20160113Application.pdf

Avista Corp.
l4l l East Mission P.O.Box3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
January 12,2016
State of Idaho
Idaho Public Utilities Commission
472W. Washington St.
Boise,ID 83702-5983
Attention: Ms. Jean Jewell, Secretary
RE: Application of Avista Corporation
Treatment of Costs Related to Offering
Residential Customers.
Dear Ms. Jewell:
ldaho Public Utilities Commission
Office d the SecretarvRECEIVED
JAN I 3 20t6
Boise,ldaho
,Alu-o- lb-o I
k vu -b-lto-0 I
for an Accounting Order Authorizing Accounting
a Fee Free Payment Program for the Company's
Enclosed is an original and seven (7) copies of Avista's Application for an Accounting Order
Authorizing Accounting Treatment of Costs Related to Offering a Fee Free Payment Program for
the Company's residential customers. Also, enclosed is a copy of the Company's work papers
associated with this filing on CD.
Please contact me with any questions related to this filing at [phone].
Sincerely,
Stazre Sotc&?A
Sr. Regulatory Policy Analyst
Avista Utilities
shawn.bonfi eld@avistacorp. com
509-49s-2782
Enclosures
DAVID J. MEYER
VICE PRESIDENT AND CHIEF COLINSEL FOR ldaho Public Utitities Commission
REGULATORY AND GOVERNMENTAL AFFAIRS Office of the SecretarvAVISTACORPORATION BECEIVED
P.o.Box3727 JANl320l6
I4I I EAST MISSION AVENUE
SPOKAIIE, WASHINGTON 99220-3727 Boise,ldaho
TELEPHONE: (509) 49s-4316
david. meve r (d.av istacorD. com
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN TIIE MATTER OF THE APPLICATION OF )
AVISTA CORPORATION, DIB/AAVISTA )
UTILITIES FOR AN ACCOUNTING ORDER )
AUTHORTZTNG ACCOUNTTNG AND ) CASENO. AVU-E-rc-AL
RATEMAKTNG TREATMENT OF FEES FOR ) CASE NO. AW-G-16-OJ
PAYMENTS MADE BY RESIDENTIAL )
CUSTOMERS
APPLICATION OF AVISTA CORPORATION
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I. INTRODUCTION
Avista Corporation, doing business as Avista Utilities (hereinafter Avista or
Company), at l4ll East Mission Avenue, Spokane, Washington, pursuant to Section 6l-524
Idalro Code and Rule 52 of the Idaho Public Utilities Commission ("Commission Rules of
Procedure"), hereby applies to the Commission for an order authoizing the accounting and
ratemaking treatment detailed in this Application related to costs the Company will incur by
offering a fee-free payment program for its residential customers to pay by any method,
including credit and debit cards.
Avista is a utility that provides service to approximately 370,000 electric customers
and 232,000 natural gas customers in a 26,000 square-mile area in eastern Washington and
northern Idaho. Avista Utilities also serves approximately 98,000 natural gas customers in
Oregon. The largest community served by Avista is Spokane, Washington, which is the
location of its main office.
Pursuant to Commission Rule of Procedure 201, the Company requests that this
filing be processed under the Commission's rules for Modified Procedure.
Communications in reference to this Application should be addressed to:
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David J. Meyer, Esq.
Vice President and Chief Counsel for
Regulatory & Governmental Affairs
Avista Corp.
P . O. Box 3727
1411 E. Mission Avenue, MSC 13
Spokane, Washingto n 99220 -37 27
Telephone: [phone]
Facsimile: [phone]
E-mail : david.meyer@.avistacorp.com
Shawn Bonfield
Sr. Regulatory Policy Analyst
State and Federal Regulation
Avista Corp.
P . O. Box 3727
141I E. Mission Avenue, MSC 27
Spokane, Washingto n 99220 -37 27
Telephone: [phone]
Facsimile: [phone]
E-mail: [e-mail]
Application of Avista Corporation
Case No. AVU-E-I6- & AVU-G-16-
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II. STIMMARY OF APPLICATION
Avista requests Commission approval to defer, for later recovery in rates, the costs
incurred to offer a fee-free payment progftIm for its residential customers. The Company
proposes to recover the costs associated with this progrurm from all customers. Currently,
Avista customers are subject to a $3.50 convenience fee when making a credit or debit card
payment through any payment channel or a one-time Automated Clearing House (ACH)
payment via phone (both through the Company's IVR system or with a Customer Service
Representative) and on the Company's website without an'oAvista My Account." The $3.50
convenience fee is collected by a third-party vendor. Avista receives no portion of this fee.
