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California State Auditor Report Number : 2016-104

California Public Utilities Commission
It Should Reform Its Rules to Increase Transparency and Accountability, and Its Contracting Practices Do Not Align With Requirements or Best Practices

Figure 1
Overview of the State’s and the California Public Utilities Commission’s Processes for Executing Services Contracts

Figure 1 is a flowchart that shows the State's and California Public Utility Commission's (CPUC) process for entering into services contracts. The first step is for an agency to identify the need for services, and then to determine whether the services can feasibly be performed by civil service employees. Next, the agency determines the costs and availability of funds. Once it has completed these steps, it must determine whether state law exempts the contract from competitive bidding. The flowchart identifies five types of contracts that are exempt from competitive bidding by statute, which are legal services contracts, expert witness contracts for litigation, contracts under $5,000, emergency contracts, and interagency agreements. The CPUC requires its staff to conduct a market survey for most of these contracts, but emergency contracts and interagency agreements do not require a market survey. To conduct a market survey, CPUC contacts at least five potential contractors to determine which vendor provides the best value and awards the contract based on the market survey results. For legal services contracts, the State requires agencies to obtain written consent from the Office of the Attorney General to contract out, unless specifically exempted by statute.

If state law does not exempt a contract from competitive bidding, the agency determines if the services are restricted to one supplier. If the services are restricted to one supplier, the agency can pursue the contract as a sole-source contract. For sole-source contracts, CPUC requires its staff to use a market survey to confirm that there is only one vendor available or qualified to provide the service. CPUC then requires its staff to obtain approval from the executive director to use this type of procurement method. Agencies must obtain approval from the Department of General Services (General Services) for this procurement method.

If the services are not restricted to one supplier, the agency will prepare a solicitation and publicize the contracting opportunity. It then evaluates the solicitation responses and determines the winner of the contract. The agency will announce the results of the bidding process and award the contract.

For each of the scenarios described above, once a contract has been awarded, the agency will process the contract for signature, approval, and distribution. Most contracts over $50,000 must be approved by General Services. However, emergency contracts do not require General Services' approval before taking effect. In addition, some services contracts are exempt from General Services' approval, such as contracts that are specifically exempt by statute or by an exemption letter issued by General Services.

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Figure 2
The Number of Times Nonprofits Funded International Trips for Commissioners From 2010 Through 2015

Figure 2 displays two maps—one of Europe and one of Asia and Australia. The maps display the locations of and number of international trips that nonprofits funded for commissioners from 2010 through 2015. The figure distinguishes between the number of trips that were funded by the California Foundation on the Environment and the Economy (CFEE), a nonprofit with a significant number of board members who are employees of entities with financial interests in CPUC proceedings, and the number of trips funded by other nonprofits. The map of Europe highlights eight countries as locations of these international trips: Poland, Ireland/U.K., Italy, Spain, Belgium, Germany, Sweden, and Czech Republic. CFEE funded one trip to Poland, one trip to Ireland/U.K., two to Italy, and two to Spain. Other nonprofits also funded one trip to Spain, one to Belgium, two to Germany, and two to Sweden. One of the trips to Sweden also involved the commissioner traveling to the Czech Republic. The other map identifies trips to four countries: China, Japan, Philippines, and Australia. Nonprofits other than CFEE funded one trip to China, one to Japan, one to the Philippines, and four trips to Australia.

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Figure 3
Members of the California Foundation on the Environment and the Economy That Have Had a Financial Interest in California Public Utilities Commission Proceedings

Figure 3 identifies the members of the California Foundation on the Environment and the Economy that have a financial interest in California Public Utilities Commission decisions. The members in the Figure are regulated energy utilities (Pacific Gas and Electric, San Diego Gas and Electric, Southern California Gas, and Edison International, which is the parent of Southern California Edison), water entities (California American Water Company, California Water Service Group, Golden State Water Company, and Turlock Irrigation District), and also energy entities (AES Southland, Calpine Corporation, Chevron Corporation, Exelon Corporation, Iberdrola Renewables, Marin Clean Energy, NextEra Energy Resources, NRG Energy Inc., Shell Energy North America, sPower, SunPower, Tesoro, and TransCanada Corporation).

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Figure 4
Percentage of Contracts for Which the California Public Utilities Commission Required but Did Not Perform a Market Survey to Assess Best Value

Figure 4 is a pie chart that identifies the percentage of contracts from our review that the California Public Utilities Commission (CPUC) required a market survey to assess best value, but did not perform one. The chart demonstrates that there was no market survey for 46 percent of the contracts, an incomplete market survey for 23 percent of the contracts, and 31 percent of the contracts contained complete market surveys.

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Figure A
The California Public Utilities Commission’s Process for Overseeing and Approving Power Purchase Agreements

Figure A is a flow chart that displays the California Public Utilities Commission's (CPUC) process for overseeing and approving power purchase agreements. The figure demonstrates that three key players—an investor-owned utility, a procurement review group, and an independent evaluator—work simultaneously in the first step of this process. The investor-owned utility proposes an agreement based on negotiations and/or competitive solicitation. The procurement review group, which is a group consisting of CPUC energy division staff, Office of Ratepayer Advocates staff, and nonmarket participants, reviews and assesses the details of a utility's overall procurement strategy, solicitations, specific proposed contracts, and other procurement processes. The independent evaluator, an outsite entity retained by the utilities to provide third-party oversight of the procurement process, monitors the negotiations, cost-effectiveness, and overall appropriateness of contracts. Utilities are required to seek the input of their procurement review group and the CPUC when selecting the independent evaluator and must, to the fullest extent possible, follow that advice. CPUC staff review proposed contracts to determine consistency and compliance with CPUC decisions and other applicable requirements, including a review of the reasonableness of the contracts' costs, project viability, procurement review group participation, and independent evaluator review. Once the CPUC staff complete this review, the commission approves or denies the proposed contracts and may impose conditions on the contracts.

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