Report 2022-115 All Recommendation Responses

Report 2022-115: Electricity and Natural Gas Rates: The California Public Utilities Commission and Cal Advocates Can Better Ensure That Rate Increases Are Necessary (Release Date: August 2023)

Recommendation #1 To: Public Utilities Commission

To promote transparency, the CPUC should by February 2024 institute a process that requires utilities to periodically publish actual rate-of-return calculations, using a methodology acceptable to the CPUC and to Cal Advocates.

60-Day Agency Response

The CPUC is establishing a process to require utilities to periodically publish actual rate-of-return calculations using a methodology acceptable to the CPUC and Cal Advocates. Developing this process requires internal consultation among staff and may result in the creation of a written procedure.

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

Recommendation #2 To: Public Utilities Commission

To promote transparency, when the actual rate of return significantly exceeds the authorized rate of return, the CPUC should require that the utilities identify the major costs categories where projected costs exceeded actual costs and provide supporting documents. The CPUC's Energy Division should then publish this information so that it is available to Cal Advocates and to other interested parties, and it should objectively analyze the information for the CPUC.

60-Day Agency Response

The CPUC is establishing a threshold for determining when a utility's actual rate of return has significantly exceeded its authorized rate of return. This process consists of internal consultation among staff and may result in the creation of a written procedure.

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

Recommendation #3 To: Public Utilities Commission

To ensure the appropriateness of the activities that utilities include in their cost recovery applications and to reduce the risk of utilities' attempting recovery of costs for work they did not complete, the CPUC should by the beginning of February 2024 develop a process to ensure that it reviews available reports and work completed by other divisions within the CPUC and by other state agencies to determine whether further verification of a utility's work is necessary.

60-Day Agency Response

The CPUC is establishing a process for CPUC Advisory Staff to inform ALJ Division of any potentially relevant reports, to the extent it is aware of such reports. ALJ Division is ready to guide ALJs to review potentially relevant reports that are brought to their attention by CPUC Advisory Staff and consider whether references to the reports should be included in a proceeding's scope.

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

Recommendation #4 To: Public Utilities Commission

To ensure the appropriateness of the activities that utilities include in their cost recovery applications and to reduce the risk of utilities' attempting recovery of costs for work they did not complete, the CPUC should by the beginning of February 2024 develop a process to include an audit procedure that requires, on a sample basis, verification that work was completed as claimed in the utility's cost recovery application. Such verification could involve, for example, site visits, photographic evidence of work completed, or satellite imagery.

60-Day Agency Response

Since the CSA audit report was issued, UAB has included the additional audit procedure in three more audits (Alisal Water Company Balance Accounts - completed audit, Bear Valley Electric Balancing Accounts - audit in progress, and PG&E Balancing Accounts - audit in progress). UAB will continue to include a procedure that requires verification of work completed/performed, on a sample basis, and if appropriate for the type of expenditure/activity claimed.

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

Recommendation #5 To: Public Utilities Commission

To ensure that customers can readily identify the factors that contribute to energy rate increases when rates change, the CPUC should by the beginning of February 2024 provide to the public a summary of energy rate increases. Although the CPUC should determine the exact approach for communicating these increases, this approach should—at a minimum—identify the previous rate, the new rate, and the expected impact on the average customer's bill, and it should explain the CPUC-approved cost components that are driving the rate increase.

60-Day Agency Response

The CPUC will adopt a standardized format for communicating these changes, making it simple and easy to grasp. This summary will include illustrative bill impacts on an average customer's bill. In addition, it will break down the CPUC-approved cost components responsible for the rate increase, such as infrastructure maintenance, renewable energy investments, and inflation.

To ensure accessibility, this information will be readily available on the CPUC website and shared through various communication channels, including newsletters and social media.

By implementing these measures, the CPUC aims to empower customers with the knowledge they need to comprehend the factors behind energy rate changes and make informed decisions about their energy consumption.

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

Recommendation #6 To: Public Utilities Commission

To ensure that customers can readily identify the factors that contribute to energy rate increases when rates change, the CPUC should by the beginning of February 2024 post all summaries on its webpage in a timely fashion. The CPUC should also require utilities to reference these summaries on their websites within a reasonable time frame.

60-Day Agency Response

The CPUC will adopt a standardized format for communicating these changes, making it simple and easy to grasp. This summary will include illustrative bill impacts on an average customer's bill. In addition, it will break down the CPUC-approved cost components responsible for the rate increase, such as infrastructure maintenance, renewable energy investments, and inflation.

To ensure accessibility, this information will be readily available on the CPUC website and shared through various communication channels, including newsletters and social media.

By implementing these measures, the CPUC aims to empower customers with the knowledge they need to comprehend the factors behind energy rate changes and make informed decisions about their energy consumption.

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

Recommendation #7 To: Public Advocates Office

To ensure that the utilities' projected costs are not overstated, Cal Advocates should first obtain information that the CPUC requires utilities to provide, including their actual rate-of-return calculations and the major cost categories in which utilities achieved significant cost savings. Cal Advocates should then use this information in subsequent rate case proceedings to assess the risk that projections in these cost categories may be overstated, and it should scrutinize the projections accordingly.