The transaction limit for credit/debit card payments (including convenience charges) is
$3,000 per 26-day period per customer.
Payments made by check, cash, pay station, and ACH on the Company's website
through an "Avista My Account" are free of charge. The costs associated for the Company
to offer these methods are paid for by all customers and not recovered exclusively by those
specific customers that use that method of payment. As customer expectations change and
more payments are done electronically, utility companies are beginning to offer fee-free
payment programs for their residential customers for all methods of payment. As supported
by the National Association of State Utility Consumer Advocates (NIASUCA) in Resolution
2012-07, "Urging Utilities to Eliminate 'Convenience Fees' for Paying Utility Bills with
Debit and Credit Cards and Urging Appropriate State Regulatory Oversight" r, ffid as further
explained in this Application, Avista believes it is reasonable to offer a fee-free payment
t http://nasuca.org/2012-07-urging-utilities-to-eliminate-convenience-fees-for-paying-utiliw-bills-with-debit-
and-credit-cards-and-ureins-appropriate-state-regulatory-oversi ght/
Application of Avista Corporation
Case No. AVU-E-16- & AVU-G-16-
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progam for all payment methods to its residential customers, and recover the costs
associated with such a prog&rm from all customers through rates.
In2014, Avista residential customers made a total of 249,852 payments by credit or
debit card and 21,335 one-time payments without a "My Avista Account" (also known as
unauthenticated payments) that were subject to a convenience fee. For illustative pu{poses,
if all of these payments were below the $3,000 cap and subject to the $3.50 convenience fee,
customers would have paid a total $949,154 in convenience fees to Avista's third-party
payment processing vendor. If Avista were to pay the costs of card and unauthenticated
payments on behalf of its residential customers, the cost per transaction would be at a much
lower rate as the major card networks (i.e., Visa and MasterCard) offer a Utility Pay Program
where processing costs are much lower. With this model, Avista anticipates the cost to be
approximately $1.50 per transaction. From discussions with other utilities and payment
processing vendors, Avista has learned that it is ffiical for a company that of[ers a fee-free
payment program, which includes debit and credit card payments, to see a range of adoption
levels for payments made through the program. Based on this information, the following
table illustrates the ranges of costs Avista would expect to incur on an annual basis for the
program.
Table No. 1
Application of Avista Corporation
Case No. AVU-E-I6- & AW-G-16-
Pavment Scenarios for Fee Free Program Transaction Count Charge/Transaction Total Cost
2014 Pavments Subiect to Convenience Charge 27L,Lg7 s1.s0 S4oo,78o
LO% of residential Davments made in 2014*475,984 Sr.so s773,976
LSYo of residential Davments made in 2014*773.976 Sr.so s1,079964
20% of residential oavments made in 2014*951,958 s1.s0 5L,427,9s2
25To of residential Davments made in 2014*1,189.960 Sr.so s7,784,94O
*Avista received 4,759,839 residential payments in2O!4
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Avista anticipates that it will have approximately 15% of residential payments come
through the fee-free payment progfttm, however, the Company will not know the actual
adoption rates until the program is implemented and in place for a minimum of 12-18
months. The Company's expectation is that the adoption rates will gradually increase to l5o/o
over a two year period with the adoption rates doubling during the first year. This
expectation is aligned with what vendors have experienced with other utilities that make the
switch from a convenience fee model to a fee-free payment model.
Absent a Commission order allowing for the deferral and recovery of these costs, the
Company would not otherwise offer a fee-free payment progftrm to its residential customers
as it would result in a loss to the Company and its shareholders.
III. BACKGROT]ND
Avista uses a third-party payment processor to process payments on its website,
through its M system, as well as through the Company's Customer Service Representatives
(CSRs) over the phone. When customers make a payment with a credit or debit card through
these channels, or on the Company's website without an "Avista My Account", they axe
subject to a convenience charge. More detail about Avista's payment options are included in
the following table2:
2'fhis table is provided on the Company's website at www.avistautilities.com.
