Audit of Southern California Gas Company’s Affiliate

71 Pages·2013·1.59 MB·English

by  Maguire, William

STATE OF CALIFORNIA EDMUND G. BROWN, JR., Governor
PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102

REQUEST FOR PROPOSAL- Primary
Notice to Prospective Proposers

Audit of Southern California Gas Company’s Affiliate Transactions
RFP NO.12PS5079

March 5, 2013

You are invited to review and respond to this Request for Proposal (RFP), entitled RFP Number 12PS5079
Audit of Southern California Gas Company’s Affiliate Transactions. In submitting your proposal, you must
comply with these instructions.
Note that all agreements entered into with the State of California will include by reference General Terms and
Conditions and Contractor Certification Clauses that may be viewed and downloaded at Internet site
www.ols.dgs.ca.gov/Standard+Language. If you do not have Internet access, a hard copy can be provided
by contacting the person listed below.
In the opinion of the California Public Utilities Commission, this RFP is complete and without need of
explanation. However, if you have questions, or should you need any clarifying information, you may submit
your questions on Bidsync in the area marked questions. Please refer to the Key Actions Dates in this RFP
for deadlines for questions.
Please note that no verbal information given will be binding upon the State unless such information is issued
in writing as an official addendum.

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Table of Contents

Section Page

1) Purpose and Brief Description of Services Required……………………….…………3
A. Summary…………………………………………………………………………………...3
B. Background and Purpose……………………………………………………………….3
C. Audit Scope and Requirements………………………………………………………..4
D. Conflicts of Interest………………………………………………………………………6

2) Minimum Qualifications for Proposers ………………………………………….….……9

3) Key Action Dates …………………………………………………………………………….10

4) Proposal Requirements……………………………………………………………….…...11
A. Work Plan, Schedule, and Cost Detail Format Requirements.............................11
B. Personnel……………………………………………………………………………….....11

5) Submission of Proposal………………………………………………………………….…11

6) Evaluation Process……………………………………………………………………….….13

7) Award and Protest……………………………………………………………………….…..14

8) Disposition of Proposals………………………………………………………...………....14

9) Agreement Execution and Performance…………………………………………..….…14

10) Preference Programs & Special Studies Zones…………….………………………….14

11) Attachments.………………………………………………………………………..…….….16
1. Required Attachment Check List
2. Proposal/Proposer Certification Sheet
3. Sample Cost Proposal Work Sheet
4. Proposer References
5. Conflict of Interest Statement
6. Disabled Veteran Business Enterprise (DVBE) Participation Program ( minimum of 3% required)
7. Payee Data Record (STD 204)*
8. Contractor's Certification Clauses (CCC) (page 1)
9. Darfur Act Certification
10. Small Business Certification
11. Sample Standard Agreement (STD 213)**
12. Affiliate Transaction Rules (ATR)**

*This document is not required with the Proposal package but is required upon award of the contract.
**Provided as a reference only

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1) Purpose and Brief Description of Services Required under this RFP

A. Summary
This project requires management audit of Southern California Gas Company’s (SCGC) and its parent
holding company’s compliance with the Commission’s Affiliate Transactions Rules (ATR) promulgated by
Decision D.97-12-088 in Rulemaking R.97-04-11/Investigation I.97-04-012, et al., revised by D.98-08-035,
and most recently revised by D.06-12-029 in R.05-10-030. This audit is required by ATR Rule VI.A and will
cover the two calendar years January 1, 2010, through December 31, 2011.

