Pacific Gas & Electric Company - California Alternate Rates For Energy Program

PACIFIC GAS AND ELECTRIC COMPANY Audit Report CALIFORNIA ALTERNATE RATES FOR ENERGY PROGRAM January 1, 2013, through December 31, 2015 BETTY T. YEE California State Controller December 2018 BETTY T. YEE California State Controller December 5, 2018 Mary O’Drain, Regulatory Reporting and Policy Expert Pacific Gas and Electric Company 245 Market Street San Francisco, CA 94105 Dear Ms. O’Drain: The State Controller’s Office (SCO) audited Pacific Gas and Electric Company’s (PG&E) California Alternate Rates for Energy (CARE) program for the period of January 1, 2013, through December 31, 2015. The objectives of the audit were to (1) determine whether PG&E manages the CARE program in conformance with applicable laws, regulations, and agreement terms and conditions; (2) assess whether PG&E’s CARE program is in compliance with applicable laws, regulations, and agreement terms and conditions; (3) identify opportunities and priorities in which financial management governance may help to strengthen key controls; and (4) follow up on prior audit findings and evaluate the effectiveness of remediation. We assessed and evaluated the CARE program’s processes, rather than the effectiveness of internal controls, to determine whether key processes could be strengthened (Objective 3). Our audit found that PG&E did not maintain validation checklists for six of 26 CARE program expenditures to indicate that the expenditures were properly reviewed and authorized prior to payment. If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau, by telephone at (916) 324-6310. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/ls Mary O’Drain, Regulatory Reporting -2- December 5, 2018 and Policy Expert cc: Aaron Johnson, Vice President, Customer Energy Solutions Pacific Gas and Electric Company Maril Wright, Director, Pricing Products Pacific Gas and Electric Company Allen Fernandez Smith, Manager, California Alternate Rates for Energy Program Pacific Gas and Electric Company Paola Benassi, Manager (via email) Energy Savings Assistance Program Pacific Gas and Electric Company Thuong-Tina Nguyen, Senior Program Manager Pacific Gas and Electric Company Edward Randolph, Director Energy Division California Public Utilities Commission Robert Strauss, Manager (via email) Energy Efficiency Branch, Energy Division California Public Utilities Commission Alison LaBonte, Ph.D., Supervisor Residential Energy Efficiency Programs and Portfolio Approval, Energy Division California Public Utilities Commission Syreeta Gibbs, Senior Public Utility Regulatory Analyst (via email) Residential Energy Efficiency Programs and Portfolio Approval, Energy Division California Public Utilities Commission Lola Odunlami, Public Utility Regulatory Analyst (via email) Residential Energy Efficiency Programs and Portfolio Approval, Energy Division California Public Utilities Commission Barbara Owens, Director of Enterprise Risk and Compliance Office (via email) Executive Division California Public Utilities Commission Kevin Nakamura, Program and Project Supervisor (via email) Utility Audits, Finance and Compliance Branch California Public Utilities Commission Pacific Gas and Electric Company California Alternate Rates for Energy Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objectives, Scope, and Methodology ............................................................................... 2 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 3 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 4 Finding and Recommendation .............................................................................................. 5 Appendix—Compliance with Applicable Laws, Regulations, and Agreement Terms and Conditions .............................................................. 6 Attachment—Pacific Gas and Electric Company’s Response to Draft Audit Report Pacific Gas and Electric Company California Alternate Rates for Energy Program Audit Report Summary The State Controller’s Office (SCO) audited Pacific Gas and Electric Company’s (PG&E) California Alternate Rates for Energy (CARE) program for the period of January 1, 2013, through December 31, 2015. The purpose of this audit is to ensure PG&E’s compliance with Public Utilities Code and regulations associated with the Income Qualified Assistance Program for the CARE program, the California Statewide Energy Savings Assistance Program Policy and Procedures Manual, and program rules and restrictions provided by PG&E. Our audit found that PG&E did not maintain validation checklists for six of 26 CARE program expenditures tested to indicate that the expenditures had been properly reviewed and authorized prior to payment. This issue is further described in the Finding and Recommendation section of this report. Background The CARE program is administered by electrical