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Consumer Counsel: "Arguable" That Purchase Of Receivables No Longer Authorized Under Statute

April 15, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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The Connecticut Office of Consumer Counsel in comments to the Connecticut PURA said that statutory language authorizing purchase of receivables (POR) was limited to a now-defunct referral program, and it is "arguable" that POR is not authorized by statute

OCC's comments were filed in response to a request from PURA which had asked for stakeholder comment on changes to the purchase of receivables program to "more fairly" allocate uncollectibles to retail suppliers, as exclusively reported by

OCC said that the relevant statutory provision concerning POR is General Statutes § 16-244c(j), which provides, in full, that: "[e]ach electric distribution company shall offer to bill customers on behalf of participating electric suppliers and to pay such suppliers in a timely manner the amounts due such suppliers from customers for generation services, less a percentage of such amounts that reflects uncollectible bills and overdue payments as approved by the Public Utilities Regulatory Authority."

OCC said that a "participating electric supplier" is defined in the preceding subsection, General Statutes § 16-244c(i), as, "an electric supplier that is licensed by the department to provide electric service, pursuant to this subsection, to residential or small commercial customers."

"The phrase 'pursuant to this subsection' in the language just quoted adds an interesting nuance here," OCC said. "The referenced subsection, § 16-244c(i), established and required DPUC to implement a 'qualifying electric offer' referral program that has long since lapsed," OCC said

"So, it is at least arguable that the purchase of receivables requirement in § 16-244c(j) ... which references 'participating electric supplier[s]' only required the EDC purchase of supplier receivables at a discount as part of participation in the qualifying electric offer program," OCC said

Even assuming that PURA is authorized, either through § 16-244c(j) or its general powers, to order the EDCs to purchase electric supplier receivables for residential and small commercial customers at a discount, OCC said that, as far as it is aware, there is no legal requirement that a uniform percentage discount figure continue to be used for all electric supplier receivables, as is done at present, regardless of an individual electric supplier’s own actual uncollectible percentage. Section 16-244c(j) does not expressly require the use of a uniform discount but leaves that issue to the discretion of PURA, OCC said

"The perceived policy advantage of using the same percentage discount on receivables for all electric suppliers was that it would allow electric suppliers to make offerings to customers, including low-income customers, without the necessity of a credit check. If the same percentage discount applies to all receivables of all electric suppliers serving residential and small commercial customers and billing through the EDC bill, then the electric supplier does not need to be concerned with whether the customer ultimately pays or does not. OCC might agree that this approach could reflect optimal policy if most customers, most of the time, were saving a material amount of money through retail supply choice. However, since most customers ultimately lose money on retail choice as compared to standard service, there is no reason to believe that hardship customers might miss a valuable opportunity where electric suppliers impose a credit check," OCC said

"The policy disadvantage of the single percentage discount approach is that by insulating an electric supplier from the risk of non-payment, it allows a supplier to pursue a customer base that has a much higher uncollectible risk than average, and to overcharge those customers with impunity. In other words, the current approach allows an electric supplier to (1) target customers and communities where the uncollectible risk is higher; (2) immediately or eventually overcharge them; (3) receive compensation from the EDCs almost immediately, at a small percentage discount; all while (4) insulating the supplier from the resulting risks of the customer’s inability to pay a potentially exorbitant generation charge. This in turn has the potential to cause cascading issues for customers. First, this approach adds another significant burden to a customer that is already struggling to pay and keep their family’s electricity service in place. Second, to the extent that a customer’s account lapses into uncollectible status based on an exorbitant generation supply charge from an electric supplier, such would raise the overall uncollectibles percentage and ultimately lead to increases in the electric bills of the general class of electric customers," OCC said

"Overall, as suggested by the question being here asked by PURA, OCC would at this point like to see electric suppliers be paid for their receivables by the EDC at a rate that reflects the uncollectible percentage of such supplier’s own customer pool. This approach would provide a better policy balance for the present circumstances, allowing electric suppliers to continue to bill through the EDCs and receive timely payment for receivables, while also eliminating the gamesmanship and profiteering that can arise from an electric supplier targeting a customer population with higher-than-average uncollectible risks," OCC said

To accomplish this end, OCC would anticipate that the following step(s), or something similar, would be necessary for each EDC:

(i) Develop an uncollectible percentage for each supplier for each calendar year to be used for that year’s receivables, based on the prior year’s experience with that supplier’s own uncollectible account level (or alternatively, on the last two years’ experience if that is viewed as providing a more accurate estimate).

OCC said that, arguably, one could stop at step (i), but OCC would also recommend that a true-up be performed, both in fairness to electric suppliers and to ensure that the above-identified problem is fully and not partially solved, by taking actions such as:

(ii) By March of a calendar year, compare each supplier’s prior year’s actual uncollectible percentage to the estimate, and either credit or charge the supplier for the resulting revenue difference. The credit or charge could presumably be flowed through a present invoice from the EDC to the supplier for the supplier’s current receivables. If the supplier has exited the market, the security should be maintained for a short time to cover any potential charge of this type.

