State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Report to the Arizona Legislature
By Douglas R. Norton
Auditor General
RESIDENTIAL UTILITY
CONSUMER OFFICE
AND
RESIDENTIAL UTILITY
CONSUMER BOARD
June 1999
Report No. 99-10
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DOUGLAS R. NORTON, CPA
AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
DEPUTY AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
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Table of Contents
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Introduction and Background........................................................... 1
Finding I: RUCO Effective in Advocating
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Table of Contents (cont’d)
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Introduction and Background........................................................... 27
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Figure 1
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Table 1
Residential Utility Consumer Office
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended or Ending June 30, 1997, 1998, and 1999
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Table 2
Residential Utility Consumer Office
Number of Utility Applications and RUCO Interventions
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Years Ended December 31, 1995 through 1998
1995 1996 1997 1998
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Residential Utility
Consumer Office
Agency Response
May 20, 1999
Douglas R. Norton, CPA
Auditor General
Office of the Auditor General
2910 North 44th Street, Suite 410
Phoenix, Arizona 85018
Dear Mr. Norton:
RUCO is pleased to receive such a favorable report from the Auditor General.
His exhaustive analysis – spending over 2,000 hours examining every case in
which the office has intervened over the last five years – quantifies what RUCO
has believed all along. RUCO is an effective advocate for residential consumers.
RUCO also appreciates the Auditor General’s recognition that changes and
growth in the State’s utility industries may contribute to a more challenging and
demanding workload for the agency.
RUCO appreciates the Auditor General’s suggestions concerning how our
internal processes can meet those future challenges. Utility regulation is
becoming increasingly complex and the suggestions “to ensure that RUCO
continues to beneficially advocate on behalf of residential consumers” are
excellent.
The Auditor General has recommended that, because of the changing regulatory
environment, RUCO should establish a broader mission statement, expand the
definition of its stakeholders and customers and determine the focus of future
advocacy efforts. These changes will require modification of RUCO’s statutory
authority and we are committed to working with the Auditor General to prepare
and present a Legislative agenda incorporating these recommendations.
Douglas R. Norton
May 20, 1999
Page 2
Additionally, the Auditor General has recognized that RUCO has achieved this
high level of effectiveness while operating significantly below budget. RUCO
appreciates the suggestions as to how we can work better with GOA and the
Arizona Corporation Commission to ensure that our annual surplus flows back to
consumers as efficiently as possible. RUCO will endeavor to eliminate the
confusion caused returning a surplus to consumers through the labyrinthine
assessment process.
Finally, RUCO would like to thank the Auditor General and his staff for their
professionalism, recommendations, and responsiveness.
Sincerely,
Greg Patterson
Director
1
Recommendations
1. To ensure that RUCO continues to beneficially advocate on behalf of residential
consumers, RUCO should develop a more comprehensive strategic plan that
identifies key areas for advocacy in Arizona’s dynamic utility regulatory
environment. Components of this plan could include:
a. Establishing a broader mission statement; Agree: Implement
b. Defining its stakeholders and customers; Agree: Implement
c. Identifying what services it will deliver; and Agree: Implement
d. Determining the focus of future advocacy efforts. Agree: Implement
2. RUCO should formalize its case selection process by documenting the process it
employs and the factors it considers when assessing cases for possible
intervention;
Agree: Implement
3. RUCO should formalize its process for measuring and critiquing its impact in
cases to continue to maximize RUCO interventions on behalf of residential
consumers; and
Agree: Implement
4. RUCO should define its consumer education focus, including development of a
Website.
Agree: Implement
5. RUCO should abide by A.R.S. §§ 40-401.01 and 40-409 when determining its
annual assessment amount. Specifically, RUCO should reduce each year's
assessment by an amount equal to any monies estimated to remain in its
revolving fund at the end of the fiscal year.
