The California Constitution vests the Public Utilities Commission with regulatory authority over public utilities and authorizes the commission to establish its own procedures, subject to statutory limitations or directions and constitutional requirements of due process. Existing law requires that the commissions hearings, investigations, and proceedings be governed, in part, by the commissions rules of practice and procedure, as specified.

This bill would make nonsubstantive changes to that requirement and state the intent of the Legislature to adopt further revisions to those provisions.

Existing law requires the commission to determine whether each proceeding is a quasi-legislative, an adjudication, a ratesetting, or a catastrophic wildfire proceeding. Existing law requires the commission to resolve the issues raised in a ratesetting or quasi-legislative case scoping memo within 18 months of the date on which the scoping memo is issued, except in two specified circumstances. One of those exceptions is satisfied if the commission makes a written determination that the deadline cannot be met, including findings as to the reason, and issues an order extending the deadline.

This bill would eliminate that exception to the requirement that the commission resolve the issues raised in the scoping memo within 18 months.

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2025 - 2026 Regular Session

AB 705 (Boerner) - Public Utilities Commission: Independent Office of Audits and Investigations

Bill Summary:

This bill would create the Independent Office of Audits and Investigations within the California Public Utilities Commission (CPUC) and transfer to the office the internal audit unit of the CPUC

Fiscal Impact:

• The CPUC estimates one-time costs of about $700,000 for a new inspector general’s office website and ongoing costs of about $5 million annually (ratepayer funds) to implement the provisions of this bill.

Background:

Office of Internal Audit Services (IAS) at the CPUC. The IAS is intended to provide independent, objective and advisory services designed to add value and improve the CPUC’s internal operations. The Chief Internal Auditor reports the CPUC Commissioners, through the CPUC’s Audit Committee, and under the general direction of the President. The Chief Internal Auditor position was codified by statute via SB 19 (Hill, Chapter 421, Statutes of 2017) required the Chief Internal Auditor to be responsible for oversight of the internal audit unit and to plan, initiate, and perform audits of key financial, management, operational, and information technology functions within the CPUC to improve accountability to executive and state management. According to the CPUC website, the IAS provides the following services: assurance (financial, operational, compliance, and IT risk-based audits), advisory (advise management on change initiatives, control effectiveness, enhancements to risk management, including special management reviews and investigations of alleged noncompliance); and anticipating and assessing risks (assist business owners in understanding risks and in crafting preventive mitigating controls); as well as, developing the internal audit plan for the CPUC. The Office is composed of six employees (out of nearly 2,000). According to the CPUC, over the last five years the IAS Office completed nearly 30 audits of CPUC operations. The Internal Auditor also receives notice of whistleblower complaints submitted to the CPUC’s internal compliance unit and is informed of the investigation results and management’s handling of corrective actions. Internal audit reports are intended for the internal use of the CPUC, and therefore are not posted publicly; however, they are public records and not exempt from disclosure.

About Inspector Generals. California state government has a few Inspector Generals (for the High-speed Rail Authority, the California Highway Patrol, and a handful of others). However, Inspector Generals are a more common position and function in the federal government. Under the Inspector General Act of 1978, the role of federal Inspector Generals is “to prevent and detect waste, fraud, and abuse relating to their agency’s programs and operations, and to promote economy, efficiency, and effectiveness in the agency’s operations and programs.” Federal Inspector Generals are located within their agencies but conduct their audits and investigations independently from their agencies. Roughly half of the federal Inspector Generals are appointed by the President of the United States, subject to U.S. Senate confirmation, and approximately half are appointed by the agency head. 

Proposed Law:

This bill would transfer existing audit functions at the CPUC to the Independent Office of Audits and Investigations, as created by this bill, and name the head of the office, the Inspector General, who would be appointed by the Governor for a six-year term. Specifically, this bill would:

1. Delete the provision providing for the CPUC commissioners to appoint the chief internal auditor.
2. Require, effective January 1, 2026, the internal audit unit of the CPUC and its staff are transferred to the Independent Office of Audits and Investigations (IOAI), which this bill establishes within the CPUC, to ensure:
   1. The CPUC is administering ratepayer funds efficiently and in compliance with applicable state and federal requirements.
   2. The CPUC’s programs are functioning consistent with applicable accounting standards and practices and are administered effectively.
   3. The CPUC is accomplishing mandated requirements, developing an annual audit plan, administering an effective enterprise risk management program, and is making effective decisions.
   4. The President of the CPUC, the Legislature, and the Governor are fully informed concerning fraud, improper activities, and other serious abuses related to the expenditure of ratepayer funds.
3. Provide for the appointment of the director of the IOAI by the Governor, subject to confirmation by the Senate, who would have the title of Inspector General, and serve a six-year term.
4. Require that the IOAI have access and authority to examine all records, files, documents, accounts, reports, correspondence, or other property of the CPUC, public utilities, and other entities regulated by the CPUC, as specified.
5. Require the Inspector General to report to the Governor and the Legislature on all audits and confidential investigation findings and recommendations made under the Inspector General’s jurisdiction.
6. Require the Inspector General to report at least annually to the Governor and the Legislature with a summary of the Inspector General’s investigation and audit findings and recommendations. Requires the summary to be posted on the IOAI’s website and made publicly available.

