San Diego Gas & Electric Company - Energy Assistance Program

SAN DIEGO GAS & ELECTRIC COMPANY 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 Kathy Wickware, Senior Energy Programs Advisor San Diego Gas & Electric Company 8330 Century Park Court, CP 12H San Diego, CA 92123 Dear Ms. Wickware: The State Controller’s Office audited San Diego Gas & Electric Company’s (SDG&E) 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 SDG&E manages the ESA program in conformance with applicable laws, regulations, and agreement terms and conditions; (2) assess whether SDG&E’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 did not validate the effectiveness of remediation for two of the four observations identified in the California Public Utilities Commission’s prior examination of the ESA program. We limited our follow-up to reviewing SDG&E’s corrective action plans and related documentation (Objective 4). Our audit found that:  Of the 137 ESA Home Energy Assistance Tracking system expenditure files and records tested, 18 did not have sufficient Heating, Ventilation, and Air Conditioning (HVAC) installation forms to support HVAC expenditures; and  Due to a misclassification error, SDG&E shifted funds in the amount of $50,156 into the In- Home Education Subcategory in its 2014 Annual Report without prior approval from the Administrative Law Judge. These issues are further described in the Findings and Recommendations section of this report. Kathy Wickware, Senior Energy -2- December 5, 2018 Programs Advisor 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: Elaine MacDonald, Customer Programs Business Analysis Manager San Diego Gas & Electric Company Monica Wiggins, Customer Programs Compliance Supervisor San Diego Gas & Electric Company Brittney Lee, Regulatory Case Administrator San Diego Gas & 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 San Diego Gas & Electric Company 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 Findings and Recommendations ........................................................................................... 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—San Diego Gas & Electric Company’s Response to Draft Audit Report San Diego Gas & Electric Company Energy Savings Assistance Program Audit Report Summary The State Controller’s Office (SCO) audited San Diego Gas & Electric Company’s (SDG&E) Energy Savings Assistance (ESA) program for the period of January 1, 2013, through December 31, 2015. The purpose of this audit was to ensure SDG&E’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 SDG&E. Our audit found that:  Of the 137 ESA Home Energy Assistance Tracking system expenditure files and records tested, 18 did not have sufficient Heating, Ventilation, and Air Conditioning (HVAC) installation forms to support HVAC expenditures; and  Due to a misclassification error, SDG&E shifted funds in the amount of $50,156 into the In-Home Education Subcategory in its 2014 Annual Report without prior approval from the Administrative Law Judge. These issues are further described in the Findings and Recommendations 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 California Public Utilities Commission (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- San Diego Gas & Electric Company Energy Savings Assistance Program CPUC Decision (D.) 12-08-044 and D.14-08-030 authorized average annual budgets of approximately $23 million in ratepayer funds to administer and implement SDG&E’s ESA program budget for calendar years 2013 through 2015. Budgeted and actual amounts for the three calendar years are as follows: Year Budgeted Actual 2013 $ 22,140,542 $ 17,874,649 2014 $ 26,904,989 $ 19,143,282 2015 $ 23,772,250 $ 17,355,596 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 SDG&E manages the ESA program in conformance with applicable laws, regulations, and agreement terms and conditions;  Assess whether SDG&E’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 did not validate the effectiveness of remediation for two of the four observations identified in the CPUC’s prior examination of the ESA program. We limited our follow-up to reviewing SDG&E’s corrective action plans and related documentation (Objective 4). We conducted an audit of SDG&E’s ESA program for the period of January 1, 2013, through December 31, 2015. To achieve our objectives, we:  Reviewed prior audit reports of SDG&E 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;  Reviewed applicable laws, regulations, agreement terms and conditions, policies, and procedures related to SDG&E’s ESA program required by the CPUC for all energy utilities; -2- San Diego Gas & Electric Company Energy Savings Assistance Program  Interviewed all SDG&E ESA program employees, and reviewed SDG&E’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 SDG&E’s administration of the ESA program, we judgmentally selected transactions using non-statistical samples; errors found were not projected to the intended population1. We:  Selected three of 166 ($131,848 of $3,773,956) ESA program (HEAT) system invoices, and reviewed the invoices and other supporting documents;  Reviewed 137 of 9,511 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 findings, conclusions, and recommendations based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, conclusions, and recommendations based on our audit objectives. We did not audit SDG&E’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that SDG&E’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 SDG&E. Conclusion We identified