Report 2018-118 All Recommendation Responses

Report 2018-118: California Public Utilities Commission: It Could Improve the Transparency of Water Rate Increases by Disclosing Its Review Process and Ensuring That Utilities Notify Customers as Required (Release Date: December 2018)

Recommendation #1 To: Public Utilities Commission

To ensure that water utility customers can access understandable information regarding why and by how much their water rates are changing as a result of general rate case proceedings, by May 2019 the CPUC should create a webpage specifically for water customers that includes a summary of water rate changes for each general rate case for Class A water utilities.

6-Month Agency Response

Fact sheets summarizing the rate changes from Class A general rate cases are posted to the new water rates section on Water Division's web page found here:

https://www.cpuc.ca.gov/General.aspx?id=6442461661

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

60-Day Agency Response

A fact sheet summarizing the rate changes from Class A general rate cases will be created by the assigned utilities engineer and included as part of a new water rates section on Water Division's web page by May 2019

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

Recommendation #2 To: Public Utilities Commission

To ensure that water utility customers can access understandable information regarding why and by how much their water rates are changing as a result of general rate case proceedings, by May 2019 the CPUC should create a webpage specifically for water customers that includes a summary of any resolutions and decisions that give all water utilities the authority to change their rates for reasons external to the general rate case process, such as increases in the fees the CPUC charges utilities for regulating them.

6-Month Agency Response

A summary of Resolution No. M-4839, which adopts Public Utilities Commission Utilities Reimbursement Account User Fees, and future subsequent resolutions adjusting the CPUC user fee are included on the new water rates section on the Water Division's web page found here: https://www.cpuc.ca.gov/General.aspx?id=6442461380

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

60-Day Agency Response

A summary of Resolution No. M-4839, which adopts Public Utilities Commission Utilities Reimbursement Account User Fees, and future subsequent resolutions adjusting the CPUC user fee will be added to the new water rates section on the Water Division's web page by May 2019.

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

Recommendation #3 To: Public Utilities Commission

To ensure transparency and promote public understanding of its processes, by July 2019 the CPUC should create and publish information for customers regarding its general rate case and advice letter processes, including how and when water utilities are required to notify customers of increased rates and how customers can participate in both processes.

6-Month Agency Response

Water Division's web page, under the new water rates section, describes the general rate case and advice letter processes with hyper-links to supporting materials and reference documents to the CPUC Rate Case Plan Decision

https://www.cpuc.ca.gov/General.aspx?id=6442461381 and the CPUC's General Order

No. 96-B can be found here: https://www.cpuc.ca.gov/General.aspx?id=6442461367

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

60-Day Agency Response

By July 2019, Water Division will prepare and post on Water Division's web page under the new water rates section information describing the general rate case and advice letter processes with hyper-links to supporting materials and reference documents, e.g. the CPUC Rate Case Plan Decision and the CPUC's General Order No. 96-B.

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

Recommendation #4 To: Public Utilities Commission

To ensure that it informs customers that they have an opportunity to provide their input regarding general rate cases, by May 2019 the CPUC should implement a process to verify and maintain records that demonstrate that water utilities are submitting notifications to their customers of Public participation hearings in accordance with the time frames set out in regulations, any additional notification requirements the ALJs may impose, and any general rate case application filings in accordance with the time frames set out in regulations.To the extent that it identifies noncompliance with notification requirements, the CPUC should evaluate whether to impose a fine on the water utility.

6-Month Agency Response

ALJ Division management has created a worksheet, which is saved on a shared drive to be used by rank and file ALJs to confirm compliance with notice requirements. An email was sent to rank and file ALJs which included the link to the worksheet, and reminder that compliance filings must be checked to ensure compliance with regulations. The water utility notification is being kept as part of the proceeding record filed electronically with the Commission's Docket office, and in conjunction with the worksheet demonstrate that the CSA recommendation has been fully implemented.

Attached for reference are; copy of the blank worksheet and a sample of a completed worksheet.

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

60-Day Agency Response

Pursuant to Rule 13.1 of the Rules of Practice and Procedure, all public utilities, including water utilities, must give notice of hearing not less than five days nor more than 30 days before the date of the hearing to entities or persons who may be affected by posting notice in public notice in a newspaper of the time, date, and place of hearing. Proof of publication and sample copies of the notices are filed with the Commission and publicly accessible on the website. The ALJs review the compliance filing as part of proceeding management, and will evaluate imposition of fines if there is non-compliance

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

Until the CPUC can demonstrate that it has implemented a process to verify and maintain records that demonstrate water utilities are submitting notifications to their customers as required, we will continue to report this recommendation as not fully implemented.

