Governor’s EO 124 Prohibits Local Government Utility Disconnections and Late Fees and Mandates New Reporting Requirements

Published for Coates' Canons on April 02, 2020.

On March 31, 2020, Governor Cooper issued Executive Order 124 which, among other things, prohibits all end-user providers of residential water, wastewater, electric, and natural gas utility services from disconnecting these services and from charging late fee penalties. It also mandates certain payment plan parameters and imposes a new weekly reporting requirement. This blog analyzes the details of the Executive Order (EO).

As discussed below, there is some ambiguity about certain provisions of the EO. I will update the post as we get additional implementation guidance from the State Attorney General’s office or the North Carolina Utilities Commission. The School of Government also will be hosting a zoom call today (April 2, 2020), from 1-2:30pm to address additional questions.

Here is a quick summary of EO 124. Below is more detailed analysis of each provision.

  • The EO likely applies to all county, municipal and special purpose local government water, wastewater, electric, and natural gas utilities (collectively, local government utilities).
  • As of March 31, 2020, and at least for the next 60 days, a local government utility is prohibited from disconnecting residential utility services for nonpayment of the monthly (or bi-monthly) user fees.
  • A local government utility may not bill or collect any fee, charge, penalty, or interest for a late or otherwise untimely payment on a residential account that becomes due on or after March 31, 2020 for at least 60 days.
  • A local government must set up one or more reasonable payment plan options for its residential customers.
  • A local government utility must reasonably inform its customers of the new prohibitions.
  • A local government must report certain information on a weekly basis to the North Carolina Utilities Commission

TO WHAT GOVERNMENT UTILITIES DOES EO 124 APPLY?

There are many different local government utility providers in North Carolina. The two largest groups of providers are counties and municipalities (cities, towns, villages). But there several other special purpose local government utility providers, including water and sewer authorities, sanitary districts, county water and sewer districts, metropolitan water districts, metropolitan sewerage districts, metropolitan water and sewerage districts, joint agencies, as well as a few utility providers established by local act of the General Assembly. (I’ll refer to these utilities collectively as special purpose government utilities.)

It is clear that the EO applies to county- and municipal-owned and operated water, wastewater, electric, and natural gas utilities that provide end-user residential services. The EO states that it applies to all utility service providers that are “owned or operated by a political subdivision of the State,” and the North Carolina Emergency Management Act, which gives the Governor the authority to issue the EO, defines “political subdivision” as “counties and incorporated cities, towns, and villages.” G.S. 166A-19.3(12).

What about the special purpose government utilities? There may be some question whether the EO, by its terms, extends to special purpose government utilities. As I read the various provisions of the EO, however, it seems clear that the intent is to apply the requirements to all end-user residential water, wastewater, electric, and natural gas utility service providers in the state, including special purpose government utilities. (See, for example, various “whereas clauses” in the EO, including “Whereas the [Governor] has determined that it is in the best interest of the people of North Carolina to enact, for all utilities, prohibitions and restrictions similar to and consistent with the Utilities Commissions’ March 19, 2020 order.” Emphasis added. Refer also to the definition of “Utility Service Provider” in the EO, which includes all “organizations” that “provide directly to end-user residential customers electric natural gas, water, or wastewater services….”)

Because I believe that there is a good argument that the Governor has the authority to impose the various requirements on all local government utility providers, and it appears to be the Governor’s intent that the EO apply to all local government utility providers that provide end-user residential services, I will assume for the remainder of this post that all of the EO’s provisions apply to counties, municipalities, and all special purpose local government utilities. (I don’t want to add to the confusion by going into all of the potential arguments here. If you have questions or concerns about the EO’s applicability to your utility operations my best advice is to consult with your unit’s attorney.)

WHAT ARE THE SPECIFIC REQUIREMENTS OF EO 124?

The following details the specific requirements and/or limitations imposed by the EO.

Suspends Disconnections for Nonpayment on Residential Utility Accounts. The EO mandates that end-user local government utility providers stop disconnecting water, wastewater, electric, and natural gas services to residential customers for nonpayment as of March 31, 2020, unless it is “necessary as a matter of safety” or unless disconnection is “requested by the customer.” There are a few important details in this directive.

First, the EO only prohibits a local government utility from disconnecting utility services for nonpayment. A local government, pursuant to its adopted policies, may continue to disconnect service for other reasons, such as meter tampering, or because the connection is causing problems for the system, or because a temporary disconnection is necessary to add new connections to the system. Of course, a utility’s governing board is free to specify that it will not terminate utility services for any reason (except in an emergency), but the EO only mandates suspension of disconnections for nonpayment on residential service accounts. Many, if not most, local government utilities had already taken action, prior to the issuance of EO 124, to suspend residential disconnections during the pandemic.

