First audit in 20 years finds a lot wrong with the agency that regulates your utilities

An independent audit found problems with the California Public Utilities Commission's hiring of private law firms in connection with investigations on how the commission handled the San Onofre nuclear power plant's emergency shutdown in 2012.

By Jeff McDonald

June 29, 2016 2:54 PM PT

Major reforms may be coming to the California Public Utilities Commission, but the agency still has plenty of room for improvement, auditors said Wednesday.

State utility regulators signed contracts with private law firms that they were not permitted to execute, failed to maintain required paperwork and paid vendors even when work was not performed to specifications, an independent audit by the California Department of General Services found.

The California Public Utilities Commission also did not process contracts in a timely manner and neglected to properly account for gasoline cards used by its employees, among other deficiencies, auditors said.

“CPUC’s delegated purchasing practices are not sufficient to provide reasonable assurance of compliance with the state’s procurement statutes, policies and procedures,” the report states.

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The General Services review is supposed to be conducted every three years, but the audit released Wednesday is the first such examination in more than 20 years.

Officials did not explain why General Services failed to conduct legally required audits before. They also did not respond to questions about why the report was completed in September and withheld from public disclosure for nine months.

The findings were released two days after Gov. Jerry Brown and state lawmakers announced a series of reforms aimed at improving practices at the commission, which has been under criminal investigation for two years. 　

Commission officials hired at least three different law firms to respond to records requests, subpoenas, search warrants and other demands from state and federal agents investigating the agency.

Some of those contracts were signed by officials who were not permitted to sign the agreements, auditors said. The legal representation has nonetheless proceeded. The cost to California ratepayers for the private lawyers is budgeted at more than $12 million.

The ongoing criminal case centers on the commission’s handling of a 2010 gas pipeline explosion in the Bay Area city of San Bruno and the emergency 2012 shutdown of the San Onofre nuclear power plant in San Diego County.

In both cases, investigators are reviewing improper contacts between regulators and utility company executives, including lavish meals, trips abroad and secret negotiations related to open proceedings.

One such deal — the agreement to charge customers more than $3.3 billion for the premature closure of the San Onofre power plant — was reached in Poland between the former commission president and a Southern California Edison executive.

That deal has since become the subject of multiple lawsuits and consumer complaints that led the commission last month to reopen the agreement.

Timothy Sullivan, who took over as executive director after the attorney general’s office executed a search warrant at his predecessor’s office and at the commission’s San Francisco headquarters, did not dispute any of the findings.

“We take the audit recommendations very seriously and intend to comply with the recommendations as outlined below,” Sullivan wrote to General Services on Monday. “Our goal is to make necessary changes … and to bring our administrative practices into conformity with state procedures, requirements and norms.”

The litany of recommendations includes implementing new “quality assurance” policies and procedures to promote more regular compliance with state laws and practices. 　

California law requires General Services to audit state agencies with designated purchasing authority every three years.

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The utilities commission, one of scores of agencies so designated, was last audited by General Services in 1995, when a slew of other deficiencies was reported and pledged to be corrected.

In addition to improper contracting practices and other findings, the 11-page report Wednesday referenced more serious issues that were not made publicly available.

“During our review, we also identified other matters requiring attention that we discussed with CPUC’s management but are not included in this report,” the audit states.

Neither General Services nor the utilities commission responded to questions about the what the “other matters” entailed or how the commission planned to address them.

The report notes that commission officials already have completed a corrective action plan to tackle the deficiencies identified in the audit.

“We are pleased with CPUC’s commitment shown to improve compliance with state requirements,” the report states.