Recommendation #5 To: Public Utilities Commission

To ensure that all customers receive timely notification from water utilities of potential and actual rate increases, the CPUC should implement a process by May 2019 that requires water utilities to submit proof of customer notification to its Water Division, which should then review these notifications to ensure that the utilities are meeting the requirements. If the water utilities do not comply with the requirements, the CPUC should consider whether to impose a fine on the water utility.

6-Month Agency Response

The Water Division issued a letter, dated May 15, 2019, to all water utilities 1) reminding utilities of the notice requirements associated with advice letter submissions as indicated in the CPUC's General Order 96-B; 2) indicating to the utilities that all advice letter filings requiring customer notice shall include documentation and/or verification from an officer of the utility that the advice letter has been properly and timely noticed; and 3) noticing the utilities that an improper or untimely customer notice may result in a fine.

Secondly, the Water Division issued its staff a memorandum, dated May 15, 2019, reminding them that as part of the review of an advice letter, staff should verify that proper and timely notice was provided to customers by the utility as indicated above. Staff is provided a link to an electronic template letter to be used for assessing a fine for non-compliance with the noticing requirements. The letter is posted here; https://www.cpuc.ca.gov/General.aspx?id=1404

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

60-Day Agency Response

To implement this recommendation, by May 2019 the Water Division will issue a letter to all water utilities ;

1) reminding utilities of the notice requirements associated with advice letter submissions as indicated in the CPUC's General Order 96-B;

2) indicating to the utilities that all advice letter filings requiring customer notice shall include documentation and/or verification from an officer of the utility that the advice letter has been properly and timely noticed; and

3) noticing the utilities that an improper or untimely customer notice may result in a fine. Secondly, the Water Division will issue its staff a memorandum reminding them that as part of the review of an advice letter, staff should verify that proper and timely notice was provided to customers by the utility as indicated above. Staff will be provided a link to an electronic template letter to be used for assessing a fine for non-compliance with the noticing requirements.

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

Recommendation #6 To: Public Utilities Commission

To ensure that the CPUC fulfills its statutory requirement for auditing all water utilities, it should immediately begin to follow its Standard Practice when auditing Class A water utilities, or develop policies and procedures by May 2019 to ensure that the reviews Public Advocates conducts of general rate cases demonstrate compliance with the legal requirement for audits of these utilities.

Annual Follow-Up Agency Response From October 2022

The Utility Audits Branch (UAB) has updated and follows its Standard Practice Audit Manual to include a risk-based approach which incorporates all water and sewer utilities (including Class A and small water utilities) regulated by the California Public Utilities Commission (CPUC). The Standard Practice Audit Manual can be found at:

https://www.cpuc.ca.gov/about-cpuc/divisions/utility-audits-risk-and-compliance-division/utility-audits-branch

However, even with incorporating a modernized risk-based approach, CPUC continued to lack adequate audit staff resources to meet the statutory requirement timeline. Therefore, the CPUC has continued to actively work with the State's control agencies and the Legislature and proposed amendments Public Utilities (PU) Code sections 314.5, 274, and 792.5 outlining the CPUC's audit requirements. The proposed amendments introduced a risk-based approach to the audit requirements to clarify the frequency of the required audits. The Legislature passed the proposed bill amendments on August 31, 2022. CPUC is currently waiting for Governor's signature on Assembly Bill (AB) 209/Senate Bill (SB) 126 for the amendments to take effect. The amended audit requirements focus on utilizing the risk-based approach in auditing public utilities regulated by CPUC and require the CPUC to audit every electric and gas corporation every five years, and every high-risk telephone, water, and sewer corporation, as determined by the CPUC through a risk assessment methodology, at least every ten years. The amended language to the applicable PU Code sections can be viewed at the following links:

Bill Text - SB-126 Energy and climate change. (ca.gov)

Bill Text - AB-209 Energy and climate change. (ca.gov)

With these changes to the statutory requirements, CPUC is in compliance with the audit requirements.

