BILL ANALYSIS Ó
AB 1180
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Date of Hearing: January 11, 2016
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Mike Gatto, Chair
AB 1180
(Cristina Garcia) - As Amended January 4, 2016
SUBJECT: Rates and charges for electric, gas, and water
service: credit or debit card payment
SUMMARY: Authorizes a water corporation to seek California
Public Utilities Commission (CPUC) approval through its general
rate case application to operate a pilot program to evaluate
customer interest in and utilization of additional bill payment
options. Specifically, this bill:
a)Authorizes a water corporation with more than 10,000 service
connections to seek, through its general rate case, CPUC
approval to operate a pilot program designed to evaluate
customer interest in, and utilization of, bill payment
options, including credit card and debit card bill payment
options, for their water bills, as specified.
b)Authorizes a water corporation to recover the reasonable
expenses incurred by the water corporation in providing to its
customers bill payment options and prohibits the CPUC from
requiring the water corporation to impose a transaction fee on
its customers, as specified.
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c)Requires the CPUC to ensure that accepting bill payment
options neither increases nor decreases the rate of return of
the water corporation.
d)Sunsets the pilot program on January 1, 2025.
e)Requires the CPUC by July 1, 2023, to submit to the Assembly
Committee on Utilities and Commerce and the Senate Committee
on Energy, Utilities and Communications a report that
includes, on an aggregated basis, data regarding customer
utilization and the cost effectiveness of the bill payment
options provide by the water corporations operating pilot
programs. The report shall evaluate the usefulness of the
individual customer transaction fee and include a
recommendation regarding individual customer transaction fees
for credit card and debit card payments accepted by water
corporations.
EXISTING LAW:
1)Authorizes an electrical, gas or water corporation to offer
credit or debit card bill payment options, if approved by the
CPUC. (Public Utilities Code Section 755)
2)Authorizes an electrical, gas, or water corporation, approved
by the CPUC to offer credit or debit card bill payment
options, to recover reasonable transaction costs incurred by
the electrical, gas, or water corporation only from those
customers that choose to pay by those payment options. (Public
Utilities Code Section 755)
3)Requires the CPUC to determine through existing regulatory
mechanisms the reasonableness of transaction costs charged to
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customers that choose to pay an electrical, gas, or water
corporation by a credit or debit card bill payment option, as
specified. (Public Utilities Code Section 755)
4)Requires the CPUC to determine how any associated costs or
potential savings as a result of customers paying by the
credit or debit card payment option shall be passed on to
electrical, gas, or water corporation customers. (Public
Utilities Code Section 755)
5)Requires the CPUC in determining how credit or debit card
associated costs or savings are passed on to customers, the
CPUC shall do the following:
a) The transaction costs that are passed on to customers be
offset by any savings in transaction costs an electrical,
gas, or water corporation derives as a result of those
customers paying by credit card and debit card.
b) There to be no individual customer transaction fee, as
specified, if the CPUC determines that the use of credit or
debit cards results in no net cost to the electrical, gas,
or water corporation.
c) Any net savings be passed on to electrical, gas, or
water corporation customers, if the commission determines
that the savings to an electrical, gas, or water
corporation exceeds the costs to the electrical, gas, or
water corporation. (Public Utilities Code Section 755)
1)Allows the CPUC to consider and implement programs to provide
water rate relief for low-income ratepayers. (Public Utilities
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Code Section 739.8)
FISCAL EFFECT: Unknown.
COMMENTS:
1)Author's Statement: "Current law is impeding the payment of
utility bills by credit and debit cards at a time when more
consumers are utilizing the convenience of credit cards as
their primary method of paying recurring bills. Due to the
almost universal use of online commerce sites, from giants
like Amazon to small local retailers, customers take it for
granted that they can pay online by credit or debit card.
