By J. Lyn Carl, GalleryWatch.com
Austin, TX –
The embroiled Electric Reliability Council of Texas (ERCOT) "is still at high risk of future financial malfeasance," according to State Comptroller Carole Keeton Strayhorn, who today delivered the results of her agency's review of the entity to House members who asked the comptroller to step in and take a look at ERCOT.
In a letter to Rep. Trey Martinez Fischer, Strayhorn noted that her office conducted an "expedited review" of ERCOT, the grid manager for the state's electric supply, to be able to present information before the end of the 79th Legislature. Although her staff reviewed thousands of documents, she said, and interviewed ERCOT executives, staff and board members, Strayhorn said the time constraints limited her staff's ability "to dig deep into ERCOT's operations."
ERCOT came under fire earlier this year after it was discovered that more than $2 million in the entity's funds were reportedly misappropriated by former ERCOT employees, some of whom face grand jury indictments. Although that $2 million in reported losses is being investigated by authorities, Strayhorn added, "I cannot assert that all fraud has been uncovered."
Two factors are of significance, points out Strayhorn, relative to a private organization such as ERCOT being susceptible to fraud: because it has guaranteed funding from electric ratepayers, there is no market to put pressure on holding down costs; and because it is non-profit, there is no government control over ERCOT.
Saying she is "very uneasy" regarding what her team of investigators found in their review of ERCOT, Strayhorn said some expenditures - such as some for entertainment and reimbursement - were not "reasonable and necessary to ERCOT's mission." She suggested that the legislature mandate that the Public Utility Commission (PUC) require ERCOT officials to provide "a full justification" for expenditures before approving ERCOT's fees.
Among the other findings by the comptroller's staff in their ERCOT review were "sloppy contracting practices, vaguely worded but expensive contracts, and a system devoid of effective contract monitoring." Strayhorn said there was not even enough documentation to determine what the contracts were for or if their costs were reasonable.
The Comptroller said her staff has uncovered evidence "that warrants further review," despite financial auditor Pricewaterhouse Coopers' saying ERCOT financial statements "fairly present its financial position in all material respects."
Strayhorn further noted that after ERCOT became the manager of the state's electric grid and grew from fewer than 150 employees in 2001 to nearly 500 by early 2005, it focused more on getting the electric restructuring job done than on putting administrative controls in place. That, she said, left the entity vulnerable to "fiscal malfeasance and security breaches" that "could have compromised the electric grid" in the state. Lack of internal controls, she said, did not allow either for the identification or the prevention of fraud.
Strayhorn's staff uncovered numerous consulting and contracting "irregularities," she said, adding that "much needs to be done" regarding both cyber and physical security at ERCOT.
The Comptroller made a number of recommendations regarding ERCOT, chief among them the creation of a Fraud and Oversight Task Force to examine ERCOT operations and security issues.
"The risks at ERCOT and its importance to the daily lives of millions of Texans are too great for us to rely only on the hope of reform," concluded Strayhorn.