Weis memo addresses AE bad-debt questions

Austin Energy’s bad-debt problem is not the result of a policy “that penalizes customers who are a day late or a penny short,” according to a memo to City Council and Mayor Steve Adler from Austin Energy General Manager Larry Weis. Instead, the utility places the blame on lenient collection policies.

“After the city’s previous utility billing system conversion, customer debt steadily decreased year over year because of standard collection processes, including limited opportunities for long-term payment arrangements,” Weis wrote. “However, with the recent system conversion, even after disconnections of service for non-payment resumed, the total active customer debt continued to increase, going as high as $58 million.”

The utility currently loses about $21 million per year in bad debt, or about 2 percent of its revenue.

AE staff reviewed the information of approximately 2,000 customers who had broken their payment arrangement agreements within the past 90 days. They found that of those 2,000 customers, Austin Energy had reinstated 1,997 of the arrangements because the customers had made payments within three days of their expected payment dates.

Although Austin Energy has no direct information about their customers’ economic situations, officials say that only 30 percent of customers on payment-arrangement plans are enrolled in the Customer Assistance Program, which is designed to help low-income customers pay their electric bills. As of April, only about 10 percent of customer debt was owed by customers enrolled in the assistance program, Weis reports.

Weis wrote the memo in response to questions posed by Council members at their May 28 utility oversight committee meeting. Council members raised the questions after they heard a presentation addressing the fact that the utility accrued high levels of debt after the previous Council enacted a disconnection moratorium.

Weis noted in his memo that the utility’s bad debt has risen fourfold in recent years and is approximately three times the industry average. Bad debt may become a major concern to Council because those revenue losses increase AE’s revenue requirements, and could be a factor when Council has to look at customer rates during the next rate study.

CPS Energy, the electric utility for San Antonio, has about one-third the bad debt of Austin Energy, according to AE spokesman Robert Cullick.

AE and at least one consumer advocate place the blame for the increased bad-debt load on lenient payment policies.

That advocate, Paul Robbins, pointed out in an op-ed posted on the Austin American-Statesman website that certain advocates for low-income customers urged a more lenient repayment policy and are asking for still more time.

That would be the wrong thing to do, Robbins said. “If the city wants to help the poor effectively, it needs to stop throwing money at problems,” he wrote.

He pointed out that “(p)oor people that are current on their bills pay for the bad debt of people who are not.”

Cullick said, “In our estimation, it is the change in policy regarding payment arrangement,” not extraneous issues such as the economy, that has caused the increased bad debt.

Weis’ memo states that there are 18,014 people who owe the utility less than $1,000 each. Of those, 5,425 are in the Customer Assistance Program, but the vast majority are not. There are 356 customers who owe between $5,000 and $10,000 and an additional 49 customers who owe more than $10,000. A total of 27,013 customers are currently participating in the payment arrangement program.

It seems unlikely that many of them will ever be able to repay their debts. Cullick added, “We were kind of horrified that people were running up these debts that they’re never going to repay.”

What Austin Energy would like is not a directive to cut people off at any particular time but the flexibility to work with customers as seems appropriate, Cullick said.

According to Weis, “Without an ordinance change and the move towards establishing a payment arrangement policy in line with industry practices, Austin Energy does not expect to see a recovery in debt levels or decreases in individual account balances. Austin Energy remains committed to working through the options to provide a high level of customer assistance while ensuring financial stability for all city utility departments.”