Agree: Implement
6. To ensure proper fund management, RUCO should strengthen its financial
practices by:
a. Developing policies and procedures to monitor fiscal activities;
Agree: Implement
2
b. Assigning responsibility within policies and procedures for performing
various fiscal activities; Agree: Implement
c. Reconciling assessments, collections, and deposits; and
Agree: Implement
d. Monitoring revolving fund transactions. Agree: Implement
Residential Utility Consumer Board
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Residential Utility
Consumer Board
Agency Response
BOARD OF DIRECTORS
Residential Utilities Consumer Office
James Spezzano, Chairman
Other Members of the Board
Dave Carson Dewey Timothy Schmaltz Phoenix Robert Usdane Scottsdale Mercy Valencia Tucson
June 8, 1999
Douglas Norton
AUDITOR GENERAL
2910 No. 44th Street Suite 410
Phoenix, AZ 85018
Dear Mr. Norton:
The Residential Utility Consumer Board has reviewed the revised preliminary draft, issued 5-11-99, of
the performance audit conducted by your office. While the report sheds light on the many issues that
have frustrated the Board for some time, we disagree with where the responsibility for solutions
belongs. The Board’s response to your audit report is contained in our attached Final Draft Report.
We have a general, serious concern with the audit’s basic premise that the Board and RUCO office are
two separate entities, which is contrary to the relationship established between ARS 40-463.I and 40-
463.J, their relationship to ARS-462.A and the original intent of the statutes to protect residential utility
consumer interests. The statutes clearly define RUCO’s role as representing residential utility
consumers. Albeit the Board’s major responsibility is to “advise (RUCO) office on all matters,” the
Board is also mandated in the areas of budget, advisory input and court withdrawals. However, the
Board’s role has not been viewed as such by the RUCO administration. The audit does not reflect the
increasing division that has occurred because of the legal opinion that the two separate statutes create
two legally separate entities (agencies) that divide the roles of the Board and the RUCO office at the
expense of the residential consumer. This separation effectively renders the audit recommendations
unattainable by the Board.
The audit does not recognize the Board’s continual attempts to deal with the RUCO office in a
collaborative manner and the lack of responsiveness to explicit Board requests by the agency
administration that has impeded the Board from fulfilling its obligations. Additionally, the audit report
fails to mention that responsibility for carrying out the needs of the Board falls to the RUCO office
since the Board has no budget or staff.
We would appreciate clarification of your May 11,1999, letter referring to the April 8, 1999, Executive
Session. The Board would like to know which issues and instances could not be verified and therefore
not addressed by the board.
Sincerely,
James Spezzano
Chairman
C o n f i d e n t i a l
RESIDENTIAL UTILITY CONSUMER BOARD OF DIRECTORS
Response to the Auditor General’s performance audit report
(6-8-99 — final draft report)
The Board agrees with the AG’s recommendation that processes be developed in collaboration
with RUCO that would enable the Board to work effectively with residential consumers, advise
RUCO and carry out its other responsibilities; however, there is a high degree of disagreement as
to the basis for this recommendation. The basis for AG Finding 1 was based on minutes from
Board meetings. The Board acknowledges that its meetings were not held under its own aegis.
The Board was prohibited from carrying out its statutory mandate by the agency administration’s
lack of responsiveness to persistent requests that presentation of issues not be entirely technical
in nature, but rather should focus more on the perspective of the residential consumer.
The Board has attempted to solve agenda issues collegially and informally, in the spirit of
cooperation, without results from RUCO’s leadership. The AG’s report now requires the Board
to publically declare its frustration and the lack of response from the agency. A current example
of this lack of response is available though a review of the tape from the 4-23-99 public meeting,
which documents the consistent demands from the Board for additional consumer perspective
information on each issue for the next meeting, yet the agenda for the 5-15-99 meeting ignores
the Board’s request.
In the following the Board addresses each finding presented in the audit report.
Finding 1: The Board Ineffectively Fulfills Its Roles
Limited need for technical advisory role:
RESPONSE
The audit states that RUCO has evolved into a highly technical agency and does ”not rely on
board assistance to do their work.” Here the audit assumes, that to be effective the Board should
act as a technical advisory body. This statement is inherently contradictory since all agree that
the Board is a consumer advisory board focusing on the broad impact on the consumer of utility
costs and services, not the technical aspects of rate making and rate design.
Board ineffective in representing public concerns:
RESPONSE
The audit does not reflect attempts by the Board to address public concerns. A prime example
may be found in the Arizona Community Action Association’s (ACAA) 7-29-98 letter to Board
member Usdane expressing concern regarding the proposed rule changes concerning
deregulation as discussed at the ACAA 7-15-98 Stakeholders’s meeting. The ACAA believes
the public process was unfair to small consumers because (1) the hearing was not advertised, (2)
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there was no residential consumer participation, (3) there was no consumer education and (4) the
proposed changes lack small consumer benefits. The ACAA letter cites the RUCO director’s
testimony as a filing of technical information rather than a treatment of residential consumer
interest issues. The Board attempted to bring this issue to RUCO and that effort was disregarded.
