Southern California Edison - California Alternate Rates For Energy Program

SOUTHERN CALIFORNIA EDISON 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 Tory Weber, Principal Manager, Residential and Income Qualified Programs Southern California Edison 1515 Walnut Grove Avenue Rosemead, CA 91770 Dear Mr. Weber: The State Controller’s Office audited Southern California Edison’s (SCE) 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 SCE manages the CARE program in conformance with applicable laws, regulations, and agreement terms and conditions; (2) assess whether SCE’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). We did not validate the effectiveness of remediation for the applicable observation identified in the California Public Utilities Commission’s (CPUC) prior audit of the CARE program. We limited our follow-up to reviewing SCE’s corrective action plans and related documentation (Objective 4). Our audit found that:  Two of the 70 CARE program customer files tested lacked adequate documentation regarding eligibility through categorical enrollment. The documentation provided did not clearly indicate that the customers were currently participating in a categorical program that granted them eligibility for the CARE program.  Two of the 70 CARE program customer files tested lacked signatures certifying proof of household income or participation in a categorical program for eligibility.  One of the 70 CARE program customer files tested showed a total household income that had been incorrectly calculated. The customer’s actual income was above the income threshold. Tory Weber, Principal Manager, -2- December 5, 2018 Residential and Income Qualified Programs  One of the 70 CARE program customer files tested did not contain an IRS tax transcript, which is required for high usage verification. The customer claimed that she had been retired for 11 years and had not filed taxes the entire time; however, the customer should have submitted a transcript of non-filing. 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 cc: Sheila Lee, Regulatory Case Manager Southern California Edison Patrick Nandy, External Audits Manager Southern California Edison 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 Southern California Edison 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 .................................................................................. 4 Views of Responsible Officials .......................................................................................... 4 Restricted Use .................................................................................................................... 4 Finding and Recommendation .............................................................................................. 5 Appendix 1—Compliance with Applicable Laws, Regulations, and Agreement Terms and Conditions ........................................................... 8 Appendix 2—Summary Schedule of Prior CPUC Audit Findings .................................... 9 Attachment—Southern California Edison’s Response to Draft Audit Report Southern California Edison California Alternate Rates for Energy Program Audit Report Summary The State Controller’s Office (SCO) audited Southern California Edison’s (SCE) 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 SCE’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, dated July 2013, and program rules and restrictions provided by SCE. Our audit found that:  Two of the 70 CARE program customer files tested lacked adequate documentation regarding eligibility through categorical enrollment. The documentation provided did not clearly indicate that the customers were currently participating in a categorical program that granted them eligibility for the CARE program;  Two of the 70 CARE program customer files tested lacked signatures certifying proof of household income or participation in a categorical program for eligibility;  One of the 70 CARE program customer files tested showed a total household income that had been incorrectly calculated. The customer’s actual income was above the income threshold; and  One of the 70 CARE program customer files tested did not contain an IRS tax transcript, which is required for high usage verification. The customer claimed that she had been retired for 11 years and had not filed taxes the entire time; however, the customer should have submitted a transcript of non-filing. These issues are 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). -1- Southern California Edison California Alternate Rates for Energy Program CPUC Decision (D.) 12-08-044 and D.14-08-030 authorized average annual budgets of approximately $396.1 million in ratepayer funds to administer and implement SCE’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 $ 389,156,000 $ 362,752,715 2014 $ 423,819,650 $ 391,242,462 2015 $ 423,819,650 $ 377,364,921 We performed the audit at the request of the CPUC, pursuant to an Interagency Agreement. Objectives, Scope, The objectives of the audit were to: and Methodology  Determine whether SCE manages the CARE program in conformance with applicable laws, regulations, and agreement terms and conditions;  Assess whether SCE’s CARE program is in compliance with applicable laws, regulations, and agreement terms and conditions (see Appendix 1);  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 did not validate the effectiveness of remediation for the applicable observation identified in CPUC’s prior audit of the CARE program. We limited our follow-up to reviewing SCE’s corrective action plans and related documentation (Objective 4). We conducted an audit of SCE’s CARE program for the period of January 1, 2013, through December 31, 2015. To achieve our objectives, we:  Reviewed prior audit reports of SCE related to the CARE program to follow up on prior audit findings by reviewing the action plan and response to the recommendation, and analyzing supporting documentation to determine whether remediation efforts were