- The Washington Times - Monday, April 27, 2009

Faced with a deepening recession and rising utility rates, a growing number of Americans can’t pay their energy bills, leading experts to project economic troubles for utility companies.

Although countrywide numbers for the current heating season haven’t yet been released, a number of national organizations, utilities and state agencies have seen even more delinquent payments this year than last — when one-fifth of utility customers had late payments, according to a study by the National Association of Regulatory Utility Commissioners, a nonprofit that represents state public service commissions.

“We’ve definitely seen more customers with overdue bills and people having trouble paying their bills,” said Ed Legge, spokesman for the Edison Electric Institute, a national association of shareholder-owned electric companies.

In some states, the number of people unable to pay has risen to such high levels that public authorities have had to take action.

More than 120,000 Maryland utility customers are behind in their payments, putting them in danger of having their power shut off. Like many other states, Maryland has a “cold-weather rule” that forbids utility companies from cutting customers off during winter months. However, that protection usually ends April 1.

This year, though, the state’s Public Service Commission has extended the deadline while it investigates the burgeoning number of late payments.

“The number of calls that our complaint division has received prompted us to look into the issue,” said LaWanda Edwards, commission spokeswoman. “It’s not uncommon for us to get phone calls on late bills, but it just seemed an unusually high number of calls.”

Other state agencies across the country have seen a rise in people seeking help with their utility bills, including offices for the Low Income Home Energy Assistance Program, a federal program administered at the state level to help poor people pay for their power.

In Iowa, for example, 85,000 households signed up for LIHEAP between Oct. 1 and the end of February — a 10 percent increase over the same time period last year. In the same state, utility costumers owed a total of $34.7 million in past-due payments as of January, an increase of 16.5 percent from 2008.

The LIHEAP program in the District also has seen an increase in applicants this past heating season. From October to March, 24,156 people signed up for the program — 5 percent more than the number of applicants during the same period last year.

Consumers are having a harder time paying for power for a number of reasons, experts say, including higher bills.

Electricity rates have gone up during the past several years, following a relatively stable period in the 1990s. From 2000 to 2008, though, average prices rose from 6.8 cents per kilowatt-hour to 9.8, according to the U.S. Energy Information Administration.

Residential natural-gas prices have also risen steadily, the EIA reports, from $8.56 per thousand cubic feet in December 2000 to $12.64 at the end of 2008.

State laws may be partly to blame in some cases.

A number of states “restructured” utilities in the late 1990s — particularly in the Northeast and Southwest and along the West Coast — shifting from a highly regulated market to one where power providers could compete for customers. This has had mixed results, and a number of states have reversed and re-regulated, said Howard Stone, lead industry analyst at the EIA.

“Rates have gone up, but I can’t say how much of it is attributable to deregulation,” Mr. Stone said.

While it’s not clear whether deregulation itself caused price increases nationwide, the way the laws were passed in some states at least created the appearance of a sudden spike in utility rates.

Some states that restructured their utility markets implemented a rate freeze for a certain time period to help consumers and their power providers transition into the new system. However, in a few places, like Maryland, the rate cap was below the current cost of power on the market. While this led to cheap prices in the state for several years, when the cap ended in 2006, reality came crashing down on consumers, said Rob Thormeyer, spokesman for the National Association of Regulatory Utility Commissioners.

“In 2006, rate prices were going to go up about 70 percent,” he said.

The legislature and utilities figured out an agreement to phase the price increases in, but rates still went up significantly after the cap expired.

“In Maryland, rates went up, and people had rate shock,” Mr. Thormeyer said.

But that was several years ago.

“I think we’ve gone through the worst of [rate shocks],” said Mr. Legge of EEI.

The current rising number of late payments has much more to do with consumer incomes, he said: “I think that what we’re seeing now is consumers feeling the pinch of the recession.”

Some LIHEAP state directors agree.

“I’ve had a lot of calls from people who are signing up for the first time, and the vast majority say, ‘I’ve recently been laid off,’” said Jerry McKim, Iowa’s LIHEAP bureau chief.

LIHEAP applicants can prove eligibility for the program if they had an income below a certain level during the previous tax year, over the last 12 months or for the previous 90 days.

“We’ve seen a lot of people applying using the [90-day] requirement,” Mr. McKim said. “I think that’s an indication of the recession.”

Utility customers aren’t the only ones hurting, though. The companies that provide their power are also taking a beating, and a recent report by Standard & Poor’s predicts hard times ahead for the industry.

“First and foremost, there’s a potential for reduced sales,” said Jeffrey Panger, author of the report, “Will the Recession Pull the Plug on U.S. Public Power Companies and Electricity Co-ops?”

Utilities are more recession-proof than most industries because they sell an essential commodity. As a result, even if consumers start cutting back on eating out and vacations, they’re still going to keep the lights on and the heater running. But that doesn’t mean they won’t try and conserve wherever possible, and the less consumers use, the less money utilities make.

That’s precisely what’s happening for many companies right now, including the Orlando Utilities Commission.

“Revenue is down because consumers are using less,” said Sheridan Becht, spokesman for the Florida-based power provider.

To try to meet its budget, OUC has implemented a hiring freeze and delayed some projects, including upgrades to turbine generators at a coal-fired power plant.

Other companies have also pushed projects to the back burner because the credit market has tanked, said Scott Hempling, executive director of the National Regulatory Research Institute, a utilities research group.

“A lot of utilities are having a hard time raising enough money at reasonable rates to do these projects,” he said.

This creates a conundrum for companies, customers and regulators because the more projects get delayed, the more utility bills will go up in the future when companies have to play catch-up in upgrading their infrastructure, said Mr. Hempling. Those projects could start sooner if power rates were increased to compensate for the decrease in demand.

“But if costs are increased, people can’t buy other goods with that money, and that could further hurt the economy,” he said.

There may be help for utilities and their customers on the horizon, though: The recently passed economic-stimulus bill includes billions of dollars for renewable energy, efficiency, weatherization of homes and upgrades to the national electricity grid, among other things.

“I think you’re going to see the [weatherization program] affect a lot of customers, not just low-income,” EEI’s Mr. Legge said.

A new grid with smart technologies, such as meters that tell consumers exactly when and how they’re using power, will also help people conserve and save electricity, thus lowering their bills, he said.

“That will give customers a lot more control,” he added.

Utilities may also benefit from the stimulus, particularly if they receive money to build infrastructure and develop new energy sources.

However, other regulations forming in Congress right now have some utilities and consumers worried. The Obama administration and leading congressional Democrats have stated intentions to enact legislation that would place a price on carbon dioxide through a cap-and-trade program, creating economic incentives to decrease emissions.

“The point of cap-and-trade is to raise energy prices,” said Bryan Mignone, a fellow at the Brookings Institution, a research and policy organization. “The conventional wisdom is that the effective price will be passed on to consumers.”

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