Southern California Edison - Energy Assistance Program

SOUTHERN CALIFORNIA EDISON Audit Report ENERGY SAVINGS ASSISTANCE 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) Energy Savings Assistance (ESA) 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 ESA program in conformance with applicable laws, regulations, and agreement terms and conditions; (2) assess whether SCE’s ESA 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 ESA program’s processes, rather than the effectiveness of internal controls, to determine whether key processes could be strengthened (Objective 3). We noted that SCE has not implemented corrective actions for the three Observations noted in the prior California Public Utilities Commission (CPUC) examination. Therefore, the evaluation of the effectiveness of remediation was not applicable to these three observations. We also noted three observations in the prior internal audit that were not relevant to the objectives of the current audit; we did not consider follow-up to be necessary for these three observations (Objective 4). Our audit found that SCE overstated ESA program expenditures in its 2015 Annual Report by a net amount of $262,637. The amount reported by SCE in its Annual Report was $51,331,186; the amount should have been $51,068,549. This issue was noted in a prior audit performed by the CPUC. This issue is further described in the Finding and Recommendation section of this report. Tory Weber, Principal Manager, Residential -2- December 5, 2018 and Income Qualified Programs If you have any questions, please contact Andrew Finlayson, Chief, State Agency Bureau, by telephone at (916) 324-6310. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/as 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 Energy Savings Assistance 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 ........................................................... 7 Appendix 2—Summary Schedule of Prior CPUC Audit Findings .................................... 8 Attachment—Southern California Edison’s Response to Draft Audit Report Southern California Edison Energy Savings Assistance Program Audit Report Summary The State Controller’s Office (SCO) audited Southern California Edison’s (SCE) Energy Savings Assistance (ESA) program for the period of January 1, 2013, through December 31, 2015. The purpose of this audit was to ensure SCE’s compliance with Public Utilities Code and regulations associated with the Income Qualified Assistance program for the ESA program, the California Statewide Energy Savings Assistance Program Policy and Procedures Manual, and program rules and restrictions provided by SCE. Our audit found that SCE overstated ESA program expenditures in its 2015 Annual Report by a net amount of $262,637. The amount reported by SCE in its annual report was $51,331,186; the amount should have been $51,068,549. This issue was noted in a prior audit performed by the California Public Utilities Commission (CPUC). This issue is further described in the Finding and Recommendation section of this report. Background The ESA program, administered by electrical and gas utility companies, provides weatherization and energy efficiency measures, minor home repairs, and energy education at no cost to income-eligible program participants. Weatherization includes attic insulation, caulking, weather- stripping, low-flow showerheads, water heater blankets, and door and building envelope repairs that reduce air infiltration. The program’s purpose is to reduce energy consumption, resulting in bill savings, while also increasing the health, comfort, and/or safety of the household. The ESA program is funded by ratepayers as part of a statutory “public purpose program surcharge” that appears on monthly utility bills. Income eligibility for ESA program participation is set at 200% or less of the Federal Poverty Guidelines. The program’s ultimate goal is to deliver increasingly cost-effective and longer-term savings to participants. Public Utilities Code section 2790 requires that electrical or gas corporations perform home weatherization services for low-income customers if the CPUC determines that a significant need for those services exists in the corporation’s service territory. The 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 Energy Savings Assistance Program CPUC Decision (D.) 12-08-044 and D.14-08-030 authorized average annual budgets of approximately $73 million in ratepayer funds to administer and implement SCE’s ESA program budget for calendar years 2013 through 2015 budget cycle. Budgeted and actual amounts for the three calendar years are as follows: Year Budgeted Actual 2013 $ 72,640,016 $ 55,604,816 2014 $ 72,736,630 $ 55,886,223 2015 $ 72,736,630 $ 51,331,186 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 ESA program in conformance with applicable laws, regulations, and agreement terms and conditions;  Assess whether SCE’s ESA 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 ESA program’s processes, rather than the effectiveness of internal controls, to determine whether key processes could be strengthened (Objective 3). We noted that SCE has not implemented corrective actions for the three Observations noted in the prior CPUC