Application of Avista Corporation
Case No. AVU-E-16- & AVU-G-16-
Page 4
Table No. 2
Payment Optlons
Hy AccoEot Baok B[tl
Pay AFS On€-Tlme
Payment
lf.fl ilPairmant Pay 3n
PGrson
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m' ,/ ,/ ./ ,/ ,/ ,/
payment checkins or Ghecktns or _#t;of':, r''!6Fu 6. cash.'^-:---: -" savlng! Your Banl( savlngs che : t-necK orsourEeAccounr Accounr *",riHJ=n' rao"*v dtJ*t ,roFJr*Sb*.Account
""Hffi:' =?,i8[]il "A:"tilllio" Recu*ino o"e-,Ill' one-rrme one-rme
cost FREE FREE FREE s3.5o-- postas€ sxr[;J:;pay atatlon6
Es,trmatsd 2 Oays Frior \..aries - can
T'Eme to '1 Euslness SBe Bant< to 1 Business take up to 7 3 guslnesspost to Day Rules Scheduled Day dal.s or Day6Accorrnt Due Date more
-(}f enroll In Faperless bllllng and recelve your Ull eleclronica.ll,:
*The $3.5O convenlence charge is collected by a thir(}part!'uendor. A!,ista recelores no portion of this fee.Transaction limlt for crediiude$it card payments (inctudlng convenlence charges): S3.OOO par account p€r
26-da,"s.
As shown in Table No. 2 above, and the footnote of the table, customers paying by
credit or debit card are required to pay a $3.50 convenience charge for payments totaling up
to $3,000 within a26 day period. Payments over $3,000 by credit or debit card are subject to
a 3Yo transaction fee in lieu of the $3.50 convenience charge. Customers paying
electronically by checking or savings accounts through the IVR or a Customer Service
Representative are also charged a $3.50 convenience charge. Avista receives no portion of
the $3.50 convenience charge. The amount of the charge is determined by the historical
average payment amount and payment cap and is set by the payment processor.
The following table provides a sunmary of payments received by Avista from
December 2014 through November 2015 across all customers classes:
Application of Avista Corporation
Case No. AVU-E-16- & AVU-G-16-
Page 5
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Payment Summary - Dec 14
- Nov 15
Transaction
Count
Fees Paid
bv Avista
Avista Cost
per
Transaction(3)
Customer
Cost per
Transaction
Payments
Received from
Customers
Mailed (r)t.860.702 $523.346 $0.28 s0.00 $619,241,436
Pavstation 220,075 s167,320 $0.76 s0.00 932.9s2.033
Online Payments (Bank bill
oav. APS. etc...)1.695.148 $107,282 $0.06 $0.00 s323.320.660
ACH - paid with a "My
Avista Account"809.704 $140,170 $0.1 7 $0.00 $1r3.505.583
One-Time Ach - paid without
a "My Avista Account"@)18.999 s63s $0.03 $3.s0 $s.046.334
Credit Card(2)154.179 $5.140 $0.03 $3.s0 s28.059.241
Pinless Debit(2)99-636 $3.40s $0.03 $3.s0 s16.207.333
Total Payments 4.858.443 $947.299 $1,138,332,620
include all forms o received malaJ
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(l)Mailed payments payments by mail, through drop boxes, and cash or check
payments made in person at Avista's locations where the Company accepts payments. All of these payments
are processed by the Company's remitiance deparfinent. Costs for processing these payments cannot be
separated as they are processed together within the same department.
(2) This represents the cost for receiving the frurds into our bank and any return fees associated with the
payments (Customer pays $3.50 for these fransactions)
(3) Avista's cost per transaction includes various components for each method of payment. The following is
included for each payment method: (l) Mailed - labor, supplies, equipment and bank fees, (2) Paystation -
monthly fees to pay station vendor and bank fees, (3) Online Payments - bank fees, (4) ACH with "My Avista
Accounf'- vendor fees for processing and wire costs for settlement, and (a) One-Time Ach/Credit Card./Pinless
Debit - wire costs for settlement. The cost per tansaction for any method does not include technology or Call
Center costs for payments made to a Call Center agent.
