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:  8/8/16 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 and allows these utilities to recover  
          the reasonable expenses incurred in providing its customers with  
          these bill payment options.


          Senate Floor Amendments of 8/8/16 narrow eligibility for the  
          credit card pilot program to only large water companies,  








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          specifically those with over 10,000 service connections (known  
          as Class A), by removing reference to water companies with more  
          than 2,000 service connections (which encompass both Class B and  
          Class A).  The amendments also remove this bill's proposal to  
          provide the CPUC the discretion to extend the pilot program  
          beyond the time period approved in a utility's general rate  
          case.


          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)


          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  







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            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 10,000 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 general rate case cycle.


          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 requires 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  







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            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. 


          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 this 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  







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          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  
          choose to pay by those card 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, California Water  
          Association, 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.  Instead, the non-card 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 utility customer is about to have their  
          service shutoff due to 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  
          programs similar in concept to those provided to electricity  
          customers through CARE.  Each water utility's 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.   
          Therefore, the provisions of this bill that prohibit a utility  







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          from recovering costs of the pilot program from low-income  
          customers could be implemented fairly easily by the Class A  
          water companies since they already identify their low-income  
          customers through these assistance programs.


          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.  These  
          include pilot programs by California Water Service Company and  
          Suburban Water Systems which include provisions that any costs  
          exceeding the savings of processing payments with credit cards  
          would be absorbed by the companies, instead of ratepayers.   
          California Water Service Company 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 requiring the  
          CPUC to assess 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 many  
          consumers have grown accustomed to paying their bills online or  
          by phone with credit cards, prepaid cards or bank accounts.  In  
          general, consumers in 2016 are likely to appreciate the  
          convenience of utilizing 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









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          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 Appropriations Committee, 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:   (Verified8/8/16)


          California Water Association (source)
          California American Water
          California Bankers Association
          California Credit Union League
          Central Basin Municipal Water District


          OPPOSITION:   (Verified8/8/16)


          None received


          ARGUMENTS IN SUPPORT:     According to the sponsor of this 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  







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          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
          8/10/16 15:45:23


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