On May 30, 2020, Governor Cooper issued Executive Order 142 (EO 142). Among other things, EO 142 amends EO 124 to extend its effective period by 60 days. Recall that EO 124 modifies certain local government utility collection practices and imposes new reporting requirements to measure the financial impact of COVID-19 on utility systems. As discussed in previous posts, the requirements apply to all utility providers of end-user residential water, wastewater, electric, and/or natural gas services. This post explains the new termination dates and a few other clarifying changes.
Section 2 of EO 142 extends the provisions of EO 124 that apply to utilities and makes a few minor modifications.
New Termination Date(s)
EO 124 was scheduled to terminate 60 days after it was enacted on March 31, 2020. The termination date for most of EO 124’s requirements is now extended to 11:59pm on July 29, 2020. Termination of the portion of EO 124 mandating that a local government offer certain customers payment plans terminates six months after July 29 (or six months after the EO is terminated, if it is extended again).
That means that a local government utility will not be able to terminate services for late payments (or existing delinquent balances) on residential water, wastewater, natural gas, and electric accounts until July 29, 2020 (or a later date if the EO is extended again). And, a utility will not be able to apply any late penalties on amounts that went delinquent on these accounts between March 29 and May 30 or that go delinquent between May 30 and July 29. Further, a utility must continue to report certain data to the State’s Utilities Commission on a monthly basis through July 29. Finally, a local utility must afford a residential customer who incurs a delinquency from March 29 through July 29 an option to participate in a reasonable payment plan, that allows repayment over a six-month period, starting after July 29 (or a later date if the EO is extended again).
EO 124/142 Requirements
The following is a summary of the provisions of EO 124, as modified by EO 142.
Suspends Disconnections. As of March 31, 2020, a local government utility must suspend disconnecting residential accounts for nonpayment. That suspension must continue through July 29, 2020 (or a later date if the EO is extended again). The prohibition against disconnections applies if there was a delinquent account balance as of March 31, 2020, and if any delinquencies are incurred from March 31 through July 29 (or later if the EO is extended again). The prohibition only applies to disconnections for nonpayment. A local government utility may continue to disconnect services for other reasons. Once the EO is terminated, a local government utility may resume disconnections according to its normal policies, with one exception. According to the terms of the EO, a local government will not be able to terminate service to residential customers who incurred a delinquency from March 31 through July 29 (or a later date if the EO is extended again), and who are otherwise complying with the terms of a payment plan.
Suspends Late Penalties. A local government utility may not impose a late penalty for a “late or otherwise untimely payment” for the regularly occurring user fee charges on a residential account that come due from March 31, 2020 through July 29, 2020 (or later if the EO is extended again). A local government may continue to impose late penalties on amounts that became delinquent before March 31. And a local government also may continue to impose its normal administrative charges for all types of services, including residential services, such as account fees, convenience fees, third-party credit card fees, bounced check fees, etc.
Mandates Payment Plans. A local government utility is required to afford its residential customers who incur a delinquency from March 31, 2020 through July 29, 2020, the option to participate in a payment plan that extends for at least six (6) months after July 29 (or at least 6 months from a later termination date if the EO is extended again). Six months is the minimum repayment period. As the order indicates, a local utility is free to afford its residential customers (or some definable subset of residential customers) a longer repayment period. (Note that EO 142 suggests that a local government utility could negotiate unique repayment terms with each individual customer. However, because local government utilities generally must treat all customers in a customer class the same, a local government should avoid doing this, absent extenuating circumstances.)
A payment plan divides the balance due into multiple installment payments instead of mandating payment in a lump sum. A local government is free to require a residential customer to opt into a payment plan and to sign a contract agreeing to its terms. The local utility also may set the reasonable terms of the plan, including minimum monthly payment amounts and requirements that a customer pay all new bills in full. The plan should specify the consequences for nonpayment of new bills or payment plan payments, including the possibility of disconnection, late penalties, and acceleration of all payment plan amounts due. A local utility may not disconnect or charge a late penalty on payment plan amounts, though, if the customer is honoring the terms of the payment plan.
Requires Customer Notifications. EO 142 requires a local government utility to notify its customers of the extension of the disconnection and late penalty suspensions through July 29, 2020. According to the EO, a utility should use the same communication method(s) that it “most typically use[s] to communicate urgent messages to customers, such as print, email, SMS text message, Internet, and phone calls.” A utility must maintain reasonable records of the notifications.
Most local government utilities had already developed payment plans anticipating the expiration of EO 124 at the end of this weekend. Many have already communicated these plans with their customers. Unfortunately, as with many things related to COVID-19, the situation is fluid and subject to frequent change. A utility is free to encourage customers to start paying under those payment plans. However, the utility will not be able to disconnect for nonpayment of payment plan amounts, or impose late fees or other penalties, until after July 29 (or a later date if the EO is extended again).
Imposes Reporting Requirement. EO 124 requires a local government to report certain data related to the financial impact of COVID-19 on the utility to the North Carolina Utilities Commission. EO 142 modifies the frequency of this reporting obligation from weekly to monthly. This simply “codifies” a change that the Attorney General had already made. The form for the next monthly report will be available here in early June.
Protecting the Utility’s Financial Sustainability
Extending the provisions of EO 124 for another 60 days will have a negative financial impact on many utilities. Local governments may need to modify their rate schedules for next year, adjust expenditure plans, appropriate fund balance, transfer monies from the general fund, or take other steps to address potential revenue shortfalls.
If your local utility has not already done so, your board may want to consider whether implementing an incentive program could help compel payment by customers who are financially able to pay but choosing not to because of the utility’s current collection constraints. Examples of incentive programs include refunding the deposit if a customer makes X number of on-time full payments; eliminating convenience charges on electronic payments; discounting a future bill for signing up for auto-draft payments; and even applying a credit to a future bill for paying off a balance early under a payment plan. These are just a few ways the programs could be structured. In considering an incentive program, a local government must weigh the costs (both the costs of loss revenue due to the incentive and costs of administering the program) against the potential financial benefits of improving collection rates. And, legally, a local utility must find a way of defining customer classes for purposes of implementing the incentive program so as to treat similarly-situated customers equally.
EO 124 allows the Attorney General to waive, in his discretion, any of the provisions in the EO and order an effective alternative. If a local government utility believes that it cannot comply with the requirements of the EO, it might be able to apply to the AG’s office for a waiver. The AG’s office has directed local governments to contact Peggy Force, firstname.lastname@example.org, and (Ms.) Terry Townsend, email@example.com with any questions or concerns about EO 124 / EO 142 or requests for waivers.
Also, and importantly, if a local government utility is facing, or anticipates facing, cash flow issues or other significant financial issues due to these requirements or other aspects of dealing with the COVID-19 fallout, it should immediately contact the staff at the Department of State Treasurer.