Nevada County Utility Franchises Reason for Investigation The Grand Jury wants to make certain that appropriate

R1

For two consecutive years, the Board has failed to meet its commitment pertaining to the 2000-2001 and 2001-2002 Grand Jury reports on Franchise Utilities.

R01-70

only pertains to Utility Franchises, these statements imply that updates to the Utility Franchise sections of the county code were underway. The Grand Jury has found no evidence of any such work in progress. 6. The Board on May 14, 2002, closed MO 01-70 even though the proscribed actions were not yet complete and without written responses from two of the three parties required to take action on the MO. The Board’s failure to require any evidence that this MO was being complied with, and the action by the Board to close out this MO without two of the required responses cast doubt on the effectiveness of the MO process. 7. In September 2002, MO’s 01-71, 01-72, and 01-73 were all past due. On September 10, 2002, these three MO’s were closed so that they could be incorporated into new MO 02-38 with extended due dates. As far as the Grand Jury can ascertain, the only reason to do this was to remove overdue MO’s from the record and give the appearance that the MO’s were current. RECOMMENDATIONS 1. The Board should take immediate, definitive and conclusive actions to update the County Code (Nevada County General Code Chapter II: Franchises) to: • Identify and include all utility franchises operating within the county. • Establish a definitive method for calculating each franchise fee. • Establish procedures to ensure that the county is receiving all agreed-to fees from franchises operating within the county. These procedures should include audits and/or other reviews of each franchise. 2. Immediately following the update to the County Code, the Board should ensure, with the Auditor-Controller, that audits are immediately initiated and concluded in a timely and appropriate manner for each franchise as stated in the updated County Code. 3. The Board should again review the MO process, to ensure that compliance of MO’s is opportune, specific, detailed, and that MO’s are not closed out prematurely or without the proscribed action having been concluded. REQUIRED RESPONSES Board of Supervisors – July 1, 2003 Auditor-Controller – June 2, 2003 ADDENDUM A NEVADA COUNTY UTILITY FRANCHISES PLAN AND SCHEDULE Report on Minute Orders 02-38 & 02-39 The following recommendations were made by the 2000/2001 Nevada County Civil Grand Jury in its Interim Report No.14, dated June 18, 2002 relating to the investigation of the County's procedures and practices regarding utility franchises operating in the County: The responsible county officials should: 1. Review and update the County Code (Nevada County General Code Chapter II: Franchises) to: • Include all utility franchises operating within the county. • Establish a definitive method for calculating each franchise fee. • Establish procedures to insure that the county is receiving all agreed-to fees from franchises operating within the county. These procedures should include audits and/or other reviews of each franchise. 2. Perform the required audits and/or reviews, as stated in the updated County Code, of each franchise at the earliest opportunity. The County Board of Supervisors and various County Officials have responded to the Grand Jury's recommendation and, for the most part, agreed with the recommendations. On September 10, 2002 the Board of Supervisors issued Minute Order 02-38 directing the County Executive Officer, Auditor-Controller, and County Counsel to do the following: You are hereby directed to accomplish updating the existing County Code in cooperation with the directors of the concerned departments and the Auditor Controller. County Counsel is also directed to assist with research and responses to legal issues as they may arise and with final drafting of ordinance amendments that may be deemed necessary by the Board. You are also directed to report back to the Board by January 14, 2003 with a plan and a schedule for accomplishing the review and update of the Code. You are hereby directed, in coordination with the Auditor-Controller, to evaluate the Grand Jury response and make a recommendation to the Board as to the implementation of a regular franchise fee audit program and/or other alternatives to regular formal audits. During the period since the 2000/2001 Grand Jury issued its recommendations and the date of this report, the following activities have begun and are ongoing: PG&E Bankruptcy The County has participated along with other counties in the state in complex negotiations with PG&E over franchise related matters in the company's "Plan of Reorganization". In association with other counties, outside counsel has been retained to represent the County in these negotiations, which are active and unresolved as of this date. If the bankruptcy court approves PG&E's "Plan of Reorganization” it will result in the company splitting into multiple entities and by some estimates result in higher franchise fees being generated for Nevada County. Cable Television Audits The Auditor-Controller has contracted with a consulting firm, The Buske Group, to conduct audits for the period of October 1998 to September 2002 of two Cable Television Franchises USA Media and AT&T. These audits have been completed at a cost of approximately $20,000 and have identified underpayments of approximately $54,000. Drafts of these audits have been provided to the Cable Television companies for their responses. The Auditor- Controller's next step after receiving final responses from the franchises will be to send the audits to the CEO for further action as needed. Cable Television Franchise Negotiations The County has entered into contracts with the consulting firm, The Buske Group, to conduct negotiations with the cable television companies, USA Media and AT&T, who's contracts expire in 6/03 and 4/04 respectively. These negotiations are ongoing. Negotiations for Transfer of the Eastern Solid Waste System to Town of Truckee The County has concluded negotiations for the transfer of the eastern County solid waste franchise to the Town of Truckee. Audit Verification Methodology Research The County has begun to research companies with the expertise required and with cost effective audit/verification methods for future attest of franchise fees. On September 10, 2002 the Board of Supervisors issued Minute Order 02-39 directing the County Executive Officer, Auditor-Controller, and Director of Personnel to do the following: You are hereby directed, in cooperation with the Auditor-Controller and the Director of Personnel, to determine and report back to the Board by February 28, 2003, if there is a need for additional staffing in the Auditor-Controller's office to audit and verify the accuracy of the franchise fees. If additional staffing is needed, the staffing increase will be considered as part of the FY 2003/04 budget process. Additional staffing was approved for the Auditor's Office in the Fiscal Year 2002/03 Budget. A full- time Accountant Auditor I and a temporary Senior Accounting Assistant were added to implement GASB 34 and the new accounting system. The Accountant Auditor I was approved for FY 2002/03 through 2004 and will be re-considered for 2004/05. The need for further additional staffing is currently under evaluation. Per the Board of Supervisors Minute Orders 02-38 and 02-39, the following plan is presented: 1. The County will continue with PG&E negotiations and maximize its' future franchise fees under the PG&E "Plan of Reorganization". 2. The County will negotiate new Cable Television Franchise Agreements with USA Media. 3. The Auditor-Controller will continue to audit Cable Television Franchise Agreements as required by current County Code at least every three years. 4. The County Executive and County Counsel will update the County Code for Utility Franchises, including the following: a) Review of existing Code for consistency with State Statute b) Determination of franchises to be covered including additions such as telephone utilities and wireless networks c) Determination of responsible County officials d) Determination of consistent, effective and verifiable fee basis for each franchise type e) Incorporation of applicable