examination. Therefore, the evaluation of the effectiveness of remediation was not applicable to these three observations. We also noted three observations in the prior internal audit that were not relevant to the objectives of the current audit; we did not consider follow-up to be necessary for these three observations (Objective 4). We limited our follow-up to reviewing SCE’s corrective action plans and related documentation (Objective 4). We conducted an audit of SCE’s ESA 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 ESA 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; -2- Southern California Edison Energy Savings Assistance Program  Reviewed applicable laws, regulations, agreement terms and conditions, policies, and procedures related to SCE’s ESA program required by the CPUC for all energy utilities;  Interviewed all SCE ESA program employees and reviewed SCE’s ESA program Annual Reports to: o Gain an understanding of the ESA program’s services and benefits, budgets, operational goals, funding sources, revenues, expenditures, targeted beneficiaries, and recent statistical results; o Gain an understanding of the ESA program’s accounting and operational systems; and o Assess and evaluate the ESA program’s processes, and determine whether key processes could be strengthened. Upon gaining an understanding of SCE’s administration of the ESA program, we judgmentally selected transactions using non-statistical samples; errors found were not projected to the intended population.1 We:  Selected six of 1,111 ($117,335 of $6,872,480) ESA program expenditure transactions, and reviewed invoices and other supporting documents;  Reviewed 36 of 22,560 ESA program customer files and records to determine compliance with the Modified 3 Measure Minimum Rule;  Reviewed all fund shifting instances reported in the ESA program Annual Reports; and  Reviewed the ESA 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 ESA 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 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. 1 As 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 Energy Savings Assistance Program Follow-up on We reviewed the CPUC’s prior examination of the ESA program, Financial, Management and Regulatory Compliance Examination of Prior Audit Southern California Edison Company’s Energy Savings Assistance Findings Program for the Period January 1, 2009 through December 21, 2010, dated July 17, 2013, and presented our comments in Appendix 2 of this report. Based on work performed in the current audit, we noted that SCE has not implemented appropriate corrective actions for Observations 1, 6, and 7. We also reviewed SCE’s internal audit report for the ESA program for the period of August 1, 2012, through July 31, 2013, dated October 9, 2013. As the three observations regarding equipment installation (Observation 1), removal of user access to Energy Management Assistance Partnership System (EMAPS) (Observation 2), and justifications for Duplicate Measure Records Inquiry overrides within EMAPS (Observation 3) were not relevant to the objectives of the current audit, we did not consider follow-up to be necessary for these observations. Views of We issued a draft audit report on October 3, 2018. Patrick Nandy, External Audits Manager, responded by letter dated October 17, 2018 Responsible (Attachment), agreeing with the finding. This final audit report includes Officials 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 Energy Savings Assistance Program Finding and Recommendation FINDING— SCE overstated ESA program expenditures in its 2015 Annual Report by a net amount of $262,637. The amount reported by SCE in its Annual SCE overstated Report was $51,331,186; the amount should have been $51,068,549. This ESA program issue was noted in a prior audit performed by the CPUC. expenditures reported in its 2015 According to SCE, two different data sources were used to complete ESA Annual Report Table 1 and ESA Table 2 for the Annual Report. The two data sources were ESA program expenditures from the General Ledger and program installation data and costs from SCE’s Energy Management Assistance Partnership System. ESA Table 1 is used to report program expenditures, and ESA Table 2 is used to report ESA program installation costs by the types and units of measures installed. During preparation of the 2015 ESA program Annual Report, SCE inadvertently used the installation costs reported in ESA Table 2 as the program expenditures for the Energy Efficiency cost category in ESA Table 1. SCE indicated that it modified its reconciliation process to include an additional enhanced review of its final reconciled number, and that it will continue to perform this final review and reconciliation on all reports submitted to the CPUC. This process should be followed up on during the next audit. Public Utilities Code sections 581 and 584 require that the utility provide complete and accurate data to the CPUC. Public Utilities Code section 581 states: Every public utility shall furnish to the commission in such form and detail as the commission prescribes all tabulations, computations, and all other information required by it to carry into effect any of the provisions of this part, and shall