BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: AB 1180 Hearing Date: 6/13/2016
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|Author: |Cristina Garcia |
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|Version: |6/6/2016 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Nidia Bautista |
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SUBJECT: Rates and charges for water service: payment
transaction fees
DIGEST: This bill would allow, until January 1, 2022, specified
water corporations to establish pilot programs through a general
rate case application, once approved by the California Public
Utilities Commission (CPUC), that evaluate customer interest in
utilization of credit cards, debit cards and prepaid cards
without requiring an individual payment transaction fee and
allow a water corporation to recover the reasonable expenses
incurred in providing its customers with these bill payment
options.
ANALYSIS:
Existing law:
1)Establishes the CPUC to regulate privately owned public
utilities in California. (Article XII of the California
Constitution)
2)Requires the CPUC to establish the California Alternate Rates
for Energy (CARE) program of assistance to low-income electric
and gas customers with an annual household income not greater
than 200 percent of the federal poverty guideline levels.
(Public Utilities Code §739.1)
3)Requires the CPUC to consider programs to provide rate relief
for low-income ratepayers of water corporations. (Public
Utilities Code §739.8)
AB 1180 (Cristina Garcia) PageB of?
4)Authorizes an electrical, gas, or water corporation to offer
credit card and debit card bill payment options, if approved
by the CPUC, and, upon approval, authorizes an electrical,
gas, or water corporation to recover, through an individual
customer transaction fee, reasonable transaction costs
incurred by the electrical, gas, or water corporation from
those customers that choose those methods of payment. (Public
Utilities Code §755)
5)Establishes the Low-Income Oversight Board to advise the CPUC
on low-income electric, gas, and water customer issues and
serve as a liaison for the CPUC to low-income ratepayers and
representatives. (Public Utilities Code §382.1)
6)Exempts from the existing prohibition upon retailers to impose
a surcharge on a cardholder who elects to use a credit card in
lieu of payment by cash, check or similar means the
transaction fee charges of an electrical, gas, or water
corporation, and approved by the CPUC, on customer bill
payments made by credit card or debit, and related penalties
and cause of action. (Civil Code §1748.1)
This bill:
1)Authorizes, until January 1, 2022, a water corporation with
more than 2,000 service connections to seek CPUC approval
through its general rate case to operate a pilot program
designed to evaluate customer interest in, and utilization of,
bill payment options, including, but not limited to, credit
card, debit card and prepaid card bill payment options, and to
assess the cost-effectiveness of, and customer interests
served by, customer access to those bill payment options.
2)Limits the pilot program to the duration of the water
corporation's rate case cycle, but allows the CPUC to extend
the program at the request of the water corporation in its
subsequent rate case application.
3)Requires the CPUC to allow a water corporation to recover the
reasonable expenses incurred by the water corporation in
providing its customers with these bill payment options, and
to allow water corporations to not impose a transaction fee on
its customers for using these bill payment options.
4)Prohibits the costs of a pilot program from being recovered of
AB 1180 (Cristina Garcia) PageC of?
low-income customers who participate in specified programs,
and would require a water corporation that is operating a
pilot program to provide certain notifications to its
customers.
5)Provides that the section shall remain in effect until January
1, 2022 and is repealed unless another statute is enacted.
6)Requires the CPUC, in consultation with the Low-Income
Oversight Board, by July 1, 2020, to submit a report to the
relevant legislative committees regarding the pilot programs
operated by water corporations under this bill that includes
an assessment of the use of credit cards by low-income
customers to avoid service disconnections, an assessment of
the impact of use of credit cards for customer bills on
household debt burden, and an assessment of data considered on
an aggregate basis regarding customer utilization and the
cost-effectiveness of the bill payment options.
7)Requires the report, based on these assessments and an
assessment of the customer interests served by providing these
bill payment options, to evaluate the usefulness of an
individual customer transaction fee and include a
recommendation regarding individual customer transaction fees
for credit card, debit card and prepaid card payments accepted
by water corporations.
8)Provides that the section shall remain in effect until January
1, 2024 and is repealed unless another statute is enacted.
Background
CPUC's regulation of water utilities. The CPUC has jurisdiction
over 113 privately owned water utilities: nine Class A water
utilities (10,000 or more connection points); five Class B water
utilities (2,000 or more connection points); 25 Class C water
utilities (500 or more connection points); and 74 Class D water
utilities (less than 500 connection points). Combined, these
utilities deliver water service to roughly 16 percent of the
state's population (about six million residents). The CPUC
regulates all aspects of the privately owned utilities' service
provision, including assessing their rates to ensure they are
reasonable, while providing a reasonable rate of return to
continue to provide customers service and satisfy shareholders.
