WHAT IS HAPPENING TO VITAL CONSUMER PROTECTIONS FOR ESSENTIAL UTILITY SERVICE?

1. WHAT IS HAPPENING TO VITAL CONSUMER PROTECTIONS FOR ESSENTIAL UTILITY SERVICE? Barbara R. Alexander Consumer Affairs Consultant 83 Wedgewood Dr. Winthrop, ME 04364 [barbalex@ctel.net] NCAF October 2006

2. WHAT IS YOUR COMMISSION UP TO THESE DAYS? • How are prices for electric and natural gas service set in your state? Does your statute mandate long term price stability for residential customers? • Do you have strong consumer protection programs in place and are they under siege at the Legislature or Commission? • How are residential rates structured? Are there proposals afoot to shift costs to fixed monthly charges? Adopt new meters and pricing options that will make prices more volatile or penalize the low use customer with high fixed monthly costs? NCAF

3. RED FLAGS FOR CONSUMER ADVOCATES • Price volatility: pressures to adopt short term price signals and rely on short term purchases of natural gas and electric generation supply • Rate design: new metering and communications technologies will make it cheaper to deliver short term price signals with TOU rates, seasonal rates, and frequent price changes • Rate design: shift costs to flat monthly charges (with significant impacts on lower use customers) • Consumer protection policies: technological advances allow utilities to adopt new policies that threaten access to affordable energy services NCAF

4. RED FLAGS ON RECENT CONSUMER PROTECTION ATTACKS • Pennsylvania: Act 201 • Restrictions on Payment Arrangements • Household Rule; require identity of all adult household members • Increased deposit requirements: credit scoring • Expanded potential for Winter disconnections • Disconnections Soared in early 2005: 113% increase in disconnections (Jan-Apr 2005 compared to 2004), some utilities over 300% increase) • Electric disconnections from 2005 to 2006 decreased 23%; reconnections, -29% • Gas disconnections decreased 27%; reconnections, -21% • Water disconnections increased 17%. NCAF

5. RED FLAGS ON RECENT CONSUMER PROTECTION ATTACKS • Texas: promises not kept • Degraded consumer protection policies; allow REPs to disconnect service for nonpayment of unregulated charges • Raiding the funds and now elimination of low income discount by Legislature (means 370,00 poor Texans will see 10% bill increase) • Over 80% increase in total electric bill since onset of competition in January 2002 due to Price to Beat increases • Some competitive energy providers aiming at poor credit customers with prepayment electric service • Price to Beat will end in December 2006 and there is no basic electric service that will be available other than volatile and high priced POLR NCAF

6. RED FLAGS ON RECENT CONSUMER PROTECTION ATTACKS • Credit Scoring: allows utility to base deposit demand on applicant’s creditworthiness via Credit Score • Pennsylvania • Illinois • Significant increase in number of deposits required for new service; barrier to entry • Potential adverse impact on low income customers disproportionate to other residential customers • Both PA and IL require exemption from deposit based on credit scoring alone for low income applicants, but how determine status and solicit eligibility? • Can utilities in your state use credit scoring without filing for approval or change in tariff at the PUC? NCAF

7. RED FLAGS ON RECENT CONSUMER PROTECTION ATTACKS • Additional fees to pay by credit card or to use in-person payment options at payment agencies • Widespread imposition of fees without regulatory approval or tariff filing • Rhode Island PUC Order approves fees • Typical fees range from $4-6 per transaction • Often marketed to those with disconnection notice to avoid termination of service • Alaska Regulatory Commission stipulation: gas utility must file any fees in tariff and RC retains jurisdiction over amount of fee, but current fees not halted NCAF

8. RED FLAGS: WHERE CAN CUSTOMERS PAY THE BILL? • UTILITIES ARE CLOSING CUSTOMER PAYMENT CENTERS STAFFED BY UTILITY PERSONNEL • RELIANCE ON CALL CENTERS: OUTSOURCING, REGIONALIZATION • USE OF PRIVATE PAY STATIONS FOR A FEE • PAYCHECK LOAN OFFICES—USED TO PROMOTE HIGH RATE LOANS? • SUPERMARKETS • DRUG STORES NCAF

9. RED FLAGS ON RECENT CONSUMER PROTECTION ATTACKS • Prepayment Meters: The experiment that won’t go away • Nevada Power: “pilot” approved in 2004 for 50 residential customers and 50 employees • Louisville Gas and Electric Co. prepaid service pilot halted • Florida Power and Light prepay program allowed to sunset • No investor owned utility has demonstrated cost effective prepay meter program • Expensive meters: install and maintain • Payment centers • Unregulated disconnection; discriminatory impact on payment troubled customers who lose rights to payment arrangements and disconnection protections • Decreased usage • Salt River Project (publicly owned) in Arizona has vastly expanded its prepayment program, but never documented its costs and benefits. NCAF

10. RED FLAGS ON RECENT CONSUMER PROTECTION ATTACKS • Indiana: delayed and deferred reforms: death by meeting • After two hearings and lengthy comment period, Indiana Commission defers reforms of consumer protection rules to limit deposits; liberalize medical emergency rules; restrict disconnections in winter with more liberal payment plans • Promises of more meetings and negotiations to solve the deposit issue for natural gas customers! • Final rule on November 30, 2005: no significant reforms; retained a deposit amount equal to four months service for those with prior unpaid bills or two late bills in a 12-month period. NCAF