Related Legislation:

SB 19 (Hill, Chapter 421, Statutes of 2017) among its provisions, established a chief internal auditor at the CPUC responsible for the oversight of the internal audit unit.

AB 825 (Rendon) of 2015, would have proposed a package of reforms of the CPUC largely directed at increased transparency of the activities of the agency, including requiring the California State Auditor's Office to appoint an Inspector General within its office for the CPUC. The bill was vetoed.

SB 1452 (Speier, Chapter 452, Statutes of 2006) established a process for the Legislature to be informed when auditor recommendations are being ignored or not implemented by state agencies.

AB 2903 (Gatto) of 2016, would have provided a suite of reforms of the operations of the CPUC, including clarifying the responsibilities and oversight of various positions; improvements to ethics practices; reports related to telecommunications services and CPUC staffing; stating the intent of the Legislature to transfer most non-rail, for-hire transportation services to the State Transportation Agency; and others. The bill was never heard in its amended form.

ACA 11 (Gatto) of 2016, would have proposed a measure on the ballot to authorize the Legislature to reallocate or reassign all or a portion of the functions of the CPUC to other state agencies, departments, boards, or other entities, consistent with specified purposes and proposed to repeal the provisions of the California Constitution pertaining to the CPUC effective January 1, 2019.

AB 825 (Rendon) of 2015, would have proposed a suite of reforms of the CPUC largely directed at increased transparency of the activities of the agency, including requiring the California State Auditor's Office to appoint an Inspector General within its office for the CPUC, expanding the roles and responsibilities of the CPUC public advisor, specifying additional requirements of commissioners, and increased transparency of electric utilities' procurement, among others. The bill was vetoed.

SB 48 (Hill) of 2015, would have proposed a suite of reforms of the governance and operations of the CPUC, including, among others, requiring sessions in Sacramento, applying the Code of Ethics from the Administrative Procedures Act to administrative law judge, clarifying and augmenting the information the CPUC must provide the Legislature in its annual report, and others. The bill was vetoed.

SB 215 (Leno-Hueso, Chapter 807, Statutes of 2016) proposed a suite of reforms of the rules, operations and procedures of the CPUC pertaining to the laws and rules related to ex parte communications and criteria and process for disqualification of commissioners to a proceeding.

SB 512 (Hill, Chapter 808, Statutes of 2016) proposed a suite of reforms of the operations and governance of the CPUC, including allowing intervenor compensation for certain local governments, requiring specified information is available to the public, requiring specified reporting of the CPUC regarding the timeliness of proceedings, applying the Code of Ethics from the Administrative Procedures Act to administrative law judges, and others.

SB 660 (Leno-Hueso) of 2015, would have proposed a suite of reforms of the governance, rules, operations and procedures of the CPUC, including: reform of laws and rules related to ex parte communications, criteria and process for disqualification of CPUCs to a proceeding, and authorizes the CPUC to appoint the chief administrative law judge. The bill was vetoed.

SB 1017 (Hill) of 2016, would have modified statutes that limit public access to utility supplied documents at the CPUC, including specifying an action arising from the CPRA may be brought before the Superior Court instead of the Supreme Court. The bill died on the Assembly Floor.

-- END --

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Josh Becker, Chair

2025 - 2026 Regular

Bill No: Hearing Date: 7/15/2025

SUBJECT:

DIGEST: This bill transfers existing audit functions at the California Public Utilities Commission (CPUC) to the Independent Office of Audits and Investigations, as created by this bill, and names the head of the office, the Inspector General, who would be appointed by the Governor for a six-year term.

ANALYSIS:

Existing law:

1. Establishes and vests the CPUC regulatory authority over public utilities. (Article XII of the California Constitution)
2. Requires the CPUC to regulate utilities and to establish just and reasonable rates for service, and establishes a division of the CPUC responsible for consumer protection and safety. (Public Utilities Code §451 and §309.7)
3. Requires the CPUC to appoint a chief internal auditor to hold office at the pleasure of the CPUC. (Public Utilities Code §307.6 (a))
4. Requires the chief internal auditor to be responsible for the oversight of the internal audit unit and to plan, initiate, and perform audits of key financial, management, operational, and information technology functions within the CPUC to improve accountability and transparency to executive and state management. (Public Utilities Code §307.6 (b))
5. Establishes the State Auditor’s Office under the direction of the Milton Marks “Little Hoover” Commission on California State Government Organization and Economy independent of the executive branch and legislative control. Provides the State Auditor’s Office with duties to examine and report annually upon the financial statements prepared by the executive branch of the state and to perform other related assignments, including performance audits mandated by statute. (Government Code §8543 et seq.)
6. Establishes requirements for internal auditors in state government, including a framework to establish a level of independence for the internal auditors and a reporting structure that allows for disclosure to external parties, such as the Governor’s office or the State Auditor. (Government Code §§ 13885-13888)

