Report 2011-131 Recommendation 35 Responses

Report 2011-131: City of Vernon: Although Reform Is Ongoing, Past Poor Decision Making Threatens Its Financial Stability (Release Date: June 2012)

Recommendation #35 To: Vernon, City of

To ensure that it can demonstrate sufficient analysis and provide justification for its decisions on significant energy-related transactions, the city should create a formal process and guidelines that include the following: identifying the benefits and risks of proposed transactions, quantifying the benefits and risks of proposed transactions, evaluating and comparing proposed transactions against alternative proposals, quantifying the impact of proposed transactions on short-term and long-term rates paid by the city's energy customers, seeking an independent validation of the fair market value of proposed transactions, and documenting and communicating the findings of the evaluation process to the city council.

Agency Response*

In order to ensure that energy-related transactions are properly vetted and analyzed, the City has established a formal process that details guidelines against which the overall value of transactions should be measured. Risks and benefits of proposed transactions shall be evaluated and the procedures that have been implemented dictate the steps required and the methods to be used to determine if a given transaction is a viable option for the City in the short-term and/or long-term.

Policies, procedures, and energy management plans for the Resource Management division within the City's Gas & Electric Department are in place to ensure that necessary investments are made in a responsible, timely manner to maintain a reliable, efficient power system.

  • Response Type†: Annual Follow Up
  • Completion Date: October 2016
  • Response Date: October 2016

California State Auditor's Assessment of Status: Fully Implemented


Agency Response*

The City will provide additional framework of the various actions that are taken into consideration when analyzing energy financial transactions in the Budget Policies and Procedures manual. This will include recognition of the use of financial analysis, scenarios, and cost impact of decisions being made. This will be incorporated in the annual update of the Budget Policies and Procedures manual and will be presented to the City Council for approval.

  • Response Type†: Annual Follow Up
  • Estimated Completion Date: July 2016
  • Response Date: October 2015

California State Auditor's Assessment of Status: Not Fully Implemented


Agency Response*

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which establishes guidelines regarding planning, revenue development, investments, capital improvements, debt management, fixed assets, use of reserves, and inter-fund transfers. In some cases, consultants are used to assist with the various elements of the guidelines because they have specific, task-related expertise and resources. For example, in the case of a recent electric rate adjustment on July 1, 2014, the consulting services of Crossborder Energy and Michael Bell Management Consulting were utilized to provide specific expertise in addressing business risks and to ensure that appropriate electric rates were developed. As part of this analysis, scenarios were examined against alternative proposals which quantified proposed transactions on rates for a three year period. This provided an independent assessment and validation that was documented and communicated to City Council as part of the related public hearing held on June 17, 2014. A copy of the presentation made to City Council is included.

  • Response Type†: Annual Follow Up
  • Completion Date: February 2014
  • Response Date: July 2014

California State Auditor's Assessment of Status: Not Fully Implemented

Although the city's Budget Polices and Procedures Manual establishes a framework, it lacks guidance for how the city will analyze financial transactions. To address our recommendation, the city will need to ensure that its policies and procedures specifically include the aspects of appropriate financial decision making that we listed.

  • Auditee did not address all aspects of the recommendation

Agency Response*

In early 2014, the Finance Director and Director of Light & Power expect to present a proposed integrated energy strategy to City Council for adoption. This will be part of the long term financial modeling for the Light & Power Department. The Finance Director, Director of Light & Power, and Electric Rates Committee will continue to work together to develop the proposal based on an updated rate study to be completed by Michael Bell Management Consulting later in the year. Among other specialized services for local governments, Michael Bell Management Consulting specializes in municipal electric utility management and planning.

  • Response Type†: 1-Year
  • Estimated Completion Date: Early 2014
  • Response Date: July 2013

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


Agency Response*

The city indicates that by the end of June 2013 the finance director and the director of light & power will develop and present for city council adoption, a formal process and guidelines regarding significant energy-related transactions, but does not specify whether those guidelines will include all elements that we recommended.

  • Response Type†: 6-Month
  • Response Date: January 2013

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


Agency Response*

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)

  • Response Type†: 60-Day
  • Response Date: August 2012

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


All Recommendations in 2011-131

†Response Type refers to the interval in which the auditee is providing the State Auditor with their status in implementing recommendations made in an audit report. Auditees must submit a response regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year or subsequent to one year.

*Agency responses received after June 2013 are posted verbatim.


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