implemented;  Reviewed applicable laws, regulations, agreement terms and conditions, policies, and procedures related to SCE’s CARE program required by the CPUC for all energy utilities; -2- Southern California Edison California Alternate Rates for Energy Program  Interviewed all SCE CARE program employees, and reviewed SCE’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 SCE’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 15 of 78,059 ($432,723 of $14,670,098) CARE program expenditure transactions, and reviewed invoices and other supporting documents;  Reviewed 70 of 4,737 CARE program customer files and records to determine compliance with applicable laws, regulations, and agreement terms and conditions;  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 SCE’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that SCE’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 SCE. Conclusion We identified instances of non-compliance with applicable laws, regulations, and agreement terms and conditions, as described in the Finding and Recommendation section of this report. 1As these samples were not statistical, we made no assumption that the errors would also be found in the transactions not sampled. -3- Southern California Edison California Alternate Rates for Energy Program Follow-up on We reviewed the CPUC’s prior audit performed for the CARE program, Financial, Management and Regulatory Compliance Audit Report on the Prior Audit California Alternate Rate for Energy Program Administrative Costs and Findings the Low Income Energy Efficiency Program of Southern California Edison Company For the Years Ended December 31, 2007 and December 31, 2008, dated June 17, 2011, and presented our comments in Appendix 2 of this report. We did not validate the effectiveness of remediation for the observation. Views of We issued a draft audit report on October 3, 2018. Michael Bushey, Director of Program Operations, responded by letter dated October 17, Responsible 2018 (Attachment), partially agreeing with the audit finding. This final Officials audit report includes SCE’s response. Restricted Use This report is solely for the information and use of SCE, 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- Southern California Edison California Alternate Rates for Energy Program Finding and Recommendation FINDING— Of the 4,737 post-enrollment verifications (PEV) performed by SCE in June 2013, July 2014, and January 2015, we reviewed 70 PEV customer SCE did not files and records. Of the 70 customer files, 16 were from June 2013, 24 maintain current were from July 2014, and 30 were from January 2015. eligibility documents for Our audit noted the following issues: post-enrollment verification  Two (June 2013, July 2014) of the 70 CARE program customer files lacked documentation to support that the customers were currently participating in the categorical program that granted them eligibility for the CARE program. SCE accepted California Medical Assistance Program (Medi-Cal) cards as adequate proof of enrollment in a categorical program. However, Medi-Cal cards do not indicate expiration dates or current eligibility dates. SCE should require additional verification to establish customers’ current participation in Medi-Cal and other categorical programs if current dates are not explicitly displayed on the cards. Examples of additional verification for the Medi-Cal program include letters of acceptance and annual renewal letters.  Two (July 2014, January 2015) of the 70 CARE program customer files tested lacked signatures certifying proof of household income or participation in a categorical program for eligibility.  One (July 2014) of the 70 CARE program customer files tested showed a total household income that had been incorrectly calculated. The customer’s actual income was above the income threshold.  One (January 2015) of the 70 CARE program customer files tested did not contain an IRS tax transcript, which is required for high usage verification. The customer claimed that she had been retired for 11 years and had not filed taxes the entire time; however, the customer should have submitted a transcript of non-filing. As part of our PEV testing plan, we selected an initial limited number of program customer files. Based on the results of testing, we determined that testing additional customer files would not affect our overall conclusion that PEV documentation was not consistently maintained. The California Statewide Energy Savings Assistance Program Policy and Procedures Manual, section 2.2.3.2, Categorical Eligibility, states that applicants using the categorical eligibility option to enroll in ESA program must present documentation reflecting current participation in one of the CPUC-approved programs to satisfy the income documentation component. Although the manual is an ESA program manual, SCE stated that the policies and procedures regarding program eligibility are used for both the ESA and CARE programs. SCE’s CARE and Family Electric Rate Assistance (FERA) Income Verification Documents Procedure, section 3.3, Verify Receipt of Documents, states that customers must send a signed copy of the Verification Request Letter. The customer’s signature certifies that the -5- Southern California Edison California Alternate Rates for Energy Program income documents are true and accurate copies and that the documents are submitted as proof of income for all adult members of the household or participation in a state public assistance program (for categorical enrollments in CARE). SCE’s CARE and FERA Income Verification Documents Procedure section 3.5, Verify Income Eligibility, states that after all of the required documents have been received, gross annual household income should be calculated using the Income Qualified Program’s Income Calculation Form, and the total should be compared to the current CARE or FERA guidelines. SCE’s CARE and FERA High Usage Procedure, section 3.3.1, Income Verification, states that SCE requests that the customer obtain his