This bill:

1. Deletes the provision providing for the CPUC commissioners to appoint the chief internal auditor.
2. Requires, effective January 1, 2026, the internal audit unit of the CPUC and its staff are transferred to the Independent Office of Audits and Investigations (IOAI), which this bill establishes within the CPUC, to ensure:
   1. The CPUC is administering ratepayer funds efficiently and in compliance with applicable state and federal requirements.
   2. The CPUC’s programs are functioning consistent with applicable accounting standards and practices and are administered effectively.
   3. The CPUC is accomplishing mandated requirements, developing an annual audit plan, administering an effective enterprise risk management program, and is making effective decisions.
   4. The President of the CPUC, the Legislature, and the Governor are fully informed concerning fraud, improper activities, and other serious abuses related to the expenditure of ratepayer funds.
3. Provides for the appointment of the director of the IOAI by the Governor, subject to confirmation by the Senate, who would have the title of Inspector General, and serve a six-year term.
4. Requires that the IOAI have access and authority to examine all records, files, documents, accounts, reports, correspondence, or other property of the CPUC, public utilities, and other entities regulated by the CPUC, as specified.
5. Requires the Inspector General to report to the Governor and the Legislature on all audits and confidential investigation findings and recommendations made under the Inspector General’s jurisdiction.
6. Requires the Inspector General to report at least annually to the Governor and the Legislature with a summary of the Inspector General’s investigation and audit findings and recommendations. Requires the summary to be posted on the IOAI’s website and made publicly available.

Background

Office of Internal Audit Services (IAS) at the CPUC. The IAS is intended to provide independent, objective and advisory services designed to add value and improve the CPUC’s internal operations. The Chief Internal Auditor reports the CPUC Commissioners, through the CPUC’s Audit Committee, and under the general direction of the President. The Chief Internal Auditor position was codified by statute via SB 19 (Hill, Chapter 421, Statutes of 2017) required the Chief Internal Auditor to be responsible for oversight of the internal audit unit and to plan, initiate, and perform audits of key financial, management, operational, and information technology functions within the CPUC to improve accountability to executive and state management. According to the CPUC website, the IAS provides the following services: assurance (financial, operational, compliance, and IT risk-based audits), advisory (advise management on change initiatives, control effectiveness, enhancements to risk management, including special management reviews and investigations of alleged noncompliance); and anticipating and assessing risks (assist business owners in understanding risks and in crafting preventive mitigating controls); as well as, developing the internal audit plan for the CPUC. The Office is composed of six employees (out of nearly 2,000). According to the CPUC, over the last five years the IAS Office completed nearly 30 audits of CPUC operations. The Internal Auditor also receives notice of whistleblower complaints submitted to the CPUC’s internal compliance unit and is informed of the investigation results and management’s handling of corrective actions. Internal audit reports are intended for the internal use of the CPUC, and therefore are not posted publicly; however, they are public records and not exempt from disclosure.

About Inspector Generals. California state government has a few Inspector Generals (for the High-speed Rail Authority, the California Highway Patrol, and a handful of others). However, Inspector Generals are a more common position and function in the federal government. Under the Inspector General Act of 1978, the role of federal Inspector Generals is “to prevent and detect waste, fraud, and abuse relating to their agency’s programs and operations, and to promote economy, efficiency, and effectiveness in the agency’s operations and programs.” Federal Inspector Generals are located within their agencies but conduct their audits and investigations independently from their agencies. Roughly half of the federal Inspector Generals are appointed by the President of the United States, subject to U.S. Senate confirmation, and approximately half are appointed by the agency head. 

Comments

Need for this bill. According to the author:

The CPUC is an independent state agency operated by 5 Commissioners and thousands of employees with an annual nearing $2 billion dollars. This bill aims to establish a more transparent oversight process to the internal operations of the CPUC to better inform the public and the Legislature about areas of improvement. While the CPUC is statutorily required to have an internal auditor that exercises some independence, their office reports to the Commissioners themselves and those internal reports are not regularly made public. As frustration has grown in recent years with the agency’s operations, it’s clear more oversight and accountability is needed, however the Legislature has limited remedies given the nature of this agency’s existence.

What’s in a name? In addition to transferring the operations of the internal audit unit of the CPUC to the IOAI, this bill replaces the head of the unit with an Inspector General appointed by the Governor, confirmed by the Senate, to serve a six-year term. The Inspector General’s role as envisioned in this bill is akin to those in federal government, including the appointment, independence, and powers to investigate and audit the agency.

