Can We Stop Paying Utility Bills for a Bit?
A utility bill moratorium could put extra money into the pockets of business owners and households during the pandemic.
Utility services – like electricity, water and natural gas – are essential inputs into virtually all of our homes and businesses. In part for this reason, utility companies are carefully regulated. In most states, regulatory agencies control the prices companies such as Southern California Edison can charge, keep tabs on their operations and constrain their profits.
This careful regulation could be useful in the current pandemic-induced economic crisis. Here’s what I have in mind: regulators should enact a temporary utility bill moratorium. This could provide some much needed liquidity as we hunker down and try to ride out the coronavirus.
The Cash Crunch
While sheltering in place and social distancing are good for preventing the spread of the disease, they are wreaking havoc on the economy. Here’s an indicator that might speak to readers of this blog: A colleague of mine, Steve Cicala, at the University of Chicago, is using electricity data as a real-time measure of the economic slowdown. He produced a really interesting graph of Italian consumption that The Wall Street Journal published two weeks ago, and he sent me this picture for Southern California Edison, suggesting that weather-adjusted electricity consumption is down over 15% from normal levels:
This is a huge drop. Steve posted graphs for PG&E and other US utilities on Twitter last Friday.
A big fear is that the temporary cash crunch, faced by workers who are no longer taking home a paycheck and businesses that have no customers, will lead to longer-run changes if people are forced into foreclosure on their homes or businesses are forced into bankruptcy. If the large, but transitory, shock created by the pandemic leads to permanent changes, that can be bad for the economy.
Take my friend Stephanie’s toy store. Pre-pandemic, she had a great business with several stores in the East Bay. I suspect a lot of parents and kids hope that she’s still in busine
ss when we make our way out of the pandemic. But, her stores are shuttered now. If this goes on for too long, Stephanie may have to close some stores permanently.
Utility Bill Moratorium as a Quick Helping Hand
So, to help relieve the cash crunch on households and firms, why don’t we provide everyone with a temporary moratorium on paying their electricity, natural gas and water bills for the next 3-6 months? Specifically, state utility regulators and governing boards around the country could instruct their regulated utilities to offer 3-6 month bill reprieves (maybe longer if necessary). Spain and Italy have both taken similar steps in the last couple weeks.
This doesn’t mean that customers should get free electricity, natural gas and water. They will just be able to defer paying for these services while we focus on stemming the spread of the virus.
Certainly, the utility companies will still need to provide water, electricity and gas services. Yes, the utilities would be losing money in the short run and they would have to borrow to cover their expenses. The nice thing about utilities, though, is that regulators at places like the California Public Utility Commission set the prices that the companies are allowed to charge, so the regulators could guarantee that the utilities would be able to add non-payments during the pandemic to future bills.
Here’s how it could work. Most households and businesses will still be customers as we come back to normal, so their bills will be a little higher for, say, the 6-12 months starting in August 2020 to pay for the electricity they consumed during the worst of the pandemic. Any losses from the small number of households that move away between now and August (and can’t be tracked down) or from businesses that end up going bankrupt could be spread across everyone else’s utility bills.
The Federal stimulus package includes loans for small businesses but the loan is forgiven (i.e., becomes a grant to the small business) if it’s used to pay utility bills. This essentially means that Federal money will be used to pay the utility companies, which is a bad use of taxpayer dollars. Unlike the small business owners in the same boat as my friend Stephanie, the utilities are at no risk of going out of business for the very reason that they are regulated companies. If we impose a utility bill moratorium, that portion of the small business loans in the stimulus can be saved for better uses.
A Utility Bill Moratorium Is Well Targeted
From a macroeconomic perspective, a moratorium would have similar impacts to the $1,200 per person checks in the CARES Act. It would provide much needed liquidity. The nice thing about a utility bill moratorium is that it would get extra money in the pockets of business owners, too. For example, my next-door neighbor owns a couple bars and restaurants around Berkeley. With a bill moratorium program, not only will she be able to delay paying for her home electricity, she’ll delay paying for her bars and restaurants, as well.
Essentially, this is using the utilities as banks. The advantage is that the paperwork for getting their loans into the economy is extraordinarily light. And – my now-bankrupt local utility PG&E notwithstanding – they have pretty good credit, especially, I’d hope for a debt that their regulators are guaranteeing they can pay back.
Moreover, not every utility customer would have to take advantage of the bill moratorium program. My family is very lucky – we have two salaried workers who have been able to work from home so we aren’t facing a cash crunch. We have automatic bill payment and we wouldn’t need to turn that off for three months.
There are a couple of details to work through, which I’ll list here and hopefully commenters will expand on:
- Yes, some utilities and regulatory agencies have suspended disconnections. A bill moratorium goes a couple steps further, though, and helps resolve uncertainty about, for example, whether late payments will still accrue, whether you’ll be shut off the minute the disconnection suspension ends, and whether you’d then have to pay to get service turned back on.