Second, the prohibition on disconnections only applies to residential utility service. A local government utility is free to continue to disconnect service, according to its normal policies, to commercial and/or industrial customers, unless the unit’s governing board decides to suspend disconnections for these types of services, too. Note, however, that if service is being provided to a residence, the prohibition against disconnection applies even if a business is being conducted out of that residence. (Many business operations are now being done at home.)

Third, the EO only prohibits a local government utility from disconnecting utility services for nonpayment of “ordinary monthly (or other periodically-issued) charges for services to residential customer locations in North Carolina.” I interpret this provision to mean that the prohibition on disconnection applies for nonpayment of both the fixed and variable components of the monthly or bi-monthly user fees charged for residential utility services. It also applies to any capital or debt service charges that a unit adds to its residential customers’ regular bill. The prohibition on disconnections, however, does not apply to nonpayment of other fees that may be charged by the utility, such as hook-up/connection fees, special assessments, system development fees, or contractual charges.

Fourth, the prohibition against disconnection for nonpayment on a residential services account applies to a delinquency that was outstanding as of March 31, 2020, as well as a delinquency that occurs after the March 31 date, and until the EO expires, is extended, or is rescinded. (Without further action, EO 124 expires 60 days from its effective date of March 31, 2020.)

Fifth, the EO does not require a local government utility to re-establish service to residential (or other) customers whose services where disconnected before March 31, 2020, although it encourages utilities to do so. However, it does suspend any local policies or ordinances that prevent reconnection. Reading these two provisions together, it appears as though if a local government utility specifies in its ordinance what is required to get services reconnected (such as full payment of the bill plus all applicable fees and penalties or such as requiring a deposit or prepayment), those provisions are suspended. The utility’s governing board may then make the decision whether to authorize reconnections (without demanding any payment or requiring the customer to go through the normal process) or not.

Sixth, the EO does not mandate that a local government establish new residential or other service. A local government utility is free to continue to add new customer accounts to the extent that it is able to do so. And a local government is free to follow its normal policies for creating a new account, including requiring deposits, proof of lawful residence, and proof of identity, and assessing a new account fee. (Of course, some of the unit’s normal procedures may have to be modified to account for remote work and social distancing best practices.)

Finally, a local government utility’s governing board may continue to specify, by ordinance, how partial payments will be applied among multiple utility services that are included on the same bill so as to apply lastly to water services. The utility may not disconnect the residential water services for nonpayment, though.

Prohibits Charging Certain Fees and Penalties. A local government utility may not bill or collect any fee, charge, penalty, or interest for a late or otherwise untimely payment on a residential account that becomes due on or after March 31, 2020. Again, there are some nuances to this directive.

The prohibition only applies to fees, charges, penalties or interest (collectively penalties) assessed on residential accounts for failure to pay the full amount owed on time. It does not prohibit the local government from assessing its normal rates and charges for utility services, including its user fees and any administrative charges. The EO also does not prohibit a local governing board from amending its fee schedule to either increase or decrease its normal rates and charges during the pandemic.

As with the other provisions of the EO, the prohibition on assessing penalties for nonpayment only applies to residential customer accounts. A local government utility may continue to assess any applicable penalties on its non-residential customer accounts (such as commercial or industrial customer accounts), according to the utility’s normal policies. Note, however, that if an individual is using his/her residence to conduct business, that does not convert a residential account to a commercial account.

But, the prohibition applies to all penalties assessed on residential accounts for nonpayment. Some units have a tiered system, whereby a penalty is applied if the bill is not paid in full by the due date and then a second penalty is assessed when service is disconnected or if the amount remains unpaid for some specified period of time. As of March 31, 2020, a local government may not assess any of these penalties on residential accounts that become delinquent for at least 60 days (from March 31, 2020) or until the EO is rescinded. A local government may not apply the penalty and simply defer collection. It is prohibited from applying the penalty to the delinquent residential account at all.

The prohibition does not apply to penalties or other charges assessed on residential accounts for reasons other than nonpayment. For example, a local government utility may continue to charge a fee for a bounced check. State law allows a local government to assess an administrative charge of up to $35 for checks returned for insufficient funds (NSFs). See G.S. 25-3-506. This is not a fee imposed for late payment, but a fee imposed to cover the administrative costs of handling the bounced check. (If the customer’s payment is late because of the bounced check, though, a local government utility may not assess a late penalty.) Similarly, a local government utility is free to continue to assess a convenience fee if a customer pays his/her bill by phone or online. And, if a local government utility contracts with a third-party to process its payments, that third party may continue to assess an administrative charge to the customer. (Many local governments are waiving these fees or paying them to the third party on behalf of the customer to encourage electronic payments during the pandemic.)

The EO does not extinguish or waive any account balances, including pre-existing penalties, although in the short-term it may contribute to reduced collections. Once the effective period of the EO expires, a local government utility will be able to resume its normal collection practices.

