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  • Utility Regulation & The Poor

    Posted by Carl from Chicago on April 26th, 2010 (All posts by )

    When I first started getting into the utility business I remember that I was on an airplane traveling to a client in another city when I started talking with a woman yesterday who had a young son. She asked what I did for a living and I said that I worked with utilities. Her son piped up “Are you the man who turns off the power?” and that killed the conversation (mom was embarrassed and I learned to be careful about too much information).

    One of the different elements about utilities is that they serve all customers. Since utilities are a “natural monopoly” (meaning that it doesn’t make sense to have two companies stringing up electric poles side by side) the flip side of giving them monopoly rights is that they must provide for all the customers in their “service territory”. While most of the readers of this blog probably never interact with the utility company unless they move or have an outage, utilities spend a significant amount of time and money on collections and turn-on, turn-off activities for poorer customers. Each of these events is preceded by multiple calls, collection attempts, and then physical visits, none of which make money for the utility.

    While a lot of this made sense when utilities were regulated monopolies, now many regions have significantly “de-regulated”, which mainly means that the generators of power are free to charge what they want and the local utility makes its money by passing on power costs and charging more for their profits. In the case of Illinois, where Exelon provides (most of) the power and then their fully-owned subsidiary Commonwealth Edison provides power to residents (and complains about the high cost of power that it passes on), no one is shedding tears for Exelon. However, in other areas where the generation and distribution companies are actually separate, you need to start thinking harder about the cost of poorer residents in your service territory.

    This article describes the (sad) case of a disabled resident in Bronzeville (a less affluent area in Chicago) who is complaining to the Chicago Tribune that the local gas utility won’t turn on the fuel in an article titled “Gas Shut-off Leaves Disabled Man in the Cold“. In the article, the man hasn’t paid his bill, so the utility comes and turns off his service in April, and the man is angry and complains to the newspaper.

    In fact, this was my understanding of how it was supposed to work – the utility can’t turn off your heat in the winter, so they wait until spring and demand repayment, and if you can’t pay, your heat is turned off. In many instances people try to get around this by registering under another name, moving, etc… but this guy just complained to the paper and his gas was turned back on. From the article:

    “It took them a long time”, he said, “It was very clear to me that the gas company couldn’t care less. They just don’t care.”
    He said he doesn’t know where he’ll get the money to pay his outstanding balance, but his heat is back on. And that’s good enough for now.

    In true lazy journalism style, the article ends there. But why didn’t the journalist ask some deeper questions?

    WHY are utilities forced to provide services to customers who 1) haven’t paid 2) have made clear that they have no intention of paying?

    Go to the poorer neighborhoods; there are no grocery stores, no local services, nothing, except liquor stores, convenience stores and gas stations. Why don’t we force large retailers or grocery stores to do business in that area, with customers who are promising not to pay? Because it is absurd… you can’t make a business go into an area where it is guaranteed to lose money, correct?

    And yet for utilities, we still haven’t fully grasped the “flip side” of deregulation; who is going to pay for the poor, and are we going to give services to those that can’t pay (and burden everyone else’s bills as a result) indefinitely? Is this a new “right”, that can’t be taken away? If so, we are going about this in a lousy manner – the same houses that the poor are likely to live in have poor insulation (ever hear of a landlord investing for the poor) and the utility has an expensive method of nagging and then sending someone to turn off the power, and then back on.

    These aren’t flippant questions, even though the journalist who wrote this article didn’t understand that at all.

    If one played this out to a logical conclusion, the local utility would want to “spin off” poorer neighborhoods that are less profitable unless they can pass these costs on to other customers (through rate regulation). In fact, it could make sense to PAY someone to take a service territory filled with poor customers off your hands.

    Some day we will need to face up to these questions when utilities are fully deregulated and power is scarce and costly. For now, the reduced price of natural gas and a fall in demand caused by “the Great Recession” has limited our problems; but they will come back with a vengeance later.

    Cross posted at LITGM

     

    10 Responses to “Utility Regulation & The Poor”

    1. Nicholas Says:

      IMO if society expects poor/disabled people to be provided with free services then that means that the (local/state/federal) government needs to pay their bills.

      That’s the only fair way to do it. Yes, it involves taking money away from taxpayers and giving it to poor people. But it’s more fair than expecting utilities to give away services for free.

      If such a scheme were to be instituted, it would need to be set up so that only the truly needy receive this money. It can’t be enough to just be too lazy to get off your butt and make some money.

    2. Tom Grey Says:

      Most poor people in America have some combination of Social Security / Welfare (of one program or another) from one or more gov’t agencies.

      All regulated utilities should have the option to get a minimum service amount of money BEFORE the poor person gets their check.

      Not paying a bill, yet applying for service, should be considered an “opt in” to this agreement that applied for regulated service gets paid before the poor person gets cash.

      Republicans, especially (more than Libs), need to accept that poor, lazy, irresponsible people are human, too. And how they live will always be used by Dems as a pretext for bigger gov’t and higher taxes on the rich.