60-Day Agency Response

This work would be ongoing and is dependent on the CPUC requiring the IOUs to provide information.

As previously explained, a regulated utility's actual rate of return is not a meaningful measurement of whether a utility is overearning. An authorized rate of return (ROR) is a regulatory concept that represents the cost that a utility can incur to finance its capital investments. As such, ROR is not a meaningful measure of a utility's earnings. A utility's Return on Equity (ROE) could be a more meaningful input into whether the utility is overearning. We will review the utilities' actual ROEs and incorporate that information into our review of general rate case applications.

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

Recommendation #8 To: Public Advocates Office

To ensure the appropriateness of the activities that utilities include in their cost recovery applications and to reduce the risk of utilities' attempting recovery of costs for work they did not complete, Cal Advocates should develop a process by the beginning of February 2024 to gain additional assurance that utilities actually performed the work claimed. This process should include the following steps:

Evaluate available reports and the work completed by other CPUC divisions and by other agencies to determine whether further verification of a utility's work is necessary.

Obtain additional information from utilities to verify completion of the work if it determines that further verification is necessary. For example, Cal Advocates could require utilities to provide photographs of work completed for a selection of costs.

Leverage the audit work that the CPUC performs to avoid duplication of effort.

60-Day Agency Response

The Public Advocates Office currently makes efforts to verify whether work is performed specifically where a utility is requesting additional ratepayer funds for work that was previously authorized by the CPUC. Moreover, the CPUC is currently performing this work as part of its compliance functions. Therefore, an expansion of our currently efforts may be dependent on obtaining more resources. We will strive to complete this process by the beginning of February 2024. However, given our resources and current and anticipated workload, we may need to look to the end of September 2024.

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

Recommendation #9 To: Public Advocates Office

To ensure that utilities can support the rate changes they request, Cal Advocates should verify whether balancing account balances and the resulting rate changes are accurate and comply with CPUC rules. Specifically, Cal Advocates should by February 2024 develop a review plan that outlines a risk-based approach for selecting a specific number of electricity and natural gas balancing accounts to review. This plan should specify the criteria that Cal Advocates will use to select the balancing accounts that will have the most impact on rates.

60-Day Agency Response

The Public Advocates Office has always implemented a risk-based approach for reviewing balancing accounts and will continue to do so as part of our work in rate case and other proceedings. Given our limited resources, we typically review the accounts that have the highest amounts. For example, while we might review a handful of accounts, those accounts comprise 80% of the utility's costs for that functional area. We will strive to develop a written plan that documents the work that we already perform by February 2024. However, in considering our resources and current and anticipated workload, we may need to look to the end of September 2024.

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

Although Cal Advocates states that it has always implemented a risk-based approach for reviewing balancing accounts, it did not provide us with documentation during the audit to demonstrate it employed such an approach. In fact, as we state on page 53 of the report, Cal Advocates explained that it bases its decision to review accounts on whether the electric utilities chose or were directed by the CPUC to include them in annual proceedings. Further, as we state on page 53, although inclusion in a formal proceeding may be a relevant factor for identifying accounts that could affect customers, we are concerned that using this as the only factor is to some extent allowing utilities to dictate which accounts Cal Advocates will review. We will assess whether the written plan that Cal Advocates claims it will develop by February 2024 implements our recommendation.

Recommendation #10 To: Public Advocates Office

To ensure that utilities can support the rate changes they request, if Cal Advocates determines through a staffing analysis that it needs additional staff to perform all the reviews it plans, it should request additional staff through its annual budget process.

Recommendation #11 To: Public Advocates Office

To ensure that utilities can support the rate changes they request, Cal Advocates should consult with the CPUC when developing its review plan to ensure that it is not reviewing the same balancing accounts that the CPUC is reviewing and that it is most effectively using its resources to identify and review higher-risk accounts.

60-Day Agency Response

We will strive to complete by February 2024. However, given our resources and current and anticipated workload, we may need to look to the end of September 2024.

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

Recommendation #12 To: Public Advocates Office

To ensure that it consistently and appropriately executes its protests of general rate case applications and advice letters, Cal Advocates should develop written policies and procedures by February 2024 that provide staff with direction on the steps staff must take when reviewing and filing protests on general rate case applications.

60-Day Agency Response

Protests to general rate case applications are standard pleadings that generally recommend the issues that should be within the scope of the CPUC's proceeding. Through discovery, we may determine that some, most or all of the identified issues may not need to be litigated. Protests are application-specific and are simply placeholders until we have time to conduct more research via discovery or analyses to determine the issues we will fully litigate. We will strive to develop written policies and procedures February 2024. However, given our resources and current and anticipated workload, we may need to look to the end of September 2024.

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

Recommendation #13 To: Public Advocates Office

To ensure that it consistently and appropriately executes its protests of general rate case applications and advice letters, Cal Advocates should develop written policies and procedures by February 2024 that provide staff with direction on the steps staff must take when documenting their analyses of incoming advice letters. Each analysis should include the rationale for protesting or not protesting a letter.

60-Day Agency Response

We will distill information from the extensive training material we regularly provide to staff to develop written policies and procedures by February 2024.

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

All Recommendations in 2022-115

Agency responses received are posted verbatim.