Consumer Concerns for Older Americans

DEALING WITH UTILITY COMPANIES
REGARDING DISPUTED BILLS AND UTILITY DEPOSITS

Courts and state legislatures have long recognized that access to utility service is a basic necessity in modern society. The loss of essential utility service, for example water or heat, even for short periods of time may threaten the health and safety of the household. Utilities, either by state statute or through a long line of court cases, have a “duty to serve.” This means that utilities must provide service to any member of the public living within the utility’s service area, who has applied for service and is willing to pay for the service and comply with the utility’s rules and regulations. The utility’s duty to serve is not absolute, however. A utility may deny service for good cause (e.g., nonpayment).

This issue of Consumer Concerns for Older Americans examines some measures that advocates for the elderly can take to protect a client’s access to utility service when there is a billing dispute or if a deposit requirement is posing a barrier to access to service.

I. UNDERSTANDING WHO REGULATES A UTILITY

The first step in handling utility problems is to understand who regulates the various utilities in the community. There are essentially three types of utilities and consumers' rights may vary depending on the type utility providing service.

A. Private Utilities Regulated by Public Utility Commissions. Most utilities are private companies, owned by their shareholders. These utilities are regulated by a state agency, often called the Public Utility Commission (PUC) or the Public Service Commission (PSC). Do not be confused by the term "public" in the commission's title. The term refers to the fact that the utilities which the commission regulates, even though private, must offer service to the general public. Typical privately owned public utilities are the local telephone, gas, and electric companies. Some water companies are also privately owned and publicly regulated.

State public utility or public service commissions closely regulate every aspect of privately owned utilities and offer consumers significant protection. Individual customers can often obtain help with utility disputes directly from the staff of the state commission. There may even be an "800" toll free number to call for consumer assistance.

Most commissions issue formal regulations governing utility service to residential customers. Copies of the regulations can be obtained directly from the local public utility commission. Commissions also have informal rules and policies, particularly concerning termination of service. Counselors who are helping households with utility problems should become familiar with both the formal and the informal rules.

Most utilities offer a range of programs specifically for older consumers. Some also provide programs for low income consumers, for which some seniors may also qualify. Information about such programs, including reduced rates, weatherization, or prohibitions against disconnection of service during the winter months, can be obtained from the local public utility commission, as well as from the local utilities.

B. Unregulated Utilities: Municipal Utilities and Rural Electric Cooperatives (RECs).
Consumers served by municipal utility providers (municipals) or rural electric cooperatives (RECs) are not as "statutorily protected" as those served by investor-owned utility companies because municipals and RECs are generally excluded from regulation by state public utility commissions (PUCs). Other consumer laws may be useful in protecting utility customers. For example, the state PUC regulations may be useful as benchmarks for “reasonable commercial standards” under a Uniform Commercial Code’s analysis of “good faith” provisions for merchants or for setting the standard of fairness under the state’s unfair and deceptive acts and practices statute.

Municipal utilities are usually electric, gas, or water facilities owned by a city or town and are usually run by an elected board of commissioners. In most states, they are not regulated by the state public utility commission. The utility's own board of directors or staff sets out policies concerning utility terminations, deposits, and the like. Consumers should contact the municipal's board members or staff to get copies of these policies or to get help in interpreting or enforcing them.

Rural Electric Cooperatives (RECs) are membershipcontrolled utilities, established under federal and state law. RECs are usually not subject to state utility commission regulation, so that consumers instead will have to look for protection largely from the REC itself, which will have its own policies specifying members' rights.

II. ISSUES TO LOOK FOR WHEN A CLIENT HAS A UTILITY PROBLEM

A. Disputed Bills
Prohibition on Disconnections During a Billing Dispute: Generally, utilities are prohibited from disconnecting service if there is a legitimate billing dispute. The source of this limitation will depend on the state and whether the utility is regulated by a utility commission. For regulated utilities, advocates should look at state public utility laws and regulations and utility commission rules and decisions. For unregulated utilities, advocates should look to see if there is a body of cases prohibiting this practice. The underlying rationale for the disconnection prohibition is that the disputed portion of the bill is a matter separate from the current bill. Some courts have prohibited the disconnection of utility service where there is a billing dispute because disconnection is a heavy-handed collection tool that is being used to coerce payment. If the utility has wrongfully terminated a customer’s service, the utility may have to pay money damages to the customer.

