Report 2021-117 All Recommendation Responses

Report 2021-117: Electrical System Safety: California's Oversight of the Efforts by Investor‑Owned Utilities to Mitigate the Risk of Wildfires Needs Improvement (Release Date: March 2022)

Recommendation for Legislative Action

To prevent power shutoffs rather than only reducing their scope and impact, the Legislature should amend the shutoff reduction law to require that utilities describe in their mitigation plans the improvements that would be necessary to prevent power shutoffs on the circuits routinely affected by them—such as installing covered power lines—and the costs of those improvements.

Description of Legislative Action

As of October 21, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

Recommendation for Legislative Action

To address the risks and hazards resulting from future unplanned outages, the Legislature should amend the shutoff reduction law to include circuits frequently de-energized as the result of utilities' power-line setting measures. In doing so, the Legislature will create a requirement that utilities identify in their mitigation plans the circuits frequently de-energized as a result of their power-line setting measures and the improvements they have made or plan to make to those circuits.

Description of Legislative Action

As of October 21, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

Recommendation for Legislative Action

To ensure that safety certifications encourage utilities to invest in safety and limit wildfire risks, the Legislature should require that as a prerequisite of issuing a safety certification, the Energy Safety Office's most recently completed compliance assessment of a utility's mitigation plan must conclude that the utility has substantially implemented that plan.

Description of Legislative Action

As of October 21, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

Recommendation for Legislative Action

To better hold utilities accountable for safely operating the electrical grid, the Legislature should require the CPUC to create and implement a risk-based audit plan for transmission and distribution infrastructure audits that prioritizes districts based on risk factors, including high fire-threat areas, and aligns with the requirement established in its audit manual to audit each district at least once every five years.

Description of Legislative Action

As of October 21, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

Recommendation for Legislative Action

To better hold utilities accountable for safely operating the electrical grid, the Legislature should require the CPUC to create a schedule of penalties for violations identified through its audit process and apply the schedule pursuant to its existing authority to impose penalties established in state law.

Description of Legislative Action

As of October 21, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

As of June 10, 2022, the Legislature has not taken action to address this specific recommendation.

Recommendation #6 To: Energy Infrastructure Safety, Office of

To ensure that utilities are targeting the areas of highest fire risk for mitigation activities, the Energy Safety Office should revise its internal procedures for reviewing mitigation plans by March 2023 to designate the prioritization of mitigation activities as a critical issue that must be appropriately addressed before a mitigation plan can be approved.

1-Year Agency Response

Energy Safety's current process already ensures that utilities focus mitigation activities in the areas of highest fire risk. The recommendation is an oversimplification of the evaluation process and is too rigid to permit Energy Safety's experts to exercise discretion based on their technical knowledge and trigger a Revision Notice where appropriate. Energy Safety does not intend to prejudge the severity of any issue before document submission and completion of Energy Safety's extensive evaluation process. Implementation of this recommendation would limit Energy Safety's ability to utilize its technical expertise in its evaluation of wildfire mitigation plans.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

The Energy Safety Office's current process does not, in fact, ensure that utilities focus mitigation activities in the areas of highest fire risk. Its own assessments of utilities' mitigation plans that it approved contradict this statement. The Energy Safety Office itself found that PG&E did not describe in sufficient detail in its 2020 mitigation plan how it prioritized deployment of vegetation management initiatives, and the utility failed to demonstrate in its 2021 mitigation plan that it was properly prioritizing power line replacement and system hardening efforts. Similarly, the Energy Safety Office noted that SDG&E did not provide sufficient detail in its 2021 mitigation plan on how it prioritized high fire-threat areas for moving power lines underground and installing covered power lines.

Moreover, the Energy Safety Office's internal procedures already classify some items as critical issues that must be addressed before it approves a mitigation plan and others as deficiencies that may be addressed in a subsequent mitigation plan. We only recommend that the Energy Safety Office classify the prioritization of mitigation activities as a critical issue, as it has done with other issues. Thus, we stand by our recommendation.