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

Annual Follow-Up Agency Response From October 2021

The Utility Audits Branch (UAB) has updated its Standard Practice Audit Manual to include a risk-based approach which incorporates all water and sewer utilities (including Class A and small water utilities) regulated by the California Public Utilities Commission (CPUC). The Standard Practice Audit Manual can be found at:

https://www.cpuc.ca.gov/about-cpuc/divisions/utility-audits-risk-and-compliance-division/utility-audits-branch

However, even with incorporating a modernized approach, there is not enough audit staff to meet the current statutory requirement timeline. Therefore, the CPUC has been working with State's control agencies and the Legislature to propose amendments that introduce a risk-based approach to the Public Utilities (PU) Code sections outlining the audit requirements. If approved, UAB will have the ability to comply with the revised statutory requirements.

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

Annual Follow-Up Agency Response From November 2020

The Utility Audits Branch (UAB) has adopted an internal policy to perform alternative procedures to oversee Class A water utilities by performing reviews of their CPA-audited financial statements. UAB has incorporated that policy and procedures into its Standard Practice. UAB has completed its reviews of the documents filed by all Class A water utilities for the years 2019 and 2020. The results of those reviews are located at:

ftp://ftp.cpuc.ca.gov/utilityaudits/Class_A_Water_Utility_Audits/

UAB is also 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: Partially Implemented

Although the UAB is reviewing Class A water utility financial statements, it is not auditing those utilities as required by state law. Until it does so, or state law is amended to reflect its practice, we will assess this recommendation as partially implemented.

1-Year Agency Response

UAFCB has adopted an internal policy to perform alternative procedures to oversee Class A water utilities by reviewing their audited financial statements. UAFCB has incorporated that policy and procedures into its Standard Practice. UAFCB is in the process of reviewing the documents filed by Class A water utilities. The results of those reviews are located at

ftp://ftp.cpuc.ca.gov/utilityaudits/Class_A_Water_Utility_Audits/Results%20of%20UAB's%20Reviews%20of%20Independent%20CPA%20Audit%20Reports/2018/

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

The CPUC has now adopted a policy to implement its alternative approach to auditing class A water utilities, and the link they included in their response demonstrates that it is actively following that policy. However, the CPUC is still not conducting audits of Class A water utilities as required and, until it does so, we will assess this recommendation as partially implemented.

6-Month Agency Response

In lieu of directly auditing Class A water utilities, the Commission has developed an alternative approach by adapting new policies and procedures (see attachment) to meet the statutory requirements and the California State Auditor's recommendations. The Utility Audit, Finance and Compliance Branch (UAFCB) will incorporate these new policies and procedures into its Standard Practice, titled "UAFCB Audit and Attestation Standard Practice," and follow them when performing alternative audit procedures for Class A water utilities.

Please see attached policy.

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

60-Day Agency Response

The Utility Audit, Finance and Compliance Branch (UAFCB) continues to follow its Standard Practice Audit Manual, Titled "Utility Audit, Finance and Compliance Branch UAFCB Audit and Attestation Standard Practice", for all audits of all water utilities

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

As indicated in its response to recommendation #7, the CPUC is currently requesting additional staff and revising its audit program to better meet the statutory requirement to audit water utilities. Until it has finalized the revised audit program, we will assess this recommendation as pending.

Recommendation #7 To: Public Utilities Commission

To ensure that the CPUC fulfills its statutory requirement for auditing all water utilities, it should immediately develop a plan to complete audits of Class A water utilities and small water utilities in a timely manner.

Annual Follow-Up Agency Response From October 2022

The Utility Audits Branch (UAB) has developed and implemented a modernized risk-based approach that now includes all water and sewer utilities (including Class A and small water utilities), regulated by the California Public Utilities Commission (CPUC).

However, even with incorporating a modernized risk-based approach, CPUC continued to lack adequate audit staff resources to meet the statutory requirement timeline. Therefore, the CPUC has continued to actively work with the State's control agencies and the Legislature and proposed amendments to Public Utilities (PU) Code sections 314.5, 274, and 792.5 outlining the CPUC's audit requirements. The proposed amendments introduced a risk-based approach to the audit requirements to clarify the frequency of the required audits. The Legislature passed the proposed bill amendments on August 31, 2022. CPUC is currently waiting for Governor's signature on Assembly Bill (AB) 209/Senate Bill (SB) 126 for the amendments to take effect. The amended audit requirements focus on utilizing the risk-based approach in auditing public utilities regulated by CPUC and require the CPUC to audit every electric and gas corporation every five years, and every high-risk telephone, water, and sewer corporation, as determined by the CPUC through a risk assessment methodology, at least every ten years. The amended language to the applicable PU Code sections can be viewed at the following links:

Bill Text - SB-126 Energy and climate change. (ca.gov)

Bill Text - AB-209 Energy and climate change. (ca.gov)

With these changes to the statutory requirements, CPUC is in compliance with the audit requirements.

