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Auditor Blasts California’s Energy Regulator

SACRAMENTO (CN) — In a scathing report Thursday, the state auditor said California's energy regulator appears to be improperly influenced by utilities in its decision-making, and ignores state rules when handing out contracts.

State Auditor Elaine Howle reviewed the California Public Utilities Commission's actions in its own contracting and the energy utility contracting it oversaw from 2010 through 2015.

The CPUC has faced criticism for how it handled the 2010 fatal gas pipeline explosion in San Bruno, negotiations in the 2013 shutdown of the Son Onofre nuclear power plant in San Diego County, and the gas leak at Aliso Canyon in 2015.

This week auditors found that the CPUC has not effectively guarded against the appearance of improper influence in its decision-making.

In one case, the CPUC directed utilities to enter into sole-source contracts for $74 million with a vendor who volunteered to run a statewide outreach program.

"Because the CPUC did not adequately explain how it knew the vendor would provide the best value for ratepayers, its decision appears influenced by the vendor," the audit found.

In another case, the auditors found that a commissioner — then the president of the CPUC — participated in approving a $152 million contract despite evidence suggesting he had been influenced by off-the-record conversations with utilities.

The CPUC also failed to ensure that the public was fully aware of outside communications the commission conducted on a $25 million joint contract between Southern California Edison, San Diego Gas and Electric and the University of California, as part of a multibillion-dollar settlement on the closing of the San Onofre Nuclear Generating Station, or SONGS.

The settlement provided consumer refunds and credits because of the premature shutdown of the power plant, and it directed development of a research program with the University of California to reduce emissions at current and future power plants.

The CPUC approved the settlement agreement in 2014.

"(T)he agreement has been the subject of widespread media attention because of undisclosed negotiations between the former president of the CPUC and an executive from Southern California Edison that occurred during a trip they both took to Poland in 2013," the audit reported.

News outlets reported that the pair discussed details of the agreement, which was active business before the CPUC at the time of the trip, the audit added.

And a disclosure filed more than a year late by the University of California revealed that the former president of the CPUC also spoke with representatives of the university about the $25 million contract that became part of the settlement agreement, according to the audit.

"The fact that these conversations were not disclosed before the CPUC issued its decision on the SONGS settlement also casts doubt on how well the settlement protects ratepayers and on the selection of the University of California as the recipient of the $25 million contract," the audit found.

These criticisms might have been avoided had the public been promptly made aware of these conversations with SoCal Edison and the university, the audit said.

"If the CPUC had disclosure requirements similar to those of other agencies, ex parte communications would be disclosed comprehensively, and the CPUC's decision-making process would be more transparent and its decision makers would be more accountable," according to the audit.

Auditors also found two dozen cases in which the agency did not follow state rules before awarding contracts without competitive bids; $2.4 million in unexplained contract funding; and no evidence that the CPUC monitored performance in a nearly one-third of the 60 contracts it reviewed.

The audit blamed these shortcomings on "a lax control environment that the CPUC has allowed to persist," characterized by "outdated guidance to staff, the absence of supervisory review, and lack of training for key staff members."

The CPUC agreed with most of the auditors' recommendations.

"Our goal is to make necessary changes to policies, process, practices and procedures to address all of the audit report recommendations and to bring our practices into conformity with state procedures, requirements, and norms," CPUC Executive Director Timothy Sullivan wrote in response to the audit.

State lawmakers have been trying for years to pass legislation to reform the CPUC. In August a bill that called for the agency to establish an internal auditor and expand public records disclosure rules failed to win approval.

Assemblyman Mike Gatto, a Southern California lawmaker who has been at the forefront of reform efforts, said after the bills failed that he has not given up.

"The fight is not over, and I remain committed to reform efforts. I believe they are sorely needed to bring transparency to the process, help keep rates low, and ensure the safety of Californians," he said.


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