The board has been put in the untenable position of seeking public participation without the
budget or staff to relocate meetings for public input. The Board would prefer to have a more
public forum than has been offered in the past. Two Board meetings were held regionally but
lack of advertising and appropriate timing may have hindered public participation.
Chronic vacancies, poor attendance and questions about authority hinder effectiveness:
RESPONSE
The Board agrees that some members must assume responsibility for their lack of attendance, but
has no control over the filling of vacancies with members committed to attending meetings.
Historically, there seems to have been an inordinate amount of time passing before replacement
of Board members has been accomplished, which increases the burden on the remaining
members. Additionally, the consistent presentation of data on a technical basis and the lack of
information regarding the impact of rates and services on residential consumers (as requested)
has resulted in some indifference on the part of previous Board members. The Board has
questioned its role and authority as stated, however the Board was questioning whether its
mission was being fulfilled by the agency and how the Board could better interact with the
agency to fulfill its mission. The Board agrees with the recommendation to have the legislature
revise ARS 40-463 to strengthen the Board’s ability to fulfill its statutory mandate.
BOARD’S ABILITY TO PERFORM ITS OVERSIGHT DUTIES IS LIMITED BY
INADEQUATE PROCESSES AND INFORMATION.
RESPONSE
The Board agrees with the AG’s statement regarding the Board’s limited ability to fulfill its
oversight duties. The RUCO staff has limited the Board’s oversight duties by failing to provide
needed information and not responding to direct Board requests to do so.
Board has minimal role in budget matters:
RESPONSE
ARS 40-463.L states the Board’s responsibility to jointly prepare the budget but does not give
clear authority for approval. The Board has played a minimal role because the RUCO
administration has excluded the Board from the budget process. For example, the FY2000/2001
budget was not jointly prepared nor approved by the Board. In fact, the Board refused to sign the
budget as it was presented, thus withholding approval pending further input. Nevertheless, the
budget was forwarded to the legislature by the RUCO administration. In this instance, the Board
was precluded from fulfilling its statutory obligation. Contrary to Board member narration of
events, the audit states that the Board approved recent budgets; therefore the Board respectfully
requests verification of when and in what manner the budget was approved.
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Few court actions filed:
RESPONSE
There is no current process for informing the Board of pending legal action to allow the board to
fulfill its role, however the Board has requested that RUCO implement a procedure whereby the
Board could be fully informed as to the objectives and details of a proposed court action prior to
the commencement of the action. This knowledge would enable the Board to exercise the 5-day
withdrawal option when deemed necessary. The audit does not make note of the Board’s attempt
to ask for a specific case to be filed, where subsequently and without notification to the Board,
RUCO withdrew the case. In this particular case, the issue was considered critical to the interests
of residential consumers.
IMPROVEMENTS NEEDED TO ENHANCE BOARD’S EFFECTIVENESS
Establish processes to encourage increased public awareness, participation and input:
RESPONSE
The Board strongly supports the establishment of a process to increase public awareness, etc., but
it is impossible for a voluntary board to achieve this without the agency’s assistance. It is
imperative that RUCO provide the Board with staff, budget and general assistance to assist the
Board in performing its legislative mandate.
Improve process to ensure timely dissemination of information for the Board’s
consideration:
RESPONSE
The board is very supportive of improving processes for the timely dissemination of information,
however the draft report places the onus on the Board to develop those improved processes.
Without the cooperation of the RUCO administration, this is not achievable. At issue is the
administrator’s interpretation of the separation of the Board from the agency and the apparent
assumption that processes to inform the Board are unnecessary. The Board is merely the
recipient of information and as such is not in a position to change RUCO processes. The Board
would support efforts to have RUCO change its information dissemination processes.
Coordinate the provision of staffing resources to assist the Board in its efforts:
RESPONSE
The Board wholeheartedly agrees with the draft report’s substantiation of the need for support
staff. At least a part-time dedicated staff person is critical to the Board if issues of agenda
setting, taking and transcribing minutes, preparing reports and correspondence, scheduling
meetings and speaking engagements, informing the public, etc., are to be successful.
