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Highlight Updates Customer service, low-income rates, and energy efficiency

Utilities are corporations. Like other corporations, they cut costs where they can. But restructuring creates new incentives for cost-cutting by introducing the reality or threat of competition and, in some states, by imposing “performance based regulation” schemes that allow companies to capture as profits any cost reductions achieved. Common cost-cutting targets include walk-in customer service offices—often utilized by seniors, immigrants, and others uncomfortable with automated telephone answering systems—and customer service representatives, who help low-income people craft payment arrangements.59 Companies also cut routine maintenance operations such as tree trimming, inspections of cables, and cleaning of substations.60

Most states have statutes and regulations that apply to billing and terminations by local distribution companies (LDCs). These protections do not necessarily apply to competitive suppliers. Some states have chosen to close this regulatory loophole by subjecting all participants in the marketplace, generation suppliers as well as utilities, to similar sets of rules.61

Restructuring has allowed the emergence of new players—competitive suppliers, energy marketers and brokers—in the utility marketplace and new business arrangements not previously encountered by regulators. This in turn makes new protections necessary in the following areas:

  • • The sharing of customer information without specific consent.62
  • • The application of undesignated partial payments when a shut-off or late charge is imminent.63
  • • Slamming (switching suppliers without customer consent).64
  • • Termination for nonpayment of another entity’s bill.
  • • Ancillary fees, for example, for meter reading or paper (versus e-mail) billing, among other things.
  • • Protection of discounted rates designed to make service affordable for low-income households. Many states have mandated that, through legislative or commission action, so-called “system benefits” remain after restructuring.65

Forcing a utility company to exit the generation business inevitably interferes with “integrated resource planning,” which is the process of considering all possible sources to meet customers’ needs for power.66 In fact, public utility or service commissions in restructured states sometimes force regulated companies to take an excessively short-term approach to procuring adequate supply, on the theory that LDCs can stifle competition if they are players in the long-term market.67

As a corollary to the decline in integrated resource planning, demand side management (DSM),68 which is fully funded through utility rates, may slightly increase rates in the short term in order to lower them over time.69

Low-income customers simply do not have any disposable income and are unlikely to take advantage of most DSM programs that require co-payments.70 While it may be desirable to have all participating customers contribute to the cost of energy efficiency equipment or devices installed in their homes, this is simply not possible for most low-income households. Investments in house insulation, weather-stripping, and efficient appliances should be provided to low-income households through “direct install” programs, such as those program funded by utilities that piggy-back on the federal Weatherization Assistance Program.71

The move to restructure electricity markets will increase the pressure on LDCs to administer programs that require participating customers to pay. But such programs will fail to serve low-income customers. DSM helps low-income customers reduce bills to manageable levels and thus makes it more likely that these customer will pay their bills on time. Investment in low-income energy efficiency can actually reduce utility bad debt and collection costs.72


  • 59 {59} See Stephanie Luce & Tom Juravich, University of Mass. Amherst Labor Relations Ctr., Stress in the Call Center, A Report on the Worklife of Call Center Representatives in the Utility Industry (Aug. 29, 2002).

  • 60 {60} See §, supra (discussion of the reliability impact of cutting back on repairs and maintenance).

  • 61 {61} E.g., Mass. Gen. Laws ch. 164, § 1F(7).

    The Massachusetts Department of Telecommunications and Energy passed regulations implementing various consumer protections included in the 1997 Restructuring Act. See 220 Mass. Code Regs. § 11.00 (“Rules Governing the Restructuring of the Electric Industry”).

    The Massachusetts attorney general, under the state’s Unfair and Deceptive Acts and Practices statute, Mass. Gen. Laws ch. 93A, also promulgated consumer protection rules at 940 Mass. Code Regs. § 19.00 (“Retail Marketing and Sale of Electricity”).

  • 62 {62} The privacy of customer information has become a hotly contested issue in the telephone industry, with companies wanting to share information with affiliates and third parties, while consumers and regulators are more interested in protecting privacy. See 47 U.S.C. § 222; 47 C.F.R. §§ 64.2003–64.2009 (rules regarding customer proprietary network information); Order Instituting Rulemaking on the Commission’s Own Motion to Establish Consumer Rights and Consumer Protection Rules Applicable to All Telecommunications Utilities, No. R.00-02-004 (Cal. Pub. Utils. Comm’n July 24, 2003) (draft decision of Commissioner Wood).