Mandates Payment Plans. A local government utility must provide its customers an opportunity to set up reasonable payment plans to pay any delinquencies on residential accounts. This mandate should help local government utilities keep their residential customers on track as much as possible so as to avoid even more significant revenue shortfalls to the unit.

The EO purports to go further and mandate that local government allow a specified period of time for customers to pay off their delinquencies. It is not entirely clear how to interpret the directive, though. It states

Customers shall be provided the opportunity to make reasonable payment arrangements to pay off over at least a six (6) month period arrearages accumulated during the effective period of the Executive Order and any order extending this Executive Order and 180 days thereafter. The six (6) month payoff period shall be calculated from the date of termination of this Section of this Executive Order or, if other applicable Executive Orders extend the protections of this Section, from the date of the termination of the last Order that extends such protections…..”

One interpretation of these provisions is that a local government must allow a residential customer at least six months to pay off a delinquent account balance while the EO is in effect and at least six months to pay off a delinquent balance once the EO (and any extension) is terminated. Another interpretation is that the obligation to allow six months to pay off a delinquency accumulated after March 31, 2020, is triggered while the EO is in effect and at least 180 days after the EO is terminated, which could extend the repayment period for 12 months. Both these interpretations, however, assume that the Governor has authority to mandate a local government take these measures once the EO is terminated (either by its terms or because the emergency declaration is terminated). It is not clear that the Governor has this authority. Arguably, once the EO is terminated, and certainly once the emergency declaration is terminated, the provisions in the EO that purport to extend beyond the termination date will no longer be effective. These interpretation issues will need to be worked out eventually and may require further guidance from the Governor’s office. For now, however, assume that the local government utility has an obligation to provide one or more reasonable payment plan options while the EO is in place.

The EO likely does not require a local government utility to set up individualized payment plan parameters for each residential customer. A reasonable interpretation of the EO suggests that the utility can establish one or possibly a few payment plan options that apply to all residential customers.

Mandates Customer Notifications. A local government utility must “reasonably inform their customers” of the provisions in the EO through the means that the utility providers typically use to communicate urgent messages to customers. That communication might be by email, text message, internet posting, phone calls, or other method normally used by the utility. But it should be the same communication method that you would use in an emergency. That likely means it is not sufficient to simply wait until the next billing cycle to print the information on the bill, unless this is the local government utility’s only option.

What, specifically, do local government utilities need to inform customers about? It appears that the notification to customers should include the following:

  • A statement that residential account disconnections for nonpayment are suspended, likely for at least 60 days.
  • A statement that the local government utility will not impose new penalties for late payments or collect on penalties that were imposed on residential accounts as of March 31, 2020, for at least 60 days.
  • Information about the local government utility’s payment plan options.
  • A statement about whether, and under what circumstances, a local government utility will reconnect utility services that were disconnected prior to March 31, 2020.

The unit may also want to provide more information to the customer about what steps it is taking during the pandemic, what fees and other operational rules remain in place, and what will happen once the emergency is over. It may be particularly helpful to inform customers early and often about payment expectations and collection methods that the local government will use once the EO is no longer in effect.

Imposes New Reporting Requirements. The EO imposes new reporting requirements on local government utilities for at least the next 60 days. Specifically, local government utilities must report weekly to the North Carolina Utilities Commission (NCUC) on the following information:

  • Number of accounts by type for which the utility suspended disconnection
  • Number of reconnections by type of account
  • Amount of late fees and other penalties not collected
  • Number of accounts on an extended repayment plan
  • Customer notification information
  • Other information specified by the NCUC

The NCUC must, in turn, submit a weekly report to the Governor’s Office.

The NCUC has distributed its proposed plan for implementing the weekly reporting requirement. According to the guidance, the NCUC will provide a web form that utilities can access from the NCUC website (www.ncuc.net). Utilities will complete the form online by the end of the day each Wednesday, beginning April 8. That proposed guidance is here and the proposed form is here. Note that these are just the proposals from the NCUC as of April 1, 2020. I will update the post to reflect any final guidance from the NCUC. Their plan is to have the web form available by Tuesday, April 7.

HOW WILL EO 124 BE ENFORCED?

According to the terms of EO 124, its provisions will be enforced against local government utilities (who are not regulated by the NCUC) by the State’s Attorney General (AG). The AG is authorized to enforce the provisions of the EO “through any methods provided by current law.” As of this writing, it’s not clear what these enforcement mechanisms are. I will update the post when we get further guidance from the AG’s office about enforcement.

WHAT IF A LOCAL GOVERNMENT UTILITY CANNOT COMPLY WITH ALL OF THE REQUIREMENTS OF THE EO OR BELIEVES THAT DOING SO WOULD PUT IT IN FINANCIAL PERIL?

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, pforce@ncdoj.gov, and (Ms.) Terry Townsend, ttownsend@ncdoj.gov with any questions about EO 124 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.

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Topics - Local and State Government