RECOMMENDATIONS
RESPONSE
As stated in the Board’s 6-3-99 cover letter, the Board is seriously concerned with the audit’s
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basic premise that the Board and the RUCO office are two distinct and separate entities
(agencies), which is contrary to the relationship established between ARS 40-463I, 40-436.J and
their relationship to ARS 40-462.A and the original intent of the statutes to protect residential
consumer interests. The statutes clearly define RUCO’s role as representing residential utility
consumers. While the Board’s major responsibility is to “advise (RUCO) office on all matters,”
the Board is also mandated in the areas of budget, advisory input and court withdrawals.
However its role has not been viewed as such by the RUCO administration. The audit does not
reflect the increasing division which has occurred because of the legal opinion that the two
separate statutes create two separate organizations that divide the roles of the Board and the
Agency at the expense of the residential consumer. The separation of the two agencies leaves the
audit recommendations not achievable by the Board. Further, the audit does not reflect the
efforts of the Board’s continual attempts to deal with RUCO in a collaborative manner, and the
lack of responsiveness to explicit Board requests by the agency administration that have impeded
the Board from fulfilling its obligations. Additionally, the audit report does not reflect that the
responsibility for carrying out the needs of the Board falls to the agency since the Board has no
budget or staff.
1. The Legislature should consider revising ARS 40-463 to clarify the Board’s role
and focus Board activities on obtaining, and transmitting to RUCO, public
concerns regarding utility issues.
RESPONSE:
The Board agrees with the finding of the Auditor General to request the Legislature consider
strengthening ARS 40-463 to clarify the Board’s role and to focus Board activities on obtaining
and transmitting to RUCO public concerns regarding utility issues. The Board recommends that
Attachment A be submitted to the Legislature to address statutory mandates.
2. The Board should work with RUCO to develop and implement various processes
to assist in fulfilling its consumer and RUCO advisory roles. Processes should be
developed for:
a) Scheduling board meetings and speaking engagements, selecting appropriate sites for
these meetings and speaking engagements, and informing the public of these board
activities; and
b) Obtaining necessary information on cases under review by RUCO, advising RUCO on
these cases and consumer interests and concerns, and receiving reports from RUCO
on case actions and proceedings.
RESPONSE:
The findings of the Auditor General is agreed to, however the recommendation can not be
implemented as currently stated. The statutes create an interdependence between RUCO and the
Board for the shared purpose of representing residential consumer interest, both mandated and
advisory. While the onus of developing processes should be on the RUCO administration, the
Board submits Attachment B as its recommendation for establishing one needed and important
process to address the shared purpose of representing residential consumer interests.
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3. The Board should work with RUCO to establish processes for:
a) Providing for the Board’s statutorily required participation in the preparation of
RUCO’s budget;
RESPONSE:
ARS 40-463.L states the Board’s responsibility is to jointly prepare the budget but does not
clarify its authority for approval. The Board has played a minimal role because the RUCO
administration has excluded the Board from the budget process. The finding of the Auditor
General is agreed to in concept; however the recommendation cannot be implemented as
presently stated. Legislative adoption of the statutory changes recommended in Attachment A
would provide a constructive and workable remedy.
b) Notifying the Board of court actions filed by RUCO’s director and providing
appropriate materials to the Board on the court action within sufficient time to allow
the Board to convene, review, and decide on the appropriateness of the court action
within the statutorily required time frame.
RESPONSE:
There is no current process for informing the board of pending legal action to allow the board to
fulfill its role, however the Board has requested that RUCO implement a procedure whereby the
Board could be fully informed as to the objectives and details of a proposed court action prior to
the commencement of the action. This knowledge would enable the Board to exercise the 5-day
withdrawal option when deemed necessary. The statutory recommendations in Attachment A
would accomplish this. The Board is prepared to fully function in its advisory role and meet the
statutory mandates as suggested by the audit report upon implementation of the recommended
procedural and statutory changes.
4) The Board should work with RUCO to identify and provide a dedicated part-time staff
person to facilitate its activities. If RUCO cannot make these resources available,
theBoard should work with RUCO to use some of its available budget monies to
provide the needed staffing resources.
RESPONSE:
The Board and RUCO should work together to identify and provide at least a dedicated part-time
staff person to facilitate the Board’s activities. If RUCO cannot make these resources available,
the Board will work with the Legislature to request budget funds for the needed resources. The
finding of the Auditor General is agreed to and the audit recommendation will be implemented to
the extent possible.