Revisiting the internal audit functions at the CPUC. SB 19 (Hill, 2017) required the CPUC to appoint a chief internal auditor who holds the office at the pleasure of the CPUC and be responsible for the oversight of the internal audit unit and plan. At the time, the administration argued that such appointment authority will help ensure that the CPUC commissioners can better manage the workload and operations of the CPUC. While those benefits were noted, there was also concern that the appointment by the commissioners could result in less independence of the Chief Internal Auditor. Given that the current Internal Audit Unit’s audits are not public, it’s difficult to know whether there is a need to revamp the unit and replace the head with the Inspector General envisioned by this bill. The author argues that given the myriad of State Auditor’s audits related to the CPUC, roughly 25 in roughly the same amount of years, there is a need to ensure there is greater ongoing independent audit functions at the CPUC.

Prior/Related Legislation

SB 19 (Hill, Chapter 421, Statutes of 2017) among its provisions, established a chief internal auditor at the CPUC responsible for the oversight of the internal audit unit.

AB 825 (Rendon) of 2015, would have proposed a package of reforms of the CPUC largely directed at increased transparency of the activities of the agency, including requiring the California State Auditor's Office to appoint an Inspector General within its office for the CPUC. The bill was vetoed.

SB 1452 (Speier, Chapter 452, Statutes of 2006) established a process for the Legislature to be informed when auditor recommendations are being ignored or not implemented by state agencies.

AB 2903 (Gatto) of 2016, would have provided a suite of reforms of the operations of the CPUC, including clarifying the responsibilities and oversight of various positions; improvements to ethics practices; reports related to telecommunications services and CPUC staffing; stating the intent of the Legislature to transfer most non-rail, for-hire transportation services to the State Transportation Agency; and others. The bill was never heard in its amended form.

ACA 11 (Gatto) of 2016, would have proposed a measure on the ballot to authorize the Legislature to reallocate or reassign all or a portion of the functions of the CPUC to other state agencies, departments, boards, or other entities, consistent with specified purposes and proposed to repeal the provisions of the California Constitution pertaining to the CPUC effective January 1, 2019. The bill sat in this committee, but was never heard.

AB 825 (Rendon) of 2015, would have proposed a suite of reforms of the CPUC largely directed at increased transparency of the activities of the agency, including requiring the California State Auditor's Office to appoint an Inspector General within its office for the CPUC, expanding the roles and responsibilities of the CPUC public advisor, specifying additional requirements of commissioners, and increased transparency of electric utilities' procurement, among others. The bill was vetoed.

SB 48 (Hill) of 2015, would have proposed a suite of reforms of the governance and operations of the CPUC, including, among others, requiring sessions in Sacramento, applying the Code of Ethics from the Administrative Procedures Act to administrative law judge, clarifying and augmenting the information the CPUC must provide the Legislature in its annual report, and others. The bill was vetoed.

SB 215 (Leno-Hueso, Chapter 807, Statutes of 2016) proposed a suite of reforms of the rules, operations and procedures of the CPUC pertaining to the laws and rules related to ex parte communications and criteria and process for disqualification of commissioners to a proceeding.

SB 512 (Hill, Chapter 808, Statutes of 2016) proposed a suite of reforms of the operations and governance of the CPUC, including allowing intervenor compensation for certain local governments, requiring specified information is available to the public, requiring specified reporting of the CPUC regarding the timeliness of proceedings, applying the Code of Ethics from the Administrative Procedures Act to administrative law judges, and others.

SB 660 (Leno-Hueso) of 2015, would have proposed a suite of reforms of the governance, rules, operations and procedures of the CPUC, including: reform of laws and rules related to ex parte communications, criteria and process for disqualification of CPUCs to a proceeding, and authorizes the CPUC to appoint the chief administrative law judge. The bill was vetoed.

SB 1017 (Hill) of 2016, would have modified statutes that limit public access to utility supplied documents at the CPUC, including specifying an action arising from the CPRA may be brought before the Superior Court instead of the Supreme Court. The bill died on the Assembly Floor.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

None received

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the author:

Although the California Public Utilities Commission is an independent agency of state government, its internal operations should be transparent to the public and subject to regular independent review by an outside entity to ensure efficient operations, economic administration of ratepayer funds, and compliance with state law. As utility costs continue to rise, regulatory decisions are continuously delayed, grant funds are held back for years, and Commissioners decline to participate in legislative oversight hearings it is clear that more accountability is needed on the agency operations. By establishing an independent Inspector General at the CPUC, the public and the Legislature will be better informed about the agency’s internal operations.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 705

Author:(Boerner)

As Amended Ver:March 17, 2025

Majority vote

SUMMARY

Creates the Independent Office of Audits and Investigations within the California Public Utilities Commission (CPUC) and transfers to the office the internal audit unit of the CPUC.

Major Provisions

Specifically, this bill:

1. Recasts the chief internal auditor as the Inspector General, who:
   1. Heads the new office
   2. Is appointed by the Governor, subject to Senate confirmation.
   3. Serves a six-year term and can only be removed for good cause.
   4. Has authority to conduct independent audits and investigations.
2. Establishes the functions of the Audits Office as:
   1. Monitor use of funds and compliance with laws and standards.
   2. Conduct audits across financial, management, and operational areas of the CPUC.
   3. Report findings directly to the Governor, Legislature, and CPUC on an ongoing basis.
   4. Ensure an effective enterprise risk management program.
   5. Provide annual public reports of significant findings and the status of recommendations.
3. Establishes the powers of the Audits Office as:
   1. Full access to records and facilities of the CPUC and regulated entities.
   2. Authority to enter public institutions and examine relevant documents during business hours.
4. Establishes reporting requirements for the Audits Office as:
   1. Ongoing reports to the Governor and Legislature.
   2. Annual summary reports posted online and available to the public.