Eversource (CL&P) filed comments showing the impact that including hardship uncollectibles in the POR discount would have

On March 12, 2019, Eversource made a compliance filing to update its uncollectibles factor for the non-hardship uncollectible debt the company purchases from competitive retail suppliers to reflect 2018 actual uncollectible expense on the company's general ledger. The adjusted uncollectible factor of 0.44% for non-hardship customers was effective with the purchase of third-party supplier receivables related to April 2019 billings. This factor does not include hardship uncollectible expense, which is already recovered by the company via a separate annual tracking mechanism reported to the Authority.

If CL&P were to include hardship uncollectible expense in its calculation, the discount factor for hardship uncollectibles would be 0.89%. This discount would be in addition to the current POR discount of 0.44%

The hardship amounts recovered from the suppliers would directly reduce the hardship uncollectible expense recovered by customers through the annual tracking mechanism, CL&P said

"As the calculation of the uncollectible factor is performed as an accounting adjustment that requires little technological programming, the cost to revise the Company’s current methodology to include hardship uncollectibles in its calculation of the uncollectible factor would be minimal," CL&P said

Despite citing potential concerns with the POR program, United Illuminating generally cautioned PURA against policies that would require changes to UI's billing system

"The POR mechanism has the effect of decoupling payment from collections because a Supplier will be timely paid almost the entire amount billed, regardless of the timing or contingency of ultimate payment by their customers. Further, the practice of consolidated billing allows Suppliers to bill for their generation services through the EDC bill. These mechanisms provide tremendous value to the Suppliers and relieve those Suppliers from engaging in traditional business processes such as billing, collections, or other post-sale services. Accordingly, the Company appreciates the Authority’s concern that POR guaranteed payments, coupled with the practice of consolidated billing, may create a moral hazard," UI said

"Despite the foregoing concerns, UI’s experience with the POR mechanism has been generally favorable. From a process standpoint, the current billing methodology functions well and does not disrupt the Company’s current billing and collection system. In fact, the Company’s current billing processes have been developed to specifically incorporate supplier POR and has worked well over many years. The Authority should be aware that requiring the Company to now modify its processes and systems to incorporate an alternative to the currently approved POR mechanism will require an investment in ratepayer resources to design, develop, test and implement.1 The current process is proven to function well over time and any alternative process will likely require a breaking-in period, and ultimately may not provide a more advantageous process than currently exists," UI said

"Aside from the resource commitment that will be required to implement a substitute POR mechanism, the Authority should be aware that alternatives may prove burdensome to implement and may lead to unworkable or unintended results. Alternatives to the POR mechanism that attempt to link payment to Suppliers with payment from customers will present considerable difficulties to the Company’s billing and collection processes. Such a scenario would require the Company to track the generation portions of each receivable and make payments to Suppliers upon receipt. With regard to outstanding uncollectables, the Company and the supplier may have to engage in separate collection activities for the generation and/or distribution and transmission portions of customers’ bills. The bifurcation of collection activities of a consolidated bill would lead to considerable confusion and will overly complicate the debt collection process, which may increase exposure to violations of the Fair Debt Collection Practices Act, or at the very least, may raise other consumer protection concerns," UI said

"Similar concerns would exist if the Company was forced to take on the collection activities of a Supplier. The Company’s current debt collection process is not designed to reimburse or represent the interest of third-parties such as a Supplier. The current collection processes allows the Company to make unilateral decisions regarding the collection activities of individual customer accounts, including payment arrangements and PURA approved arrearage forgiveness programs, without concern to the interests of Suppliers. Inserting a Supplier or a Supplier’s debt collection agency into these discussions would be overly problematic and would likely lead to actions that are not in the best interest of customers. Accordingly, the Company does not support a process that would require the EDCs to engage in collection activities on behalf of Suppliers," UI said

"Based on the foregoing, the Authority should carefully consider whether any perceived benefits provided by an alternative to the existing POR mechanism are outweighed by the ratepayer investments required to design and implement such a mechanism, as well as the potential complications to the Company’s billing and collection processes. While the current POR mechanism is not ideal, the Company is hesitant to offer alternatives to the existing process, which appears to generally function as intended and ensures that customers are treated fairly in the debt collection process," UI said

Direct Energy said in comments to PURA that, "Direct Energy respectfully submits that no evidence has ever been submitted in any Department or Authority proceeding that would suggest that ratepayers are harmed by the current Bills Rendered structure (also known as 'purchase of receivables'). No participant proposed changes to the current purchase of receivables process in their initial written comments or responses to interrogatories in this proceeding. Indeed, changes to the purchase of receivables process have not been contemplated until they were raised in the [April 2] Notice."

"Should the Authority wish to fully investigate changes to the current purchase of receivables structure, a separate, properly noticed contested docket should be opened in order to give full due process to all of the varied stakeholders. Any major revisions to foundational utility accounting practices such as the purchase of receivables should be contemplated where all of the parties whose legal rights, duties or privileges are at issue are involved as necessary parties," Direct Energy said

Docket No. 18-04-25

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