6-Month Agency Response

Energy Safety's current process already ensures that utilities focus mitigation activities in the areas of highest fire risk. The recommendation is an oversimplification of the evaluation process and is too rigid to permit Energy Safety's experts to exercise discretion based on their technical knowledge and trigger a Revision Notice where appropriate. Energy Safety does not intend to prejudge the severity of any issue before document submission and completion of Energy Safety's extensive evaluation process. Implementation of this recommendation would limit Energy Safety's ability to utilize its technical expertise in its evaluation of wildfire mitigation plans.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

The Energy Safety Office's current process does not, in fact, ensure that utilities focus mitigation activities in the areas of highest fire risk. Its own assessments of utilities' mitigation plans that it approved contradict this statement. The Energy Safety Office itself found that PG&E did not describe in sufficient detail in its 2020 mitigation plan how it prioritized deployment of vegetation management initiatives, and the utility failed to demonstrate in its 2021 mitigation plan that it was properly prioritizing power line replacement and system hardening efforts. Similarly, the Energy Safety Office noted that SDG&E did not provide sufficient detail in its 2021 mitigation plan on how it prioritized high fire-threat areas for moving power lines underground and installing covered power lines.

Moreover, the Energy Safety Office's internal procedures already classify some items as critical issues that must be addressed before it approves a mitigation plan and others as deficiencies that may be addressed in a subsequent mitigation plan. We only recommend that the Energy Safety Office classify the prioritization of mitigation activities as a critical issue, as it has done with other issues. Thus, we stand by our recommendation.

60-Day Agency Response

Energy Safety's current process already ensures that utilities focus mitigation activities in the areas of highest fire risk. The recommendation is an oversimplification of the evaluation process and is too rigid to permit Energy Safety's experts to exercise discretion based on their technical knowledge and trigger a Revision Notice where appropriate. Energy Safety does not intend to prejudge the severity of any issue before document submission and completion of Energy Safety's extensive evaluation process. Implementation of this recommendation would limit Energy Safety's ability to utilize its technical expertise in its evaluation of wildfire mitigation plans.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

The assessments of utilities' past mitigation plans that we reviewed during the course of our audit contradict the Energy Safety Office's statement that its current process already ensures that utilities focus mitigation activities in the areas of highest fire risk. The Energy Safety Office itself found that PG&E did not describe in sufficient detail in its 2020 mitigation plan how it prioritized deployment of vegetation management initiatives, and the utility failed to demonstrate in its 2021 mitigation plan that it was properly prioritizing power line replacement and system hardening efforts. Similarly, the Energy Safety Office noted that SDG&E did not provide sufficient detail in its 2021 mitigation plan on how it prioritized high fire-threat areas for moving power lines underground and installing covered power lines.

Moreover, as we have previously stated, although we appreciate the need for the Energy Safety Office to exercise discretion, we also recognize the critical importance of ensuring that mitigation activities are properly prioritized, particularly given the issues Energy Safety highlighted in its evaluation of utilities' 2020 and 2021 mitigation plans and the number of miles of bare power lines in high fire threat areas, as we describe in our report. The Energy Safety Office's internal procedures already classify some items as critical issues that must be addressed before it approves a mitigation plan and others as deficiencies that may be addressed in a subsequent mitigation plan. Thus, we stand by our recommendation that the Energy Safety Office elevate the prioritization of mitigation activities to be a critical issue that must be addressed before a mitigation plan can be approved, as it has done with other issues.

Recommendation #7 To: Energy Infrastructure Safety, Office of

To make mitigation plans more responsive to the causes of fires and serious concerns raised through oversight mechanisms, the Energy Safety Office should require in its 2023 mitigation plan guidelines that utilities address issues identified by oversight mechanisms—such as external audits—in their mitigation plans.

1-Year Agency Response

Through its annual update of the Wildfire Mitigation Plan (WMP) Guidelines, Energy Safety implemented this recommendation in its "Lessons Learned" section of the 2023 WMP Guidelines. The WMP Guidelines, issued on December 7, 2022, require that electrical corporations detail lessons learned from any and each catastrophic wildfire ignited by its facilities or equipment in the past 20 years. Electric corporations must also detail specific mitigation measures implemented as a result of these lessons learned and demonstrate how the mitigation measures are being integrated into the electric corporation's wildfire mitigation strategy.

For each lesson learned, the electrical corporation must identify the following:

- Year the lesson learned was identified

- Subject of the lesson learned

- Specific type or source of lesson learned

- Brief description of the lesson learned that informed improvement to the WMP

- Brief description of the proposed improvement to the WMP and which initiative(s) or

activity(s) the utility intends to add or modify

- Estimated timeline for implementing the proposed improvement

- Reference to the documentation that describes and substantiates the need for improvement.

If any lessons learned were derived from quantifiable data, visual/graphical representations must be provided as supporting documentation.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The Energy Safety Office's 2023 Mitigation Plan Guidelines (guidelines) require that utilities detail lessons learned due to ongoing monitoring and evaluation initiatives, collaboration with other electrical corporations and industry experts, and consider feedback from Energy Safety and other regulators. The electric corporation must also detail specific mitigation measures implemented as a result of these lessons learned and demonstrate how the mitigation measures are being integrated into the electric corporation's wildfire mitigation strategy. Thus, we consider this recommendation to be fully implemented.