The transaction costs incurred by the Company for all payment methods are included
in general administrative expense and the costs for a particular method of payment are not
borne exclusively by those specific customers that use that method of payment.
Avista believes residential customers should not be charged a convenience fee for
payments made through any of its payment channels.3 The requirement to pay aconvenience
fee when making a payment is one of the largest frustrations customers express. Customers
have grown accustomed to paying for other products and services with a credit card or debit
card without a separate, additional fee. In addition, many local utilities or service providers
3 Because commercial customers generally have more methods in which to pay, and their average payment
amount is sigrrificantly higher than residential, which leads to higher processing costs, at this time Avista is not
proposing a fee free program for commercial customers.
Application of Avista Corporation
Case No. AVU-E-I6- & AVU-G-I6-
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do not charge a convenience fee, which also leads to customers' dissatisfaction or frustration
for paying a convenience fee when paying their Avista bill. NW Natural Gas and Portland
General Electric are two investor owned utilities that offer a fee-free payment program to
residential customers. In Avista's Spokane service territory, customers of Vera Water &
Power, Inland Power & Light, Modern Electric, and the City of Spokane do not pay a fee for
making a payment. Also, customers of service providers for garbage (i.e., Waste
Management), cable (i.e., Comcast), phone (i.e., CenturyLink), and cellular phones (i.e.,
AT&T or Verizon) do not pay a fee for making a payment.
Eliminating these fees would provide additional options for residential customers to
pay their bills. As discussed in the National Association of State Utility Consumer
Advocates (NASUCA)a Resolution 2012-07, "Urging Utilities to Eliminate 'Convenience'
Fees for Paying Utility Bills with Debit and Credit Cards and Urging Appropriate State
Regulatory Oversight", additional fees for paying utility bills can be burdensome. The
following are excerpts taken from the Resolution:
URGING ATILITIES TO ELIMINATE *CONVENIENCE" FEES FOR PAYING
UTILITY BILLS WITH DEBIT AND CREDIT CARDS AND URGING APPROPRIATE
STATE RE GUI,ATORY O VE RS IGHT
Whereas, some individuals, particularly those who lack access to bank accounts and to credit,
by one estimate numbering roughly 50 to 70 million,fiv] are unable to write traditional checks
or to direct electronic transfers and are therefore finding it dfficult to pay utility bills without
incurring additional charges; and
Whereas, the convenience fees are making it unnecessarily costly for utility customers,
especially low income customers and customers strugglingfinancially due to illness, layoffs or
other reasons, to meet their payment obligations and hence to maintain essential utility
services; and
4 http://nasuca.ore/2012-07-urging-utilities-to-eliminate-convenience-fees-for-paying-utilitv-bills-with-
debit-and-credit-cards-and-urging-appropriate-state-regulatory-oversight/
Application of Avista Corporation
Case No. AVU-E-16- & AVU-G-I6-
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Whereas, the conveniences fees make it hard for low income customers, when paying utility
bills, to use the payment method that is often most available to them, namely, prepaid debit
cards;fviii] and
Whereas, conyenience fees imposed on debit card use undercut the policy objectives offederal
programs (for example, social security) and state programs (or example, child support and
unemployment compensation) that issue prepaid debit cards to beneficiaries as an effective
and cost-fficient wry to manage operational expenses,[i4J by eroding the purchasing power
ofsuchcards; and
Whereas, convenience fees repeatedly assessed against utility customers who make multiple
payments during the course of a month undercut these customers' ability to apply scarce
availablefunds to payment of actual utility services; and
Convenience fees can be burdensome for customers that have limited options for
making payments. The trend in payments is moving towards debit, credit, and prepaid cards
through electronic channels. This is evident in the following illustration, provided by the
Federal Reserve in their 2013 Federal Reserve Payment Studys.
