America's electric, gas, and water utilities provide essential services and have worked tirelessly to keep the lights on during the challenging COVID-19 pandemic. Many utilities have taken steps to suspend customer disconnection efforts for nonpayment of utility bills. As the pandemic continues, a balanced approach is necessary to help customers keep their power on without accumulating unmanageable arrearages.
Federal & State Consumer Protections
The COVID-19 pandemic has financially impacted many customers, leaving millions of people struggling to put food on the table, with a disproportionate economic impact on the low-income population. Even before COVID-19, almost 1 in 3 households reported challenges in paying energy bills.
The initial funding for the Low-Income Home Energy Assistance Program (LIHEAP) FFY 2020 was $3.75 billion, and the CARES Act also provided a supplemental funding amount of $900 million. However, despite record levels of LIHEAP funding, there are still concerns that it may not be enough to meet total household needs during the pandemic.
Many utilities and state governments have implemented policies to suspend disconnections for nonpayment, known as disconnection moratoria. About half have been mandatory, and the others have been voluntary. NARUC and NRRI have released a Map of Disconnection Moratoria to track state moratoria on disconnections and payment plans. Some states have had moratoriums in place since last fall; however, most will expire in the first quarter of 2021 or shortly after that. As of January 13, 2021:
- disconnection moratoriums are still active in 12 states.
- disconnection moratoriums have been lifted in 22 states and the District of Columbia.
- utilities have voluntarily continued suspending disconnections for non-paying customers in 17 states.
Utility Cost Impacts Related to COVID-19
Utilities have reported mixed cost impacts related to the pandemic. Some operating costs, such as protective equipment for employees and labor costs, have increased, while other expenses, such as fuel, have gone down for some utilities. Lost revenue associated with disconnection moratoria represents an additional cost for utilities if consumers stop paying their bills. Utilities typically recover all their expenses through electricity sales, which have also declined. Compared to municipal utilities and cooperatives, investor-owned utilities should be relatively better positioned to survive this period of revenue shortfalls, given that they are generally larger and well-financed.
In a letter to the Federal Reserve, the trade organizations representing the nation's investor-owned electric, gas, and water companies said utility operating and holding companies are facing severe degradation of revenue and declining liquidity, creating a severe economic strain. The letter went on to say that this declining liquidity and higher costs could have increasingly negative consequences for all utility customers.
The Rise in Past-Due Accounts
The disconnection moratoria policies do not relieve customers of the requirement to pay their utility bills. In other words, they are not bill forgiveness programs but instead help ensure that customers continue receiving utility service, even if they cannot pay their bill.
As a result of the COVID-19 economic disruptions and continued provision of utility service to customers who are unable to pay for those services, utilities are experiencing a sharp rise in the level of past-due customer accounts. According to a National Energy Assistance Directors Association (NEADA) webinar presentation held on July 29, 2020, some customers have bills of over $1,000 or more, indicating it will be difficult, if not impossible, for some consumers to pay back the arrearages accumulated during the pandemic. We don't know precisely how dire the arrearage problem is because most states don't require utilities to report data regarding the extent to which residential customers are affordably accessing and retaining essential utility services.
Once the emergency has passed, utilities will face how to collect these past due bills without overburdening their vulnerable customers. Overall best practices recommended by the National Consumers Law Center include:
- extended and more affordable payment plans (at least 12 months).
- waiving of deposits, reconnection and late fees.
- adoption of arrearage management, arrearage write-offs, discount rates, and income-based payment plans.
- straightforward documentation of eligibility.
- disconnection protections for elderly, infants, and disabled populations.
- adequately funding low-income energy efficiency programs.
Utilities may also seek to address revenue shortfalls by increasing future electricity rates, but this could make matters worse for consumers who are already struggling or trigger a "death spiral" as sales fall further when rates rise. Across the country, utilities are beginning to request deferral accounting and other cost recovery mechanisms to address the negative financial impacts of COVID-19. However, deferrals add interest costs into future rates and will not help utilities with immediate cash flow. So far, the only thing for sure is that a favored regulatory approach to balance both ratepayers and utilities' interests has not yet emerged. This will be an important issue to watch as our world returns to normal in 2021.
Until next time, stay safe and healthy.