11. INDIANA: THE NEXT STORY From the mouth of the boss: The following exchange took place between NiSource President and CEO Robert Skaggs Jr. and analyst Sam Brothwell, of Wachovia Securities, during an Aug. 2 conference call. Skaggs had just told analysts NiSource would miss its 2006 earnings target of $1.45 to $1.55 per share. (note: "attrition" is the industry term for customer loss due to shut-offs).Brothwell: Bob I want to just drill down into this customer usage thing a little bit and a couple of questions that come to mind. Is this specific to one region? Is it more Indiana vs. Bay State? And I guess on the attrition issue, what are these customers going to do to heat their homes? Are they going to burn the kitchen table? Where are they going? You have a need in the areas where you serve for heat so I'm a little puzzled by that.Skaggs: Sam on the first question we see consistent usage erosion across the entire service territory. One state or community is not any (more) notable than another. We may see a little variation, but by-and-large, its not material. It's consistent behavior.On the attrition issue, frankly we are puzzled on what customers are going to do. Your point heat and hot water is essential. But having said this we've seen this rate increase. We have a team focused on what is going on with customers that elect not to return, but for the moment, we just don't have a definitive answer on that particular point. It is disturbing and as you pointed out you would have to conclude that they are going somewhere. Now maybe the mild weather that we experienced last year stunted a return. But as we suggested we just can't count on that right now.Just as a footnote, our (unintelligible) disconnect orders are at all time highs.Brothwell: Are these forced disconnects due to non-payment or is it just customers that are actually electing?Skaggs: Typically no, virtually all of this is disconnects for non-pay. And we have seen what we call dormant account customers that have gone off typically for non-pay or customers that have vacated the housing units and not returned. But by and large, disconnects, non-pay. Reprinted by the Northwest Indiana News, October 1, 2006, http://www.nwitimes.com/articles/2006/10/01/business/business/48a7bd4aa6fe3ab1862571f8006e949d.txt NCAF

12. RED FLAGS ON CONSUMER PROTECTION POLICIES • HOUSEHOLD RULE: Utilities want to hold a new application hostage to get payment for prior bills owed by other members of household, whether related or not • Pennsylvania: Act 201 • Illinois: Joint Proposal by all utilities to change current rules to allow use of the Household Rule to deny service (pending) • Is utility service nailed to the dwelling or does each customer have a right to their own credit history? • Increased number of proposals for using household rule have been fueled by utility’s ability to obtain instantaneous access to Social Security number verification and credit scoring data bases through credit reporting agencies NCAF

13. SO WHAT IS AN ADVOCATE TO DO? • HOW DOES YOUR COMMISSION REGULATE CUSTOMER RIGHTS AND CONSUMER PROTECTIONS? • Do you have statewide or utility-wide rules or just individual utility tariffs? • Are the rules specific and do they contain the minimum requirements? • Do rules reflect recent technological developments in credit scoring, electronic billings, Internet-based payment options, utility internal credit rankings to target disconnection? NCAF

14. SO WHAT IS AN ADVOCATE TO DO? • GET THE COMMISSION CONSUMER PROTECTION RULES FOR CREDIT, COLLECTION, DISCONNECTION, DISPUTE RESOLUTION • GET THE UTILITY TARIFF ON FILE AT PUC OR ON UTILITY WEBSITE • CHECK OUT THE CUSTOMER SERVICE INFORMATION ON THE UTILITY WEBSITE TO DETERMINE • ARE LOW INCOME PROGRAMS PROMOTED? • ARE ADDITIONAL FEES CHARGED FOR LAST MINUTE BILL PAYMENT OPTIONS? • ARE THE CREDIT AND DEPOSIT POLICIES EXPLAINED IN DETAIL? NCAF

15. SO WHAT IS AN ADVOCATE TO DO? • BE PREPARED FOR THE INTRA-CLASS WARFARE ARGUMENT RE BAD DEBT: GOOD CUSTOMERS SHOULD NOT PAY FOR “BAD” CUSTOMERS • In response to anecdotes, ask for the facts! Who is causing bad debt? Why? Does utility track payment arrangements, disconnections, bad debt by customer class? • Compare all utility bad debt expense allowed in your state in last rate case—does one utility stand out? • All customers of every business pay for bad debt and debt collection activities—ask utility to prove that the current level of expense is outside the norm • Explore the possibility that the utility is inefficient and not collecting outstanding bills based on collection of tracking data and analysis of their own programs—most utilities don’t have a clue! NCAF

16. CONCLUSION • GETTING A PROGRAM IS NOT ENOUGH • GETTING A FUNDING LEVEL IS NOT ENOUGH • WATCH OUT FOR CONSUMER PROTECTION POLICIES AND PROGRAMS THAT CAN ADVERSELY IMPACT AFFORDABILITY AND ERASE THE BENEFITS OF AN ALREADY TOO SMALL LOW INCOME PROGRAM NCAF