and gas utility companies, often in partnership with community-based organizations, which enroll eligible customers in their communities. The program provides a 30-35% discount for electrical charges and 20% for natural gas charges to eligible participants. Income eligibility for CARE participation is set at 200% or less of Federal Poverty Guidelines. The program is funded by non-participating CARE customers as part of a statutory “public purpose program surcharge” that appears on monthly utility bills. CARE is a self-certification program, with targeted post-enrollment income verification. High-energy usage CARE customers are also targeted for enrollment in energy efficiency programs (e.g., the Energy Savings Assistance [ESA] program) and other conservation efforts. The California Public Utilities Commission (CPUC) requires that utility companies adhere to the California Statewide Energy Savings Assistance Program Policy and Procedures Manual, and comply with Public Utilities Code, CPUC directives, and CPUC General Orders (GO). CPUC Decision (D.) 12-08-044 and D.14-08-030 authorized average annual budgets of approximately $641.2 million in ratepayer funds to administer and implement PG&E’s CARE program budget for calendar years 2013 through 2015. Budgeted and actual amounts for the three calendar years are as follows: Year Budgeted Actual 2013 $ 647,446,512 $ 712,258,213 2014 $ 621,740,513 $ 619,488,611 2015 $ 621,744,833 $ 572,696,080 We performed the audit at the request of the CPUC, pursuant to an Interagency Agreement. -1- Pacific Gas and Electric Company California Alternate Rates for Energy Program Objectives, Scope, The objectives of the audit were to: and Methodology  Determine whether PG&E manages the CARE program in conformance with applicable laws, regulations, and agreement terms and conditions;  Assess whether PG&E’s CARE program is in compliance with applicable laws, regulations, and agreement terms and conditions (see Appendix);  Identify opportunities and priorities in which financial management governance may help to strengthen key controls; and  Follow up on prior audit findings and evaluate the effectiveness of remediation. We assessed and evaluated the CARE program’s processes, rather than the effectiveness of internal controls, to determine whether key processes could be strengthened (Objective 3). We conducted an audit of PG&E’s CARE program for the period of January 1, 2013, through December 31, 2015. To achieve our objectives, we:  Reviewed prior audit reports of PG&E related to the CARE program to follow up on prior audit findings by reviewing the action plan and responses to recommendations, and analyzing supporting documentation to determine whether remediation efforts were implemented;  Reviewed applicable laws, regulations, agreement terms and conditions, policies, and procedures related to PG&E’s CARE program required by the CPUC for all energy utilities;  Interviewed all PG&E CARE program employees, and reviewed PG&E’s CARE program Annual Reports to: o Gain an understanding of the CARE program’s services and benefits, budgets, operational goals, funding sources, revenues, expenditures, targeted beneficiaries, and recent statistical results; o Gain an understanding of the CARE program’s accounting and operational systems; and o Assess and evaluate the CARE program’s processes, and determine whether key processes could be strengthened. Upon gaining an understanding of PG&E’s administration of the CARE program, we judgmentally selected transactions using non-statistical samples; errors found were not projected to the intended population.1 We:  Selected 26 of 59,029 ($743,547 of $35,243,784) CARE program expenditure transactions, and reviewed invoices and other supporting documents;  Reviewed 15 of 22,233 CARE customer files and records to determine compliance with applicable laws, regulations, and agreement terms and conditions; 1 As these samples were not statistical, we made no assumption that the errors would also be found in the transactions not sampled. -2- Pacific Gas and Electric Company California Alternate Rates for Energy Program  Reviewed all fund shifting instances reported in the CARE program Annual Reports; and  Reviewed the CARE program balancing account. We conducted this performance audit in accordance with Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our finding, conclusion, and recommendation based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our finding, conclusion, and recommendation based on our audit objectives. We did not audit PG&E’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that PG&E’s CARE program was in compliance with the laws and regulations associated with the Income Qualified Assistance Programs, the California Statewide Energy Savings Assistance Program Policy and Procedures Manual, and program rules and restrictions provided by PG&E. Conclusion