instances of non-compliance with applicable laws, regulations, and agreement terms and conditions, as described in the Findings and Recommendations 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- San Diego Gas & Electric Company Energy Savings Assistance Program Follow-up on We reviewed the CPUC’s prior examination of the ESA program, Interim Financial, Management and Regulatory Compliance Examination of San Prior Audit Diego Gas & Electric Company’s Energy Savings Assistance Program Findings For the Period January 1, 2009, through December 31, 2010, dated May 31, 2013, and presented our comments in Appendix 2 of this report. Based on work performed in the current audit, we noted that SDG&E has implemented appropriate corrective actions for Observation 1 and partially implemented corrective actions for Observation 4. We did not validate the effectiveness of remediation for Observation 2, and we did not test whether SDG&E strenthened its internal controls relevant to Observation 3. We also reviewed SDG&E’s internal audit report for the ESA program, File No. 13-237 for the period of January 2012 through May 2013, dated August 31, 2015. As the finding regarding contractor background checks, health checks, and badges was not relevant to the objectives of the current audit, we did not consider follow-up to be necessary for this finding. Views of We issued a draft audit report on October 3, 2018. Brittney L. Lee, Regulatory Case Manager, responded to both the CARE and ESA program Responsible draft audit reports by letter dated October 19, 2018 (Attachment), agreeing Officials with the audit findings. This final audit report included SDG&E’s response. Restricted Use This report is solely for the information and use of SDG&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- San Diego Gas & Electric Company Energy Savings Assistance Program Findings and Recommendations We tested three of 166 HEAT system invoices, which consisted of 137 FINDING 1— enrollment expenditures. Of the 137 files and records tested from March SDG&E did not 2013, June 2014, and September 2015, 18 did not have sufficient consistently documentation to support HVAC expenditures. Specifically, maintain HVAC 13 expenditures (from March 2013) did not have HVAC Installation installation forms Forms, and five expenditures (from March 2013) did not have corrected/updated HVAC Installation Forms. Contractors submit a manually completed ESA program HVAC Installation Form with a HEAT system-generated invoice to SDG&E as part of the supporting documentation package. The HVAC Installation Forms are the source documents from which HEAT system information is derived. The forms contain customer information and detail the types of work performed; the items installed, along with the associated costs and fees; and contractor and customer signatures, confirming the work performed and items installed. If there is a discrepancy or issue with information in the HEAT system, SDG&E refers to the HVAC Installation Form to determine what was documented at the time of installation. During the review and approval process, SDG&E staff members are to compare the HEAT system invoice to the HVAC Installation Form. Without HVAC Installation Forms, expenditures cannot be verified for correctness and allowability. A part of our 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 our overall conclusion that HVAC installation forms 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 SDG&E ensure that all recorded ESA program expenditures are fully supported by sufficient, appropriate documentation, and all documentation is preserved in such a manner that it may be readily examined. SDG&E’s Response SDG&E agrees with the finding and recommendation, and stated that it has implemented corrective actions. SCO Comment Although SDG&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- San Diego Gas & Electric Company Energy Savings Assistance Program FINDING 2— In SDG&E’s 2014 ESA program Annual Report, a fund shift of $50,156 was carried forward from 2013, and prior-year unspent funds were shifted A fund shift into the In-Home Education subcategory without prior written approval reported in the from the Administrative Law Judge. SDG&E did not request approval 2014 ESA program because it misclassified the In-Home Education funds as Customer Annual Report Enrollment funds in an internal schedule that it used to determine whether lacked required fund shifts required separate approval. Customer Enrollment fund shifts approval do not require prior approval from the Administrative Law Judge. When the annual report tables were populated and reviewed, SDG&E did not request approval for the fund shift because of the timing of the discovery of the error and the annual report filing. SDG&E stated that it believes that the fund shift would have been uncontested, due to the in-home education that was provided as directed by the CPUC. According to CPUC D.10-10-008, Section b.(3)ii. of Ordering Paragraph 85, the Administrative Law Judge’s prior written approval is required to shift funds into or out of the In-Home Education subcategory. Recommendation To ensure compliance with the fund shifting rules set forth by the CPUC, we recommend that SDG&E obtain prior approval from the Administrative Law Judge, if required, for shifting of funds. We also recommend that SDG&E modify its procedures for reviewing and processing fund shifts to avoid future misclassifications. SDG&E’s Response SDG&E agrees with the finding and recommendation, and stated that it has implemented corrective actions to avoid future misclassifications. In addition, SDG&E stated that it had filed an advice letter on February 28, 2018, explaining the fund shift activity in 2014 and the change in procedures to avoid future misclassifications. SCO Comment Although SDG&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. -6- San Diego Gas & Electric Company 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 Did not comply; see Finding 1 common carriers CPUC D.12-08-044 Section 6.2. Fund Shifting Rules Complied CPUC D.10-10-008 Ordering Paragraph 85, b.