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(RUCO Board response to Auditor General’s report)
ATTACHMENT A
Proposed Amendments to ARS 40-463
Strike existing language and insert:
K. “BOARD APPROVAL SHALL BE REQUIRED PRIOR TO THE FILING OF ANY
COURT ACTION AND ANY ONGOING COURT ACTION SHALL BE IMMEDIATELY
WITHDRAWN UPON ORDER OF THE BOARD.”
L. “THE DIRECTOR SHALL COORDINATE PREPARATION OF THE BUDGET
WITH THE BOARD AND THE BUDGET SHALL NOT BE OFFICIALLY FILED UNTIL
FIRST APPROVED BY THE BOARD.”
Add the following new sections:
M. “AT THE BOARD’S DIRECTION AND WITH THE BOARD’S PARTICIPATION
AND APPROVAL THE DIRECTOR SHALL PREPARE AND IMPLEMENT A PROCEDURE
FOR INFORMING RESIDENTIAL UTILITY USERS IN ANY MATTER DEEMED BY THE
BOARD VITAL TO THE INTERESTS OF THE USERS AFFECTED.”
N. “THE DIRECTOR SHALL PROVIDE TO ANY BOARD MEMBER UPON THE
MEMBER’S REQUEST AND IN A TIMELY MANNER ANY REPORT OR OTHER
INFORMATION REASONABLY AVAILABLE PERTAINING TO THE AGENCY’S
ACTIONS AND ACTIVITIES.”
O. “UPON ORDER OF THE BOARD THE DIRECTOR SHALL PREPARE AND
TRANSMIT TO THE CORPORATION COMMISSION OR OTHER AGENCY OR
INDIVIDUAL ANY REPORT, RECOMMENDATION OR REQUEST PERTAINING TO
RESIDENTIAL UTILITIES AND APPROVED BY THE BOARD.”
P. “THE BOARD MAY PROMULGATE AND ADOPT RULES REGARDING THE
NATURE AND FORMAT OF AGENCY DEVELOPED DATA PRESENTED TO THE
BOARD FOR CONSIDERATION; THE DATE, TIME AND LOCATION OF BOARD
MEETINGS AND THE NATURE AND SCOPE OF EDUCATIONAL MATERIAL TO BE
MADE AVAILABLE OR DISTRIBUTED TO RESIDENTIAL UTILITY USERS.”
Q. “UPON ORDER OF THE BOARD, FOUR-FIFTHS OF THE MEMBERS
CONCURRING OR BY UNANIMOUS CONSENT OF THE MEMBERS IN ATTENDANCE
AT THE MEETING AND CONSTITUTING A QUORUM, THE DIRECTOR SHALL
INSTITUTE, REVISE OR WITHDRAW ANY RATE MAKING, RATE DESIGN OR OTHER
RESIDENTIAL UTILITY RELATED INTERVENTION ACTION ANTICIPATED OR
INITIATED BY THE AGENCY.”
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(RUCO Board response to Auditor Generals’s report)
ATTACHMENT B
The follows pertains to a Board recommended process for the provision of information to
the Board by the agency for the Board’s consideration and action.
Information to be provided to the Board on NEW CASE filings
1. The utility’s name and case number.
2. The type of service(s) provided by the utility.
3. The geographic area (county, town/city, suburb, community, etc.) Served by the utility.
4. The approximate number of users served (in each category of service, if more than one)
served by the utility.
5. Nature of the change requested by the utility and the utility’s stated reason for
requesting the change.
6. Whether or not RUCO has received or is aware of any user complaints regarding the
operation of the utility and, if so, the nature and extent of the complaints.
7. RUCO staff’s preliminary assessment and/or opinion as to the merits of the utility’s
request and the anticipated effect of the change on users.
8. RUCO staff’s initial or anticipated intervention action(s) on behalf of the affected
utility users.
Information to be provided to the Board on ONGOING CASE activity
1. The utility’s name and case number.
2. The type of service(s) provided by the utility.
3. The geographic area (county, town/city, suburb, community, etc.) Served by the utility.
4. The approximate number of users served (in each category of service, if more than one)
served by the utility.
5. RUCO’s evaluation, if any, of the utility’s past performance in serving its users,
including consideration of the following:
a. The quality and assured supply of its products, if applicable.
b. The age and reliability of its delivery/distribution system.
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c. Its reserve or emergency backup facilities, if any.
d. Its need and plan for system repairs, replacements & upgrades, if any.
e. Its capacity and plans for expansion of the system or service area, if any.
f. Its charges/fees to users for