AB 1180 (Cristina Garcia) PageD of?
Credit cards and utilities. Currently, the CPUC requires
electric, natural gas, and water companies it regulates to get
approval from the CPUC to offer a credit/debit card bill payment
option. As more and 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 allows IOUs to
recover reasonable transactions cost, but only from those
customers that choose to pay by those payment options. 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.
According to the CPUC, in the case of water corporations, the
fee generally ranges between $1 to $3. According to the
sponsor, this transaction fee frustrates customers. While other
forms of payment such as check processing or cash payments also
generate some cost for the utility to process the payments,
those transactions are not assessed an individual fee to the
user. Unlike credit or debit card fees, all the other payment
transaction fees are spread across the entire customer base and
recovered in rates.
Impact on ratepayers. By allowing water corporations to forgo
the individual transaction fee in lieu of recovering the
reasonable expenses in the general rate case, ratepayers may
likely see an increase in rates to cover the costs. However,
it's also likely the increased costs would be fairly minimal and
possibly consistent with costs associated with processing other
payments. When a customer has no option but to have their
service shutoff, the customer is also assessed a fee to turn the
service back on. It's possible the fee to turn the service back
on could be more than the fee of financing the utility bill,
depending on the terms of the credit card.
CPUC low-income assistance for water ratepayers. Of the
privately-owned utilities, the CPUC has authorized the largest
nine water utilities to offer low-income rate assistance (LIRA)
programs similar in concept to those provided to electricity
customers through CARE. However, each program is varied in
terms of the amount of the assistance provided to low-income
customers and the collection of the surcharge from
non-participating ratepayers to cover the cost of the program.
Combined, the nine largest utilities serve approximately 1.175
AB 1180 (Cristina Garcia) PageE of?
million customers. In CPUC Decision D.11-05-020, the CPUC
ordered large water and energy utilities to exchange information
about their low-income customers to cross-promote the goal of
increasing participation in both programs. Reports from the
CPUC indicate the effort has yielded a substantial increase in
participation. By exempting LIRA and CARE eligible customers
from the individual transaction fee, Class B utilities who don't
operate a LIRA program will need to identify these customers.
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
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 five permanent employees.
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<1>
https://www.calwater.com/docs/grc/2012/settlement/Exhibit_A_-_Set
tlement_Agreement.pdf
AB 1180 (Cristina Garcia) PageF of?
Another utility, Suburban Water Systems, has 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>
According to 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."
Need to assess credit card usage? This bill attempts to
mitigate and better address ratepayer costs by assessing whether
the pilots created an increase in household debt burden,
requiring the utility to assess the pilot program usage, and
requiring a report on the cost-effectiveness of the pilots.
While well-intended, the reality is that that many consumers
have grown accustomed to paying their bills online or by phone
with either credit cards, prepaid cards or bank accounts. In
general, consumers in 2016 are likely to appreciate more payment
method options, so long as cash and check options are preserved.
The CPUC may also not have much expertise in assessing
household debt burden or be able to access information regarding
customer's perspectives on service disruptions. The author may
wish to consider amending this bill to allow utilities to
recover in rates the transaction costs related to all processing
all payment options, including credit, debit and prepaid cards.
Double Referral. Should this bill be approved by the committee,
it will be re-referred to the Senate Committee on Natural
Resources and Water for its consideration.
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<2>
http://www.swwc.com/suburban/tariff-preliminary-statement2.pdf
AB 1180 (Cristina Garcia) PageG of?
Prior/Related Legislation
AB 746 (Blakeslee, Chapter 746, Statutes of 2005) permitted an
electrical, gas or water corporation to charge a reasonable
transaction fee when customers pay their utility bills by credit
card and debit card and exempts these fees from an existing
exemption on retailers to impose a surcharge for using a credit
card for payment.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
SUPPORT:
California Water Association (Source)
California American Water
California Bankers' Association
California Credit Union League
Central Basin Municipal Water District
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: According to California Water
Association, electric, natural gas, and water companies must
first seek the CPUC's permission to offer a credit/debit card
payment option, and then charge their customers a transaction
fee for paying their utility bill by credit/debit card. Public
Utilities Code §755 requires utilities to charge customers a
transaction fee if they pay their utility bills by credit/debit
card to cover the bank interchange fees associated with the
transaction, unless the CPUC no net
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