Should it stay or should it go? Little consensus on utility disconnection ban
June 8, 2020

If state regulators were hoping to get clarity from utilities and the public on whether to extend Virginia’s moratorium on service disconnections due to non-payment of bills, they may be sorely disappointed.

Keep the moratorium mandatory? Allow utilities flexibility to impose measures as needed? Get rid of the ban entirely?

Little consensus has emerged from the welter of recommendations put forward by investor-owned utilities, 58 legislators, environmental and consumer protection groups, state electric cooperatives and the Attorney General’s Office as of the June 5 deadline for input set by the State Corporation Commission.

Since March 12, utilities throughout Virginia have not been disconnecting water, electric, sewer or gas service when customers fail to pay their bills in an effort to keep these vital services stable even as the spread of COVID-19 has led to record unemployment levels.

While many utilities voluntarily instituted moratoria on disconnections in the wake of Gov. Ralph Northam’s declaration of emergency, the SCC on March 16 made the ban mandatory. Commissioners later extended their order to remain in force until June 15.

But at the end of May, almost three weeks before the moratorium was set to expire, regulators declared the situation “is not sustainable on an unlimited basis in the absence of programs to ensure that the growing costs of unpaid bills are not unfairly shifted to other customers.”

What to do was a question the SCC put before the public, soliciting input on not only whether the moratorium should be extended or made voluntarily but also what “programs and mechanisms, public or private” should be used “to ensure that the costs of unpaid utility bills are defrayed and will not result in even higher costs on other utility customers.”

Like most policy decisions related to COVID-19, responses have been divided, even among utilities structured along the same lines.

The State Corporation Commission regulates Virginia electric utilities. (Ned Oliver/ Virginia Mercury)

The voluntary path

In one camp, encompassing most of the state’s utilities that filed responses, are advocates of a more voluntary approach to disconnections that would give utilities more leeway to craft individual solutions.

Among this group is Dominion Energy, the state’s largest electric utility, which is arguing for the SCC to continue its moratorium on a voluntary basis for four more months, contending that “the proper course of action may not be a ‘one-size-fits-all’ approach,” even as it pledges to keep its own ban in place until Oct. 14.

“The company also supports an extension of the moratorium on a mandatory basis, but recognizes … that a suspension of disconnections can have a disparate impact on utilities based on a number of relevant factors,” the utility wrote in a June 1 filing.

Other utilities were less willing to embrace an extension of the moratorium. Washington Gas Light and Aqua Virginia argued for an end to the ban but expressed openness to the idea of regulators revamping it as a voluntary measure.

“Every utility has the best knowledge of all aspects of its own business operations, including its customer profiles, financial situation and cash flow, as well as billing system capabilities, and is therefore best positioned to voluntarily implement appropriate measures to reduce service disconnections and extend payment options,” wrote Washington Gas Light, which also pointed out the difficulty it could face if the three jurisdictions it serves — Virginia, Maryland and Washington, D.C. — adopt different policies.

Also backing the voluntary path, at least for themselves, are Virginia’s 13 electric cooperatives, a group that has elicited special concern from state regulators because of their greater vulnerability to financial turmoil.

“The Cooperatives simply cannot continue down the current, unsustainable path,” the Virginia, Maryland and Delaware Association of Electric Cooperatives, which is representing the state’s co-ops in the case, wrote in a June 5 filing. Their solution? Replace the mandatory moratorium with voluntary measures for cooperatives, with a “statewide floor of member-consumer protections” instituted as a safeguard.

For at least some of these co-ops, accounts with past due balances have risen sharply over the course of the pandemic. One large co-op has seen 90-day past due accounts rise 216 percent compared to last year. At a small co-op the increase has been a staggering 7,600 percent.

Number of accounts in “past due” status at selected electric cooperatives in Virginia as of May 31/June 1, 2020 compared to a baseline of May 2019. (Virginia, Maryland & Delaware Association of Electric Cooperatives, SCC filing)

But while investor-owned utilities like Dominion Energy and Appalachian Power have tools like shareholders and greater access to capital that they can bring to bear as the number of unpaid bills rises, cooperatives, as entities owned wholly by their members, face a different situation.

“As member-owned utilities, there are no separate shareholders which could be called upon to bear losses associated with uncollectible debt; all remaining Cooperative ratepayers are and will be affected by these losses,” wrote the association.