R01-73

which were addressed to the County Administrator and were issued because of the 2000-2001 Grand Jury recommendations on Utility Franchises and which had return dates of June 30, 2002. No action had been taken on MO 01-71, 01-72 and 01-73. MO

R2

The County has been shorted approximately $88,000 in franchise fees, as evidenced by the Cable TV reviews performed to date. Since reviews have not been performed on the other four franchise companies, we cannot ascertain what additional monies could be collected.

R02-38

directed the CEO to report to the Board by January 14, 2003 with a plan and a schedule for accomplishing the review and update of the Code. On February 4, 2003, the Board accepted a report from the CEO addressing requirements in MO 02-38 (see Addendum A). Pursuant to this report the Board closed MO 02-38. 7. On July 12, 2002, in a letter to the Honorable Judge Ersel Edwards, the Auditor- Controller reported that he had received funding of $20,000 on March 26, 2002 to perform franchise audits of AT&T and USA Media. He further reported that the county purchasing agent had approved two contracts with the Buske Group to perform the audits and that the expected completion date of the audits was August 31, 2002. 8. On October 30, 2002, C2 Consulting Services, Inc. provided a review of the cable services franchise fees received by the County of Nevada from USA Media Group LLC for the period April 1999 through June 2002. This review found an underpayment to the County of Nevada of $24,837 including interest. 9. On January 13, 2003, C2 Consulting Services, Inc. provided a preliminary report of a review of the cable services franchise fees received by the County of Nevada from AT&T for the period October 1998 through September 2002. Although this report is still preliminary, it found an underpayment to the County of $63,064 including interest. 10. The USA Media Group LLC and AT&T reviews were not concluded by the Board’s committed date of June 30, 2002 or by the expected completion date of August 31, 2002 provided by the Auditor-Controller on July 12, 2002. The Grand Jury has not received the final review for AT&T. 11. In fiscal year 2001-2002, the County of Nevada collected $798,268.69 from franchise fees. See Table below: County of Nevada – Franchise Fees Type Franchisee FY 2001-2002 Cable USA Media $52,423.58 AT&T 102,409.92 154,833.50 Garbage Collection Waste Management 174,962.44 Tahoe Truckee 134,387.71 309,350.15 Electric PG&E 272,161.42 Sierra Pacific Power 19,028.86 291,190.28 Gas PG&E 42,894.76 Totals $798,268.69 12. At the request of the Grand Jury, County Counsel is researching if the County has the right to charge franchise fees of any other utilities, (e.g., SBC and NID). CONCLUSIONS 1. For two consecutive years, the Board has failed to meet its commitment pertaining to the 2000-2001 and 2001-2002 Grand Jury reports on Franchise Utilities. 2. The County has been shorted approximately $88,000 in franchise fees, as evidenced by the Cable TV reviews performed to date. Since reviews have not been performed on the other four franchise companies, we cannot ascertain what additional monies could be collected. 3. Relating to the two Grand Jury reports on Utility Franchise fees the Board issued MO’s 01-70, 01-71, 01-72, 01-73, 02-38 and 02-39. The Grand Jury can find little evidence that any action resulted from these Minute Orders, with the exception of the recent reviews of two of the six franchise companies. 4. As recently as February 4, 2003, in a response from the CEO to the Board on MO’s

R3

Relating to the two Grand Jury reports on Utility Franchise fees the Board issued MO’s 01-70, 01-71, 01-72, 01-73, 02-38 and 02-39. The Grand Jury can find little evidence that any action resulted from these Minute Orders, with the exception of the recent reviews of two of the six franchise companies.

