20160314Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF AVISTA CORPORATION
DBA AVISTA UTILITIES' APPLICATION FOR
AN ACCOUNTING ORDER RELATED TO
COSTS INCURRED TO OFFER CUSTOMERS A
FEE-FREE PAYMENT PROGRAM.
RECEIVED
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. AVU.E-I6.01
AVU-G-16-0r
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission provides these following comments to
Avista Corporation's Application for an accounting order related to costs incurred to offer
customers a fee-free payment program.
BACKGROUND
On January 13,2016, Avista Corporation dba Avista Utilities applied for an Order
authorizing it to record, as a regulatory asset, the costs it incurs to offer a fee-free payment
program to its residential customers. The Company does not seek to recover the costs now.
Rather, it requests an Accounting Order that will let it defer its opportunity to recover those costs
through rates to a later date. The Company asks the Commission to process the Application by
Modified Procedure.
Avista currently uses a third-party vendor (Kubra) to process one-time payments that
residential customers make through Avista's web site or by telephone. The vendor collects a
$3.50 "convenience fee" if the customer pays by credit or debit card. The fee also applies if the
STAFF COMMENTS MARCH T4,2016
customer pays using a checking or savings account but has not created an online "My Account"
profile with Avista. Avista does not receive any portion of the $3.50 fee collected by Kubra.
On the other hand, customers with a "My Account" profile may pay by phone or on
Avista's website using a checking or savings account without being charged a convenience fee.
Customers also are not charged the fee if they pay by check, cash, or authorized pay station.
Avista would like to eliminate the "convenience fee" so its residential customers may pay
their bills by any method without incurring an extra charge. However, Avista does not want to
create a fee-free payment program if it will incur costs that will cause it and its shareholders to
lose money. Avista estimates the cost per transaction will be $ 1.50. The Company thus seeks to
defer, for later recovery from all customers through rates, the costs it incurs to set up and offer
the fee-free payment program. The Company expects the deferred costs will be about $195,000
per year on an Idaho electric allocated basis, and about $120,000 per year on an Idaho natural
gas allocated basis.
With this Application, the Company asks the Commission to approve an accounting
treatment that would let the Company defer the program costs for up to 36 months from the
month in which the program begins. Every six months, the Company would update the
Commission on program participation rates and fees incurred. Then, after the Company has 12
to l8 months of history with the program, the Company would seek to recover the program's
costs as part of a general rate case. In the rate case, the Company would ask to amortize and
recover the costs from all customers over a two-year period, with no return on the unamortized
balance. The Company also asks the Commission to approve this proposed ratemaking
treatment. As noted above, while the Company is asking to track the fee-free program's costs for
possible future recovery through rates, the Company's Application does not seek to recover those
costs, or increase rates, at this time.
In the Comments below, Staff summarizes its review of the Company's Application and
the actions Staff recommends the Commission take in this case.
STAFF REVIEW
Staff has reviewed the Application and supports the Company's request to offer fee-free
payment programs for residential customers and defer the processing costs associated with the
programs for later recovery. However, while Staff recognizes the benefits of offering fee-free
payment options, it has concerns about the Company's proposed xnortization period. In the
STAFF COMMENTS MARCH 14,2016
section below, Staff discusses the impact of convenience fees on customers, and the benefit of
the Company's proposal to remove these fees. Staff then discusses its concerns about the
Company proposed amortization, and support for the Company's proposed jurisdictional
allocation of costs associated with the fee-free program, and customer communication plan.
Lastly, Staff discusses the customer-relations aspects of the Company's proposal, and notes that
the sole customer to comment supports the Company's plan.
Impact of Convenience Fees on Customers
In the past, few customers used credit cards to pay utility bills. Fewer still used debit
cards. Card use was viewed as a convenience rather than a necessity, and utilities were reluctant
to absorb the cost of handling these transactions. Accordingly, the customers who used the
service paid for that privilege.
These past practices have changed in recent years. According to the 2013 Federal
Reserve's Payment Study, there has been a consistent decline in consumers paying for goods and
services by paper check, while debit and credit card transactions have increased. Using a credit
or debit card to pay for products and services is now a routine practice, and most businesses and
service providers, especially in the retail sector, no longer charge convenience fees. As more
customers come to rely on payment by debit and credit cards, they become frustrated by and
object to paying an extra charge to pay utility bills using their preferred method.
