[Watchdogs] Texas PUC may keep debtors from switching power companies | News for Dallas, Texas | Dallas Morning News | Dallas Business News
milton.hawkins at gmail.com
Wed Sep 1 09:55:11 CDT 2010
Texas PUC may keep debtors from switching power companies | News for Dallas,
Texas | Dallas Morning News | Dallas Business
[Note discussion of credit reports, deposits and pre-paid services. -
*Texas PUC may keep debtors from switching power companies* *08:00 AM CDT on
Wednesday, September 1, 2010* *By ELIZABETH SOUDER / The Dallas Morning News
esouder at dallasnews.com *
According to electricity company officials, it's a simple scam.
Rack up a bill with retail electricity provider A, then just switch to a new
provider. Provider B might charge a deposit, but it's still often cheaper
than paying the original bill with provider A.
Do this over and over, paying only the deposit with a new provider when the
old one threatens to cut power, and the lights never go off.
"There's a healthy segment out there of people who do switch
professionally," said Stream Energy chairman Rob Snyder.
He estimates his company gave away about $30 million in electricity last
year to people who didn't pay their bills, and as much as $7 million was to
people who manipulated the system.
Bad debt from customer scams piles on to bad debt from customers who are
legitimately trying to pay their bills but fall behind. Add to that
customers who switch providers and never get around to paying the final
bill, and the industry has a problem.
With so many providers to choose from, the threat of getting cut off no
longer has teeth. The Public Utility
reverse that this month. Commissioners are considering preventing some
nonpaying customers from switching providers until they pay their debt.
Some retailers are eager for the government help. Other retailers and
customer advocates say halting switching is counter to the spirit of
competition and could be illegal.
"It certainly runs antithetical to a notion of a market of choice, and you
can't have it both ways," said Rep. Sylvester Turner, D-Houston.
Turner said the Legislature never gave the PUC the authority to stop
customers from switching providers. If the commission implements the new
rule, he might sue.
According to a group of electricity companies representing about a quarter
of the Texas industry, unpaid bills equal around 4 percent of total revenue.
Before Texas deregulated the industry, uncollectibles amounted to about
0.125 percent to 0.675 percent of revenue.
The unpaid amounts are often small – far smaller than a credit card bill
that might be handed over to a collection agency.
But in an industry with thin margins, it's trouble.
"If bad debt goes from 3 percent to 5 percent, you're calling the Chapter 11
attorneys," said Stream Energy's Snyder.
Who pays for the electricity for nonpaying customers? The paying customers.
Retailers must bake bad debt into their prices.
The PUC is considering a "switch-hold" rule to allow retailers to place
holds on certain nonpaying customers. If a customer is in arrears and agrees
to a payment plan or levelized billing, the retailer could place a
switch-hold on the customer if he defaults.
That means that even if the customer gets cut off, he couldn't buy
electricity from anyone else until he pays the debt.
Executives with one retail electric company have told PUC commissioners they
oppose the proposed rule.
Reliant Energy <http://topics.dallasnews.com/topic/Reliant_Energy> chief
executive Jason Few said the electricity industry must learn to manage bad
debt, like any other industry.
"Every market participant can buy a credit report. Every market participant
can report to credit bureaus," he said.
He pointed out that other industries, such as
cable television companies, require people to pay for the service before
getting the goods.
"Bad debt is a risk, no different for us than for an institution that lends
money, because that's effectively what this industry does. We lend money for
using power and then we get paid later," Few said.
But unlike other industries, Texas regulators require electric companies to
extend credit to some customers, regardless of the financial risk. For
example, electricity providers cannot cut customers off on hot summer days,
and they cannot cut off customers who use electronic medical devices to
Consumer advocate Carol Biedrzycki, executive director of Texas
Ratepayers' Organization to Save Energy, opposes the switch-hold rule. She
said retailers have other tools to protect against bad debt, such as
charging late fees and deposits.
She and Turner said the PUC lacks enough data to know whether the
switch-hold rule would be effective.
Retailers have declined to say how much they collect in late fees, how much
of the bad debt is from chronic switchers, and how many customers might end
up in a switch-hold.
"That's one of the mysteries, that no matter how many times we ask this
question, we don't get an answer to it," she said.
Since the new rule would require a customer to agree to a payment plan
before a switch-hold can be applied, the rule doesn't prevent switching to
avoid bills. Anyone who wants to avoid a bill simply wouldn't agree to a
One method for retailers to protect themselves is to begin requiring payment
upfront for service. A few companies offer prepaid electricity at higher
prices than traditional, post-pay electricity.
Consumer advocates worry prepay may become the only product available to
people with bad credit.
And this isn't just about low-income customers. Anyone who doesn't pay could
end up with a switch-hold.
Stream Energy's Snyder isn't just the chairman, he's a violator.
"When I switched away from TXU
in 2004, I knew I had a last bill that I didn't take care of. Then I forgot.
I forgot until two or three years later when I ran a credit report on myself
to clean up some bad bills," he said.
He paid that bill.
But he still hasn't lived down forgetting to pay his light bill to his own
"I got cut off by Stream," he said. "You can quote me on that."
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