R4

As recently as February 4, 2003, in a response from the CEO to the Board on MO’s 02-38 and 02-39, we find continued procrastination and lack of specificity in accomplishing any substantial results relating to the update of the County Code regarding Utility Franchises.

R5

The report on Utility Franchises by the 2001-2002 Grand Jury issued recommendation No. 3: “The Auditor-Controller should have an employee in his department to audit and verify the accuracy of these franchise fees.” The Board on September 10, 2002 responded to this recommendation by stating: “The recommendation requires further analysis to be completed by February 28, 2003.” On September 10, 2002, the Board issued MO 02-39 directing the CEO as follows: “You are hereby directed in cooperation with the Auditor-Controller and the Director of Personnel, to determine and report back to the Board by February 28, 2003 if there is a need for additional staffing in the Auditor-Controller’s office to audit and verify the accuracy of the franchise fees. If additional staffing is required, the staffing increase will be considered as part of the FY 2003/2004 budget process.” On February 4, 2003, the Board accepted a report from the CEO addressing MO 02-39 (see Addendum A). Pursuant to this report the Board closed MO 02-39.

R6

The report on Utility Franchises by the 2001-2002 Grand Jury issued recommendation No. 4: “A realistic deadline should be established to get the analysis completed and the audits performed to ensure the County collects franchise fees correctly and in accordance with existing agreements.” On September 10, 2002, the Board responded to this recommendation by saying: “The recommendation has not yet been fully implemented, but will be as stated in the Board response to Recommendation Number 1. The CEO has been directed to develop, in cooperation with concerned departments and the Auditor-Controller, a work plan and schedule for accomplishing a review and update of the County Code regarding franchises and report back to the Board by January 14, 2003. The franchise fee audits are presently scheduled to be completed on September 30, 2002.” On September 10, 2002, the Board issued MO 02-38, which directed the CEO, the Auditor-Controller and the County Counsel to take action on Recommendations No. 1 & No. 4 of the 2001-2002 Grand Jury report. MO 02-38 incorporated MO 01-71, 01-72 and 01-73 which were addressed to the County Administrator and were issued because of the 2000-2001 Grand Jury recommendations on Utility Franchises and which had return dates of June 30, 2002. No action had been taken on MO 01-71, 01-72 and 01-73. MO 02-38 directed the CEO to report to the Board by January 14, 2003 with a plan and a schedule for accomplishing the review and update of the Code. On February 4, 2003, the Board accepted a report from the CEO addressing requirements in MO 02-38 (see Addendum A). Pursuant to this report the Board closed MO 02-38.

R7

On July 12, 2002, in a letter to the Honorable Judge Ersel Edwards, the Auditor- Controller reported that he had received funding of $20,000 on March 26, 2002 to perform franchise audits of AT&T and USA Media. He further reported that the county purchasing agent had approved two contracts with the Buske Group to perform the audits and that the expected completion date of the audits was August 31, 2002.

R8

On October 30, 2002, C2 Consulting Services, Inc. provided a review of the cable services franchise fees received by the County of Nevada from USA Media Group LLC for the period April 1999 through June 2002. This review found an underpayment to the County of Nevada of $24,837 including interest.

R9

On January 13, 2003, C2 Consulting Services, Inc. provided a preliminary report of a review of the cable services franchise fees received by the County of Nevada from AT&T for the period October 1998 through September 2002. Although this report is still preliminary, it found an underpayment to the County of $63,064 including interest.

R10

The USA Media Group LLC and AT&T reviews were not concluded by the Board’s committed date of June 30, 2002 or by the expected completion date of August 31, 2002 provided by the Auditor-Controller on July 12, 2002. The Grand Jury has not received the final review for AT&T.

R11

In fiscal year 2001-2002, the County of Nevada collected $798,268.69 from franchise fees. See Table below: County of Nevada – Franchise Fees Type Franchisee FY 2001-2002 Cable USA Media $52,423.58 AT&T 102,409.92 154,833.50 Garbage Collection Waste Management 174,962.44 Tahoe Truckee 134,387.71 309,350.15 Electric PG&E 272,161.42 Sierra Pacific Power 19,028.86 291,190.28 Gas PG&E 42,894.76 Totals $798,268.69

R12

At the request of the Grand Jury, County Counsel is researching if the County has the right to charge franchise fees of any other utilities, (e.g., SBC and NID). CONCLUSIONS