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

Annual Follow-Up Agency Response From October 2021

The Utility Audits Branch (UAB) has developed and implemented a modernized risk-based approach that now includes all water and sewer utilities (including Class A and small water utilities), regulated by the California Public Utilities Commission (CPUC). However, even with an audit plan, there is not enough audit staff to meet the current statutory requirement timeline.

Therefore, the CPUC has been working with State's control agencies and the Legislature to propose amendments that would introduce a risk-based approach to the Public Utilities (PU) Code sections outlining the audit requirements. If approved, UAB will have the ability to comply with the revised statutory requirements.

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

Annual Follow-Up Agency Response From November 2020

The Utility Audits Branch (UAB) has adopted a policy to perform alternative procedures to oversee the Class A water utilities by performing a review of audited financial statements in lieu of auditing them directly. UAB also developed a work plan to prioritize the reviews of the small water utilities that have never been audited in the past and transitioned its audit procedures from audits of financial statements to reviews of financial statements to streamline the audit process and ensure greater coverage of small utilities audited annually. The audit reports are posted at the following link: ftp://ftp.cpuc.ca.gov/utilityaudits.

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

1-Year Agency Response

UAFCB has adopted a policy to perform alternative procedures to oversee the Class A water utilities in lieu of auditing them directly. UAFCB was authorized two new positions for Staff Services Management Auditor (SSMA) to conduct audits on small water utilities. UAFCB has filled one of the two new SSMA positions, and in the process of filling the remaining SSMA position. However, that still will not be enough staff to audit or review every water company. UAFCB plans to request additional staff through the BCP process.

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

6-Month Agency Response

The Commission has developed policies and procedures regarding overseeing Class A water utilities. In addition, the Commission submitted a BCP requesting additional audit staff to comply with the statutory audit requirements. UAFCB continues to audit small water utilities using a risk-based audit approach. UAFCB will continue to document its audit planning, risk assessments and analyses in every water utility audit. UAFCB will also ensure those audit working papers are properly kept for the California State Auditor's review upon request.

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

The CPUC received additional staff requested in the BCP it references in its response to this recommendation. However, until the CPUC fulfills its statutory requirement for auditing all water utilities, we will continue to report this recommendation as partially implemented.

60-Day Agency Response

The Utility Audit, Finance and Compliance Branch (UAFCB) is in the process of revising its Water Audit Program to guide its auditors in performing their duties and to implement the new auditing requirements as specified in the Public Utilities Code Section 314.5 by May 31, 2019. UAFCB is working on a BCP to request additional audit staff to comply with the audit requirement for water utilities with 10,000 or fewer customers. The Commission will develop policies and procedures to leverage on the work performed by the Public Advocates Office during its general rate case reviews in order for the Commission to meet the audit requirements of Class A water utilities.

In addition, the Water Audit Unit is performing a risk assessment of the entire population of CPUC regulated water utilities based on established criteria to ensure limited resources will be diverted to those with the highest risk

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

Recommendation #8 To: Public Utilities Commission

To ensure that the public can access advice letters on the CPUC's website and because it is unknown when the system it is developing will be complete, the CPUC should immediately begin developing another process to make advice letters easily available by July 2019, such as by scanning them and posting copies on the Water Division's webpage.

6-Month Agency Response

Water Division has created an ftp file site accessible from Water Division's webpage, water rates section, which allows access to advice letter filings found using this link ftp://ftp.cpuc.ca.gov/WaterAdviceLetters/Water_Division/Advice_Letters/2019/

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

60-Day Agency Response

Water Division will be working with the CPUC's Information Technology Department to create either an ftp file site or a webpage accessible from Water Division's webpage, water rates section, which will allow access to advice letter filings by July 2019.

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

All Recommendations in 2018-118

Agency responses received are posted verbatim.