What to Do If There is a Billing Problem: The first step should be to contact the utility to try and resolve the problem with the customer service representative. If the customer service agent cannot resolve the problem, speak to a supervisor at the company. Keep records of your calls (when the calls were made, who you spoke to and a summary of the conversation). If this involves a regulated utility, contact your state utility commission. Most commissions have a consumer division where you can file informal and formal complaints. If only a portion of the bill is disputed, the state public utility regulations may only protect your client if he or she continues to pay the undisputed portion. It is important to check the state public utility laws, regulations and Commission rules and the state utility commission’s consumer division should be able to help you find the appropriate protections. If this is an unregulated utility, it is important to check the utility’s policies. An advocate may also seek an injunction to prevent the utility from following through with a threat to cut off service or issue a writ of mandamus to compel the utility to restore service after a wrongful termination.

Consumer Protection Statutes: There are several important consumer protection statutes that may offer additional remedies:

Unfair and Deceptive Acts and Practices. Most states have a consumer protection statute. These statutes generally prohibit "unfair or deceptive" acts or practices, and they typically apply in the "sale of goods or services," or to "trade or commerce" practices. Generally, utility services will fall within the coverage of these statutes, which provide fairly flexible standards and effective remedies for challenging abusive practices.

Debt Collection Violations. While the federal Fair Debt Collection Practices Act does not directly apply because a utility collecting its own debts is not a "debt collector" under the federal statute, a state debt collection statute should generally be helpful to consumers. Utilities may violate these state laws by informing persons other than the customer of the existence of the debt, or terminating service in violation of regulations prohibiting termination.

B. Deposit Requirements
To get utility service provided to your client, the utility may require that a deposit payment be made first. The courts generally have recognized the right of a public utility to require a deposit or security from its customers as long as the deposit is reasonable and is not discriminatory. While utilities may have a qualified right to seek deposits, they also have a duty to require only a reasonable amount. There is no precise formula for determining what is a reasonable amount. However, the courts generally have found that a deposit totaling more than one or two monthly bills is excessive. Public utility commission regulations also typically limit the circumstances under which the utilities can demand deposits, as well as the amount of the deposits.

Alternatives to Deposits and Special Exceptions for Seniors: Some state public utility regulations provide alternative measures of creditworthiness in lieu of a security deposit. These include providing the utility with a guarantor who promises to pay the utility bill if the customer fails to pay, a good payment record with the utility, proof of home ownership or full-time employment for a set period of time. Some states also limit the ability of a utility to require a deposit in the case of certain low-income or elderly customers or at certain times of the year (e.g., the winter months).

Other Consumer Protection Statutes: One of the most important issues in the control of any public utility is whether the utility extends its rates and services in a nondiscriminatory fashion. The test for this requirement is whether customers in similar situations are treated alike. Aside from the basic requirement of nondiscrimination just mentioned above, one of the most important consumer protection statutes in enforcing this nondiscrimination requirement is the federal Equal Credit Opportunity Act (ECOA).

Credit reports that are based on payment of bills other than utility bills should not be used directly to deny utility service. Research has shown that consumers tend to pay their utility bills before paying nearly any other obligation (other than rent or mortgage). At least one statue utility commission has rejected the use of nonpayment of non-utility bills as the basis for deposit demands.

Additional Resources on Utilities, Generally, and on Bill Disputes and Deposits

National Consumer Law Center Utility Service, (2nd Edition and 2002 Supplement).

National Consumer Law Center, Guide to Surviving Debt, Chapter 16 Utility Terminations (2002).

Washington Low Income Telecommunications Project and the National Consumer Law Center, “Telephone Service: What you need to know – a guide to telephone services in the state of Washington (2002).

National Consumer Law Center, Fair Debt Collection, §1.5.6 state debt collection statutes and §4.4.2 Fair Debt Collection Practices Act. Some states exempt utilities from state debt collection statutes (4th ed. and 2002 Supp.).

National Consumer Law Center, Fair Credit Reporting §§13.3.2 and 13.7.4 implications of a blemished report on access to utility service (5th ed. 2002). See also Colton, The Use of Consumer Credit Reports in Assessing Residential Utility Customers' Creditworthiness, in 27 Clearinghouse Review 1342 (March, 1994).

National Consumer Law Center, Unfair and Deceptive Acts and Practices §§2.3.2, 2.3.3, 5.6.8 Unfair and Deceptive Acts and Practices application to utility service (5th ed. and 2002 Supp.).

This brochure was supported in part by a grant #90-AP-2640 from the Administration on Aging, Department of Health and Human Services, Washington, D.C.. Grantees undertaking projects under government sponsorship are encouraged to express freely their findings and conclusions. Points of views or opinions do not, therefore, necessarily represent official Administration on Aging policy.

June 2003