6-Month Agency Response

Through its annual update of the Wildfire Mitigation Plan (WMP) Guidelines, Energy Safety is implementing this recommendation in revisions to its "Lessons Learned" section of the 2023 WMP Guidelines. The 2023 draft WMP Guidelines, released on September 19, 2022, require that electrical corporations report on lessons learned from Energy Safety or other regulators, including findings from post-wildfire investigations conducted by Energy Safety, CAL FIRE, and any other relevant state/local wildfire safety agency.

For each lesson learned, the electrical corporation must identify the following:

- Year the lesson learned was identified

- Subject of the lesson learned

- Specific type or source of lesson learned

- Brief description of the lesson learned that informed improvement to the WMP

- Brief description of the proposed improvement to the WMP and which initiative(s) or activity(s) the utility intends to add or modify

- Estimated timeline for implementing the proposed improvement

- Reference to the documentation that describes and substantiates the need for improvement, as well as the corrective action plan

If any lessons learned were derived from quantifiable data, visual/graphical representations must be provided as supporting documentation.

Because these guidelines have only been released in draft form and are not yet final, Energy Safety designates this response as "Not Fully Implemented." Energy Safety intends to adopt the final 2023 WMP Guidelines on or around December 1, 2022

California State Auditor's Assessment of 6-Month Status: Pending

We look forward to determining whether these new guidelines address our recommendation when Energy Safety provides them.

60-Day Agency Response

The department will evaluate the need for any changes to the Wildfire Mitigation Plan Guidelines, including changes to the Lessons Learned section, through its established annual process. The 2023 Guidelines are currently under development, and Energy Safety anticipates they will be issued later this year.

California State Auditor's Assessment of 60-Day Status: Pending

We look forward to reviewing the 2023 mitigation plan guidelines and evaluating whether the Energy Safety Office has added requirements for utilities to address issues identified by oversight mechanisms—such as external audits—in their mitigation plans.

Recommendation #8 To: Public Utilities Commission

To ensure that it does not authorize cost recovery, and the resulting rate increases, for activities that were part of a utility's previous general rate case, the CPUC should perform audits of the utilities' wildfire mitigation costs before approving recovery of those costs. In addition, the CPUC should implement sufficient safeguards to ensure the appropriateness of the costs passed on to customers

1-Year Agency Response

The CPUC updated its list of open proceedings where Investor-Owned Utilities (IOUs) have pending requests for wildfire mitigation cost recovery amounts, to add three new proceedings and to indicate that three of the 11 proceedings in the list have now been resolved, see Appendix 1.

The CPUC completed its study (Appendix 1) evaluating the sufficiency of safeguards protecting against duplicative cost recovery, finding that there are adequate safeguards if at least two of the four auditing protection criteria set forth in Appendix 1 are instituted in each cost recovery application: (a) a third party audit performed by the IOU (b) or the Commission, (c) ratepayer advocate participation in the cost recovery proceeding, and/or (d) CPUC Utility Audit Branch audit performed.

If fewer than two of the criteria are met then the Administrative Law Judge (ALJ) assigned to the proceeding may require additional safeguards including, but not limited to independent audit(s) considering the costs and benefits of such requirements pertinent to the specific facts and issues involved with the assigned application.

Considering these findings, the Commission instituted the attached Protocol Number 2023-01 establishing a procedure whereby the Appendix 1 spreadsheet will be semiannually updated and internally distributed to highlight where additional safeguards may be needed.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The policy the CPUC provided directs its staff to track whether audits have been conducted of applications for the recovery of wildfire mitigation costs. If an audit has not already been performed it directs staff to determine if additional safeguards are warranted. Although this procedure does not explicitly require an audit of all such costs, it demonstrates that CPUC staff are assessing the need for further analysis.

However, we remain concerned about whether the specific risk we identified: whether a utility is requesting cost recovery for activities that were part of its general rate case, is being addressed. We requested copies of the audits performed pursuant to this policy. CPUC directed us to its audit of SCE's application for cost recovery, which describes a number of findings related to the amounts that SCE requested and appears to confirm the risks associated with these applications for cost recovery. What is not clear is whether the scope of audits performed by other parties that CPUC is relying on address this same issue. We have requested copies of those audits and our determination for this recommendation is pending our confirmation that they address the issue described in our recommendation.

