Whether by choice or by obligation, many electric utilities instituted disconnection moratoriums in response to the coronavirus pandemic, providing financially struggling households with some temporary economic relief.
But with many of those moratoriums soon set to expire and the nation's economy still far from fully recovered from the effects of COVID-19, a portion of those with deferred utility bills likely remain unable to pay their accumulated debts.
That has prompted advocacy groups such as AARP to call for leniency for struggling ratepayers, noting that the moratoriums do not actually address the problem of mounting arrearages.
"Obviously, shut-off moratoriums only defer the matter and once such moratoriums are lifted, additional reforms to policies will be needed," an AARP spokesperson said.
'Nearly eight times higher' than normal past-due amounts
Bad debt concerns are increasing, not just among consumers and their advocates but within the home offices of utilities as well.
The National Rural Electric Cooperative Association, or NRECA, estimates that heightened utility bill delinquency rates alone will lead to a $2.6 billion loss among the groups' members. During a May 5 virtual event hosted by NRECA, Cotton Electric Cooperative Inc. CEO Jennifer Meason was among executives expressing concern over the "challenging times" that lie ahead, noting the "substantially" elevated number of delinquent traditional billing accounts attributable to the pandemic.
As of April 3, Cotton Electric Cooperative had less than 300 past-due accounts on its books, but that number had risen to 1,471 by May 5, Meason said. "And we would traditionally see a total of less than $30,000 in the past due amount, [but] in the past month that's already increased to $239,000 — nearly eight times higher than what we would normally see each month," she added.
And other, larger utilities also expect that at least some of their customers will have trouble paying their past-due bills. For example, Avangrid Inc. Senior Vice President and Chief Financial Officer Douglas Stuver noted during a recent earnings call that although the utility does not anticipate "a net income impact," it does "expect to see an increase in overdue receivables, a portion of which we expect will turn into uncollectible expenses."
According to Lillian Federico, Research Director for Regulatory Research Associates, a group within S&P Global Market Intelligence, utilities' base rates already assume some uncollectible bills, and those costs are recovered from paying customers.
"The question is, what happens when those numbers get really out of whack because of something like the pandemic?" she said.
At the heart of the discussion is whether utilities will be able to recover any differences between what is accounted for in base rates and the actual COVID-19-related bad debts. Other questions, Federico said, include whether recovery will come from customers with outstanding balances via payment plans or from all customers, and whether it will include interest, penalties or carrying charges. But those are questions must quickly be answered; according to a recent Vote Solar report, if 20% of U.S. households fall into arrears on their utility bills, related total debt would accumulate to approximately $26 billion over four months.
David Springe, executive director of the National Association of State Utility Consumer Advocates, or NASUCA, also expects an elevated level of uncollectible or past-due bills. Using tools such as the Low-Income Home Energy Assistance Program, or LIHEAP, to reduce the payments backlog and the burden on consumers is imperative, he said.
As of June 1, the U.S. Department of Health and Human Services had received roughly $3.32 billion in regular block grant funding for 2020 and $900 million in pandemic-related supplemental funding for LIHEAP. But that is not enough to plug the gap, according to groups such as NASUCA and the American Public Power Association, which want further LIHEAP funding.
National Association of Regulatory Utility Commissioners President and Mississippi Public Service Commission Chair Brendan Presley agrees that more funding for LIHEAP is needed. In Mississippi, he said, the program is "a part of our normal course of business when dealing with people who are in arrears or people who are struggling to pay their bills."
But "the problem is, you only have so much money to go around," Presley said, adding that the program has been "woefully underfunded ... consistently" by Congress. So the Magnolia State "exhaust[s] our LIHEAP funds fairly quickly," Presley said.
'In a magic world,' bill forgiveness would be on the table
While tapping into LIHEAP is one option, others are calling for the absolution of utility-related debts that accrued during the pandemic. In April, a group of 830 organizations representing a diverse array of advocates called for the forgiveness of low-income households' accumulated bills, among other measures intended to alleviate consumers' utility-related burden.