      Food, clothes, shelter-including some water, heat, electricity, & phone(?). Food stamps helps a lot on food. Pre-paid utility minimums should help on that aspect of shelter.

      A voluntary national service corps, accepting everybody but expecting all to ‘work’, is perhaps the most efficient way to push behavior change, but we’re not really close, yet. Pre-paid utilities seems quite feasible.

    3. Michael Kennedy Says:

      IMO if society expects poor/disabled people to be provided with free services then that means that the (local/state/federal) government needs to pay their bills.

      I’m sympathetic but, frankly, the utility will do this far more efficiently than a government agency would do it. Better to have the utility manage this and submit a bill for service to the legislature. Maybe a few letters to the Tribune, as well.

    4. Joseph Somsel Says:

      This has been an on-going issue in California for decades. Our private utilities have programs subsidized by other ratepayers to help people too indigent to pay for light and power.

      Yet, we have substantial welfare programs for the poor funded by the taxpayers. The utility’s programs are a way for the political establishment to give away more money but to use a hidden tax to do so via the ratepayers. They have found a way to buy votes without angering TAXpayers since the costs are buried in the costs to the RATEpayers.

      The “Smart Meter” roll-out does offer a couple of tangible benefits to the utility. They can reduce the need to have meter readers (cutting costs and dog bites.) and they can remotely connect and disconnect electric meters. The latter could prevent some gun shot wounds.

      The poor man in the article, however, just refuses to pay. He would rather reallocate his income stream to other purposes. I have little mercy in such a case. I believe there is a program to allow such people to continue to use power during the winter months and only do turnoffs during months when allowing a cutoff does not risk weather-related deaths from the cold.

    5. Carl from Chicago Says:

      I think that hooking up a person who has refused to pay for an entire season and frankly has no plan or intention to pay going forward “ups the ante” in terms of serving the poor for free, and thus burdening the rate payers with this charge.

      Agreed that remote meters and auto shut-off can make this fundamentally inefficient process more efficient, but it is a big investment and hassle just to shut off a customer that is unlikely to pay, anyways.

      Realistically at some point utilities when truly de-regulated will shed these poor service territories and someone will buy them on the cheap and deliver shoddy service. That is how everything else works in the poor neighborhood.

      No one realizes that we are dismantling the vertical utility and then not planning for what happens when the components are forced to stand on their own, so here goes:

      – no one invests in generation, because if you own existing generation (priceless) you are just competing against yourself, by and large
      – no one invests in transmission because you can’t recover the cost, and it is impossible to site, anyways
      – people have to invest in distribution because politics demands it, but at some point the rising price of power and burdens of items like renewable mandates and keeping people (like this guy) who don’t pay on the rolls will become an unsustainable load

      I will say that if we are going to generally pay for the power for the poor we have to invest more in conservation – their buildings are often completely non-insulated and totally inefficient, with heating that is way old. No landlord serving the poor is going to invest in anything if they can help it.

    6. Bram Says:

      I worked for Nevada Power in the 90’s. We started requiring a Social Security # (that we confirmed through Equifax) or a decent deposit before a new hook-up.

      We didn’t disconnect during the summer – so we wouldn’t get stories of Grandpa dead of heat stroke. On October 1st we would send waves of people out to cut all the dead-beats. No more power until they caught up with their bills and paid another deposit.

    7. Mrs. Davis Says:

      I expect more and more decentralized power generation as companies and then the affluent choose not to be part of a grid with constantly declining service quality. I have a back up generator for my home. More and more I wonder when it will become my primary energy source. There will be more and more pollution per kwh but no one will care.

    8. Carl from Chicago Says:

      Mrs. Davis – sadly enough I think the government WILL care about backup generation and will slap some sort of stupid surtax on your equipment through cap and trade or something like that… cities will notice when the air starts to fill up with smoke from local generation. It is like when people out west began heating their homes with wood in the 80’s and early 90’s and then the emissions went way up in some areas. Sadly enough one of my relatives chopped so much wood for his house in Montana (it is COLD there) that he had a heart attack and ultimately died.

      But absolutely the grid will become unreliable and people will leave, like almost all of the other public services.

    9. Joseph Somsel Says:

      So what will you fuel your home generator with? Most likely natural gas. You’ve then shifted the distribution problems from electric wires to gas pipes.

      In any case the heat rate (gas BTUs required to make a kW-hr of electricity) for those small generators is very high (needs lots of gas per unit output.) Easily twice that of a state-of-the-art combined cycle gas turbine burning the same natural gas.

      Try burning fuel oil in a home generator and here in California the air quality people will block you – if they find out. Plus your maintenance problems are far more extensive.

      There are reasons why the big generator/extensive transmission/local distribution business model won out back in the day. Edison was on the wrong side of that contest and Westinghouse had the winning technology.

      Nothing has really changed since then technically. Politically, the looters in government have found the electric business as a parasite finds a host.

    10. Mrs. Davis Says:

      Currently burn diesel, but it could be vegetable oil with modifications.

      I agree that technically centralization will deliver the lowest cost and least pollution. But politically and economically this is being stymied. So those who can will find ways to escape the third world quality system we are building.