Why the Skeptics are Wrong about Supplier Consolidated Billing

            The Pennsylvania Public Utility Commission opened a docket[1] this year to examine whether it should encourage or require supplier consolidated billing (“SCB”)[2].  SCB is when competitive energy suppliers, rather than the utility, bill the customer for all the services associated with their energy supply, including the utility’s distribution charges – sort of the opposite of how it happens today.  The reason I suggest that SCB is “sort of” the opposite of how things are done at present, is that when utilities bill and collect for suppliers now, they normally do so under a program called “purchase of receivables” or (“POR”) where the utility bills and collects from the customer and pays the supplier – regardless of whether the customer pays the utility.  The supplier pays a fee for this benefit equal to the utility’s bad debt percentage, which is known as the “POR discount”. For example, if a utility can’t collect 4% of what it charges to customers as a group, suppliers only get 96 cents on the dollar for the product they sell, even if the utility collects a larger percentage of charges to the supplier’s customers, which is often the case.  However, under the proposed SCB, the supplier would be required to remit 100% of charges back to the utility and manage the entire risk of uncollectible debts on its own.

            Now you might ask why those uppity suppliers would want to turn the tables and take on the responsibility for billing customers for the utility’s charges, especially since this chore comes with the added risk of uncollectables?  The reasons are many, but first and foremost, suppliers have realized for some time that she who sends the bill “owns” the relationship with the customer.  Consider the case where a consumer makes a purchase with Amazon, you get one bill from the company you made the purchase with, Amazon.  The product may be sold by Amazon or one of its partners, but you never receive a bill from anyone other than Amazon, not the delivery company, whether it’s UPS, FedEx or USPS who delivers the product to your door, and not the partner company who may have actually made or sold the product. In fact, if you think about your relationship with the providers of most services you consume: banks, utilities, car dealerships, etc., the most tangible means by which you interact is often the bill (or in the case of a bank, the monthly statement).  You open the bill because you need to pay it, and you read it because you need to understand what you are being charged.  The same sort of compulsion is not present for most other communications we receive, by mail, email or otherwise.

            Getting the customer’s attention at least once a month is important, but why?  Having the customer see your name as her energy provider once a month builds your brand and the customer’s brand loyalty, assuming the supplier is providing quality products and services to the client.  That is important.  But the supplier also gets the opportunity to provide the customer with a better bill, one with more information, perhaps on how to save energy, or how to at least gain more control on how the customer consumes energy through connected devices like smart thermostats and connected appliances.  These opportunities are generally unavailable presently because if a product cannot be billed as [energy consumed] x [price] = [what you owe], an energy utility, in Pennsylvania and most other states, will not bill for it.  Spoiler alert -- most of these innovative products can’t be billed using that simple formula.  And, by the way, space on the utility bill is guarded like sacred ground and the one or two square inches the utilities presently concede to suppliers to list the equation above would hardly suffice to bill something as complex as, say, a time of use product.  

            If the supplier were to control the bill, however, not only would the supplier get the chance to improve its customers’ experience with the bill, but the supplier also would gain the chance to offer the customer other products and services the customer may want. These services might be energy related, like warranty service for a furnace, or a new more efficient HVAC system, or could be something like a customer loyalty program where the customer could earn airline miles for simply buying electricity.  The point is that there is really no limit, except good sense, to what sorts of offerings could be made, allowing suppliers to encourage greater customer satisfaction, and providing a better path for suppliers to get beyond the deceivingly complex, risky, and sometimes boring, business of selling only kilowatt hours.

            Let’s recap the benefits of SCB.  First, SCB provides competitive suppliers with the ability to compete with innovative and diverse offerings that go beyond price competition on a risky commodity.  SCB provides customers with the chance to get products they may want, like tools to reduce energy consumption, or at least to control and manage consumption on their terms.  It also provides customers with more enriched billing experiences, that include such innovations as flat bills or being able to choose the date you are billed, to name a few. SCB also provides suppliers the means to form a closer relationship with their customers.  I should mention that SCB is already being used in Texas and Georgia, and problems are virtually non-existent.  For the utilities and their customers, SCB means less collection risk and lower costs for collections, and ultimately, better cash flow.  So why, other than the fact that we’ve always done it this way, would we not want allow suppliers who are qualified, willing and able, to provide SCB to customers who opt to take it, and more importantly, who would oppose it?

