Connecticut Utilities Wary Of Proposed Changes To Purchase Of Receivables (POR) Programs

Proposals Have Included Limiting POR For Uncollectible Accounts To Shadow-Billed Default Service Amount, Rather Than Actual Supplier Charges

Supplier-Specific Discount Rates Proposed By OCC

February 19, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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The Connecticut electric utilities raised several concerns with adopting any proposed changes to the current purchase of receivables (POR) mechanism and methodology

As exclusively first reported by EnergyChoiceMatters.com, PURA initiated an investigation of POR to, among other things, consider changes that would allow the EDCs to reduce the amounts paid to suppliers for uncollectible accounts so that the burden on any uncollectible amounts may be allocated more fairly between the EDCs and the suppliers

As exclusively first reported by EnergyChoiceMatters.com, the Connecticut PURA has sought comment on potential POR changes including:

(1) returning all uncollectible accounts to the EDCs until fully paid,

(2) basing payments for suppliers’ receivables at a rate that reflects the uncollectible percentage of the supplier’s customer pool (supplier-specific discount), and

(3) limiting payments to suppliers’ from uncollectible accounts to billed usage multiplied by the applicable EDC standard service rate (instead of the supplier's rate)

United Illuminating cautioned PURA against changing the current POR program.

"[T]he 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 UI’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.

UI also addressed specific proposed changes, such as switching customers with uncollectible balances to Standard Service

UI said that, "The Company is not persuaded that switching active customers with 'uncollectible' balances to Standard Service would provide a tangible benefit. With regard active accounts [sic], a customer is not deemed uncollectible, but a portion of a customer’s balance in arrears could be deemed uncollectible. The Company does not code or otherwise identify a customer’s account as 'uncollectible.' Creating a new code that would identify a customer’s account or a certain balance of a customer account as 'uncollectable' would pose a challenge to return a customer to Standard Service."

UI said that, "Moreover, returning a customer to Standard Service would not change the existing uncollectible balance and may or may not prevent the uncollectible balance from increasing or otherwise ensure recovery."

UI said that, "The Company further notes that the Authority’s recently enacted [sic] on hardship customers’ access to third-party Suppliers should largely address this concern." [citing PURA's order returning all hardship customers to default service]

UI said that, "The OCC’s proposal to assesses each Suppliers’ uncollectible accounts and pays for the Supplier’s receivables at a rate that reflects the uncollectible percentage of the Supplier’s customer pool appears to be overly complex and would require the EDCs to develop a sophisticated mechanism to track customers and their 'uncollectable' balances as they switch among Suppliers. For example, Customer A could have switched to Supplier B by the time that a balance incurred with Supplier A ages to the point of being deemed uncollectible. In the Company’s experience, a certain percentage of customers switch between Suppliers regularly, and therefore, an uncollectible balance may originate from multiple Suppliers. The Company currently does not have a system in place to track balances by Supplier, which would require additional time and the dedication of resources from ratepayers to design and implement. Moreover, the Company is not persuaded that such a complex modification to the POR system would produce a ratepayer benefit as it would not change the overall amount of uncollectible arrearages."

Concerning a proposal to limit payments to suppliers for uncollectibles to an amount equal to the default service rate multiplied by the customer's usage (rather than the supplier's billed rate), UI said, "it is important to understand that active customer accounts are not deemed 'uncollectible.'"