They are confused, disgruntled, and often discouraged when
they are required to pay an additional fee if they want to pay
their utility bill with their credit or debit card. For
example, how many customers end up waiting in line at a
customer payment center to pay their bill in cash in order to
avoid paying a transaction fee? AB 1180's pilot program would
allow the CPUC to collect critical information on customer
behavior."
2)Background: In most retail and service establishments,
customers have a range of payment options to pay for goods and
service, including cash, checks, debit cards, credit cards,
etc. Doing so provides conveniences for the customer as well
as potential cost savings for the company. Furthermore, there
has been a growing use of reward program cards, which provide
customers with rewards such as airline miles, hotel points,
cash back, etc. for every purchase they make. As more and
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more customers turn to credit or debit cards as their primary
payment method, companies must determine how to pay for the
transaction cost of each payment. For the most part,
unregulated retail and service providers recover the
transaction cost from various methods such as increasing the
price of the good or service sold or using company revenue.
In the case of a regulated utility, current law restricts
passing these transaction costs on to other utility customers.
As a result, some utilities assess a separate fee on top of
the monthly bill, when a credit card is used to pay the bill.
3)IOUs and Credit or Debit Cards: Investor owned utilities
(IOUs), unlike retailers, cannot simply raise utility rates to
offset the transaction costs. IOUs must submit a general rate
case typically every three years detailing their revenues,
expenses, and investments, including how much they wish to
charge ratepayers. Under current law, IOUs may offer credit
or debit card payment options with the approval of the CPUC.
If approved by the CPUC, IOUs may recover reasonable
transactions cost, but only from those customers that choose
to pay by those payment options.
According to the sponsor, this transaction fee discourages
customers from using credit or debit cards. The sponsor notes
that other forms of payment normally generate some cost to the
utility processing it. Unlike credit or debit card fees, all
the other payment transaction fees are spread across the
entire customer base and recovered in rates.
4)Who uses Credit or Debit Cards? According to the Cash Product
Office of the Federal Reserve System, cash is the most used
retail payment instrument as of October 2012: 40 percent of
customers use cash, followed by debit cards at 25 percent, and
credit cards at 17 percent. Electronic methods (online bank
bill pay and bank account payments) make up 7 percent. Text
and mobile payments barely register at one half of one
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percent. They also point out that households making more than
$200,000 per year exhibit a strong preference for credit cards
while 55 percent of consumers with household incomes less than
$25,000 per year prefer cash payments. Furthermore, the
report points out that the highest income group uses credit
cards for more than 40 percent of their monthly transactions.
5)Impact on Ratepayers: This bill authorizes a water
corporation with more than 10,000 service connections to seek
CPUC approval through its general rate case; to create a pilot
program designed to evaluate customer interest in and
utilization of bill payment options, including credit or debit
cards for their water bills; and, to assess the effectiveness
of such payment options for customers. The pilot program
would allow the water corporation to recover reasonable
expenses but not require the water corporation to impose a
transaction fee.
By doing so, this bill would allow a water corporation to
argue for higher rates for all its customers in its general
rate case, in order to pay for the transaction cost associated
with credit or debit card payments. The fundamental question
is whether utilities should spread the transaction cost across
all its customers or should the cost continue to be borne by
the individual card user.
6)Impact on Low-Income Rate Assistance (LIRA) participants: Of
the IOUs, only the large water utilities are authorized by the
CPUC to offer Low-Income Rate Assistance (LIRA) programs. If
a ratepayer meets low-income eligibility criteria (income less
than 200 percent of the Federal Poverty Level), a bill
discount is provided. These discounts are funded by
non-participating ratepayers. As of October 2012, an
estimated 221,940 residential water customers participated in
the water rate assistance programs, including LIRA -
approximately 3.7 percent of the population served by IOUs.
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LIRA participants might face higher water bills because of the
addition of transaction fees in water rates. This is likely
to have a negative impact on the ability of low-income
households to pay their utility bills or other debts,
potentially focusing low income customers to rely on more
sources of credit to finance their bills. The author may wish
to exclude LIRA participants from having to bear the cost of
any rate increase that may result from spreading the
debit/credit card transaction fee across all customers in the
general rate case.