B. Background and Purpose

In response to applications filed by several energy utilities in the late 1980s and early 1990s, the
Commission gave authority to several companies under its jurisdiction to reorganize under a holding
company structure.1 The utilities argued that this authority would allow them the flexibility to invest their
profits more efficiently. The Commission approved these corporate restructurings, but it expressed
serious concerns about the potential for transfer of market power to, and cross subsidy of,
unregulated affiliates by these monopolistic energy utilities. To address these concerns the
Commission imposed several conditions and rules governing transactions between the utilities and their
affiliates. In 1993, the Commission issued D.93-02-019 in R.92-08-008, implementing P.U. Code §§ 587
and 797, which requires the utilities to report their transactions with their affiliates on an annual basis. In
1997, rules governing these transactions were strengthened and consolidated into one set that applied to all
jurisdictional energy utilities, in D.97-12-088 of R.97-04-11/I.97-04-12, revised in D.98-08-035.
The Commission instituted a rulemaking (R. 05-10-030) on October 27, 2005, to review, among other
holding company issues, these ATRs, and revise them where appropriate. This rulemaking was issued
partly in response to the enactment by Congress of the Energy Policy Act of 2005, Public Law 109-58
which, among other things, repealed the Public Utility Holding Company Act of 1935 (PUHCA), 15 U.S.C. §§
79-79z-6. The purpose of this rulemaking was to review existing regulations to determine if changes
or additions were required, keeping in mind the following goals: “(1) to ensure that the utilities meet
their public service obligations at the lowest reasonable cost, and (2) to ensure that the utilities do
not favor or otherwise engage in preferential treatment of their affiliates.”2 The Commission issued
decision D. 06-12-029 in this rulemaking and revised some of the ATRs, including Rule VI.C:
Affiliate Audit. The Commission’s Energy Division shall have audits performed
biennially by independent auditors. The audits shall cover the last two calendar years
which end on December 31, and shall verify that the utility is in compliance with the
Rules set forth herein. The Energy Division shall post the audit reports on the
Commission’s website. The audits shall be at shareholder expense.3

1 See, e.g., D.86-03-090.

2 R.05-10-030 at 2.

3 D.06-12-029, App’x A-3, at 18. Note, before this change the audits of the ATRs were performed annually by an
auditor chosen and overseen by the utility.

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C. Audit Scope and Requirements
This RFP is issued by the Commission’s Energy Division (ED) staff and asks for written proposals to audit
SCGC and its parent holding company’s compliance with the ATRs, under the Commission’s jurisdiction.
This management audit will, among other things, determine utility compliance with the ATRs covering the
time period January 1, 2010, through December 31, 2011.4 The audit report submitted to the Commission
shall include a detailed, plain language, discussion of the following issues, with specific cross-reference to
the below paragraph to which each auditor-provided data point is responsive:

1. For each ATR, from Rule I through Rule IX, determine the degree of compliance the utility achieved, per
affiliate entity. The report shall identify clearly:

(a) those areas where the utility has complied with the Rule;
(b) the areas where the utility’s compliance with the Rules has been found deficient;
(c) the dates, affiliate names, and details regarding each deficiency and how they were
addressed and/or resolved;
(d) by what methods the utility identified and assessed these deficiencies; and
(e) how successful the utility has been in correcting each deficiency.
2. Rule I defines key terms which appear throughout the ATR. Therefore, analysis of Rule I shall focus
on the utility’s degree of compliance in its interpretation and application of those definitions, in relation
to its affiliate transactions. For example, ATR I.A defines “affiliate,” as “any person, corporation, utility,
partnership, or other entity 5 percent or more of whose outstanding securities are owned…by a utility
or any of its subsidiaries…” Here, the analysis would focus on whether and to what extent the utility’s
interpretation and application of the term “affiliate” complies with the letter and spirit of the definition in
ATR I.A.
3. Describe the method(s) the proposer will use to determine the degree of compliance for each rule
stated in the report and the degree of certainty attached to each of these conclusions. Per affiliate
entity, describe the method by which the auditor will ascertain compliance and identify deficiencies.
4. Rule I defines key terms which appear throughout the ATR. Therefore, analysis of Rule I shall focus
on the utility’s degree of compliance in its interpretation and application of those definitions, in relation
to its affiliate transactions. For example, ATR I.A defines “affiliate,” as “any person, corporation, utility,
partnership, or other entity 5 percent or more of whose outstanding securities are owned…by a utility
or any of its subsidiaries…” Here, the analysis would focus on whether and to what extent the utility’s
interpretation and application of the term “affiliate” complies with the letter and spirit of the definition in
ATR I.A.
5. Describe the method(s) the proposer will use to determine the degree of compliance for each rule
stated in the report and the degree of certainty attached to each of these conclusions. Per affiliate
entity, describe the method by which the auditor will ascertain compliance and identify deficiencies.