- This could be set up as either opt-in (customers would have to somehow apply for it) or opt-out (everyone would participate by default except customers like my family that choose to continue to pay their bills).
- This would not need to apply to all rate classes.
- This might not be a great idea for the one bankrupt utility in the country – my own PG&E– since their costs to borrow money are pretty high.
- This won’t be as big a benefit in areas where there is retail competition, because it would only apply to the transmission and distribution component of the bill.
- It would be great if there were a way to coordinate across states. Could the National Association of Regulatory Utility Commissioners (NARUC) develop model regulations?
We don’t want to get into the habit of treating our utilities as banks, but in desperate times we need to be creative about finding ways to keep good businesses—and hardworking people—afloat.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas
Suggested citation: Wolfram, Catherine. “Can We Stop Paying Utility Bills for a Bit?” Energy Institute Blog, UC Berkeley, March 30, 2020, https://energyathaas.wordpress.com/2020/03/30/can-we-stop-paying-utility-bills-for-a-bit
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Catherine Wolfram View All
Catherine Wolfram is the William F. Pounds Professor of Energy Economics at the MIT Sloan School of Management. She previously served as the Cora Jane Flood Professor of Business Administration at the Haas School of Business at UC Berkeley. From March 2021 to October 2022, she served as the Deputy Assistant Secretary for Climate and Energy Economics at the U.S. Treasury, while on leave from UC Berkeley. Before leaving for government service, she was the Program Director of the National Bureau of Economic Research’s Environment and Energy Economics Program, Faculty Affiliate of the Energy Institute at Haas from 2000 to 2023, as well as Faculty Director of the Energy Institute from 2009 to 2018. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard. Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently working on several projects at the intersection of climate and trade. She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989.
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A moratorium on our real estate tax bill would be nice, but my county has spent every penny I am schedule to pay and they are going to be looking for a lot of cash in a few months as the sales tax revenue has already collapsed in the county.
PG&E is broke so I don’t think cutting their cash flow at this time is advisable.
PG&E is not as broke as you think. They are getting a $25B infusion before June 30 from the bankruptcy settlement. They can delay payouts to the insurance companies and victims’ fund.
As a retired CFO for SMUD, I had to guide the utility’s finances through both the 2001 energy crisis and the 2008 recession. While I support the concept of utilities helping to financially support customers (and community) impacted by this crisis, the idea suggested by this post is unworkable. Just like more testing for the virus would allow a more surgical approach to where lockdowns are necessary in the country, utilities can use customer information available to them to deliver financial relief to those customers who need it the most.
Utilities generally don’t carry much cash nor do they often have credit lines in place to support the amount of cash that would be needed to cover such a proposal. Three months of revenues for a PG&E sized utility would be about $4 billion. It’s not likely that any bank or group of banks is going to create a credit line and waive typical financial cash flow coverage requirements so that it could be drawn on and used in this manner. Rating Agencies would not look favorably on this plan even if there were guarantees of recovery from the CPUC. When it comes to financing, they consider what could go wrong with the plan and rate accordingly. Even SMUD, which has credit facilities in place, would already have experienced the inability to place commercial paper a couple of weeks ago when the markets were essentially frozen. I could easily imagine a scenario where a utility would have to “borrow” from suppliers by delaying payments. Even if none of this were to happen, the risk premium paid by a utility would be substantial and potentially long lasting.
Instead, utilities should provide relief surgically. Use existing low income programs to give bill relief to those who have lost their jobs. Small businesses that have to shut down are also the customers whose bills will be substantially lower. Even so, they could be provided extended payment options. I’m sure that the utilities could come up with focused support programs for customers most in need that would accomplish much of what the author intends without creating financial risk and extra cost for the majority of customers.
Thanks for the thoughtful and “out of the box” article, Catherine.
First, cool data! Just for kicks (business is slow!) I’ve been trying to do same; namely track the effect of Covid-19 on electricity consumption in the states of New York and California. I took a different path looking at NY-ISO demand data and Cal-ISO demand data. Unfortunately, the +10% reduction in consumption is not showing up in the data……….yet, but when we add in last week and this week, I think there will be some notable reductions in the CAL-ISO and NY-ISO data.
With respect to your proposition, I’m partially supportive—-especially if you start with the Low-Income programs that most of the IOU’s run. Additionally, one thing that no one has mentioned is the fact that Sempra and SCE pay dividends (SCE paid $800 MM in 2019). Given the billions of taxpayer dollars that just got dropped into Corporate America’s lap, I think it is fair to question whether utilities should continue to pay dividends during these Covid days (and yes I recognize that PG&E isn’t paying dividends). Those dollars could certainly be used to make up for a portion of “moratorium” shortfalls. SCE’s annual dividend payment is roughly one month of expenses (including depreciation).