COMMENTS

The CPUC is an independent, Constitutionally-established state agency with 1,739 employees and an annual budget nearing $2 billion dollars, as of 2025. Yet its internal audit office contains six employees, whose activities are rarely examined publicly. This leaves the public unaware of how serious the Office's recommendations are taken, or how thoroughly they are implemented.

There is no body, independent of the CPUC, tasked in law with regularly scrutinizing the internal workings of the CPUC. However, as the CPUC notes, it is regularly audited by the California State Auditor upon request by the Legislature. These external audits from the State Auditor routinely find issues with the CPUC's operations. These factors motivate the author to seek greater independence for the CPUC's internal audit office, and to make the internal audit office's recommendations public.

While the CPUC regularly conducts internal audits consistent with state law, the results of those audits are not regularly published for public review. However, this was not always the case. Internal audits of state agencies were once posted online due to Governor Schwarzenegger's Executive Order (EO S-08-09) requiring by June 2009, all state departments to post audit data to the Reporting Transparency in Government website. However, Governor Brown rescinded the requirement on October 09, 2011, by Executive Order (EO B-12-11) which mandated agencies and departments must provide as much information as possible on their various contracts through the eProcurement website. It is unclear how much CPUC audit activity is posted to that website. This measure seeks to ensure a return to public posting, at least for CPUC audits.

According to the Author

According to the author, "Although the California Public Utilities Commission is an independent agency of state government, its internal operations should be transparent to the public and subject to regular independent review by an outside entity to ensure efficient operations, economic administration of ratepayer funds, and compliance with state law. As utility costs continue to rise, regulatory decisions are continuously delayed, grant funds are held back for years, and Commissioners decline to participate in legislative oversight hearings it is clear that more accountability is needed on the agency operations. By establishing an independent Inspector General at the CPUC, the public and the Legislature will be better informed about the agency's internal operations."

Arguments in Support

None on file.

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Assembly Committee on Appropriations, this bill will create significant new workload of the CPUC, for which the CPUC estimates needing approximately $1.14 million annually, ongoing and $700,000 for a one-time contract to create a website.

VOTES

ASM UTILITIES AND ENERGY: 18-0-0

YES: Petrie-Norris, Patterson, Boerner, Calderon, Chen, Davies, Mark González, Harabedian, Hart, Irwin, Kalra, Papan, Rogers, Schiavo, Schultz, Ta, Wallis, Zbur

ASM APPROPRIATIONS: 14-0-1

YES: Wicks, Arambula, Calderon, Caloza, Dixon, Elhawary, Fong, Mark González, Hart, Pacheco, Pellerin, Solache, Ta, Tangipa

ABS, ABST OR NV: Sanchez

UPDATED

VERSION: March 17, 2025

CONSULTANT: Laura Shybut / U. & E. / (916) 319-2083 FN: 0000688

Date of Hearing: May 14, 2025

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 705

Author:(Boerner) – As Amended Ver:March 17, 2025

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill creates the Independent Office of Audits and Investigations within the California Public Utilities Commission (CPUC) and transfers to the office the internal audit unit of the CPUC.

The bill charges the new office with ensuring the following:

1. The CPUC is administering ratepayer funds efficiently, effectively, economically and in compliance with applicable state and federal requirements.
2. The CPUC’s programs are functioning consistent with applicable accounting standards and practices and are administered effectively, efficiently and economically.
3. The CPUC is accomplishing mandated requirements, developing an annual audit plan, administering an effective enterprise risk management program, and is making efficient, effective, and financially responsible decisions.
4. The president of the Commission, the Legislature and the Governor are fully informed concerning fraud, improper activities and other serious abuses or deficiencies relating to the expenditure of ratepayer funds or the administration of commission programs and operations. 

The bill provides that the director of the office shall have the title of Inspector General (IG) and shall be appointed by the Governor, subject to Senate confirmation, and serve a six-year term, and may be removed from office during that term only for good cause only.

Finally, the bill directs the IG to report all audit and confidential investigation findings and recommendations to the Governor and Legislature on an ongoing and current basis, and to report at least annually to the Governor and the Legislature a summary of the IG’s investigation and audit findings and recommendations, with the summary posted on the office’s website.

FISCAL EFFECT:

This bill will create significant new workload of the CPUC, for which the CPUC will need new staffing and other resources. Resulting costs are likely to be in the hundreds of thousands of dollars to low millions of dollars annually, ongoing (Public Utilities Commission Utilities Reimbursement Account).