"The Company can identify a portion of a customer’s balance in arrears as uncollectible. At the time that the Company bills a customer on behalf of a Supplier, that newly created receivable would not be considered uncollectible until an intervening event occurs ... If a receivable eventually becomes 'uncollectible,' the Supplier would have already been paid for that receivable. Therefore, 'limiting payment to suppliers’ receivables from uncollectible accounts to billed usage times the applicable Standard Service rates,' would appear to require a retroactive adjustment to a Suppliers’ account and would require a true-up process to handle under or over payments to suppliers depending on if their price was over or under the Standard Service price. None of these mechanisms currently exist and would be complex to implement," UI said

Addressing the payment system used in Maine, which remits payment to Suppliers only after receipt of customer payments by the utility, UI said, "A reimbursement mechanism that would allow payments to Suppliers only after receipt of payments by the utility would require the development and implementation of a complex set of rules that would govern payment allocation. For example, the Maine process requires the adoption of protocols regarding partial payment allocation between Supplier and utility s if a customer makes only a partial payment on a bill. Since Suppliers are paid only after the utility receives payment, a percentage of partial payments is applied to the EDC’s distribution balance and a portion is applied to the Supplier balance."

CL&P expressed similar concerns

With regards to paying a supplier only based on the default service rate, rather than the supplier's billed rate, for uncollectibles, CL&P said, "Based on Eversource’s definition of an 'uncollectible' ... a POR system where the EDC would reimburse the supplier for the applicable standard service rate rather than the supplier’s rate once the account is deemed uncollectible would introduce several challenges or cons. First, in regard to the timing of reimbursement to the suppliers or the need to have the suppliers remit to the EDCs funds they have previously received, Eversource would have already reimbursed the supplier for the customer usage prior to identifying the account as uncollectible. Second, the basis of how the suppliers are paid is currently based on the monthly amount of revenue billed to customers for the supplier portion of the bill, less the uncollectible amount which based on the billed revenue multiplied by the uncollectible factor. Using a basis other than the amount billed to customers would cause a negative impact on the Company since the customer payments to the Company simply would not match the amount that is being paid to the suppliers. Finally, this method increases the difficulty of calculating the amounts to be paid to the suppliers. Using applicable standard offer rates would require the Company’s use of its billing systems to perform calculations because of the level of detail and complexity associated with such calculations and because of the amount of customers who are being serviced by retail electric suppliers. In order for the Company’s billing systems to accommodate these calculations significant changes would be required. While the Company has not estimated the costs and time frame required for implementation, due to the numerous other billing system changes necessitated by regulatory orders in other proceedings, the Company anticipates that such costs would not be insignificant and would require substantial lead time for implementation."

CL&P also described various challenges to implementing supplier-specific POR discount rates

CL&P further said, "Based on the Company’s review of Conn. Gen. Stat. 16-244c(j), we have not identified any alternatives to the existing 'Bills Rendered' payment mechanism that would be more beneficial to all ratepayers over the status quo."

The Connecticut Bureau of Energy and Technology Policy (Bureau) of the Department of Energy and Environmental Protection submitted a letter stating that the Bureau, "does not have substantive comments at this time."

"The Bureau believes further discovery on the underlying issue and the costs of implementing any changes to the system are necessary. Additionally, the Bureau would like to understand the impact of the Authority’s Final Decision in Docket No. 18-06-02 ordering the electric distribution companies to return hardship customers onto standard service before taking a position on whether changes to the current 'Bills Rendered' payment mechanism are necessary," the Bureau said

Retail suppliers filed comments opposing the proposed changes

Vistra Energy said that the proposed changes have not been shown to decrease uncollectibles

The Retail Energy Supply Association said that the proposal to limit purchased receivables for uncollectible accounts to the amount that would result from charging the default service rate appears to conflict with the POR statute, which requires suppliers to be paid for the service "that they provide" to customers (which RESA argues is distinct from default service), less a "percentage" reflecting uncollectible bills and overdue payments.

RESA said, "The Authority also requested comments on a POR system that limits suppliers’ receivables from uncollectible accounts to the product of billed usage and the applicable Standard Service rate. As an initial matter, such an approach appears to run afoul of Connecticut General Statutes section 16-244c(j), which requires that the EDCs pay electric suppliers the amounts that they are due for the generation service that they provide to customers, less a percentage reflecting uncollectible bills and overdue payments. Moreover, such an approach fails to take into account that some customers pay less than the Standard Service rate for electric supply."