In addition, convenience fees often have the greatest impact upon society's most
vulnerable population, including low income individuals who struggle to meet the basic
necessities of daily living. Many low income people are unbanked or underbanked. "Unbanked"
persons lack a savings or checking account and do not have a financial relationship with a bank
or credit union. "Underbanked" persons may have a checking or savings account, but also use
alternative financial services. Both unbanked and underbanked households rely on non-bank
financial services for an array ofproducts such as check cashing services, payday loans, tax-
refund advance loans, rent-to-own services, pawn shop loans and auto title loans, all of which
charge high interest rates. They may use credit and prepaid debit cards to pay their bills.
Unbanked households have limited options to avoid paying a convenience fee since most fee free
payment options require readily available cash.
STAFF COMMENTS MARCH 14,2016
According to the 2013 FDIC National Survey of Unbanked and Underbanked
Households,t 28y, of U.S. households were either unbanked or underbanked. In Idaho, 6Yo of
households were unbanked, and l9o/o were underbanked, for a combined total of 25Yo or 140,543
households. More than half of the unbanked cite their inability to build up a reserve in an
account or maintain a minimum balance as the main reasons they lack a bank account.2 Other
contributing factors include high fees, unpredictable and unknown fees, distrust or dislike for
banks, lack of ID, bad credit, and a poor past experience. Age can also be a factor. Nationally,
about halfofpeople between the age of 18 and 24 are unbanked and underbanked due to lack of
established credit. Those who have a relationship with a bank or credit union tend to rely on
credit and debit cards for financial transactions.
Benefits of Eliminating Convenience Fees
Removing the $3.50 convenience fee will bring the Company's payment practices in line
with those of other businesses, and will improve customer satisfaction and increase timely
payments. Eliminating the convenience fee will add payment choices for customers. According
to the Company, most customers choose not to pay with a credit or debit card due to the
convenience fee. Though the Company does not specifically track the number of complaints
about the fee requirement, customers frequently complain about the convenience fee when they
call the Company's Customer Service Call Center. The Commission's Consumer Assistance
Staff has received similar complaints from customers. In addition, most customers who consider
paying by phone elect not to when they hear an additional fee will be assessed. Eliminating the
fee will provide customers with more fee-free options and will help lessen the financial burden
on customers who are struggling to meet financial obligations.
Currently, only customers with a checking or saving account can participate in automatic
bill payment.3 With approval of the free-payment program, customers will be able to sign-up for
automatic bill payment using a credit or debit card.
With more customers paying by credit or debit card, it is probable that more customers
will choose electronic monthly billing (paperless billing). This, in tum, will reduce the
I https://www.fdic.gov/householdsurvey/20 I 3report.pdf
3 No fee is charged for processing a payment.
STAFF COMMENTS MARCH 74,2016
Company's printing and mailing costs. For every bill the Company sends electronically, the
Company saves $0.58.
The number of customers who do not pay their bills on time will probably decrease.
Residential customers who avoid paying by credit or debit card due to the convenience fee may
elect to do so if the fee is eliminated. The customer will benefit by avoiding a late fee. Avista
will benefit from reduced costs associated with collection activity. Customers who wait until the
last minute to pay a bill risk having the payment not posted by the due date, incurring a late
payment fee and possible disconnection of service. If a payment is made at apay station, the
payment can take up to one to two days to process and post. Delayed posting of payment to a
customer account has resulted in customer disconnections even though the payment was made
before the scheduled date of disconnection. Elimination of the convenience fee may increase the
number of customers who pay their bills on time, thereby reducing the number of incurred late
payment fees and the number of disconnections.
Staffbelieves that any deferral oftransaction costs should be offset by the potential
savings related to the program. However, many of the benefits are not readily quantifiable, as it
would be difficult to directly correlate cost savings for the items mentioned with the proposed
fee-free program. Improved customer satisfaction potentially reduces the number of phone calls
made to Avista's Customer Service Call Center, which would save approximately $6 per call in
labor costs. Because the Company has not tracked the number of calls, inquiries, or complaints
regarding the convenience fee, the benefits from reduced calls cannot be adequately quantified.
The increase in customers who reduce Company cost by receiving electronic (paperless)
billing can potentially be tracked. Staff realizes that the tracking of these customers could be a
laborious task for quantifuing this potential benefit. Staff notes that in Oregon ADV 201, the
Company agreed to defer 90Yo of the transaction costs associated with the fee-free program
instead of the requested 100%. If the Company believes that the tracking of new electronic
billings would be arduous and complicated, Staff would accept the deferral of 90o/o of the
transaction costs as a proxy amount for the benefits to offset the requested deferral.