4 This audit covers two calendar years of the utility’s transactions with its affiliates.

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6. Review and test utility records and procedures to ensure the utility has adequate systems in place to
enforce the ATR. The proposer must describe the kind of records and procedures it will review to
determine whether the utility has adequate systems in place to enforce each ATR. The auditor shall
conduct interviews with appropriate utility personnel to help develop this analysis, as needed.
Appropriate utility personnel should include a statistically representative cross-section of utility
employees, spanning multiple responsibilities and years of experience. The cross-section of
employees interviewed should afford the auditor and the Commission an associated degree of
confidence in the accuracy of the results. The proposer must include what the specific goals of these
interviews will be.
7. The auditor shall pay particular attention to an analysis of the utility’s level of compliance with ATR
VII, which governs utilities’ provision of Non-tariffed Products and Services (NTP&S).5 This portion of
the audit shall include at a minimum:
(a) A listing of each NTP&S;
(b) A description of the business service or product offered, including its mission statement
and operational market goals;
(c) A description of each market into which each NTP&S is being sold, including
discussions of the size of the market and of the competitors in this marketplace;
(d) A description of how its entry into the market has affected the relevant marketplace;
(e) The various types, quantities, and costs of utility resources used to develop and sell the
NTP&S;
(f) For each NTP&S, audit the actual costs and revenues and determine if the utility has
properly complied with the sharing mechanism authorized in the relevant
resolution/decision issued by the Commission;
(g) A description of the specific methods used to determine the levels of compliance;
(h) Total revenues generated by these NTP&S, for each individual year of the two years of
interest; and
(i) A breakdown of how these additional revenues are allocated between shareholders and
ratepayers, including both percentage allocations and specific dollar amounts.
8. The auditor shall review the most recent ATR Compliance Plans submitted by the utility to ensure
these Plans are consistent with the auditor’s findings at the utility6. As these Plans are required to be
submitted annually under ATR Rule VI.A, any discrepancy between the Plan and the audit findings
regarding actual behavior and actions of the utility should be noted and analyzed in the audit report.
The auditor may provide suggested steps the utility can take to ensure its Compliance Plan matches
its actions.
9. The audit report shall include a discussion of:
(a) What additional Affiliate Transaction Rules (ATR) may be needed;
(b) What existing rules may be unnecessary; and
(c) What existing rules might be improved to enhance effectiveness, increase ease of data
collection and monitoring methods, improve accuracy of data; and decrease the cost of
compliance by the utility.
10. For each error, discrepancy, or violation of the ATRs by the utility the auditor becomes aware of,
please provide:
(a) The auditor’s assessment of the magnitude of the error, discrepancy, or violation;

5 Note that Rule VII governs the provision of products and services by the utility instead of by one of the utility’s affiliates.
6 ATR Compliance Plans will be made available on the Commission’s website.

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(b) The criteria used to determine the magnitude;
(c) The actual or potential harm to the ratepayers as a result of each error, discrepancy, or
violation of the ATRs, considering the ATRs overarching goals of i. avoiding cross-
subsidization of affiliate activities by ratepayers and ii. maintaining market competition.

This audit will be undertaken under the supervision of the Commission’s ED and performed pursuant to
P.U. Code § 797, with the selected auditor having full access to all information to the full extent provided
by Law, including P.U. Code §§ 313 and 314.
This audit requires familiarity with the management structure of SCGC, its unregulated affiliates, its
holding company, and the Commission’s ATRs. The proposer must include a description of its plan to gain
the knowledge needed to perform this audit. Furthermore, the auditor shall communicate regularly with
the ED contract manager. The auditor will be prepared to testify to the results presented in its reports to
the Commission, if the Commission finds it necessary to receive such testimony.

The auditor is required to comply with all applicable State rules regarding conflicts of interest. A
non-exhaustive overview of State rules regarding conflicts of interest and disclosure guidelines
can be found in Attachment 5. Furthermore, the proposer must provide a list of any potential
conflicts of interest, as well as the required disclosures referenced in Attachment 5. This list shall
include a detailed summary of past business relationships with SCGC, its affiliates, or parent.
Conflicts of interest will not necessarily act as a bar to award of the contract, but will be evaluated
on a case-by-case basis.

This contract shall be performed within one year of the date of final award. The final award is subject to
approval by the California Department of General Services (DGS). Throughout the performance of this
contract, the auditor will provide the ED monthly updates and written reports of the progress of the work.
The Commission shall contract directly with the contractor and payment shall be made from
Commission accounts. SCGC’s shareholders shall reimburse the Commission for all amounts
expended for the audit.

D. Conflicts of Interest
1. Generally
For purposes of this Agreement, “conflict of interest” means:
a) a conflict of interest as defined in this RFP or any resulting Agreement;

b) a conflict of interest prohibited by any applicable Federal or State law, including the Political Reform Act,
relating to conflicts of interest.7; and/or

c) a financial interest that may impair the ability of the individual or firm to deliver fair unbiased work for the
State.

d) Current contracts/employment with, or active proposals before the utility, its parent, subsidiary, or affiliate
thereof.