(3)ii Did not comply; see Finding 2 CPUC D.08-11-031 Section 20. Fund Shifting Complied California Statewide Energy Savings Assistance Program Policy and Procedures Manual. Section 2 Customer and Structural Complied 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 Complied Rule” Public Utilities Code, Division 1, Chapter 3, Article 5. Reports to Complied the Commission, 584 -7- San Diego Gas & Electric Company Energy Savings Assistance Program Appendix 2— Summary Schedule of Prior CPUC Audit Findings CPUC INTERIM FINANCIAL, MANAGEMENT & REGULATORY COMPLIANCE EXAMINATION OF SAN DIEGO GAS & ELECTRIC COMPANY'S ENERGY SAVINGS ASSISTANCE PROGRAM FOR THE PERIOD JANUARY 1, 2009 THROUGH DECEMBER 31, 2010. CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 1: SDG&E failed to demonstrate compliance with Commission directives, including the P&P Manual. Beginning in 2007 through 2011, SDG&E provided $1.2 million of ineligible gas and electric measure to some of its ESAP [Energy Savings Assistance Program] customers and also ineligible customers. In June of 2012, SDG&E's shareholders reimbursed its ESAP for the ESAP provided to ineligible customers and for ineligible measures provided to ESAP participants. RECOMMENDATION: SDG&E should adhere to the Commission’s Implemented SDG&E has settled the directives or ensure that shareholders provide funds for any ineligible balance with shareholder measures that are provided to its ESAP customers or for ESAP that is funds. SDG&E submitted provided to customers who are over the income guidelines. To minimize corrected annual reports to risk of these costs being charged to ESAP, SDG&E shareholders should the CPUC Energy Division. pay for the ineligible measure or program provided to ineligible customers at the time of deployment. SDG&E should submit corrected annual reports to Energy Division, if it has not already done so. OBSERVATION 2: SDG&E failed to demonstrate compliance with its Procurement Policy when it failed to update certain contracts for fee increases. RECOMMENDATION: SDG&E should enforce its existing procurement SDG&E provided SDG&E created a Systems policy and procedures. Furthermore, SDG&E should develop policy and procedures for Compliance section in late procedures on the ‘change controls’ in its HEAT database system to HEAT access 2011; it was later renamed prevent unauthorized changes or changes that lack supporting request Customer Programs Systems documentation or contract amendment. approvals. Support (CPSS). CPSS uses an internal SDG&E SharePoint site to process all user access requests for the HEAT system. Online procedures for HEAT access requests and HEAT access approval have been established. We did not test the effectiveness of the new procedures. -8- San Diego Gas & Electric Company Energy Savings Assistance Program Appendix 2 (continued) CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 3: SDG&E failed to demonstrate compliance with the P&P Manual, Section 7.3.21, when it replaced a central air conditioner in a customer dwelling that was located in an unfeasible climate zone. RECOMMENDATION: SDG&E should strengthen its internal controls SDG&E SDG&E reimbursed the ESA relevant to its ESAP processes and activities to ensure compliance with reimbursed the program for the cost of the the P&P Manual. ESA program for air conditioner. The the cost of the air replacement measure was for conditioner. the health, safety, and comfort of an elderly customer.We did not test whether SDG&E strengthened its internal controls relevant to its ESA program process and activities. OBSERVATION 4: SDG&E failed to demonstrate compliance with Public Utilities Code § 584, when it erroneously reported a $71,715 fund shift from Gas Appliance to Electric Appliances in its 2009 LIEE annual report that didn't occure. A change to the ESAP annual reporting templates could enhance the usefulness of the annual reports. RECOMMENDATION: SDG&E should strengthen its internal processes Partially SDG&E stated that it to ensure that its Annual Reports are correct before it submits them and it Implemented provided a revised LIEE should ensure that it supports any fund shifting in its annual reports with Table 19 to the Utility Audit reference to the Commission authority allowing for the fund shifting. Finance and Compliance Energy Division should modify the template for LIEE Table 19 of the Branch, which corrected the Annual Report by changing the title of the last column to Commission error as recommended. Authority. SDG&E should submit a corrected annual report to Energy During our review of the Division, reflecting the changes to LIEE Table 19. fund shifts, all fund shifts were referenced to the applicable commission authority. However, our testing noted a similar issue regarding fund shifting authorization. See Finding 2. -9- San Diego Gas & Electric Company Energy Savings Assistance Program Attachment— San Diego Gas & 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 S17-LIQ-0005