    As part of its stated effort to remove “market barriers” to competition in the electric market, the Massachusetts Department of Telecommunications and Energy (now divided into the Department of Public Utilities and the Department of Telecommunications and Cable) has allowed the sharing of customer information between LDCs and competitive suppliers. Mass. D.T.E. 01-54-B (July 29, 2002); Mass. D.T.E. 01-54-A (Oct. 15, 2001).

  • 63 {63} See Mass. D.T.E. 01-28 (Phase II) (Dec. 14, 2001) (issue addressed in notice of inquiry into the rules and procedures by which distribution companies shall provide billing services to customers and competitive suppliers in their service territories).

  • 64 {64} In the telephone industry, “slamming,” the unauthorized change of a telephone customer’s preferred carrier, has been a problem for consumers ever since it became possible for telephone customers to choose among competing providers. Order Instituting Rulemaking on the Commission’s Own Motion to Establish Consumer Rights and Consumer Protection Rules Applicable to All Telecommunications Utilities, No. R.00-02-004, at 101 (Cal. Pub. Utils. Comm’n July 24, 2003) (draft decision of Commissioner Wood).

    The Federal Communications Commission has adopted anti-slamming rules, 47 C.F.R. §§ 64.1100–64.1195, as have some states. There are no federal rules regulating the switching of an electric or gas customer from an LDC to a competitive supplier, but some states have adopted anti-slamming laws protecting these customers. See, e.g., Mass. Gen. Laws ch. 164, § 1F(8); 940 Mass. Code Regs., § 19.06(1)(d).

  • 65 {65} See, e.g., Mass. Gen. Laws ch. 164, § 1F(4) (protecting existing discount rates); Tex. Util. Code Ann. § 39.903 (West) (establishing system benefit fund).

  • 66 {66} Integrated resource planning (IRP) requires looking at all generation, transmission, and distribution investments that can help meet future supply needs and control demand. Under IRP, energy efficiency investments that reduce demand are as fully considered as the construction of new power plants that can increase supply. IRP weights the costs and benefits of all possible demand control and supply options. The Regulatory Assistance Project has produced a series of papers that discuss IRP and demand-side options. They can be found at

  • 67 {67} See Barbara Alexander, National Ctr. for Appropriate Tech., Managing Default Service to Provide Consumer Benefits in Restructured States: Avoiding Short-Term Price Volatility (June 2003) (discussion of how many LDCs are now procuring their supply).

  • 68 {68} DSM investments include weather-stripping, water heater blankets, low-flow water fixtures, replacement of old and inefficient refrigerators and air conditioners, compact fluorescent light bulbs, and industrial process improvements.

  • 69 {69} National Consumer Law Center, The Low-Income Customer As Non-Participant in DSM: What Is to Be Done? (1992).

    Due to changes in regulation and business cycle fluctuations, DSM costs can both rise and fall. Additionally, reported effects of DSM can lag behind reported DSM costs such that the two may not always show a direct correlation. See U.S. Energy Info. Admin, Electric Power Industry 2008: Year in Review, available at

  • 70 {70} See, e.g., Order, Tex. Util. Elec. Co., No. 11735 (Tex. Pub. Util. Comm’n, Dec. 20, 1993).

    The Energy Information Administration found that, from 1995 to 1996, the number of electric utilities that reported having DSM programs fell from 1053 to 1003 and that overall spending on DSM programs declined by 21%. Energy Info. Admin., U.S. Electric Utility Demand-Side Management 1996 (Dec. 1997).

  • 71 {71} See ch. 9, infra (discussion of both the federally funded weatherization program and utility-sponsored efforts).

  • 72 {72} See Direct Testimony and Exhibits of Nancy Brockway, on behalf of Low-Income Interveners, In Re Tex. Util. Elec. Co. (Revenue Requirement Phase), No. 11735 (Tex. Pub. Util. Comm’n Apr. 1993).