But any such debt forgiveness likely is not possible due to the nature of the utility business.
"I think that it could be counterintuitive, simply because writing off this debt could increase rates on everyone else, including low-income people who at the same time are struggling to pay their bills," Presley said. He said bill forgiveness therefore is unlikely to be enacted "from a practical, political standpoint."
Bryce Freeman, the administrator of the Wyoming Office of the Consumer Advocate, emphasized that customers should not think of the moratorium period as "a bill-paying holiday."
"A utility is not going to be willing to have shareholders do that for customers," Freeman said. "And so the alternative is for those uncollectible amounts to be collected from all other customers, and we represent those customers as well, so we'd like to avoid that as much as possible."
NASUCA's Springe agreed. "In a magic world, we'd come up with some sort of bill forgiveness, and I think those types of things are going to be on the table" at some point, Springe said. "But ultimately, at least as an initial step, customers need to understand they're responsible for the bills, and even if they are not paying them at the moment, they will have to pay in the future."
One option Presley is pushing is for existing deposits to be applied toward ratepayers' past-due amounts, although he acknowledged that "it has to be a mutual agreement between both parties." Presley noted that such an agreement may not be reached if, for example, a utility believes an individual customer presents a credit risk or a ratepayer is uncomfortable using such illiquid cash for that purpose.
"And of course, there's a recouping of the deposit over a multi-month period so that we lessen the impact of that line-item charge to build that deposit back up," Presley said. "But that one-time cash is injected to help reduce the bill and to get some money back into the system" as customers establish extended payment plans to eliminate arrearages, he added.
State directives vary
As for what those plans should look like, some state regulatory bodies have taken steps to codify post-pandemic payment protocols.
According to RRA, states are addressing the issues tied to the pandemic's effects on utilities differently. As of May 26, RRA found that 22 of 53 jurisdictions it followed had issued orders or enacted legislation allowing utilities to defer COVID-19 costs and/or lost revenues. Meanwhile, proceedings were pending to develop a regulatory framework in 14 states, and five had indicated that utilities are to work out extended repayment plans with customers that have accumulated arrearages.
In New Hampshire, the state utility regulator's order that instituted the service disconnection moratorium also required utilities to provide customers with a minimum of six months to become up-to-date on their bills, according to Amanda Noonan, the director of consumer services and external affairs for that state's Public Utilities Commission. She added that the agency is meeting with state utilities to discuss payment collection and related activities once the moratorium ends.
Other states such as Mississippi have not mandated such protections. But Presley said that is by design in his state, as it allows customers to play a more active role in customizing their arrearage-payback schedule.
"We're giving [utilities] the flexibility right now to be reasonable, be adults, be good citizens, and to work with their customers," Presley said. "But if there's a pattern where that's not happening, we're not going to be the least bit shy about instituting a proceeding to formalize" flexible payment plans.
Utilities should consider cost savings, too
As cost recovery begins, Springe said, regulators must make sure that utilities' savings stemming from the pandemic are taken into account alongside their losses. Regulators also need to set an expectation that utilities will find ways to reduce costs, according to AARP, which suggested that non-essential utility spending, "including billions planned for new, long-distance transmission lines and grid upgrade spending," be reviewed.
"The worst possible scenario is for us to get to the back end of this and have a lot of customers that are still economically struggling to pay their bills, are having to get on some kind of payment plan, but the utilities on the other hand just saying all of our costs and dividends are just normal and you all have to pay those," Springe said.
And while the need for immediate relief is a concern, so too is ensuring that customers are able to keep their utility service even as moratorium periods end, said Maryland People's Counsel Paula Carmody. Utilities and customers have a joint interest in trying to figure out policies and practices to avoid a spike in shutoffs.
"It's not going to do a whole lot of good if we avoided disconnections and shut offs for a short period of time, then kind of walked off the cliff to start up disconnections of service because of unpaid bills at some future date," she said.