7)Uncertain impact on household debt burden: In addition to the
potential impact on affordability for LIRA participants, it is
unclear whether there is a risk of increasing debt burdens on
LIRA and non-LIRA households, as a result of moving credit
card transaction charges into rates. For those households who
may be having trouble paying monthly bills, they may choose to
use credit, and go deeper into debt along with exposure to
credit card interest rates. Using credit cards may reduce
service disconnections for non-payment but at what cost to
that customer? The author may wish to include an assessment
of the use of credit cards for delinquent payments and the
impact on household debt burden.
8)Transaction Cost and Transparency: Typically, transaction
costs vary depending on the payment method being used and are
negotiated between the retailer and the banking provider. By
moving the transaction cost into a water corporation's general
rate case, customers would no longer see the transaction cost
as a separate line item, but instead it would be blended into
the cost of their utility bills. Furthermore, by moving the
transaction cost into the general rate case, AB 1180 might
create a disincentive for utilities to negotiate better
transactions cost with banking providers for their customers
if they believe they can simply recover the cost in customer
rates.
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In addition, this bill sunsets the program on January 1, 2025
and requires the CPUC to submit a report to the Assembly
Committee on Utilities and Commerce and the Senate Committee
on Energy, Utilities and Communications on the results of the
pilot program. However, customers who are a part of the
program might grow accustomed to using credit or debit cards
as their primary payment option and it might become difficult
to remove such a payment option or reintroduce a transaction
fee after the pilot program period. The author may wish to
consider an amendment to require water corporations to
properly notify their customers that they are participating in
a pilot program and that the program may not continue, pending
an assessment of the costs and benefits. The author may also
wish to consider a sunset to the program by January 1, 2022.
9)Pilot programs already underway? In August 2014, the CPUC
approved a settlement<1> of a 2012 General Rate Case
application by the California Water Service Company (CalWater)
which includes, among other things, a pilot program to track
costs and savings with processing credit and debit cards. As
part of the settlement, CalWater agreed that any costs that
exceed the savings would be absorbed by CalWater, instead of
ratepayers. CalWater would have the option of pursuing a
fee-based credit card or debit card payment offering. In its
2015 General Rate application, CalWater proposed to make the
credit or debit card program permanent. According to the
application:
"Cal Water has been able to implement its credit or debit
card program in a manner that is cost-effective, with no
additional fee paid by credit or debit card users, and no
cross-subsidy from customers who pay by other means.
Customer usage of credit or debit cards continues to
increase, among LIRA customers in particular, and this
-------------------------
<1>
https://www.calwater.com/docs/grc/2012/settlement/Exhibit_A_-_Set
tlement_Agreement.pdf
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payment option appears to help customers avoid having their
water service shut-off due to non-payment."
According to CalWater's testimony in this case, approximately
15,000 LIRA and approximately 43,000 non-LIRA customers have
paid their monthly water bills using credit cards. CalWater
has 477,000 customers. The average cost of processing each
credit card transaction is approximately $1.26 if it is an
automated transaction. CalWater did not provide cost
information on processing other types of payments, however
they did state that the vast majority of customers pay by
checks that are processed by 5 permanent employees. CalWater
did not provide cost data for those employees in this
testimony.
Suburban Water Systems has recently initiated a pilot program,
effective January 1, 2015. Suburban Water Systems has about
300,000 customers and has similar terms as the CalWater
settlement, including the provision that any costs exceeding
the savings would be absorbed by Suburban Water Systems,
instead of ratepayers.<2>
Regarding discontinuing service for non-payment, CalWater
reports that a growing number of customers are using credit
cards in this situation. Specifically they state:
"In 2008 there were 8,814 payments that fell into that
category. The amounts have consistently increased so that
in 2014, there were 42,295 credit or debit card
transactions over the year to avoid shut-off for
nonpayment."
