The California Public Utilities Commission (CPUC) is a state entity that is subject to the contracting requirements in state law and the State Contracting Manual. In addition to entering into its own contracts, it has the authority to direct the utility companies it regulates to enter into contracts, and it also approves or denies contracts these utilities propose. For this audit, we reviewed the CPUC’s actions related to both its own contracting and the energy utility contracting that it oversaw from 2010 through 2015. This report draws the following conclusions:
- The CPUC has not effectively guarded against the appearance of improper influence in its public decision making.
The CPUC directed utilities to enter into sole-source contracts, for a cumulative total of about $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. In another case, the then‑president of the CPUC voted to approve a $152 million contract despite evidence suggesting that he had discussed the contract with the utilities before they submitted it for approval.
- The CPUC has failed to fully disclose important communications between commissioners and external parties.
The former president of the CPUC failed to ensure that the public knew about communications he had with Southern California Edison and the University of California. These unreported communications have cast doubt on whether a multibillion-dollar settlement protects ratepayers and on the appropriateness of the CPUC’s selection of the University of California for a $25 million contract.
- The CPUC’s contracting activity has not been consistent with state requirements or best practices.
We found numerous deficiencies in the CPUC’s approach to contracting, including a lack of market research in 24 cases in which contracts were not competitively bid, $2.4 million in unexplained additional contract funding, and an absence of evidence that the CPUC monitored contractor performance in nearly one‑third of the contracts we reviewed.
In addition, we reviewed the CPUC’s approval of sole-source contracts that energy utilities proposed, its response to California Public Records Act requests related to contracts, and potential conflicts of interest related to the CPUC’s and utilities’ contracts. In some of these areas, we found that the CPUC could improve its processes, and we have made recommendations that are discussed in the Other Areas We Reviewed section of this report.
Summary of Recommendations
The Legislature should amend state law to require the CPUC to adopt a new standard for commissioners to recuse themselves from proceedings when their impartiality is reasonably questioned and to adopt new rules that require commissioners to publicly report private communications with any parties to its proceedings.
To ensure that the choice of a vendor is sufficiently justified, the CPUC should explain how a particular vendor was chosen in any case for which it does not competitively select the vendor with which it directs utilities to contract.
To address several deficiencies in its contracting practices, the CPUC should update its contracting manual, conduct a supervisory review of contracts, and require regular training for contract staff.
The CPUC agreed with most of the recommendations we made. It disagreed with a recommendation to explicitly require parties to disclose their interest in CPUC proceedings because it believes such a requirement is redundant.