
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Date of Hearing: April 13, 2016
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Mike Gatto, Chair
AB 2570
(Quirk) - As Introduced February 19, 2016
SUBJECT: Public Utilities Commission: inspection and audit of
books and records
SUMMARY: Deletes a requirement that the California Public
Utilities Commission (CPUC) furnish specified reports related to
inspections and audits to the State Board of Equalization (BOE).
EXISTING LAW:
1)Establishes an Office of Ratepayer Advocates 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 Section 309.5)
2)Requires the CPUC to inspect and audit the books and records,
for regulatory or tax purposes, of every electrical, gas 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 Section
314.5)
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3)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 5% 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 5% threshold is not exceeded. After
January 1, 2006, this adjustment shall occur when deemed
appropriate. (Public Utilities Code Section 454.5(d)(3))
4)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 Section 792.5)
5)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
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
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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 Section 797)
FISCAL EFFECT: Unknown.
COMMENTS:
1)Background: A regulatory utility presents costs to the CPUC
in three main categories: capital costs, fixed-budget costs,
and pass-through costs. The CPUC allows utilities to make a
certain level of profit on capital costs, which represent the
utilities' investment in the infrastructure and equipment used
to provide electricity, natural gas, or water to consumers,
such as a power plant or a pipeline for natural gas or water.
For fixed-budget costs, the CPUC generally authorizes a budget
for the utility to recoup the costs that it can reasonably
control, such as administration costs. The utility must
absorb any fixed-budget costs it incurs that are in excess of
the authorized budget, but if costs are under budget, it keeps
the amount saved as profit. Finally, for pass-through costs,
which are costs that are difficult to reasonably predict, such
as costs of purchasing electricity, natural gas, or water, the
CPUC allows the utility to recoup, through rates and without
any mark-up, all costs the utility incurs. These three types
of costs, including allowed profit margins on capital costs,
are incorporated into the rate that the utility proposes to
collect from different classes of ratepayers (classes of
customers are residential, commercial, industrial,
streetlight, and agricultural).
2)State Auditor's Report: In March 2014, the State Auditor
issued a report in response to a request by the Joint
Legislative Audit Committee, the California State Auditor
(Auditor) presents this audit report concerning the CPUC
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oversight of utility balancing accounts of entities it
regulates. The Auditor found the CPUC:
a) Lacks adequate processes to provide sufficient oversight
of utility balancing accounts to protect ratepayers from
unfair rate increases.
b) Lacks the necessary information, such as the size of a
balancing account and the last time it was reviewed, to
determine which balancing accounts it should review.
c) In addition to not providing adequate oversight over
balancing accounts, the CPUC has not always complied with a
requirement to audit utilities' books and records according
to the schedule prescribed by state law.
d) For over three decades, it has not provided the results
of these audits to the BOE for tax assessment purposes, as
required by state law.
3)State Auditor's Recommendations: The Auditor made the
following recommendations in the March 2014 report:
a) The Legislature should amend California Public Utilities
Code Section 792.5, to require 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 appropriate documentation, such as invoices.
b) The CPUC should regularly update the list of balancing
accounts that it authorized and verify its accuracy and use
this list to guide oversight efforts.
c) The CPUC should direct its energy division to perform
in-depth reviews of balancing accounts that Ratepayer
Advocates has not reviewed.
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d) The CPUC water division should, within six months,
develop policies to ensure that reviews of balancing
accounts are appropriately documented, subjected to
supervisory approval, and retained.
e) The CPUC should follow the state law requirement to
inspect and audit the accounting records of utilities it
regulates within required time frames.
f) The Legislature should amend state law to remove the
requirement that the CPUC provide audit reports to
Equalization.
This bill addresses one of the six recommendations from the
State Auditor.
4)AB 2168 (Williams): A substantially similar bill, AB 2168
(Williams), passed unanimously out of the Assembly Utilities
and Commerce Committee on March 30, 2016. AB 2168 also
deletes the requirement that reports of CPUC inspections,
audits and other pertinent information be furnished to the
BOE. In addition, AB 2168 addresses the other recommendations
made by the State Auditor. Specifically, AB 2168:
a) Creates a requirement to maintain an inventory of all
balancing accounts;
b) Adopts a Balancing Account Review Procedure;
c) Requires that utilities include authorized amounts in
the balancing account unless specifically exempted from
doing so by the CPUC; and
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d) Requires the CPUC to develop a risk-based approach for
reviewing balancing accounts periodically to ensure that
ratepayer funds are used for allowable purposes and
supported by appropriate documentation.
5)Arguments in Support: According to the BOE, "While reviewing
the [CPUC's] role in auditing utilities and reporting that
information, the State Auditor discovered that the [CPUC]
discontinued providing the reports to the BOE shortly after
the law became effective in 1975. The sharing ceased when BOE
notified the [CPUC] that the reports were not useful to the
BOE for its tax assessment purposes. The BOE obtains its own
information to make annual assessments and audit public
utilities. Furthermore, the BOE assessment of public utilities
also covers entities that the [CPUC] may not regulate.
Eliminating the requirement for the [CPUC] to share their
reports with BOE means the [CPUC] will no longer be out of
compliance with the law."
6)Related Legislation:
AB 2168 (Williams) 2016: Deletes the requirement that reports
of the inspections and audits and other pertinent information
be furnished to the BOE and requires the CPUC to develop a
risk-based approach for reviewing balancing accounts
periodically to ensure that ratepayer funds are used for
allowable purposes and supported by appropriate documentation.
Pending in the Assembly Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION:
AB 2570
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Support
State Board of Equalization
Opposition
None on file.
Analysis Prepared by:Darion Johnston / U. & C. / (916) 319-2083