The sharp-elbowed comments above make some valid points about CCA’s and third party natural gas providers. Add municipal utilities (e.g. SMUD, LADWP) to that list of tweeners……….but in these times I think your idea of a utility moratorium is well worth considering and I appreciate your putting it out there.
I’m mostly with Ron on this one.
“Here’s how it could work. Most households and businesses will still be customers as we come back to normal, so their bills will be a little higher for, say, the 6-12 months starting in August 2020 to pay for the electricity they consumed during the worst of the pandemic.”
If “normal” is running a business on a hand-to-mouth basis – all of one’s revenue is consumed by expenses each month – it’s not utilities, but businesses which have set cash aside to prepare for unforeseen emergencies (an economic downturn, a fire, an earthquake) which are forced to finance the irresponsibility of others. They’ve become the “banks”, handing out zero-interest loans. With terms like that, even a pawn shop can’t stay in business.
Of course liquidity benefits everyone, and as a society we should make low-interest loans available to those in dire straits – but 6-12 months of “free” utility bills? As a nation we’ve become far too comfortable with getting bailed out by someone else, who gets bailed out by someone else, etc., with bail-plus-interest ultimately tacked on to the federal debt. Literally at this moment, the U.S. Treasury is furiously printing money, as if one day it will magically translate to equity. If we allow this irresponsible borrowing to continue, Reckoning Day for the U.S. will make the CV pandemic look like a walk in the park.
Yep, just what Herbert Hoover said in 1932. Fortunately, FDR wasn’t listening…
Wrong. The Emergency Reconstruction Act, signed by Hoover, was adopted and expanded by FDR:
“Between 1932 and 1939, the RFC authorized $13.2 billion in loans to banks, agriculture, railroads, industry, public school authorities, state governments, federal agencies, and other entities. Among other things, these loans helped fund the construction of bridges, low-cost housing, sewer systems, highways, college buildings, and other public works. From 1940 to 1945, the RFC played an integral role in the financing of America’s national defense and war efforts.”
https://livingnewdeal.org/glossary/reconstruction-finance-corporation-1932-1957/
Loans – no handouts. Unlike the Investment Tax Credit George W. Bush and oil interests handed to solar developers in 2005, FDR believed in fiscal responsibility.
key phrase: “adopted and expanded by FDR” FDR used an existing device to leverage a much bigger investment that Hoover was unwilling to pursue. Hoover’s unwillingness to act is well documented in many history books.
“Hoover’s unwillingness to act is well documented in many history books.”
Through how many history books do you believe readers should have to search to support your argument for you? Links, please, with page numbers if necessary. That’s how science works, anyway.
If you did the same, and then accepted when I point out that your sources are wrong or misleading, or you’ve misinterpreted them, I might consider it.
One advantage of this approach to stimulus — since that is what it is — is that it funnels money through utilities that are not only price-regulated but whose books are subject to reasonably close scrutiny. Therefore there should be less capture of the money that flows through (by the “financial intermediaries” — deal brokers, traders, etc.). A valid criticism of the 2007-2008 stimuli was the amount of friction, which may have been the reason that the recovery for most people was so slow.
As the plight of EBCE and other third-party providers, don’t most of them have utility consolidated billing? I know that PG&E collects my EBCE charges! So the only real change would be the customer delays its utility payment; the utility still pays the supplier. Where does the utility get the money? Possibly, if they are a “bank”, from the Fed; or through a securitization with a dedicated rate component a la the former DWR contracts in California (utility consolidate billing again!), but that would take longer to set up and introduces intermediaries.
Jonathan, since the repeal of the Public Utilities Holding Company Act in 2005, the books of utilities are not subject to more scrutiny than those of any other corporation. And you may be surprised to learn that customers of EBCE get exactly the same electricity mix as everyone else in PG&E’s service area – they are middlemen, with nothing of value to offer.
If you mean the physical mix is the same, then everyone one in the Western US gets the same mix of electricity, whether they are in Wyoming or LA. However, contractually, which is what matters from an economic standpoint, your statement is false. It is the latter that we care about here, and what the state legislature, governor, CPUC and FERC care about.
“It is the latter [a ‘contractual’ standpoint] that we care about here…”
Not sure who the “we” to whom you’re referring might be, but I don’t care a whit whether you, the state legislature, governor, commissioners of the CPUC/CEC, CCAs, and the Western States Petroleum Association might profit from your “contractual” standpoint.
Environmentalists? We care about climate change here – reducing California’s emissions. That depends only on how its electricity is generated.
How we (everyone) pays for this electricity is just as important at the technology used to generate the power. Thus, cost responsibility for specific resources matter. Given that TURN and CalPA (and all other ratepayer groups) also look at contractual responsibility in this way, I’m curious who’s left that DOESN’T look at it this way?