For its part, the CPUC estimates it will need approximately $1.14 million annually, ongoing for one inspector general ($345,800), a supervising investigator ($175,200), three special investigators ($471,600) and a program analyst ($133,900), along with associated costs for travel ($12,200). In addition, the CPUC anticipates needing a $700,000 one-time contract for a new inspector general’s office website.

COMMENTS:

1. Purpose. The author contends the CPUC needs regular, independent review of its internal operations for purposes of transparency and accountability. According to the author:

Although the California Public Utilities Commission is an independent agency of state government, its internal operations should be transparent to the public and subject to regular independent review by an outside entity to ensure efficient operations, economic administration of ratepayer funds, and compliance with state law. As utility costs continue to rise, regulatory decisions are continuously delayed, grant funds are held back for years, and Commissioners decline to participate in legislative oversight hearings it is clear that more accountability is needed on the agency operations. By establishing an independent Inspector General at the CPUC, the public and the Legislature will be better informed about the agency’s internal operations.

1. Background. The California Constitution establishes the CPUC to, among other things, fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt and prescribe a uniform system of accounts for all public utilities subject to its jurisdiction. The constitution identifies those public utilities under CPUC jurisdiction as private corporations and persons that own, operate, control or manage a line, plant or system for the transportation of people or property, the transmission of telephone and telegraph messages, or the production, generation, transmission or furnishing of heat, light, water, power, storage or wharfage directly or indirectly to or for the public, as well as other public utilities as prescribed by the Legislature. The California Constitution describes the CPUC as consisting of five members, appointed by the Governor and approved by the Senate, each serving a staggered six-year term.

At its inception, the CPUC located its headquarters in San Francisco to provide it independence from the corrupting influence of Sacramento. Nonetheless, the state’s constitution is explicit that the Legislature has plenary power to confer additional authority and jurisdiction upon the CPUC, to establish the manner and scope of review of CPUC action in a court of record, and to enable the CPUC to fix just compensation for utility property taken by eminent domain.

There is no body, independent of the CPUC, tasked in law with regularly scrutinizing the internal workings of the CPUC. However, as the CPUC notes, it is regularly audited by the California State Auditor upon request by the Legislature.

The committee is aware of neither support for this bill, nor opposition to it.

Analysis Prepared by: Jay Dickenson / APPR. / (916) 319-2081

Date of Hearing: April 23, 2025

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Cottie Petrie-Norris, Chair

ABPCA Bill Id:AB 705 (

Author:Boerner) – As Amended Ver:March 17, 2025

SUBJECT: Public Utilities Commission: Independent Office of Audits and Investigations

SUMMARY: Transfers the internal audit unit of the California Public Utilities Commission (CPUC) to a newly established Independent Office of Audits and Investigations (“Audits Office”) within the CPUC. The Audits Office is designed to ensure transparency, accountability, and efficiency in the use of ratepayer funds and the effective execution of CPUC programs and statutory mandates. Specifically, this bill:

1. Recasts the chief internal auditor as the Inspector General, who:
   1. Heads the new office
   2. Is appointed by the Governor, subject to Senate confirmation.
   3. Serves a six-year term and can only be removed for good cause.
   4. Has authority to conduct independent audits and investigations.
2. Establishes the functions of the Audits Office as:
   1. Monitor use of funds and compliance with laws and standards.
   2. Conduct audits across financial, management, and operational areas of the CPUC.
   3. Report findings directly to the Governor, Legislature, and CPUC on an ongoing basis.
   4. Ensure an effective enterprise risk management program.
   5. Provide annual public reports of significant findings and the status of recommendations.
3. Establishes the powers of the Audits Office as:
   1. Full access to records and facilities of the CPUC and regulated entities.
   2. Authority to enter public institutions and examine relevant documents during business hours.
4. Establishes reporting requirements for the Audits Office as:
   1. Ongoing reports to the Governor and Legislature.
   2. Annual summary reports posted online and available to the public.

EXISTING LAW:

1. Establishes the CPUC with jurisdiction over all public utilities and grants the CPUC certain general powers over all public utilities and common carriers, subject to control by the Legislature. (California Constitution, Article 12)
2. Establishes requirements for internal auditors in state government, including a framework to establish a level of independence for the internal auditors and a reporting structure that allows for disclosure to external parties, such as the Governor’s office or the State Auditor. (Government Code §§ 13885-13888)
3. Requires the CPUC to regulate utilities, establish just and reasonable rates for service, and establish a division of the CPUC responsible for consumer protection and safety. (Public Utilities Code § 451 and § 309.7)
4. Requires the CPUC to appoint a chief internal auditor, who holds office at the CPUC’s pleasure. Grants the chief internal auditor responsibility over the internal audit unit, and mandates the chief perform audits of key functions within the CPUC, as specified. (Public Utilities Code § 307.6)
5. Mandates the CPUC adopt an updated Conflict of Interest Code and Statement of Incompatible Activities by February 28, 1998. (Public Utilities Code § 303)

FISCAL EFFECT: Unknown. This bill is keyed fiscal, and will be referred to the Assembly Committee on Appropriations for its review.