The bidder agrees to notify the Commission’s Project Manager promptly of any potential conflict of interest,
including those of all persons performing work for the bidder under this Agreement, whether employees,

7 The Political Reform Act is set forth in Government Code section 81000 et. seq.

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independent contractors or others. The Commission may exercise its option to direct termination of any individual
or firm or this Agreement, if such a conflict is found.
The auditor is required to comply with all applicable State rules regarding conflicts of interest. The proposer shall
submit a conflict of interest statement attesting that it does not have any of the disqualifying interests described
below. Bidder shall also explicitly state whether it has any conflicts of interest, and how it will monitor and detect
any future conflict of interest during the audit. Please note, the duty to monitor conflicts and potential conflicts of
interest is ongoing throughout the bid process and the contract period.
Failure to disclose the above-mentioned could be grounds for disqualification.
2. Automatic Disqualification
The firm is automatically disqualified from the RFP selection if the firm is a party to the Commission’s Rulemaking
(R.) 05-10-030.
3. Disclosures
A. By Firms and subcontractors
This section discusses disclosures that must be made by firms, including subcontractors. A number of conditions
may render a team unable to give impartial, technically sound, objective assistance and advice, otherwise result
in a biased work product, or result in an unfair competitive advantage. In order to properly evaluate and judge the
proposed team, and avoid termination and/or controversy at a later stage, DISCLOSE for each participating firm
and subcontractor:

1) Prior contracts during the last three years with the utility to be audited, its parent holding company,
or its affiliates. Provide the total amount of payments, duration, and nature of service.
2) Any current contract, subcontract, active proposals, business relationship with, or any financial
interest in any of the utility to be audited, its parent holding company, or its affiliates. List the
entity’s name, the nature, the scope, and duration of the relationship or interest and its total
monetary value.
3) Any work performed within the last three years for entities planning, developing, constructing or
operating the delivery of energy or ancillary services to California consumers (including marketing,
brokering, and financial instruments). Provide the client name, total amount of payments, duration,
and nature of services provided.

Failure to disclose the above-mentioned could be grounds for disqualification. The disclosures and potential
conflicts will be judged and used as an evaluation criterion in the bid selection process.
B. Disclosures by team members
This section shall apply to all team members or individuals performing work for the Commission, whether
employees, independent contractors or others, who exercise judgment in making recommendations to the CPUC.
The consultant agrees to require any such person who works for the Commission under this Agreement, whether
employees, independent contractors or others, to agree to be bound by the terms of this section of this
Agreement. DISCLOSE for each participating team member or individual performing work for the Commission,
whether employees, independent contractors or others, who exercise judgment in making recommendations to
the Commission:

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1) Any direct or indirect investment worth $2,000 or more in the utility to be audited, its parent
holding company, its affiliates, or otherwise related business entities, as defined in California
Code of Regulations(CCR), Title 2, Division 6, §18703.1 (d)8.
2) If (i) any individual team member who might perform work in response to this RFP also owns
10% or more of the firm performing the work and (ii) the firm now or within the past 12 months
has been under contract with or received income from any of the utility to be audited, its
parent holding company, its affiliates, or otherwise related business entities, disclose: the
name of the individual; his or her percentage of ownership; cost and length of the contract (or
if no contract, the amount of income received and the period over which received); and a brief
description of the scope of work. (For purposes of this disclosure, a sole proprietor owns
100% of the firm.)
3) Any income of $500 or more, within the last twelve months, from the utility to be audited, its
parent holding company, its affiliates, or otherwise related business entities as defined in
CCR, Title 2, Division 6, §18703.1 (d).
4) Any prior contracts, over the last two years, with the utility to be audited, its parent holding
company, its affiliates, or otherwise related business entities as defined in CCR, Title 2,
Division 6, §18703.1 (d).
5) Any active proposals with the utility to be audited, its parent holding company, its affiliates, or
otherwise related business entities as defined in CCR, Title 2, Division 6, §18703.1 (d).
6) Any current position held as a director, officer, partner, trustee, employee, and management in
the utility to be audited, its parent holding company, its affiliates, or otherwise related business
entities as defined in CCR, Title 2, Division 6, §18703.1 (d).

Failure to disclose the above-mentioned could be grounds for disqualification. The disclosures and
potential conflicts will be judged and used as an evaluation criterion in the bid selection process.