Staff notes that all financial mediums for payment of utility services have transaction
costs. These costs have always been a prudent cost of doing business. Staff believes it is
inappropriate to charge some individuals for their method of payment, while embedding the costs
associated with other methods into rates. Provided that the Company is prudent in its selection
STAFF COMMENTS MARCH 14,2016
criteria of a third party vendor and minimizes its costs, the transaction costs associated with
receiving payment for services should be included in base rates.
Amortization Period
The Company seeks to defer for up to 36 months without a carrying charge all transaction
fees it incurs to offer a fee-free payment program in Idaho. The Company does not seek to defer
any developmental or implementation costs. The Company proposes to recover the deferred
costs over a24-month period. Staff believes it would be inappropriate for the Company to
amortize the regulatory asset over a 24-monthperiod if the deferral period were to exceed24
months. Because the length of the deferral period will be unknown until the Company files for
recovery in a rate case, Staff recommends that the Commission not explicitly approve an
amortization period at this time. Staff believes that the appropriate time to determine the
amortization period is when the Company files to recover the deferred expenses.
Jurisdictional Allocation
The Company's Application does not describe how the Company will allocate the
transaction fees to the jurisdictions it serves. Through discovery, the Company confirmed that it
will directly assign the transaction fees incurred by Idaho residential customers to the Idaho
jurisdiction. Staff agrees that direct assignment of the transaction fees is the best approach.
Customer Communication Plan
During the fall of 2076, the Company intends to implement the fee-free program in
conjunction with the scheduled rollout of the Company's new website and mobile application
("App"). The advantage of starting a fee-free program simultaneously with the website and App
release is the elimination of duplicated efforts.
If the fee-free payment program is approved, the Company does not intend to use a stand-
alone communication plan to notify customers. Instead, information about the new fee-free
program would be included in the list of self-service options when notifying residential
customers of the new website and App. Residential customers who are on or opt for paperless
billing will be notified via email about the different payment options. Additionally, Customer
Service Representatives will inform customers at the time the customer is making a payment
STAFF COMMENTS MARCH 14,2016
over the phone that a convenience fee is not required for processing the payment, and the
Company's website will provide information.
Using this approach, the Company expects number of customers using cards will
gradually increase over time. Staff supports the Company's proposed communication plan.
Customer Relations
Customers were given until March 14,2016, to file comments. As of March10,2016,
one customer submitted written comments to the Commission in favor of the Company's fee-free
payment program. The customer stated that 95o/o of his bills are paid electronically using a credit
card. He favors automatic bill payment through his credit card, and feels the Company should
offer a discount for those customers who receive and pay their bills electronically.
STAFF RECOMMENDATIONS
Staff believes that Avista's proposal for a fee-free program is necessary given the
increased reliance on the use of credit, debit cards, and prepaid cards to pay bills. Elimination of
the convenience fee will increase customer satisfaction, remove the financial disincentive to
using cards, and decrease the financial burden on low income, unbanked, and underbanked
customers. Therefore Staff recommends that the Commission:
1) Approve the Company's request for an accounting order allowing deferral and recording
of all transaction fees paid by the Company related to offering a fee-free program for
payment of bills by its Idaho residential customers until those costs can be recovered
through future rates.
2) Defer deciding on an amortization period until the Company asks to recover the
regulatory asset created by the deferral oftransaction fees.
3) Order the Company to directly assign the transaction costs of the fee-free program to
each jurisdiction, with fees attributed to Idaho customers being charged to Idaho.
4) Require the Company to file a report with the Commission every six months detailing
fees incurred and participation rates, as proposed by the Company in its Application.
STAFF COMMENTS MARCH 14,2016
Respecttully submitted this I tl L day of Mar ch2016.
Technical Staff: Donn English
Kevin Keyt
Curtis Thaden
i :umisc/comments/avue I 6. I avugl 6. I kkdekskct comments
11"/ / /U-
Karl T. Klein
Deputy Attorney General
STAFF COMMENTS MARCH 14,2016
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS I4TH DAY OF MARCH 2016,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NOS. AVU-8.16-01/AVU-G-I6-01, BY E-MAILING ANDMAILING A COPY
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
SHAWN BONFIELD
SR REGULATORY POLICY ANALYST
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-MAIL: [e-mail]
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPoKANE W499220-3727
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE