20010821Comments.doc

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, ID 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PETITION OF
VERIZON NORTHWEST, INC. FOR A WAIVER FROM THE COMMISSION’S TELEPHONE CUSTOMER RELATIONS RULES REGARDING PARTIAL PAYMENT APPLICATION. )
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CASE NO. VZN-T-01-8

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, John R. Hammond, Deputy Attorney General, in response to Order No. 28794, the Notice of Application and Notice of Modified Procedure in Case No. VZN-T-01-8 issued on July 31, 2001, submits the following comments.
Verizon has asked the Commission to grant exemptions from Rules 306.06 and 312.03 of the Telephone Customer Relations Rules (TCRR), IDAPA 31.41.01. Both rules refer to how customers’ payments are to be applied to amounts owing to telephone companies. Although Verizon does not qualify its request, Staff understands that the Company is asking for a waiver only with respect to the requirements that customers be allowed to specify a payment allocation method contrary to Verizon’s automatic method. Rule 9 of the Telephone Customer Relations Rules allows any telephone company or customer to formally request a permanent or temporary rule exemption from any of these rules if unusual or unreasonable hardships result from the Application.
In the course of investigating complaints, the Commission’s Consumer Assistance Staff became aware of problems with how Verizon was allocating customers’ payments. Ultimately, Staff and the Company were able to agree on an automatic payment allocation method that most closely met the intent of the Commission’s rules. However, the Company was unable to comply with the requirement that customers be allowed to designate how payments should be applied to their accounts. Staff encouraged the Company to seek an exemption rather than continue to be in non-compliance with the Telephone Customer Relations Rules.
Local exchange companies’ bills are complicated mechanisms, containing charges for local exchange service, toll, and other products and services. The products and services may be provided by the local exchange company itself, an affiliate of the local exchange company, or another unrelated company. Payment allocation methods are a critical component of all local exchange companies’ billing and collection systems, since customers’ payments must be distributed among a variety of parties. Assumptions must be made about how a billing system is going to automatically apply payments, particularly in the event that a customer pays less than the full amount owing or owes a past due bill. Under Verizon’s current allocation method, a payment is applied first to amounts owed for past due local exchange service, then to past due toll services, and finally to past due amounts for other products and services. Any remaining funds are then applied to current charges, first for local exchange service, then toll, and finally, other products and services.
In general, there are two circumstances under which a customer might request that a payment be distributed in a way that differs from Verizon’s automatic allocation method. If a customer has a billing dispute or simply wants to preserve local service, the customer might attempt to specify how a payment of less than the full amount owing is to be applied.
It is not uncommon for customers with billing disputes to withhold payment of disputed amounts while trying to resolve problems. Due to the inflexibility of Verizon’s system, a customer cannot withhold payment of disputed charges while paying all other charges. For example, a customer who is disputing charges from AT&T could not direct Verizon to apply payments to all other toll providers appearing on the bill except AT&T. As an alternative to allocating payments in customer-specific ways, Verizon can rerate or remove disputed charges from its bills or return disputed charges to the provider of the product or service, a process known as “recoursing”. If a company other than Verizon provides the products or service, whether charges can be rerated, removed or recoursed depends in part on Verizon’s contractual arrangement for billing and collection services with the other company. Customers might be directed to talk with the other company first before Verizon adjusts the bill. In the meantime, unless Verizon places a hold on collection activity, customers may receive notices threatening disconnection of service or actually be disconnected or lose services or features.
In some circumstances, the customer does not have a billing dispute but owes a past due bill and has limited funds to pay. If the customer is simply trying to preserve dial tone, allocating payments just to local charges (past due and current) alone would allow the customer to retain local service and make payment arrangements for amounts owed for other services. Under the automatic allocation system, a payment would not be applied to current local charges unless it was sufficient to cover all past due charges first. As an alternative to customer-directed allocation, Verizon can set up special payment arrangements and establish a “promise to pay” date that is later than the due date specified on the customer’s current bill but prior to issuance of the next bill. This action will make the current bill technically past due, and the payment will apply to all outstanding local service charges. Essentially, the “promise to pay” date uses the automatic allocation process to the customer’s benefit.
As Verizon indicates, the Commission’s Consumer Assistance Staff has been able to work with the Company to resolve customer complaints involving payment allocation issues. Staff agrees that there have been relatively few such complaints brought to the Commission, but it does not know how often such issues arise and customers do not seek the Commission’s help. The Company’s alternatives to customer-directed payments all require good communication between customers and Verizon’s customer service representatives. The customer service representatives must understand what the customer is trying to accomplish by requesting a particular payment allocation and then take the proper course of action. Since billing disputes or payment problems usually take some time to resolve, the proper steps must be taken by both the customer and the Company every month until final resolution is reached. Having to work around the current allocation system increases the likelihood that customers’ problems will not be effectively addressed. Staff is concerned that granting Verizon’s request as proposed will further compromise customers’ ability to withhold payment for disputed charges or to direct payments in such a way as to maintain local service and may increase customer complaints in the future.
Despite Staff’s concerns, it does not wish to impose substantial additional costs on the Company, which could place an upward pressure on rates. Although Verizon could not provide details supporting its $51 million cost estimate for modification of the GTE legacy billing system, Staff agrees that there would be costs of some magnitude involved. As Staff understands the situation, the system currently does not allow a manual override of the automatic payment allocation system. Staff also understands that Verizon is examining both the pre-merger legacy systems of Bell Atlantic and GTE and will decide whether to use, modify or replace one or both of those systems in the future. Presumably, Verizon will better know its situation in two years, when it proposes to report back to the Commission.
Although Verizon has demonstrated sufficient cause for receiving a temporary exemption, Staff recommends that the exemption be limited to those portions of Rules 306.06 and 312.03 that allow customers to specify how payments should be applied in a manner that differs from the automatic payment allocation method. The exemption should be made contingent upon compliance with the Commission’s rules requiring the prompt adjustment of any disputed charges appearing on customers’ bills. Verizon should be directed to continue its efforts to work with customers to resolve billing disputes and help them retain local service.
Staff further recommends that by September 2003, Verizon be required to either allow customer-directed payments or demonstrate that it is in the process of revising a legacy billing system or developing a new system capable of allowing customer-directed payments. The requirement that customers be allowed to direct how their payments are applied to telephone bills has been in place since 1980. In Staff’s opinion, allowing Verizon two years to come into compliance with the Commission’s rules is generous. Allowing the Company to simply report on the status of its billing system at that time would not be sufficient incentive for the Company to find a solution to its problem.
Finally, Staff notes that it is not recommending that the Company be fined or penalized for its past non-compliance. Verizon has made a good-faith effort to find workable solutions and has been actively involved in negotiations with Staff. The Company has acknowledged its difficulty and sought exemptions. Therefore, in Staff’s opinion, penalties would not be appropriate in this instance.

DATED at Boise, Idaho, this day of August 2001.

___________________________________
John R. Hammond
Deputy Attorney General

Technical Staff: Beverly Barker

JH:BAB:i:umisc/comments/vznt01.8jhbab
STAFF COMMENTS 2 AUGUST 21, 2001