Erhlbit 1: Trends in noncosh prynents An00-2012, by ntmber md type of ronmcrbn
Biniorlt
Oahii cerd
o
2000 2012
fuit dabit ild prrpeid cd lrends iilchrde 0.n rd#frpos. ild pnirah{ab.l FEFr.nlr
With the growing trend in debit, credit, and prepaid card payments it places even
more emphasis on the discussion related to these channels and how the costs should be
' The 2013 Federal Reserve Payments Study, July 2014.
https://www.frbservices.ore/files/communications/pdfleeneral/2013 fed_resjaymt_study detailed_mt.pdf
Application of Avista Corporation
Case No. AVU-E-I6- & AVU-G-16-
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covered. For Avista, the primary source of payments has remained mailed payments.
However, the hend for these types of payments is on the decline as customers turn more to
elecfionic channels. From 2012 -2015, Avista saw the number of mailed payments decrease
from 46Yo of overall payments to 38% of overall payments. The following chart provides a
breakdown of payments by method for Avista from20l2-2015:
2OL2 Payments by Method
I Malled
I Paystation
I Electronic Payments (Bank bill
pay, APt etc,.,)
rACH (Paid with a My Avista
Account)
I One-Tlme Ach
I CreditCard
I Plnless [rebit
Z:OLS Payments by Method
IMalled
! Paystatlon
I Electronic Payments (Bank bill
pay, APS, etc...)
IACH (Pald with a My Avlsta
Account)
IOne-TimeAch
I CreditCard
I Plnless Debit
Data is based on December 2014 - November 2015
?.L7
Application of Avista Corporation
Case No. AVU-E-16- & AVU-G-16-
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2
With the growth in these payment methods, customers will continue to pay more in
convenience fees unless there are changes made in how regulated utilities are able to recover
these convenience fees.
The option of a fee free payment when using a credit or debit card would lead to
greater satisfaction for all customers that primarily pay for goods and services with these
payment methods. There are many reasons why customers would prefer to use their credit or
debit card, which may include: (l) receiving loyalty rewards, (2) younger generations that are
most likely to pay digitally because they do not'use paper checks, (3) using a prepaid card, or
(4) customers feel safer using a debit card that includes security protections from their bank.
Regardless of the reason a customer may have, they would be more satisfied with the ability
to pay by the method of their choice without incurring additional fees.
As it exists today, all customers pay for the payment transaction costs incurred by the
Company. The highest transaction cost Avista currently pays is for its pay stations, which
are used for roughly 5Yo of payments. Another example where costs are shared amongst all
rate payers is the costs to print and mail bills. Approximately 105,000 Avista customers are
signed up to receive paperless bills. Customers that receive their bill electronically are
paying a share of the costs to print and mail bills to other customers. For every bill that is
sent electronically, its saves the Company $0.58 or $6.96 per account per year. The
customers that sign up for paperless billing do not receive a discount.
The more convenient the Company can make it for customers to pay bills, the more it
can benefit all customers. Customers that self-serve, pay on time, and are satisfied with the
options they have are the least expensive to serve, which is a benefit to all customers.
Customers that do not pay on time and end up in the credit collections cycle drive increased
Application of Avista Corporation
Case No. AVU-E-I6- & AVU-G-16-
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costs, which are paid for by all customers. Lastly, customers that are not satisfied tend to call
Customer Service more frequently. Every call that comes into the Call Center costs
approximately $6 in labor costs alone. This means that every call that can be avoided leads
to savings for all customers. Giving customers options to pay by the method of their choice
without incurring additional fees will lead to more satisfied customers and ultimately savings
for all customers.
IV. PROPOSED ACCOT]NTING TREATMENT
In this filing, the Company is requesting an order allowing the deferral of all fees paid
by Avista related to offering a fee-free progftlm for payment of bills by Idaho residential
customers. Absent a Commission order allowing for the deferral and recovery of these costs,
the Company will not otherwise offer a fee-free payment progrcm to its residential customers
as it would result in a loss to the Company and its shareholders.
The Company plans to request authority in Washington and Oregon to implement the
same accounting treatment for residential customers payments received in those states. The
Company is in the process of selecting a digital payment processing partner for processing
payments, with an anticipated Go Live date in the first half of 2016. After approval from all
three states and the implementation with the payment processing partner is complete, Avista
would begin the fee-free payment program. The deferral of fees paid by Avista would begin
in the same month in which the program begins.