            On June 14, 2018, the Commission held the first of two en banc hearings, with all five Commissioners in attendance to hear first-hand why the Commission should, or should not, go down the SCB road.[3]  True to form, multiple panels of suppliers presented the arguments raised above, and the Commissioners seemed very interested.  Then the ratepayer advocates got their chance.  The advocates’ approach oscillated between specious claims that SCB is illegal and unsupported predictions of dire consequences if SCB is permitted.  The attacks on legality simply mis-state the law.[4]  EGSs are subject to the same quality of service regulations as public utilities.[5]  Oddly enough, the crux of the “anti” argument appears to be that those who advocate for customers want all customers to have fewer choices.  It is not a matter of allowing some customers to choose and others to be left with no choice, like Customer Assistance Program (“CAP”) customers not being permitted to shop for energy.  No, the advocates argue that no customer should be able to receive a bill for all her energy charges from her competitive supplier as opposed to her utility.  The OCA apparently does not believe that: 1) suppliers are scrupulous enough; and/or, 2) customers are sophisticated enough to manage the determination of which party will send their electricity bill.  What the OCA does not want to acknowledge is that while not all customers would engage the opportunity, many others will, and those who want it, want it now.[6] Suggesting that certain segments of the market may not have the sophistication to be able to understand or take advantage of the new features that SCB will bring is not a sufficient reason to not do it.  We can’t simply allow 20% of the market to control the opportunities for the other 80%.  If absolutely necessary, there are ample means of ensuring that certain customers are either permanently or temporarily isolated from SCB opportunities, but by no means should the improved market be stymied or delayed any further.  The dire consequences suggested by the advocates are based on the premise that suppliers will not be capable of managing the collection process and ultimately, the ability to order a customer shut-off for non-payment.  There is simply no basis for this anti-supplier rhetoric.  It may be true that there have been a very small number of suppliers who lacked the sophistication or business acumen to provide service in Pennsylvania over the long term, but through attrition and in some cases, enforcement, the number of those entities is trivial in comparison to the substantial number of prudent, innovative and financially sound suppliers that have been leading the market and investing in Pennsylvania.  To cite the sins of a few as a basis for preventing these good corporate citizens from offering world class service to Pennsylvania customers who want it is nonsensical.

            The facts are plain, as of the writing of this post it seems likely that the General Assembly and Governor will have authorized the Commission to implement “alternative regulation” over the rates of utilities, which will perhaps finally put the dagger in the heart of distribution rates that are based primarily on consumption, in a world where energy efficiency and innovation have been driving down per capita consumption, while costs continue to climb.  This development will allow utilities to overcome the disincentive to engage in activities that reduce consumption and should open the door to even more diverse offerings from innovative providers of both commodity and associated services. 

             It would seem, at this juncture, that the advocates intend that utilities alone would have the opportunity to devise and implement new strategies for billing, and perhaps new products, while simultaneously preventing suppliers from doing the same thing.  Suggestions that the answer to this market demand is that the utilities should simply be required to bill for suppliers, are simply unworkable.  What competitor -- make no mistake, the utilities clearly compete with suppliers – wants to be forced to share its new and innovative product concepts, with its competitor, before it can offer the product to customers, while being subject to the competitor’s determination of whether and on what terms it will bill for the product?  The answer is obvious; None!

            If Pennsylvania wants to continue operating a successful energy market, where suppliers continue to make substantial investments in the Commonwealth, and customers gain the full benefit of a competitive market for energy and related products, the Commission needs to take the next step in the evolution and allow suppliers to bring those new products to market.  The only way that works is if suppliers have the ability to build a firm and constant relationship with the customers, and that means SCB.

 

[1] Notice of En Banc Hearing on Implementation of Supplier Consolidated Billing, Docket No. M-2018-2645254 (entered May 14, 2018).

[2] To be clear, no one is presently advocating that SCB be mandatory, i.e., that if a customer buys energy from a competitive supplier, said supplier must use SCB.  Rather, all proposals are for the customer to be able to choose a product or service which may include SCB, so long as the SCB component is adequately disclosed.

[3] A second hearing is scheduled for July 12, 2018 at 1:00 in Hearing Room No. 1 of the Commonwealth Keystone Building.  The second en banc hearing will include utility representatives and a few additional EGSs. 

[4] The Consumer Advocate stated a number of times during her testimony that the seminal case means that EGSs are not public utilities for any purpose and thus cannot be considered to be utilities for purposes of Chapter 14 of the Public Utility Code, 66 Pa. C.S. §§ 1401, et seq., citing the Pennsylvania Supreme Court’s decision in, Delmarva Power & Light, t/a/ Conectiv Energy v. Comm. Of Pa and Pa. PUC, 870 A.2d 901 (Pa. Supreme Ct. 2005) (“Delmarva”).  The OCA’s citation to Delmarva is simply wrong.  The court plainly held that electric generation suppliers were not public utilities for purposes of 66 Pa. C.S. § 510, which allows for the Commission to assess utilities for the fiscal expenses of the Commission.  The Court also found that EGSs are public utilities for the limited purposes of 52 Pa. Code § 56.01, et seq., which addresses billing and customer service.

[5] 66 Pa. C.S. §2809; Delmarva, 870 A.2d 901, 912.

[6] Smart Energy Consumer Collaborative Report, April 10, 2018, https://www.utilitydive.com/news/three-things-consumers-want-from-electricity-providers-1/520821/

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