20100104AVU Deposit Study.pdf

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Deember 30, 2009
Jea Jewell, Commssion Secreta
State of Idao
Idaho Public Utities Commssion
Statehouse
Boise, ID 83720
Re: Compliance Filng of A vista Utities - Deposit Study
Dea Ms. Jewell:
Per Commssion Order No. 30724 in Docket GNR-U-08-01, enclosed for electrnic fig
is a copy of a "Deposit Study" completed by A vista Utities. A hard copy is being
provided via overnght mai.
If you have any questions regarding ths filig, pleae feel free to contact me at (509)
495-4975.
Sincerely,.~~
Lida Gervais
Manager, Regulatory Policy
State and Federal Regulation
A vista Utities
509-495-4975
linda. gervais (g avistacorp.com
Avista Corporation
Deposit Effectiveness Study
Idaho Residential Accounts
Background
On September 29, 2008, the Idaho Public Utilties Commission (IPUC or the Commission)
initiated Case No. GNR-U-08-01 to provide a forum for the exploration of issues related to the
affordabilty of energy in Idaho. The Commission, in Order No. 30724 noted that rising energy
costs were affecting utilties and their customers and that a variety of factors were contributing to
significant upward pressure on electric and natural gas rates in Idaho. In addition, Idaho citizens
have been facing broader economic challenges. As a result, energy affordabilty has become a
central issue for many Idaho households and businesses. Two public workshops, open to any
and all parties, were conducted by Commission Staff at the Commission office on October 14
and October 22, 2008. The purpose of the workshops was to identif issues and discuss
solutions pertaining to energy affordabilty and customers' abilty to pay energy bils. As a result
of the Commission Staff's Final Report, dated January 16, 2009, Avista committed to conduct a
study of the effectiveness of collecting residential deposits and to provide its results to the
Commission by year end of 2009.
Introduction
Alternatives to existing deposit policies explored during the workshops included: 1) allowing
payment over an extended period of time; 2) reducing the dollar amount of deposits; 3) waiving
deposits under certin circumstances; or 4) deferring collection of a deposit subject to future
payment penormance. Currently, all of these alternatives can be implemented by utilties
voluntarily. However, as stated in Staff's Final Report, changes to the Commission's rules might
be necessary.
Avista's work on the deposit effectiveness study is based on Idaho residential accounts. This
report includes statistics, as well as observations, made during the course of the study covering
2006 through the third quarter of 2009.
The study reviewed current IPUC Rules, as well as other states' rules, Avista's current process
and tools, statistics regarding deposits, and opportunities to increase effectiveness of deposits.
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Deposit Rules
The IPUC Deposit Rules (I.D.A.P.A 31.21.01 (100-199)) (Deposit Practices For Residential And
Small Commercial Customers) provide the requirements regarding when a deposit can be
requested, the deposit amount, the required payment arrangement options, the return of the
deposit, and deposit interest and refund requirements. The following are reasons that a deposit
may be requested for an Idaho residential account.
· Unpaid overdue balance from a previous accunt within the past four (4) years;
. Previous disconnect in the past four (4) years for nonpayment, misrepresentation, or
theft of service;
· Previous customer stil resides at the same address with an unpaid balance;
. Two (2) final notices in the last 12 months; and
. Providing false ID.
Additional criteria in the Rules regarding deposits include the following:
· The deposit amount.does not exceed two (2) times the average bil at the premise;
. Installments are offered to customers when a deposit is required, allowing the
customer to pay half at that time and the remaining half in one (1) month;
. The deposit is returned to the customer after one (1) year if credit is established for
the account, no more than one late payment during the past twelve months of service;
and
. The deposit accrues interest, based on the interest rate set annually by the
Commission, from the time the deposit has been paid or the installment is made until
the deposit is refunded.
The States Avista chose to use for comparison for the purpose of the study were: Idaho,
Oregon, Washington, Montana, Arizona and Wyoming. As will be shown in this section, the
Utilty Commission Rules vary between States; however they do have some similarities. The
charts below provide a summary of the six Commission rules regarding an accunt that is
eligible for a deposit.
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Deposit requested at the time service is established or the account is opened:
Reasons for Deposit Eligibilty atOpen ...10 OR WA MT AZ WY..
New Customer X X X X X
Unpaid overdue balance from previous account X X X X
Previous disconnect for nonpayment X X X X X X
Previous clJstomer still resides at the same address with unpaid balance X X X
Notice History X X X ..
Misreprensentation X X X
Theft of Service X X X X
Delinquency on Bills X X X
After the account has been established:
Reasoiisfol' Deposit Eligibilty afteraecuntis established 10 OR WA MT AZ WY
Disconnection X X X X X X
Late Payments X
Notices X X
There are multiple events that can trigger an account to be reviewed for deposit eligibility. The
challenge is to balance the customer's needs and account risk with the responsibility to the
utility and to ratepayers. There can be time and resources associated with completing a check
for eligibility and meeting appropriate notice requirements if a deposit is requested.
Avista's Deposit Statistics and Process
Avista follows a formal process and adheres to its guidelines to review new accounts and
accounts disconnected for non-payment for deposit eligibility. In addition, there are times
accounts are reviewed after the account has been established due to account activity, and is
done on a case by case basis.