6-Month Agency Response

Consistent with our 60-day Agency Response, the CPUC worked together to identify and compile a list of open proceedings where Investor Owned Utilities (IOUs) have pending requests for wildfire mitigation cost recovery amounts.

CPUC has begun the internal study for the eight proceedings identified and will complete the study by March 2023. As part of this review, the eight screening criteria were de-duplicated and consolidated into four key screening criteria. Please see Appendix 1.

CPUC has begun assessing the sufficiency of safeguards for the first proceedings that have completed evidentiary hearings. E.g., in both PG&E's proceedings (A.20-09-019 and A.21-09-008), an independent auditor (Ernst and Young) was engaged by the utility to audit their preliminary request and the utility adjusted their request based on those audit results. Additionally, CPUC hired Crowe to complete a performance audit on the utility's wildfire mitigation costs. Crowe's findings for PG&E cost recovery were thoroughly vetted through the current proceeding process. Also, Cal Advocates conducted an independent analysis of wildfire mitigation balances, and described its methodology for developing recommendations, including extensive sampling of utility documentation. Cal Advocates specifically noted the Crowe audit and how they integrated those findings into their analysis. Currently, the CPUC's Utility Audit Branch is conducting a performance audit of PG&E's balancing accounts that includes reviewing the potential of double cost recovery. Based on our review results, CPUC concludes that sufficient safeguards are in place for the two proceedings noted above, and we will continue our review for the remaining four proceedings.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The CPUC has created a spreadsheet to track proceedings involving Investor Owned Utilities' (IOUs) requests for wildfire mitigation cost recovery. For these proceedings, the spreadsheet indicates that the CPUC now requires more than two internal and external audits of these costs, or requires the CPUC's Utility Audits, Risk and Compliance Division to perform additional audit work. The CPUC submitted supporting documentation to substantiate that multiple audits had already been performed for two of the eight cost recovery proceedings it is currently tracking. To fully implement the recommendation, the CPUC should formalize these safeguards in its policies and proceedings.

60-Day Agency Response

Energy Division (ED) and Administrative Law Judge Division (ALJ) will work together to identify and compile a list of currently open proceedings and/or Advice Letters where Investor-Owned Utilities (IOUs) have pending requests for wildfire mitigation cost recovery amounts. ED, ALJ, and Legal Division (Legal) will identify new proceedings expected for the remainder of calendar year 2022 and 2023 (to the extent these can be forecasted).

ED, ALJ, and Legal will assess the feasibility of performing cost recovery reviews before approving wildfire mitigation costs. The internal study will be completed by March 2023 and the results will determine whether CPUC will use audits or another tool to systematically oversee cost recovery to prevent utilities from duplicating costs. The study will consider factors including, but not limited to:

- Scope of the proceeding

- Timing of expected Commission decision

- Number and timing of utility wildfire cost recovery requests

- Whether CPUC has control over when these requests occur

- Whether internal CPUC staff could perform the cost recovery reviews and/or contract external auditors

- Financial impact of performing cost recovery reviews for the entire universe of cost recovery cases

- Effect on performing cost recovery reviews prior to cost recovery impacting the ratemaking proceeding schedules

- Effect on performing cost recovery reviews prior to allowing cost recovery may impact IOUs financing of wildfire mitigation activities and IOU's financial health

ED, ALJ, and Legal will jointly assess sufficiency of safeguards to "ensure appropriateness of costs passed on to customers," whether additional safeguards are needed, and whether/how they can be implemented.

California State Auditor's Assessment of 60-Day Status: Pending

CPUC's response indicates that it plans to perform internal studies and assessments to determine whether it believes the actions described in our recommendation are necessary. Thus, it has not yet determined whether it will implement audits or institute additional safeguards to ensure the appropriateness of costs passed on to customers as we recommend. However, we stand by our recommendation that these actions are needed to ensure that it does not authorize cost recovery, and the resulting rate increases, for activities that were part of a utility's previous general rate case.

Recommendation #9 To: Public Utilities Commission

To ensure that utilities do not over-recover, or charge ratepayers more than they should for the activities they perform, the CPUC should make certain that if utilities request reimbursement for the costs questioned in the contractor audits, the utilities provide sufficient quantifiable and detailed analyses to substantiate that the costs were not paid for through the utilities' previously approved rates.

Annual Follow-Up Agency Response From September 2023

This recommendation is considered fully implemented as described in CPUC's 1-Year response dated 3/23/23.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

As we stated in our prior assessment of this recommendation, the CPUC provided documentation to show that it had resolved the utilities' reimbursement requests for some of the costs questioned in the contractor audits; however, the documentation it provided did not address all of the reimbursement requests. In response to questions requesting clarification about the appendix it provided and how the decisions it referenced resolved the questioned costs, CPUC indicated it would provide additional documentation to substantiate that it had fully implemented our recommendation.

1-Year Agency Response

The CPUC updated its list of proceedings where Investor-Owned Utilities (IOUs) requested wildfire mitigation cost recovery amounts, to add three new proceedings and to indicate that 3 of the 11 proceedings in the list have recently been resolved, see Appendix 1.

We believe the litigation process for each proceeding provides sufficient quantifiable and detailed analyses to substantiate costs. We prepared Appendix 2 to identify which proceedings address Crowe's audit findings. If the ALJ does not feel there was sufficient quantifiable evidence provided, then the ALJ has the option to require additional evidence as done in the SCE proceeding. The ALJ is the most appropriate person to decide whether the IOU provided sufficient quantifiable and detailed analyses to substantiate that the costs were not paid for through the IOU's previously approved rates.

The CPUC addressed Crowe's concerns about tracking costs from WMP to RAMP-GRC to RSAR via the SMAP 2 proceeding (R.20-07-013), via a staff recommendation that was adopted in modified form in Decision (D.)22-10-002, which was issued on October 11, 2022. In that decision, the CPUC gave guidance as to granularity and breadth of IOU cost expenditures, including directing IOUs to a) identify WMP costs as such in cost recovery applications, and b) include non-safety, reliability, and maintenance cost categories which were previously not in Risk Spending Accountability Reports (RSARs).

California State Auditor's Assessment of 1-Year Status: Partially Implemented

Although the CPUC provided documentation to show that it had resolved the utilities' reimbursement requests for some of the costs questioned in the contractor audits, the documentation it provided did not address all of the reimbursement requests. In response to questions requesting clarification about the appendix it provided and how the decisions it referenced resolved the questioned costs, CPUC indicated it would provide additional documentation to substantiate that it had fully implemented our recommendation.

6-Month Agency Response

The CPUC has worked together to create a list of all Crowe's audit findings and assessed the open proceedings that may request cost recovery implicated in those findings. The first review done for this audit response, in 9/2022; CPUC plans to do the other one within six months. There are currently several proceedings where the findings are being reviewed as part of the proceedings, and the Administrative Law Judge (ALJ) is reviewing the reasonableness of those costs to ensure the Investor Owned Utilities (IOUs) provided "sufficient quantifiable and detailed analyses" to support those costs. Please see Appendix 1.

For the remaining proceedings, Energy Division and ALJ will coordinate to perform twice yearly reviews in March and September of any new requests to ensure IOUs comply with audit finding to provide "sufficient quantifiable detailed analyses..."

Furthermore, Crowe recommended improvements to the Wildfire Mitigation Plan (WMP) cost categories to ensure easier tracing and tracking to Risk Spending Accountability Reports (RSAR). This is being addressed in an active proceeding, R.20-07-013, by directing the utilities to identify WMP spending in their General Rate Cases and expanding the RSARs to cover non Safety/Reliability/Maintenance spending. The proposed decision addressing this matter is scheduled for vote on the 10/6 agenda.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The CPUC has compiled a list of its contracted external auditor's findings involving questioned costs for all six Investor Owned Utilities (IOUs). However, the CPUC did not provide documentation showing that it has reviewed those findings to ensure that the utilities provided sufficient quantifiable and detailed analyses to substantiate that the costs were not paid for through the utilities' previously approved rates, and it appears that the CPUC has delegated this task to the ALJs presiding over rate proceedings. We look forward to reviewing additional information about these reviews in future responses from the CPUC.

60-Day Agency Response

Energy Division (ED), Administrative Law Judge Division (ALJ) and Legal Division (Legal) will work together to create a list of all Crowe Audit Findings for all 6 electric Investor-Owned Utilities (IOUs) and determine if currently open proceedings request cost recovery implicated by that finding.

For IOUs with recovery requests pending, ALJ and ED will work together to determine whether the IOU provided "sufficient quantifiable and detailed analyses to substantiate that costs were not paid for through previously approved rates".

For IOUs that may not yet have requested costs identified in the Crowe Audit Findings, ED/ALJ will coordinate to perform twice yearly review status of any new requests to ensure IOUs comply with audit finding to provide "sufficient quantifiable detailed analyses..."

California State Auditor's Assessment of 60-Day Status: Pending

The CPUC's response indicates that it plans to take action regarding this recommendation but has not yet done so.

All Recommendations in 2021-117

Agency responses received are posted verbatim.