CONSUMER COST IMPACTS: Unknown, potentially negligible.

BACKGROUND:

Legislative Action on Internal Audits – Nearly 20 years ago, the Legislature passed a set of reforms to enable greater transparency and protections for audits of state governmental activity.^[1] These reforms enable the protection and independence of auditors and enable the Legislature to be informed when State Auditor recommendations are being ignored or not implemented by state agencies. In addition, they enable audit findings to be reported to state agency counsel or higher executive branch management if these findings are suppressed by direct management. These reforms are outlined in Table 1 below.

Table 1: Internal Audits of State Agencies – Powers, Rules, and Protections.

Internal Audits at the CPUC – The CPUC has an Office of Internal Audit Services (IAS), separate and distinct from the audit functions the CPUC exercises over the regulated utilities. The IAS Office seeks to add value and efficiency to improve the CPUC’s internal operations; whereas, the Utility Audits Division performs a variety of external audits to enhance the transparency, accountability, and performance of California’s regulated utilities. As detailed below in Figure 1,^[2] the IAS Office reports directly to the Commissioners and is a separate unit within the CPUC organizational structure.

The IAS Office is small; just six employees out of the CPUC’s 1,739.^[3] As shown in Figure 2, the IAS is headed by a Chief Internal Auditor, a position statutorily mandated in 2017.^[4] Per statute, the IAS Office reports to an audit committee of the CPUC, currently comprised of Commissioner Houck and Commissioner Baker. According to the CPUC, over the last five years the IAS Office completed 29 audits of CPUC operations, including reviews of various CPUC third-party contracts, compliance with staff travel and reimbursement policies, and responsiveness to utility customer complaints. The Internal Auditor also receives notice of whistleblower complaints submitted to the CPUC’s internal compliance unit and is informed of the investigation results and management’s handling of corrective actions. This enables visibility into complaint trends and internal follow-up. Internal audit reports are intended for the internal use of the CPUC, and therefore are not posted publicly; however, they are public records and not exempt from disclosure.

External Audits Find Deficiencies in the CPUC’s Operations – Since 1997, the State Auditor’s Office has published independent audits of the CPUC approximately 27 times. Often, the conclusions highlight deficiencies in the CPUC’s management and administration of state programs. In 2014, the State Auditor noted the CPUC needed to improve monitoring of utility balancing accounts.^[5] A 2023 audit noted similar shortcomings in utility balancing account oversight.^[6] Other audits have cited issues with electrical system safety,^[7] water rate processes,^[8] contracting practices,^[9] and consumer complaint data.^[10]

COMMENTS:

1. Author’s Statement. According to the author, “Although the California Public Utilities Commission is an independent agency of state government, its internal operations should be transparent to the public and subject to regular independent review by an outside entity to ensure efficient operations, economic administration of ratepayer funds, and compliance with state law. As utility costs continue to rise, regulatory decisions are continuously delayed, grant funds are held back for years, and Commissioners decline to participate in legislative oversight hearings it is clear that more accountability is needed on the agency operations. By establishing an independent Inspector General at the CPUC, the public and the Legislature will be better informed about the agency’s internal operations.”
2. Purpose of Bill. The CPUC is an independent, Constitutionally-established state agency with 1,739 employees and an annual budget nearing $2 billion dollars, as of 2025.^[11] Yet its internal audit office contains six employees, whose activities are rarely examined publicly. This leaves the public unaware of how serious the Office’s recommendations are taken, or how thoroughly they are implemented. As noted above, external audits from the State Auditor routinely find issues with the CPUC’s operations. These factors motivate the author to seek greater independence for the CPUC’s internal audit office, and to make their recommendations public. The author raises the need to reform and recast the internal auditing function of the CPUC due to growing public frustration with the agency’s operations, noting more oversight and accountability is needed.
3. Name that Auditor. This bill renames the CPUC’s chief internal auditor the “Inspector General” with duties that remain largely the same. The key difference is to ensure the role is more public-facing, including making the role:
   • A Governor-level appointment, with Senate confirmation.
   • Directly report to the Governor and Legislature on an ongoing and current basis.
   • Annually reporting audit summaries to the Governor, Legislature, and posting publicly online.
   • Have full access to records and facilities of the CPUC and regulated entities.
   • Authorized to enter public institutions and examine relevant documents during business hours.

Inspectors Generals are common roles and offices in the federal government, with 74 statutory Inspectors General across the federal government.^[12] While California has several independent Inspectors General offices – including for the Department of Corrections and Rehabilitation, California Highway Patrol, and Department of Transportation – California has traditionally relied upon internal auditors, who work within and report directly to agency leadership.

As noted above, existing law^[13] establishes protocols to protect the integrity of internal auditors in state government. However, the author raises concern that those auditors are principally accountable to their agency leadership and their work is not often shared publicly. For instance, the CPUC’s chief internal auditor holds “office at the pleasure of the Commission” pursuant to statute.^[14] The author contrasts this structure with that of an Inspector General, who traditionally are independent auditors that exist outside of an agency and act independently.