make specific answers to all questions submitted by the commission. Public Utilities Code section 584 states: Every public utility shall furnish such reports to the commission at such time and in such form as the commission may require in which the utility shall specifically answer all questions propounded by the commission. The commission may require any public utility to file monthly reports of earnings and expenses, and to file periodical or special reports, or both, concerning any matter about which the commission is authorized by any law to inquire or to keep itself informed, or which it is required to enforce. Recommendation We recommend that SCE monitor the reconcilation process to ensure that it is working as designed, and that the ESA program expenditures are reported correctly in the Annual Report. -5- Southern California Edison Energy Savings Assistance Program SCE’s Response SCE agrees with the finding and recommendation. SCE stated that it had filed an Errata with the CPUC to correct the overstated expenditures in the 2015 ESA Annual Report and updated its processes to include additional enhanced reviews to prevent these types of errors in the future. SCO Comment Although SCE 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. -6- Southern California Edison Energy Savings Assistance 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 and common Complied carriers CPUC D.12-08-044 Section 6.2. Fund Shifting Rules Complied CPUC D.08-11-031 Section 20. Fund Shifting Complied California Statewide Energy Savings Assistance Program Policy and Complied Procedures Manual. Section 2 Customer and Structural Eligibility CPUC D.08-11-031 Section 11. 3 Measure Minimum Rule Complied CPUC D.09-06-026 Section 2.1. Modified “3 Measure Minimum Rule” Complied Public Utilities Code, Division 1, Chapter 3, Article 5. Reports to the Did not comply; see Finding Commission, 581 Public Utilities Code, Division 1, Chapter 3, Article 5. Reports to the Did not comply; see Finding Commission, 584 -7- Southern California Edison Energy Savings Assistance Program Appendix 2— Summary Schedule of Prior CPUC Audit Findings CPUC INTERIM FINANCIAL, MANAGEMENT AND REGULATORY COMPLIANCE EXAMINATION OF SOUTHERN CALIFORNIA EDISON COMPANYʼS ENERGY SAVINGS ASSISTANCE PROGRAM FOR PERIOD JANUARY 1, 2009 THROUGH DECEMBER 31, 2010 CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 1: SCE failed to demonstrate compliance with Public Utility Code §§ 581 and 581. In its 2009 annual report SCE overstated the ESAP expenditures reported by a net amount of $51,345. RECOMMENDATION: SCE should reconcile all data and ensure that its Not implemented We noted a similar issue in the reports are accurate before submitting them to the Commission. current audit (see Finding). OBSERVATION 6: SCE failed to demonstrate compliance with D.08-11-031, as modified, with respect to its Energy Education. SCE provided and charged ESAP for energy education that was part of its door-to-door canvassing outreach activities. SCEʼs failure to demonstrate compliance was previously discussed by the UAFCB in its prior examination report and SCE continued these activities either from 2007 or before. RECOMMENDATION: SCE should ensure strict adherence with Not implemented SCE asserted that it complied Commission directives. SCE provided energy education to customers with Commission directives for whose dwellings didn’t qualify for ESAP and therefore should refund providing energy education to ESAP with shareholder funds for the amount it expended providing only customers and disagreed with the energy education from 2007 to 2011 program years. If SCE does not the recommendation that it refund the monies voluntarily, the Energy Division or the Commission refund the ESA program with should require it to do so. If SCE included the customers who only shareholder funds. The CPUC received energy education as treated, it should re-file its annual report, did not require SCE to comply corrected to remove these customers from the treated category. If SCE with these recommendations. doesn’t voluntarily do so, Energy Division or the Commission should require it to do so. OBSERVATION 7: SCE failed to demonstrate compliance with the fund shifting requirements in D.08-11-031, as modified. SCE failed to request and receive authorization to shift $4.5 million in funds from the 2009 through 2011 cycle to program year 2008. RECOMMENDATION: SCE should ensure strict adherence with Not implemented SCE asserted that it complied Commission directives. SCE inappropriately carried back with CPUC directives on fund $4.5 million of funds from 2009 into 2008 when it didn’t have Commission shifting and disagreed with authorization to do so, and need to refund ESAP with shareholder funds the recommendation that it for the $4.5 million it transferred without authorization. If SCE does not refund the ESA program with refund the monies voluntarily, Energy Division or the Commission should shareholder funds. The CPUC require it to do so. did not require SCE to comply with these recommendations. During our testing of fund shifting, no issues were identified. -8- Southern California Edison Energy Savings Assistance 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-0004