(Ned Oliver/ Virginia Mercury)

The mandatory path

Just as vigorous in their arguments are another faction, counting among its members Attorney General Mark Herring’s office and a range of environmental and consumer protection groups, that opposes any lifting of the mandatory moratorium on the grounds that the pandemic and its attendant economic fallout are still ongoing.

“The Centers for Disease Control reports that Virginia has experienced more than 7,500 confirmed cases in the past seven days (ending June 3rd), which is the fifth highest among all states and represents one-sixth of all cases since the crisis began,” wrote Appalachian Voices in a letter to the SCC. “Further, more than 400,000 residents remained unemployed during the week of May 23rd.”

The Attorney General’s office also pointed to the continued state of emergency as proof of the need for the ban to remain in place.

“The existing moratorium should be extended to a point in the future after Virginia’s economy has had an opportunity to resume, allowing impacted citizens an opportunity to regain some financial footing,” wrote Assistant Attorney General Mitch Burton.

Groups varied in how long the moratorium should stay in force. Appalachian Voices threw its support behind Dominion’s four-month extension while also noting that North Carolina has extended its disconnection moratorium through July 29. A group of 11 environmental and consumer groups including the Southern Environmental Law Center and Clean Virginia advocated for the ban to last through “at least the end of the summer cooling season.” A bipartisan collection of 58 state senators and delegates suggested Aug. 31. The Attorney General’s Office provided no specific date.

Finally, in a curious in-between position, Kentucky Utilities, whose Old Dominion Power unit serves about 30,000 Virginians in five southwestern coalfield counties, made no recommendation about when the moratorium should be lifted but emphasized that it should not be made voluntary.

“Voluntary measures,” the company contended, “could lead to different treatment of similarly situated customers.”

Alternative courses

Further complicating the debate is the contention by a number of groups that the SCC’s concern that unpaid bills from the pandemic will result in cost-shifting to other customers may be misplaced.

“There are not enough facts currently in the record to know with any degree of certainty the revenue impact that may (if at all) be associated with the COVID-19 emergency and unpaid utility bills,” said Burton of the Attorney General’s Office. “Without having evidence in the record as to a reasonable estimate of COVID-19’s impact on utility revenues, it is impossible to say what would or could constitute sufficient funding to defray any such revenue reductions.”

The lack of hard data was also raised by other participants — most notably, the bipartisan group of 58 state senators and delegates who are asking the moratorium to remain in place until Aug. 31, with the expectation that the General Assembly will address the coronavirus crisis in a special session.

“Consideration of potential legislative options is hindered, however, by insufficient data on the extent of the problem,” the legislators wrote before asking the SCC to require all utilities to provide a slate of data, including current arrearage balances and historic averages, utility revenue and earnings history and debt service reserves.

Furthermore, many of these groups contended, lifting the moratorium is not the only way to defray ratepayer costs.

Under state law, no rate increase can occur unless approved by the SCC during a formal rate review, pointed out the 11-member environmental group represented by the Southern Environmental Law Center.

“The potential cost shift to ‘paying customers’ will only come – if it comes at all – in a future general rate case. There, the Commission will evaluate the totality of evidence to determine whether a rate increase is justified, and that evidence will include far more than the revenues lost during the moratorium,” the group argued.

Three alternative paths were put forward by the Attorney General’s Office. One, the application by smaller utilities for federal relief funds, has already been adopted by four of Virginia’s electric cooperatives.

Citing among other factors the need to mitigate the moratorium’s financial impact, these co-ops have been awarded loans through the Paycheck Protection Program established by the federal CARES Act, with BARC Electric Cooperative netting about $1.1 million, Northern Neck Electric Cooperative $1.2 million, Central Virginia Electric Cooperative $2.5 million and Shenandoah Valley Electric Cooperative just shy of $4 million.

Larger utilities, wrote Burton, could seek emergency rate reductions for “customers of any utility for which there is evidence of excessive revenues” — the latter an apparent allusion to Dominion Energy, which the SCC has repeatedly reported is overearning by hundreds of millions of dollars — or “it is possible that utility management could simply share the financial burden with shareholders, as other businesses impacted by the pandemic have had to do.”

While the SCC has not set a date for its decision, the current moratorium is set to expire June 15.