Programming was implemented into Avista's customer service system in 1994 to process
deposits. The programming includes the abilty to charge, waive, apply, and refund deposits. It
also includes the programming to adjust the interest rates used for deposits on file and to apply
the interest to the accounts. Since implementation, the additional time and costs to maintain
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this programming, as well as other administrative costs have been minimal due to no significant
changes to deposit regulation.
The Company serves approximately 170,000 residential electric and natural gas customers in
the State of Idaho. Currently, ten percent of Idaho residential customers are delinquent on their
bilL. Six percent of Idaho customers have an active deposit and of those, 42 percent are
currently delinquent on their bilL.
% of Accounts by Current Account Status
Idaho Residential as at Dec 1,2009
% of Accounts Secured
Idaho Residential as of Dec i, 2U09
-Current
I
¡
III Secured I
'" Non-Secured !
I
I
i
i
¡
II Delinquent
Based on the statistics above, Avista is securing accounts at a lower percentage than our
delinquencies. While delinquency currently does not mean the account is eligible for a deposit,
it can be an indicator for the need to secure the account.
Chaiienges
The review of Company processes as well as the IPUC Rules for deposits has provided an
opportunity to explore possible changes to improve deposit effectiveness. Ideally, any account
that shows a risk would be required to secure the account with a deposit to prevent or lessen
the dollars that could become uncollectible. We believe that consumers in general understand
and expect companies to secure accounts at the time an account is established and often plan
for the additional expense. The challenge is when an account requires securing based on
account behavior after the account has been established. Often this is when a consumer is
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struggling financially and the additional dollars to secure the account are more difficult for the
consumer to make payment arrangements for.
All other states reviewed in this study allowed securing of an account based on a "new
customer" status. The following represents the length of time accounts were open for Avista's
first time customers that have opened and closed accounts since the beginning of the study:
1st iime Customers with Accounts ihat Opened During
Deposit Study
II Closed in less than G
months
li Closed between 6 months
and 1 year
Closed between 1 and 2
years
II Closed atter 2 years
..Open
· 54% of the 1st time customers that opened an account since January 2006 have closed the
account.
o 49% of these accounts closed in less than 2 years
o 38% of these accounts closed in less than 1 year
A review of the first time customers during the course of the study shows 20 percent of the
accounts that were closed within 2 years were written off. Of these customers that were
written off, the following is a break-down of accounts based on the length of time the
accounts were open:
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% of Write Ofts
Based on Length of Account
45% -(
40% -1/
35% +,--
30% -(
25% .f/,=
20% ..'
15l,~ +~
10% +'
SU' .V
O~": l,"-"" ,
II Less than 6 months
. Between 6 months and 1
vear
. Between 1 and 2 years
Less than Between Between More
6 months 6 months 1 and 2 than 2
and 1 years years
year
More than 2 years
· 95% of the write offs resulted from accounts open less than 2 years.
· 76% of the write offs resulted from accounts open less than 1 year.
Conclusion
Deposits at Avista have proven to be successful in securing customer accounts and minimizing
the ratepayer impact due to uncollectibles. The effectiveness of deposits clearly has an impact
through the application of the deposit to unpaid balances that reduce the uncollectible dollars.
For example, deposits applied within ten days of the close of an account, reduced the
customers balance due, by approximately $1.4 millon over the course of the study as reflected
by the green bar below. This represents 39% of the combined net write offs (Idaho residential
and non-residential) for the same period. The chart beloW shows the impact if deposits had not
been applied to the accounts and if the dollars had remained uncollectible.
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Dollars Applied to Accounts Ulimately Reduce Write Offs
$2.50Q,000
$500,000
Df'posits AppliNl ì't Cioe;
il Applied Deposits
II Net Writ.? Off
$2,000.000
$1,500,000
Sl,UUC',UUU
$
2006 2007 2008 2009
Another challenge and opportunity would be to create a deposit follow up program that treats
and secures accounts that have proven a credit risk through account behavior. Avista currently
has over 7,000 customers that could be reviewed to determine if a deposit should be requested
if a deposit follow up program were implemented.
As provided in comments in the Affordability Workshops, Avista agrees that obtaining financial
security from at risk customers is an essential practice in mitigating bad debt losses and in
controllng potential rate increases to all its customers. Realizing that an additional cash deposit
can be difficult for struggling customers, utilties could offer alternative security solutions, such
as a guarantor, where no cash transaction is needed to satisfy the deposit request or provide
the cüstûmei sen¡ice iepiesentative the flexibilitý tû ieqüest ûï waive the depûsit depending ûn
each customers unique situation. The administrative costs associated with deposits are, by far,
outweighed by the potential bad debt losses that are prevented through utilty deposit practices.
Deposit policies act in the interest of all ratepayers because these customers are the ones that
ultimately bear the burden of higher rates when bad debt losses are not controlled.
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There is opportunity to improve deposit requirements through changes to Commission Rules as
well as through internal process changes. Again, these changes could have a positive impact
for customers, the Commission, and the utilty companies. Avista continues to support securing
customer accounts through the collection of deposits. The abilty to collect deposits enables the
Company to better manage its uncollectibles, and to maintain a lower than average net write off
percentage.
Per the analysis included in this report, Avista would request that the Commission review its
current deposit rules and require that new customers without previous history be included in the
request for deposit.
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