5. Need for Ongoing
Independent Audits

6.1. Summary

The record in this proceeding does show that Alco has had its financial records audited by an independent certified public accountant (CPA) with utility client experience.²⁶

We believe that audited financial statements are invaluable not just for the protection of shareholders in publicly traded companies but equally for the protection of customers of any monopoly public utility. Audited financial statements provide a highly reliable foundation for cost of service rate regulation.

We have the inherent authority to order a jurisdictional utility to undertake an independent audit in order to ensure that "(a)ll charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable." (Pub. Util. Code § 451.) Second, we have the discretion to order an audit to ensure that Alco maintains its accounts in proper conformance with Pub. Util. Code § 792.²⁷ Third, we have the authority under Pub. Util. Code § 701 to order an audit to ensure that we are able to effectively and efficiently exercise our jurisdiction.²⁸ Fourth, Pub. Util. Code § 701.10 determines that the Commission must ensure that it authorizes adequate rates and therefore it must have access to independent reliable financial statements. And finally, Pub. Util. Code § 727.5(c)²⁹ allows the Commission to authorize rate recovery of any cost necessary to ensure stable rates. An independent audit provides the necessary information to determine whether the utility is earning an adequate return and spending funds as authorized by the Commission.

All annual Alco audited financial statements, the related disclosures and attest opinion of the CPA must be filed with the Division of Water and Audits (or successor organization) annually within 90-days of filing the Annual Report required by General Order 104-A.

²⁶ In the proposed decision, the record was misunderstood; Alco is independently audited as noted by Alco in its comments, and the decision is therefore corrected.

²⁷ Section 792. "The commission may establish a system of accounts to be kept by the public utilities subject to its jurisdiction, or classify such public utilities and establish a system of accounts for each class, and may prescribe the manner in which such accounts shall be kept. It may also prescribe the forms of accounts, records, and memoranda to be kept by such public utilities, including the accounts, records, and memoranda of the movement of traffic as well as the receipts and expenditures of moneys, and any other forms, records, and memoranda which in the judgment of the commission may be necessary to carry out any of the provisions of this part.

²⁸ Section 701: The commission may supervise and regulate every public utility in the State and may do all things, whether specifically designated in this part or in addition thereto, which are necessary and convenient in the exercise of such power and jurisdiction.

²⁹ Section 727.5(c) The commission shall consider, and may authorize, a water corporation to establish a balancing account, rate stabilization fund, or other contingency fund, the purpose of which shall be the long-term stabilization of water rates.