Utility Companies Owe Millions to This State Regulatory Agency. The Problem? The Agency Can’t Track What It’s Owed.

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When a whistleblower alleged that $200 million was missing from the California Public Utilities Commission, the agency says it took steps to collect. Yet an audit uncovered more missing money and cited flaws in the agency’s accounting system.

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This story was co-published with the Bay City News Foundation, which was a member of the ProPublica Local Reporting Network in 2020.

The California Public Utilities Commission does not have a good understanding of how much money it’s owed or even who owes it money, a new state audit found, validating some of the concerns raised by the agency’s former executive director, who was fired last year after alleging that $200 million in fines and fees was missing.

The audit, conducted by the state’s Department of Finance, found that much of the $200 million that former executive director Alice Stebbins said could not be accounted for had been collected, but it called the agency’s billing system “inaccurate and incomplete.”

The audit also uncovered an additional $147.3 million in surcharges that were not properly tracked by the CPUC, a sprawling state agency that regulates electric, gas, telecommunications, railroads and transportation companies.

State officials said the findings justified their contention that the $200 million was not missing, but that it simply had not yet been collected. Officials argue some of the payments were not yet due, some were tied up in appeals and some were in the process of being gathered.

“Your report identifies a number of internal control weaknesses that we are working to strengthen,” wrote Marybel Batjer, the president of the commission, in a letter responding to the Feb. 1 audit. “We are reassured that your report does not support assertions that the CPUC failed to collect $200 million in fees and surcharges from our regulated entities.”

But Stebbins said the audit proved that the agency had little idea of how much it was owed until she exposed its lackluster accounting procedures.

Stebbins had alleged that the CPUC was not doing a good job tracking whether utilities were paying mandated surcharges on customer bills, particularly phone bills; those surcharges fund assistance programs for poor and disabled people. Instead of the CPUC monitoring debts and collections, it allowed companies to self-report what they owed.

“This to me amplifies the issue where Batjer is trying to downplay it,” Stebbins said of the audit.

The CPUC has said that Stebbins was fired because she violated state personnel regulations, including in the decision to hire the auditor who first contended that there was $200 million in outstanding fines and fees. An investigation by ProPublica and the Bay City News Foundation discovered flaws in the State Personnel Board investigation that led to her dismissal. Stebbins has denied any wrongdoing and has filed a wrongful termination suit against the agency.

Stebbins said she first told commissioners about the missing money in January 2020. The Department of Finance audit found that between July 2019 and June 2020, the CPUC had collected $131 million of the $200 million it was owed. A department spokesman said he could not be more specific about when the CPUC received the payments, so it’s not clear if that happened before or after Stebbins raised her concerns. The audit found $21.9 million may be uncollectable because the companies involved have gone out of business. The CPUC is continuing to try to gather the remaining balance.

The audit also found that the agency does not keep track of who owes money or how much they owe, and it isn’t taking necessary steps to collect it.

For example, the audit found that not all revenue is tracked by the agency’s accounting office. The CPUC, which has an annual budget of $1.7 billion, told the auditors that it was too difficult to monitor all the money owed to the agency.

The CPUC also does not keep close track of the companies that owe fines and fees, the audit found. This means the agency may be logging debts from companies that no longer exist or have accounts on their books that do not accurately reflect the amount due. The CPUC is required by law to review its balances quarterly to see if any debts should be discharged. But it only does so sporadically, and in some cases, the CPUC’s contact information for debtor utilities was out of date.

The Department of Finance auditors attempted to verify balances for 34 CPUC debtors and found that nine believed they owed a different amount than what was in CPUC records and six were no longer in business, despite the CPUC recording that they owed $21.9 million.

Meanwhile, money owed as a result of some penalties for regulatory violations isn’t tracked at all. The CPUC’s communication division made a verbal agreement with the accounting office in 2018 to not record outstanding citations because the debtors may no longer be in business.

The audit also found that the CPUC doesn’t do enough to hold utilities accountable for the debts they owe. The commission’s primary collection method is to send letters, but they weren’t sent on time and, in some cases, weren’t sent at all, the audit found. The CPUC also did not pursue cases against bankrupt companies, nor did it pursue punitive actions like revoking utilities’ permits or charging interest and penalties.

Finally, the Department of Finance found that the CPUC didn’t track an additional $147.3 million in revenue from gas consumption surcharges collected by the state Department of Tax and Fee Administration. The funds were to be transferred to the CPUC quarterly, but the CPUC didn’t try to identify whether any of that money was outstanding.

A spokeswoman for the agency emphasized that it was not unusual to have outstanding or unpaid bills from companies.

“This is a normal practice; every public sector organization that collects money from external entities has accounts receivables,” said the spokeswoman, Terrie D. Prosper, in response to follow-up questions about the audit’s findings.

Bernard Azevedo, the terminated CPUC auditor who first alleged that $200 million was outstanding, said in an interview that he has been worried all along that the CPUC has little idea of what it is owed. He said the Department of Finance report confirms this.

“People pay for this on their telephone bill, they pay for it on their utility bill for gas, electric and water,” Azevedo said. “But the companies are keeping the money.”

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