or her transcript from the IRS. Once the transcript is received, the customer must complete the transcript, retain a copy, and mail the original transcript to SCE. Recommendation To ensure compliance with review procedures set forth by SCE, as well as customer eligibility requirement guidelines set forth by the CPUC, we recommend that SCE obtain sufficient, appropriate documentation from CARE customers to clearly demonstrate eligibility for the CARE program. We also recommend that SCE and the CPUC work together to develop a policies and procedures manual specifically for the CARE program. We further recommend that SCE follow up with the CARE customers noted in this finding, obtain the necessary supporting documentation, and reevaluate their eligibility in the CARE program. SCE’s Response SCE disagrees that the documentation was inadequate, as discussed in the first bullet on page 5. SCE states that it approved the two accounts for the CARE program based on the following qualifications:  Medi-Cal Benefits Identification Cards (BICs) submitted by customers; and  In D.06-12-38 pages 51-52, the CPUC directed Independent Operating Utilities (IOUs) to accept Medi-Cal participation as a form of categorical eligibility and allowed IOUs discretion to design procedures. SCE further stated that, effective in the fourth quarter of 2015, it changed its procedures to require BICs to have been issued within the past 12 months to qualify for low-income programs. SCE agrees with the remaining issues noted in the finding. SCE indicated that it had implemented corrective actions regarding these issues. -6- Southern California Edison California Alternate Rates for Energy Program SCO Comment The finding and recommendation remain unchanged. Providing Medi-Cal BICs alone is insufficient to demonstrate current participation per categorical eligibility requirements in section 2.2.3.2 of the California Statewide Energy Savings Assistance Program Policy and Procedures Manual. Medi-Cal BICs do not display expiration dates; therefore, current participation in Medi-Cal cannot be determined from the cards alone. Additional verification, such as letters of acceptance and annual renewal letters, should also be provided by categorical enrollment applicants as support for current participation in Medi-Cal. SCE stated that it made changes to its procedures in the fourth quarter of 2015 such that only BICs issued within the past 12 months qualify for low- income programs. However, we did not validate the implementation or effectiveness of these procedures. SCE also stated that it implemented corrective actions for the remaining issues noted in the finding. However, 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. -7- Southern California Edison California Alternate Rates for Energy Program Appendix 1— 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 Complied and common carriers CPUC D.12-08-044 Section 6.2. Fund Shifting Rules Complied CPUC D.08-11-031 Section 20. Fund Shifting Complied Southern California Edison’s CARE and FERA Income Verification Documents Procedure, Section 3.0 Did not comply; see Finding Procedure Detail Southern California Edison’s CARE and FERA High Did not comply; see Finding Usage Procedure, Section 3.0 Procedure Detail California Statewide Energy Savings Assistance Program Policy and Procedures Manual. Section 2.2.3.2. Did not comply; see Finding Categorical Eligibility Public Utilities Code, Division 1, Chapter 3, Article 5. Complied Reports to the Commission, 584 -8- Southern California Edison California Alternate Rates for Energy Program Appendix 2— Summary Schedule of Prior CPUC Audit Findings CPUC FINANCIAL, MANAGEMENT AND REGULATORY COMPLIANCE AUDIT ON THE CALIFORNIA ALTERNATE RATE FOR ENERGY ADMINISTRATIVE COSTS AND THE LOW INCOME ENERGY EFFICIENCY PROGRAM OF SOUTHERN CALIFORNIA EDISON COMPANY, FOR THE YEARS ENDED DECEMBER 31, 2007 AND DECEMBER 31, 2008.¹ CPUCʼs Observation and Recommendation Status SCO Comments FINDING VI.B.: SCEʼs ASD [Audit Services Department] identified internal control weaknesses in the customer enrollment area and for the documentation of program changes. RECOMMENDATION: In its next audit of SCEʼs CARE administrative SCE provided the SCE stated that it has implemented and expenses, UAFCB [Utility Audit, Finance and Compliance Branch] should SCO with its documented procedures to properly include a review of the effectiveness of SCEʼs corrective actions that it Energy Efficiency handle and review ineligible applications; took in its customer enrollment area in 2009 and 2010. Division Policies include the number of returned and Procedures applications on batch cover sheets and Manual, in effect update the productivity database 2010 through accordingly; and update its quality control 2012, and other process. In addition, SCE stated that it has procedural documented and approved classification documentation. error types, definitions, and thresholds with the Processing Services Organization’s management, CARE program management, and other stakeholders; and that it has implemented the stamping of quality control review applications and a “check-the-checker” review process. We did not test the effectiveness of SCE’s implementation of these processes. However, we validated that these processes are included in SCE’s Energy Efficiency Division Policies and Procedures Manual for Income Qualified Programs, in effect from 2010 through 2012, and/or SCE’s Customer Service Business Unit’s Contemporaneous Summary Recap of CARE Quality Revisions that was implemented in response to the prior audit. ________________________ 1 Only the prior findings for the CARE Program were reviewed from this audit. A more recent audit of the Low Income Energy Efficiency Program (since renamed the ESA program) was reviewed for the ESA program audit conducted by the SCO. -9- Southern California Edison California Alternate Rates for Energy Program Attachment— Southern California Edison’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 S17-LIQ-0003