The testimony did not provide detail on how many of those
transactions were made by LIRA customers.
--------------------------
<2>
http://www.swwc.com/suburban/tariff-preliminary-statement2.pdf
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10)Arguments in Support: According to the California Water
Association, the sponsor of the bill, "current law requires
the transaction fee to be levied unless and until the CPUC
determines that the use of credit and debit cards would result
in no net cost to the utility. The "no net costs" standard
has proved too high a bar and has effectively required a
transaction fee to be charged. The irony is that all forms of
payment generate some cost to the utility process them, from
handling checks to staffing customer payment centers to
processing payments by phone. As such, these other forms of
payment are part of the overall cost-of-service, which means
that, like all other utility operations, these processing
costs are properly included in base rates. Those who pay in
person, by phone, or through regular mail are not penalized
through a separate processing fee like those who use credit or
debit cards. This inequity is what AB 1180 is attempting to
reconcile."
11)Arguments in Opposition: According to the Office of
Ratepayer Advocates (ORA), "while ORA recognizes the bill's
intent to provide customers with choice and convenience, AB
1180 would potentially allow water utilities to create bill
payment option pilot programs for customers and recover
associated expenses without a thorough CPUC review. Such a
review is necessary to make sure these pilot programs are
reasonably constructed and provide the CPUC with the
information it needs to evaluate the payment options for
cost-effectiveness, and if they are in the customers best
interest."
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12)Suggested amendments:
755.5. (a) A water corporation with more than 10,000 service
connections may seek, through its general rate case application,
commission approval to operate a pilot program designed to
evaluate customer interest in, and utilization of, bill payment
options, including, but not limited to, credit card and debit
card bill payment options, for their water bills and to assess
the cost-effectiveness of, and public interests served by,
customer access to those bill payment options.
(b) Notwithstanding Section 755, the commission shall allow a
water corporation to recover the reasonable expenses incurred by
the water corporation in providing to its customers bill payment
options pursuant to subdivision (a) and shall not require the
water corporation to impose a transaction fee on its customers.
(c) The costs of the program adopted and implemented pursuant to
this section may not be recovered from customers participating
in the California Alternate Rates for Energy or CARE program
established pursuant to Section 739.1 or a water rate relief
program for low-income ratepayers established pursuant to
Section 739.8.
(d) The commission shall require water corporations to notify
customers that they are participating in a pilot program and
that program may not continue, pending an assessment of the
costs and benefits to customers.
(c) The commission shall ensure that accepting bill payment
options pursuant to subdivision (a) neither increases nor
decreases the rate of return of the water corporation.
(d) (e) This section shall remain in effect only until January
1, 2025 2022 , and as of that date is repealed, unless a later
enacted statute, that is enacted before January 1, 2025 2022 ,
deletes or extends that date.
SEC. 2. By July 1, 2023 2020 , the commission , in consultation
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with the Low Income Oversight Board, shall submit to the
Assembly Committee on Utilities and Commerce and the Senate
Committee on Energy, Utilities and Communications a report that
includes an assessment of the use of credit cards to avoid
service disconnections by low income customers, an assessment of
the impact of the use of credit cards for water bills on
household debt burden, and an assessment, on an aggregated
basis, of data regarding customer utilization and the
cost-effectiveness of the bill payment options provided by the
water corporations operating pilot programs pursuant to Section
755.5 of the Public Utilities Code. Based on this data and an
assessment of the public interests served by providing these
bill payment options, the report shall evaluate the usefulness
of the individual customer transaction fee required by Section
755 of the Public Utilities Code, and include a recommendation
regarding individual customer transaction fees for credit card
and debit card payments accepted by water corporations.
REGISTERED SUPPORT / OPPOSITION:
Support
California Water Association (Sponsor)
California American Water
Opposition
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Office of Ratepayer Advocates
Analysis Prepared by:Edmond Cheung / U. & C. / (916) 319-2083