After the Company has 12 to l8 months of history with the program, the cost of the
program would then be rolled into a future general rate case filing. The Company is
requesting approval of a deferral up to 36 months to accommodate a general rate case filing
Application of Avista Corporation
Case No. AVU-E-16- & AVU-G-I6-
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following 12 to l8 months of actual expenses. The Company will provide updates to the
Commission every six months after the program is implemented, which will include
participation rates and fees incurred.
In the rate case filing following 12 to 18 months of experience, the Company would
propose to amortize and recover the costs from all customers over a two-year period with no
return on the unamortized balance. Although the fee-free program will be available to
residential customers only, the Company believes the'program will benefit all customers and
is similar to other programs offered to residential customers, but paid for by all customers.
Some of these benefits and other examples of programs are as follows:
a. Payment channels - as noted above, costs incurred to provide payment charurels
such as by mail, pay station, over the phone with a Customer Service
Representative, or online through a "Avista My Account" are included in general
administrative expense and not borne exclusively by those specific customers that
use each payment channel.
b. Electronic billing - individual customers do not receive a discount for signing up
for electronic billing; rather reduction in costs to print and mail physical bills is a
benefit received by all customers.
c. Potential cost savings - as noted, each phone call to the Company's Customer
Service Call Center costs approximately $6 in labor costs. The company believes
that offering this fee free program to residential customers may lead to fewer phone
calls as customers will have more options for paying their bill free of charge.
Application of Avista Corporation
CaseNo. AW-E-16- & AVU-G-16-
Page 12
I The Company requests to defer the costs in Account 182.3 - Other Regulatory Assets.
2 A summary of the accounting entries follow:
FERC Acct. No. Account Descriotion Debit Credit
903.X Customer Records and Collection Expenses S fOO
232.t Accounts Payable - General S fOO
To record payment of customer payment tronsoction fees.
L82.3 Other Regulatory Assets 5 100
407.4 RegulatoryCredits- Deferral 5100
To record deferral of customer pqyment transaction fees.
Note: Associated current and deferred income taxes will be recorded.
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l0z As explained earlier, in the future general rate case Avista would request recovery of
l l the deferred balance over a two year period, beginning on the effective date of new rates
12 from the rate case. The Company does not seek to accrue interest on the deferrals. The
l3 monthly accounting entries to record the amortization follow:
l4t
l5t
l6s
17a
l8z
FERC Acct. No. Account Description Debit Credit
407.3 Regulatory Debits - Amortization S fOO
L82.3 Other Regulatory Assets S fOO
To record amortization of customer payment tronsoction fees.
Note: Associated current and deferred income taxes will be recorded.
19 The Company estimates that approximately $487,000 in costs will be deferred
20 between July 1, 2016 ard December 31,2018 on a Idaho electic allocated basis and
2l $299,000 on a Idaho natural gas allocated basis. On an annual basis the Company estimates
22 the costs of the program to be approximately $195,000 and $120,000 on a Idaho electric and
23 natural gas allocated basis.
Application of Avista Corporation
Case No. AVU-E-I6- & AVU-G-16-
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v. REQUEST X'OR RELIEF
WHEREFORE, Avista respectfully requests that the Commission issue an Order
approving the deferred accounting and ratemaking treatment of the costs incurred for Avista
to offer a fee-free payment progftLm for residential customers. Recovery of the deferred costs
over a two year period would occur through a general rate case following 12 to 18 months of
experience under the program, as explained in this Application.
The Company requests that the matter be processed under the Commission's
Modified Procedure rules through the use of written comments.
DATED at Spokane, Washington, this , r+k day of January,2016.
AVISTA CORPORATION
By
KellyNorwood
Vice President, Avista Corp
Application of Avista Corporation
Case No. AVU-E-16- & AVU-G-16-
Page 14
VERIFICATION
srATE OF WASHTNGTON )
)CountyofSpokane )
Kelly Nonvood, being duly sworn, on oath deposes and says:
That he is the Vice President ofAvista Corporation;
That he has read the foregoing Application, knows the contents thereof and
believes the same to be true.
Subscribed and sworn to before me thisl*.day of January,2016.
Application of Avista Corporation
CaseNo. AW-E-I6- &AVU-G-16-
KellyNorwood
wE^ryDI D. MANffi. Notory publlc
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in and foithe State