Customers Need Debt Relief: Commissions, Utilities Can Help

Part of NRDC's Year-End Series Reviewing 2020 Climate & Clean Energy Developments

With millions of Americans drastically behind on their energy and water utility bills, no additional federal assistance on the horizon, and moratoria on utility shutoffs expiring, the United States is facing a deepening economic and public health crisis. While some states and utilities are stepping up to help, much more can and must be done to help low income and communities of color who are most heavily burdened by high energy and water costs, and for whom this accumulating debt can be crippling.

Millions are still out of work and unable to pay their bills. The National Energy Assistance Directors Association estimated that between 15 to 20 percent of residential customers are at least 60 days behind on their electric and gas bills (many 120 days or more), and that if additional federal funding is not provided, electric and gas arrearages could reach $32 billion by the end of the year.  It’s going to be very difficult for people to catch up—and we must recognize that not everyone will be able.

Shutoff moratoria don’t fix the problem

NRDC joined with many others in advocating for moratoria on energy and water utility shutoffs, safe reconnections, late fee waivers, and increased bill/efficiency assistance to protect customers—especially those in low-income, Black and brown communities. And many states and utilities responded quickly.

But only 45 percent of Americans were protected as of the end of November from disconnections of their electricity and gas service. Far fewer are protected by statewide water shutoffs. That leaves hundreds of millions of Americans unprotected.

And these moratoria merely suspended collections, disconnections, and in some cases late fees—they didn’t waive the bills that customers racked up with their continued use of necessary electricity, gas, and water services after COVID-19 hit.

How can state utility commissions and utilities help?

First, we must ensure that solutions to this crisis do not further exacerbate existing inequities or place the burden of our response on those who can least afford to absorb them. We also recognize that these uncollectable accounts come with reasonable costs that will need to be recovered by the energy and water utilities.

While utilities generally have been doing better than many other businesses that are experiencing economic difficulties due to the pandemic, they still have incremental costs from the pandemic response, and unpaid customer bills affect their cash flow. In addition, while some utilities with large residential customer bases are doing relatively well, others with a significant percentage of large and industrial customers affected by the pandemic may not be. Municipal utilities that often provide funding for city services through their revenues (think fire and street services), could face even tougher choices. State utility commissions, and utility governing boards and city councils for municipal and cooperative utilities, will have to decide how these costs will be dealt with.

But as decision makers work through how much of the costs will be covered by taxpayers, utilities, or their customers, there is some common guidance (or best practices) that can make it easier for both customers and utilities.

1. Customer solutions must include protections, assistance, debt relief, and above all - clear communication
   Without customer assistance and some form of debt relief for the most vulnerable customers, states will experience a wave of disconnections when the emergency moratoria end due to households’ dire economic conditions. This requires utilities to communicate more often and effectively with their customers. Disconnections or threats of disconnection should be avoided as much as possible and used only as a last resort - not relied on as a tool for getting customer attention. The shutoff notice should not be the start of the conversation to get financial assistance information to the customers in need. We need to get customers assistance early, since a small shortfall is much easier to address than a large one. And utility recovery of costs should be linked in some way to the provision of customer assistance and debt relief. Also, for an additional time after the lifting of the moratoria, any requirement that disconnected customers must pay the full debt in order to reconnect or maintain service should be eliminated. Instead, customers should be allowed to participate in a flexible and reasonable debt payment management program. 
2. Data transparency and access to information must be prioritized and improved
   We don’t even truly know how many Americans are behind on their payments, and by how much, because most utilities are not required to disclose this information. We must ensure utility cost tracking and recovery covers only pandemic-related and prudent costs. The utility commissions, and governing bodies overseeing municipal and cooperative utilities should require much more comprehensive utility tracking and reporting of data on overdue customer bills, disconnections (notices and actual disconnects), and repayment efforts, while still respecting billpayer privacy. 
3. Cost recovery must be fair and equitable
   Utility commissions and oversight bodies should be more proactive in projecting, assessing, and developing equitable and effective solutions for inevitable cost recovery issues post-moratoria. In assessing utility requests for revenue increases associated with COVID-19, regulators must consider related cost reductions (e.g., reduced fuel and interest costs during the pandemic). The key is to consider all the impacts together, so that those putting upward pressure on rates and bills can be offset by those providing downward pressure. A list of the most important of these can be found here.  

Some promising models for customer debt relief

Commissions, governing boards, and utilities must go beyond moratoria on electricity, gas, and water shutoffs to help their most vulnerable customers. Increasing financial assistance (especially for low-income customers); expanding access to flexible payment plans; and expanded access, investment, and efforts to enroll low income households into energy efficiency programs are just a few of the ways they can help. A few examples that have applied some of the guidance above are summarized here, but many more need to act.

• The Illinois Commerce Commission approved a comprehensive COVID-19 relief plan developed through negotiations between customer groups and the utilities. It included customer protections like an extended moratorium (extended again through March 2021), suspension of late payment fees, and free reconnections. It also extended deferred payment arrangements to 24 months (normally 12 months or less), and it includes an enhanced assistance and debt forgiveness plan for residents with financial hardships. Importantly, it requires utilities to report disconnection and other credit and collections data. The negotiations also kicked off longer-term-focused discussions on affordability of utility service for low-income consumers.
• The Washington Utilities and Transportation Commission extended their shutoff moratorium to at least April 30, 2021; prohibited late fees and customer deposits until October 27, 2021; allowed an increase in utility-funded bill assistance, which can also be used to address past due bills; extended bill payment arrangements to 18 months for residential customers and 12 months for small business customers; directed utilities to actively explore arrearage management programs, which encourage regular payment in exchange for some bill relief; and notably required regular data reporting on customer arrearages and uptake of programs.
• Some cities and their utilities are also doing what they can. The City of Los Angeles is taking action to address crippling debt accumulated by low-income utility customers during the COVID-19 pandemic. It plans to direct $50 million in COVID relief funds to some customers to cover debt incurred during COVID. And they are looking forward to a more comprehensive “Fresh Start Program” that will relieve Angelenos of their debt and stabilize bill payments for low-income customers, even after the pandemic ends. They have also committed to strengthen low-income programs, which have been historically under-enrolled.
• Some private utilities are stepping up as well. Consumers Energy in Michigan pledged $12 million in COVID-19 relief, funded by shareholders, to support residential and small business customers who are behind in electric and gas bills.

More examples are listed in this paper from an NRDC ally, the National Energy & Utility Coalition.

While we work together to address the fallout from the pandemic, we should recognize that the affordability of utility services was already an issue for millions of customers, which has been exacerbated by this crisis. It has also put many others in distress for the first time. We must confront the current cliff many fellow Americans face, and we urge the incoming Biden Administration to include debt relief in its promised COVID-19 relief package so that low income households can pay their water, heating and energy bills. Decision makers and utilities also need to make plans for increasing the resilience of utility service provision in case of future crises, for example by recommitting to substantially increased energy efficiency of buildings where we work and live.