1. Public Disclosures. While the CPUC regularly conducts internal audits consistent with state law, the results of those audits are not regularly published for public review. However, this was not always the case. Internal audits of state agencies were once posted online due to Governor Schwarzenegger’s Executive Order (EO S-08-09)^[15] requiring by June 2009, all state departments to post audit data to the Reporting Transparency in Government website. However, Governor Brown rescinded the requirement on October 09, 2011, by Executive Order (EO B-12-11)^[16] which mandated agencies and departments must provide as much information as possible on their various contracts through the eProcurement website. It is unclear to this committee how much CPUC audit activity is posted to that website. This measure seeks to ensure a return to public posting, at least for CPUC audits.
2. Prior Legislation.

AB 884 (Patterson, 2021) required all state agencies with aggregate spending of $50,000,000 or more annually to establish an ongoing audit function, and directed state agencies to post any audit findings and recommendations to their internet website within five days of a report release pursuant to existing law. Status: Died – Assembly Committee on Appropriations.

SB 19 (Hill), among its many requirements and changes, established a chief internal auditor at the CPUC responsible for the oversight of the internal audit unit. Status: Chapter 421, Statutes of 2017.

AB 825 (Rendon, 2015) would have proposed a package of reforms of the CPUC largely directed at increased transparency of the activities of the agency, including requiring the California State Auditor's Office to appoint an Inspector General within its office for the CPUC. Status: Vetoed.

SB 1452 (Speier) Establishes a process for the Legislature to be informed when auditor recommendations are being ignored or not implemented by state agencies. If audit findings are suppressed by management they will be reported to state agency counsel. Finally, it creates a framework to protect internal auditors from intimidation. Status: Chapter 452, Statutes of 2006.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Laura Shybut / U. & E. / (916) 319-2083

1. Government Code §§ 13885-13888, established under SB 1452 (Speier, Chapter 452, Statutes of 2006) ↑

2. CPUC slide deck; “Internal Audit Services and Risk and Compliance Branch’s Accomplishments in 2024 and Goals for 2025;” February 20, 2025. ↑

3. Department of Finance; 2025-2026 Governor’s Budget; January 10, 2025; General Government summary; https://ebudget.ca.gov/budget/2025-26/#/Agency/8000 ↑

4. PUC § 307.6, added by SB 19 (Hill, Chapter 421, Statutes of 2017) ↑

5. State Auditor, Audit 2013-109; California Public Utilities Commission: Improved Monitoring of Balancing Accounts Would Better Ensure That Utility Rates Are Fair and Reasonable, March 4, 2014; https://information.auditor.ca.gov/pdfs/reports/2013-109.pdf ↑

6. State Auditor, Audit 2022-115; Electricity and Natural Gas Rates: The California Public Utilities Commission and Cal Advocates Can Better Ensure That Rate Increases Are Necessary, August 29, 2023; https://information.auditor.ca.gov/pdfs/reports/2022-115.pdf ↑

7. State Auditor, Audit 2021-117; Electrical System Safety: California's Oversight of the Efforts by Investor‑Owned Utilities to Mitigate the Risk of Wildfires Needs Improvement, March 24, 2022; https://information.auditor.ca.gov/pdfs/reports/2021-117.pdf ↑

8. State Auditor, Audit 2018-118; California Public Utilities Commission: It Could Improve the Transparency of Water Rate Increases by Disclosing Its Review Process and Ensuring That Utilities Notify Customers as Required, December 18, 2018; https://information.auditor.ca.gov/pdfs/reports/2018-118.pdf ↑

9. State Auditor, Audit 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, September 22, 2016; https://information.auditor.ca.gov/pdfs/reports/2016-104.pdf ↑

10. State Auditor, Audit 2014-120; California Public Utilities Commission: It Needs to Improve the Quality of Its Consumer Complaint Data and the Controls Over Its Information Systems, April 9, 2015; https://information.auditor.ca.gov/pdfs/reports/2014-120.pdf ↑

11. Department of Finance; 2025-2026 Governor’s Budget; January 10, 2025; General Government summary; https://ebudget.ca.gov/budget/2025-26/#/Agency/8000 ↑

12. Statutory Inspectors General in the Federal Government: A Primer. https://www.congress.gov/crs-product/R45450#:~:text=As%20of%20February%202023%2C%2074,operate%20in%20the%20federal%20government.&text=The%20IG%20Act%20governs%2064,special%20IGs%20(Figure%201). ↑

13. Government Code §§ 13885-13888, established under SB 1452 (Speier, Chapter 452, Statutes of 2006) ↑

14. PUC § 307.6 (a) ↑

15. https://www.library.ca.gov/wp-content/uploads/GovernmentPublications/executive-order-proclamation/38-S-08-09.pdf ↑

16. https://www.library.ca.gov/wp-content/uploads/GovernmentPublications/executive-order-proclamation/39-B-12-11.pdf ↑