BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1180| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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, AB 1180 Page 2 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 AB 1180 Page 3 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 AB 1180 Page 4 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 AB 1180 Page 5 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 AB 1180 Page 6 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 AB 1180 Page 7 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 AB 1180 Page 8 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 **** END ****