I don’t think anyone looks at paying twice as much for electricity with inherently-limited carbon reductions as “cost responsibility,” nor environmental responsibility. Your tales of magic batteries that will one day power our electrical grid are not only irresponsible but dangerous, with so much at stake.
Jonathan
The Calif utilities only act as billing agent for the CCAs and the natgas suppliers on PG&E. As PGE’s bankruptcy highlighted, as the billing agent the utility must forward payments received to the third party energy supplier. But in this proposal, the utility would receive nothing from the customer and the utility is not required by statute or tariff to make the third party whole. The bonding requirements for third party suppliers are specifically designed to force those suppliers to have the requisite capital, black swan event or not. Which is how the chickens come home to roost on the CCAs door, as the new ones do not have the working capital (similar to a new restaurant paying rent) in the bank to persist too long.
I’m on ssi disability and suffer with PTSD, schizoaffective disorder and diagnosed with rare SSCD and need surgery. I can’t work. I live with others on disability. Our small town electric company has tacked on a $400 deposit fee after telling us 4 months earlier we’d not be charged with. Now we can’t pay our bills. There are lower class americans, then there’s those of us living at far below poverty levels with no way of getting around or finding actual help. Always pointed in other directions till we hit brick walls never finding help we need.
Interesting point. I thought that might be true which is why I included the reference to securitization or bonding with a dedicated rate component although it could add delays for regulatory approval.
Seems like a sensible idea that could definitely help during this crisis. I suppose it is worth adding the phrase “in the absence of a more comprehensive federal response”. Surely this kind of stopgap measure only really makes sense in the wholly suboptimal world where the government hasn’t more fully backstopped US workers’ employment and wages. See Saez and Zucman’s piece in the NYtimes today for instance.
Unintended consequences are clearly lost on the author. Moral hazard is ignored as well. Data is misunderstood and exaggerated. These kind of one size fits all “solutions” only serve to set a standard for expectations for the next crisis, and are intellectually corrupt. Here’s the facts:
Energy load in California is down 10-15%, because some of the load from businesses has slightly moved to homes. Hospitals and apartments have increased usage, dine in restaurants are off 90% but they are only 6% of California energy usage. Hotels still use 70% of their baseload even if they only have 10% occupancy. Food manufacturers are runnning at full capacity (essential) as are other manufacturers (i.e. ventilators at Bloom and Tesla (UCB’s buddy)). Most businesses are not severely impacted. Fast food chains are still operating, in fact McDonalds has only closed 50 restaurants in the entire country.
Energy bills are for last month’s usage, not next month’s, unlike rent or mortgages. Energy bills are not secured by assets, as are car and mortgage payments, so the counterparty has no viable recourse. The energy was used while the business or individual was making money, so they do owe for the past. If they are truly shutdown or out of work, next month’s bill will be far smaller.
You casually gloss over third party energy providers, but you are not aware that fully 40% of PG&E’s C&I customers are served their natgas that way as are 65% of their electricity supplies. So casually say “bill moratorium” has a huge ripple through your local providers, especially East Bay Community Energy, and they do not have the cash reserves to weather a 2-month moratorium, much less a six month one. Of course, you will then advocate to subsidize them as if they were a utility regulated by the CPUC, which they are not. And again, you will forget the free market energy providers who would want to eat from the same trough. Moral hazards all around.
I can be critical of the $2.2T bailout too, especially when coupled with another $4T in QE4-8 from the fed and argue that individuals should be getting 80% of the money and healthcare the rest. Point is to give to those with need and not indiscriminately as your article suggests. You have a teaching responsibility to do better than this. I ask you edit your suggestion and change the headline before you seed a reaction that cannot be undone.
This is the key: “Essentially, this is using the utilities as banks. The advantage is that the paperwork for getting their loans into the economy is extraordinarily light.” You underestimate the ability for many households, particularly low income, to gain sufficient credit. Small businesses have the same problem. Narrowing the focus effectively could be easy–allow only CARE/FERA eligible households to participate. Allow only businesses on small commercial accounts with certain SIC/NAICS codes (the utilities have most businesses classified.)
I havent been able to make a payment since March 9th. And rite now in May my phone bill is $ 2,009.35. I don’t understand why and I can’t reach anyone.
Sabrina carr
Morning Sabrina
Know your frustration Sabrina. Our local office is closed due to Covid-19 risk(s). I was able to log onto PG&E’s My energy web page this morning so that part of the system is working. You can use PG&E online communication link on their web site to ask questions about your account.
PG&E’s phone line help desks have been mostly moved to at home support it seems. I was able to get through to a service rep last week after about a 20 minute wait using this phone number- 1-800-743-5000. Hope one of the ways I got through to PG&E recently works for you.