BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1180|
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THIRD READING
Bill No: AB 1180
Author: Cristina Garcia (D)
Amended: 6/6/16 in Senate
Vote: 21
SENATE ENERGY, U. & C. COMMITTEE: 11-0, 6/13/16
AYES: Hueso, Morrell, Cannella, Gaines, Hertzberg, Hill, Lara,
Leyva, McGuire, Pavley, Wolk
SENATE APPROPRIATIONS COMMITTEE: 5-0, 6/27/16
AYES: Beall, Hill, McGuire, Mendoza, Nielsen
NO VOTE RECORDED: Lara, Bates
ASSEMBLY FLOOR: 71-3, 1/25/16 - See last page for vote
SUBJECT: Rates and charges for water service: payment
transaction fees
SOURCE: California Water Association
DIGEST: This bill allows, until January 1, 2022, specified
water corporations to establish pilot programs, once approved by
the California Public Utilities Commission (CPUC), that evaluate
customer interest in using credit cards, debit cards and prepaid
cards to pay utility bills, without requiring an individual
payment transaction fee. This bill allows specified water
corporations to recover the reasonable expenses incurred in
providing its customers with these bill payment options.
ANALYSIS:
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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)
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 corporations 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)
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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
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)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
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cost-effectiveness of the bill payment options.
6)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.
7)Provides that the bill 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.
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 by increasing the price of the good or service
sold or absorbing the costs. In the case of a regulated
utility, current law allows investor-owned utilities to recover
reasonable transactions cost, but only from those customers that
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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 to the
utility in order to process the payments, those transactions are
not assessed on 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 utility
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
experience 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 may be about to have the service
shutoff because of lack of payment, the option to pay with a
credit card, depending on the terms of the credit card, may be
less costly than the fee to have the service shutoff and
restarted.
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
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. According to the
CPUC, the effort has yielded a substantial increase in
participation in the programs. By exempting LIRA and CARE
eligible customers from the individual transaction fee, Class B
utilities that do not operate a LIRA program will need to
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identify eligible customers through a different mechanism.
Pilot programs already underway. The CPUC has already approved
pilot programs to allow some water utilities to provide their
customers the option to pay their utility with a credit or debit
card, without an individual transaction fee. However, unlike
this bill, those pilot programs would require the utility to
absorb any net costs in providing the credit card option. In
August 2014, the CPUC approved a settlement of a 2012 General
Rate Case application by the California Water Service Company
(CalWater) which includes a pilot program to track costs and
savings of processing credit and debit cards
[https://www.calwater.com/docs/grc/2012/settlement/Exhibit_A_-_Se
ttlement_Agreement.pdf]. CalWater agreed that any costs that
exceed the savings would be absorbed by CalWater, instead of
ratepayers. In its 2015 General Rate application, CalWater
proposed to make the credit or debit card program permanent.
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. The average
cost of processing each credit card transaction is $1.26 if it
is an automated transaction. Suburban Water Systems, has
initiated a pilot program, effective January 1, 2015, 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
[http://www.swwc.com/suburban/tariff-preliminary-statement2.pdf].
Additionally, CalWater reports that a growing number of
customers are using credit cards to avoid discontinuing service
for nonpayment, stating that in 2008 there were 8,814 customer
transactions that fell into that category and as of 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 pilot programs create 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 credit cards, prepaid cards or bank accounts. In general,
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consumers in 2016 are likely to appreciate more payment method
options, so long as cash and check options are preserved. The
CPUC may not have much expertise in assessing household debt
burden and be limited in their ability to access information
regarding customer's perspectives on service disruptions as
intended by the provisions of this bill.
Prior 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.:YesLocal: No
According to the Senate Committee on Appropriations, increased
costs of approximately $131,000 per year (Public Utilities
Commission Utilities Reimbursement Account) for the CPUC to
monitor the rate case, collect and analyze data, and coordinate
with the Low-Income Oversight Board.
SUPPORT: (Verified 6/28/16)
California Water Association (source)
California American Water
California Bankers Association
California Credit Union League
Central Basin Municipal Water District
OPPOSITION: (Verified6/28/16)
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None received
ARGUMENTS IN SUPPORT: According to the sponsor of the bill,
California Water Association (CWA): "a 2005 law is discouraging
the payment of utility bills online by credit and debit
cardholders at a time when more consumers are utilizing the
convenience of online bill payment options as their primary
method of paying recurring bills." CWA argues that all forms of
payment generate some processing costs. Therefore, residents
who choose to use credit or prepaid cards to pay their utility
bills should not be penalized with an individual transaction
fee.
ASSEMBLY FLOOR: 71-3, 1/25/16
AYES: Achadjian, Alejo, Baker, Bigelow, Bloom, Bonilla, Bonta,
Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu,
Chu, Cooley, Cooper, Dahle, Daly, Dodd, Eggman, Frazier,
Gallagher, Cristina Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Hadley, Roger Hernández, Holden, Irwin, Jones,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk,
Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth,
Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk,
Williams, Wood, Atkins
NOES: Travis Allen, Brough, Gray
NO VOTE RECORDED: Dababneh, Beth Gaines, Eduardo Garcia, Grove,
Harper
Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
6/29/16 15:56:03
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