We identified one instance of non-compliance with applicable laws, regulations, and agreement terms and conditions, as described in the Finding and Recommendation section of this report. Follow-up on We reviewed CPUC’s prior audit of the CARE program, Financial Management and Regulatory Compliance Audit Report on the California Prior Audit Alternate Rate for Energy Program Administrative Costs and the Low Findings Income Energy Efficiency Program of Pacific Gas and Electric Company for the Years Ended December 31, 2007 and December 31, 2008, dated April 21, 2011. As we identified no issues that were relevant to the CARE program, we did not consider follow-up to be necessary. We also reviewed PG&E’s internal audit report for the CARE program, dated April 28, 2014. We identified one finding related to the objectives of the current audit, regarding post enrollment verification documentation. As our testing in this area did not identify any issues, we did not consider additional follow-up to be necessary for this finding. Views of We issued a draft audit report on October 3, 2018. Marlene Murphy- Roach, Director, Low Income Programs and Disadvantaged Communities, Responsible responded by memorandum dated October 30, 2018 (Attachment), Officials agreeing with the audit finding. This final audit report includes PG&E’s response. -3- Pacific Gas and Electric Company California Alternate Rates for Energy Program Restricted Use This report is solely for the information and use of PG&E, the CPUC, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits December 5, 2018 -4- Pacific Gas and Electric Company California Alternate Rates for Energy Program Finding and Recommendation FINDING— We selected 26 of 59,029 ($743,547 of $35,243,784) CARE program expenditure transactions, and reviewed invoices and other supporting PG&E did not documentation. We noted that six transactions (23%, totaling $349,208) consistently did not have validation checklists, which are used internally by PG&E to maintain validation document expenditure review and approval prior to payment. Of the checklists for 26 transactions, nine were from 2013, eight were from 2014, and nine were CARE from 2015. The invoices were dated as follows: expenditures Date Amount January 7, 2013 $ 75,905 May 29, 2013 89,830 February 27, 2014 32,120 March 14, 2014 91,700 May 7, 2014 29,929 June 29, 2015 29,724 Total $ 349,208 The absence of the checklists could result in payments being made without proper authorization. Although the validation checklists were missing, we determined that all expenditures were program-related and supported by invoices and/or other documentation. All expenditures were properly recorded. As part of our expenditure testing plan, we selected an initial limited number of transactions. Based on the results of testing, we determined that testing additional transactions would not affect the overall conclusion that validation checklists were not consistently maintained. CPUC GO 28 requires public utilities to preserve all records, memoranda, and papers supporting all transactions so that the CPUC may readily examine them at its convenience. Recommendation We recommend that PG&E ensure that all recorded CARE program expenditures are fully supported by sufficient, appropriate documentation, and that all documentation is preserved in such a manner that it may be readily examined. PG&E’s Response PG&E agrees with the finding and recommendation. PG&E stated that it has implemented process improvements related to routing and storage of documents to facilitate proper record keeping. SCO Comment Although PG&E stated that it has implemented corrective actions regarding the finding and recommendation, we did not validate the implementation or effectiveness of these corrective actions. CPUC should follow up to ensure that the corrective actions were adequate and appropriate. -5- Pacific Gas and Electric Company California Alternate Rates for Energy Program Appendix— Compliance with Applicable Laws, Regulations, and Agreement Terms and Conditions APPLICABLE LAWS, REGULATIONS, AND AUDIT RESULTS AGREEMENT TERMS AND CONDITIONS CPUC GO 28. Preservation of records of public utilities and Did not comply; see Finding common carriers CPUC D.12-08-044 Section 6.2. Fund Shifting Rules Complied CPUC D.08-11-031 Section 20. Fund Shifting Complied CPUC D.08-11-031 Section 23. CARE Recertification Complied CPUC D.12-08-044 Section 4.5 CARE High usage customers Complied California Statewide Energy Savings Assistance Program Policy Complied and Procedures Manual. Section 2.2.3.2. Categorical Eligibility Public Utilities Code, Division 1, Chapter 3, Article 5. Reports to Complied the Commission, 584 -6- Pacific Gas and Electric Company California Alternate Rates for Energy Program Attachment— Pacific Gas and Electric Company’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov S16-LIQ-0002