RESA noted that, "However, electric supplier customers, in fact, may be responsible for proportionally less non-hardship uncollectible expense than the general class of Connecticut ratepayers. For example, in 2017, in the Eversource service territory, the ratio of non-hardship write-offs to billings was less for supplier customers than for ratepayers generally."

RESA also suggested other alternatives to address PURA's stated concerns. "For example, the Authority could consider reviewing and adjusting the POR discount percentage more frequently or it could change the data used to compute the POR discount percentage. Such approaches could enable the POR method to recover uncollectible expense on a more concurrent basis," RESA said

"Approaches that are more likely to reduce aggregate uncollectible expense might include heightened scrutiny of regulated transmission and distribution rates or promoting the Connecticut Rate Board to encourage customers to shop for competitive supply offers providing savings compared to Standard Service," RESA said

"Moreover, to the extent the Authority has concerns about supplier uncollectible expense, it could adopt supplier consolidated billing as an alternative," RESA said.

The Office of Consumer Counsel filed comments in support of its previous proposal to adopt supplier-specific POR discount rates

OCC said, "Under the current paradigm, the POR program reimburses third-party suppliers for nearly 99 cents on every dollar otherwise deemed uncollectible. See Final Decision, Docket No. 05-08-05RE02, DPUC Investigation Into the Processes by Which Customers Can Choose an Electric Supplier When Initiating Electric Service- Amended Referral Program, p. 10-11 (Oct. 10, 2007). Accordingly, third-party suppliers bear no meaningful business risk whatsoever in marketing to and enrolling customers who cannot pay the rate offered-a third-party supplier is guaranteed to recoup approximately 99% of what it otherwise would have had the account not become uncollectible."

"To briefly reiterate, OCC submits that such an approach would be a beneficial policy alternative as it would allow third-party suppliers to continue to bill through EDC consolidated billing and receive timely payment of receivables while eliminating the perverse incentive of the current POR paradigm whereby third-party suppliers pay no meaningful risk premium, can enroll even the most destitute customer at the highest possible generation rate, indifferently stand by while that customer inevitably defaults on payment and becomes uncollectible, and yet still obtain 99% of its compensation on the backs of the general class of electric ratepayers. Whereas the current POR program contemplates an aggregate calculation of overall uncollectible levels, the approach for which OCC advocates would require the EDCs or the Authority itself to calculate-on either an annual or biennial basis, whichever would provide a more accurate benchmark-each individual third-party supplier's relevant uncollectible rate among the third-party supplier's customer pool. Accordingly, each third-party supplier would be required to accept more direct responsibility for that portion of its customers deemed uncollectible and be duly incentivized to both target marketing more responsibly and ensure that its customers can actually manage timely payment on the rates which they are offered," OCC said

OCC submits that its preferred approach would be more cost effective than one of the other approaches upon which the Authority has requested parties to comment upon, namely a POR system in which third-party suppliers are only compensated for uncollectible accounts up to the amount of relevant customer usage times the applicable EDC standard service rate for the time period in question.

"Regardless, however, of whatever amendments to the POR program that the Authority ultimately does or does not order as an outcome of the current proceeding, OCC submits that the implementation costs incurred by the EDCs should appropriately be borne by third-party suppliers rather than electric ratepayers generally," OCC said

OCC cited General Statutes§ 16-245d(b), quoting, "[a]n electric distribution company that provides billing services for an electric supplier shall be entitled to recover from the electric supplier all reasonable transaction costs to provide such billing services as well as a reasonable rate of return."

Regarding the proposal to return customers with uncollectible to default service, OCC said, "As a preliminary matter, OCC believes -- based on its reading of Title 16 of the General Statutes -- that such a remedy would require a legislative amendment vesting the Authority with appropriate power to enter such an order[.]"

The OCC's concerns had been previously raised in a prior proceeding, see our prior story for further details on OCC's position

Docket 20-01-33

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