4. Firewalls
A proposer with a conflict of interest or potential conflict of interest, may still be considered for the contract award
if the proposer has adequate “firewall” protections in place to prevent the conflict or potential conflict of interest
from influencing the outcome of the audit. A “firewall” is an information barrier implemented within a firm to
separate and isolate persons who make investment decisions from persons who are privy to undisclosed material
information which may influence those decisions.
In the event a proposer has a conflict or potential conflict of interest, the proposer should disclose and describe, in
detail, the conflict or potential conflict of interest, as well as the system of “firewall” protections it has in place to
prevent the conflict or potential conflict from influencing the outcome of the audit. The ED will evaluate the above
“firewall” protections statement to determine the significance of the conflict or potential conflict of interest and the
adequacy of the “firewall” protections.
If the ED determines the “firewall” protections are adequate to prevent the conflict or potential conflict of interest
from influencing the outcome of the audit, the proposer’s bid will be considered as if it did not have a conflict or
potential conflict. However, if the ED determines the conflict or potential conflict of interest is too significant, or the
“firewall” protections are too inadequate to prevent the conflict or potential conflict from influencing the outcome of
the audit, the bidder’s proposal will be rejected.

8 An individual at a firm may not be able to perform work on this audit if that individual discloses an investment in the utility,
its parent, subsidiary, or affiliates. However, that will not bar a firm from performing the audit if that individual performs no
work on the contract.

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5. Rules Relating to Former and Current State Employees
A. Former state employees:
1) For the two-year period from the date of leaving state employment, no former state officer or
employee may enter into a contract in which that person was engaged in any of the
negotiations, transactions, planning, arrangement or any part of the decision-making process
relevant to the contract while employed in any capacity by any state agency.
2) For the twelve-month period from the date of leaving state employment, no former state officer
or employee may enter into a contract with any state agency if that person was employed by
that state agency in a policy-making position in the same general subject area as the
proposed contract within the twelve-month period prior to that person leaving state service.
This does not apply to contracts with former employees as an expert witness, or continuation
of attorney services the former employee was involved with prior to leaving state service.
3) If Consultant violates any provisions of above paragraphs, such action by Consultant shall
render this Agreement void. (Pub. Contract Code §10420)
4) Members of boards and commissions are exempt from this section if they do not receive
payment other than payment of each meeting of the board or commission, payment for
preparatory time and payment for per diem. (Pub. Contract Code §10430 (e)).
B. Current State Employees:
1) No officer or employee shall engage in any employment, activity, or enterprise from which the
officer or employee receives compensation or has a financial interest and which is sponsored or
funded by any state agency unless the employment, activity, or enterprise is required as a condition of
regular state employment.
2) No officer or employee shall contract on that person’s own behalf as an independent contractor
with any state agency to provide goods or services.
2) Minimum Qualifications for Proposers
Proposers should have substantial experience performing management audits. Proposers shall provide
a list of three recent business references, including dates and the nature of work, on Attachment 4.
Additionally, proposers should provide a recent work sample demonstrating capability and experience to
perform this audit. Proposers should be able to write clearly and concisely when explaining findings of a
technical nature to a non-technical audience. Finally, proposers must have an impeccable reputation for
quality and professionalism within their industry. Proposers should be able to occasionally travel to
meetings at the Commission at 505 Van Ness, San Francisco, CA, at their own expense.

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3) Key Action Dates

Event Date (Key Action) Date Time
1. RFP available to prospective proposers 3/05/2013
Bidder’s Written Questions Submittal Deadline –
2. 3/12/2013 5:00 pm PST
submit all questions on Bidsync
Answers to Questions Provided by the CPUC – will
3. 3/19/2013 5:00 pm PST
be posted on Bidsync
Final Proposals Due Tuesday 4/02/2013 5:00 pm PST
4.
Thursday 4/04/2013
through
5. Technical Evaluation Friday 4/12/2013
Monday 4/15/2013
through
Wednesday 4/24/2013
6. Bidder Interviews and Presentations
7. Public Bid Opening Monday 4/29/2013
“Intent to Award” Public Posting in CPUC
8. Lobby Tuesday 4/30/2013 By 4:00 PM PST
Beginning
The five (5) day Protest Period begins -
Wednesday 5/01/2013
Ending At 5:00 PM PST
Ending
The Protest Period Ends
9. Tuesday 5/07/2013

Contract Award Date
10. Wednesday 5/08/2013
Contract documents out to Awardee (Contractor)
11. for review & signature via FedEX By Monday 5/13/2013
12. All Documents to DGS for Review & Approval By Thursday 5/17/2013
Contract term begins
13. Estimated Contract Commencement Date 6/10/2013

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