Residential Utility Customer Payment Plans Under Executive Order 124 During COVID-19 Pandemic

Published for Coates' Canons on April 07, 2020.

As detailed in a previous post, on March 31, 2020, Governor Cooper issued Executive Order 124 (EO 124), which, among other things, mandates that end-user providers of residential water, wastewater, electric, and natural gas services suspend disconnections on residential accounts for nonpayment, and suspend applying late fee penalties for amounts that come due on or after March 31, 2020. The order applies through June 1, 2020, but may be extended if necessary. The order also requires local government utilities to set up reasonable payment plan options for their residential customers. The following offers additional analysis of the payment plan requirement and provides some suggested payment plan provisions. I am grateful to all of you who shared your current and proposed payment plans and for all of your great questions and insights about the requirements of the EO. I will continue to update this post as more information becomes available.

Suspending Disconnections and Late Penalties

Before turning to the payment plan provisions, here is a brief summary of the mandated suspensions of disconnections and late penalties on residential accounts.

Suspending Disconnections. As of March 31, 2020, a local government utility must suspend disconnecting residential accounts for nonpayment. The prohibition against disconnections applies if there was a delinquent account balance as of March 31, 2020, and if any delinquencies are incurred between March 31, 2020 and when the EO is terminated (currently scheduled for June 1, 2020). 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 between March 31, 2020 and June 1, 2020, and who are otherwise complying with the terms of a payment plan. (More on this exception below.)

Suspending Late Penalties. A local government 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 between March 31, 2020 and June 1, 2020. A local government may continue to impose late penalties on amounts that became delinquent before March 31, 2020. 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.).

Mandatory Payment Plans

A local government must offer its residential customers one or more reasonable payment plan options to pay any regularly occurring user charges that come due between March 31, 2020 and June 1, 2020. By the terms of the EO, the payment plan must allow a residential customer at least six months from the termination of the EO to pay off any delinquent amounts accumulated during this 60-day period (or longer if the EO is extended).

(As I stated in my previous post, it is not clear that the Governor has legal authority to extend the provisions of the EO beyond its termination, and/or beyond the termination of the emergency declaration. As of this writing, we do not know how long the emergency declaration will last and whether or not EO 124 will be extended. Thus, there is uncertainty as to how long a local government utility ultimately will have to allow a customer to repay. For purposes of this post, I am assuming that the Governor has authority to mandate a 6-month repayment period after the termination of the EO. I am also assuming (for now) that the EO will expire in 60 days. Please consult your local attorney if you have questions about the extent of the Governor’s authority related to EO 124.)

Purpose of a Payment Plan. A payment plan allows a customer to pay off the balance owed on an account over an extended period of time while continuing to receive service. There is a clear benefit to the local utility of providing a payment plan option. Because you can no longer disconnect service or assess a late penalty, residential customers do not have the normal incentives to stay on track with payments. The payment plan provides a mechanism for customers to continue paying at least some of what they owe to avoid accumulating as high of a total outstanding balance. It is good for the local utility to continue to get some revenue coming in the door. And it is good for the customer, who otherwise may face a significant account balance once the crisis is over (and may then face disconnection and substantial penalties).

Does a residential customer have to participate in a payment plan? No. There is nothing in EO 124 or state law that mandates that a customer participate in a payment plan. And, even if a residential customer signs up for a payment plan, a local government utility may not impose late penalties or disconnect service if the customer does not honor the payment plan terms, at least until June 1, 2020. As stated above, however, there are clear benefits to both the utility and the customer of having a payment plan. Because of that, a local government may want to devise ways to incentivize a customer to participate in a payment plan (more below).

Under the terms of the payment plan, how long does a local government utility have to give a residential customer to pay off his/her account balance? The answer depends on when the delinquencies on the account occurred.

If there was a delinquency on the account before March 31, 2020, the local government does not have to set up a payment plan (although it may and probably should). If the amount owed as of March 31, 2020, is still outstanding when the EO terminates (currently June 1, 2020), the local government utility will be free to disconnect services and/or apply late penalties according to the it’s normal policies.

If a delinquency occurs between March 31, 2020 and the termination of the EO, again currently set for June 1, 2020, then the local government must allow the residential customer at least 6 months from the expiration of the EO to pay any delinquency incurred during these 60 days. That means that if a residential customer fails to pay all or a portion of his/her bill between March 31, 2020 and June 1, 2020, the local government utility will have to allow the customer until at least December 1, 2020, to pay off that balance. The 6-month repayment period only applies to delinquencies incurred while the EO is in effect, which means that it only applies to missed payments for due dates that occur during the 60-day period (unless the EO is extended).

What if a residential customer makes no payments during the crisis and effective period of the EO? It is possible, perhaps likely, that a number of a utility’s residential customers will stop making payments altogether during the effective period of the EO (currently March 31, 2020 through June 1, 2020) because they will not incur a late penalty or be disconnected. A utility should do its best to prepare financially for the loss of cash flow. Once the EO terminates (again, currently June 1, 2020), a local government must allow its residential customers until December 1, 2020, to pay off the delinquencies incurred during this 60-day period. However, after the EO terminates, if a customer fails to make a payment according to the payment plan terms, the local government utility will be able to disconnect service and/or apply a late penalty. Thus, after the EO terminates a customer must abide by the minimum payment plan terms to be afforded the full six-month grace period.

Once the EO expires, may the local government disconnect service and/or impose late penalties, if a customer fails to participate in a payment plan or make the minimum payments under a payment plan? Yes. Note, again, that if the delinquency occurred before March 31, 2020, once the EO terminates, a local government utility is free to return to its normal policies and practices regarding disconnections and late penalties. The local government could disconnect and/or impose a late penalty if the amount of the delinquency that occurred before March 31, 2020, is not paid in full by the termination of the EO, currently set for June 1, 2020. Alternatively, the utility’s governing board could allow for some payment period beyond the EO’s termination in its discretion.

If the delinquency occurs between March 31, 2020 and June 1, 2020, the local government will not automatically be able to disconnect service and/or apply a late penalty to any remaining amounts owed after the termination of the EO, currently set for June 1, 2020. That is because the local government utility must provide at least six months for the residential customer to pay any arrearages that accumulate while the EO is in effect. Once the EO is terminated, however, the prohibition against disconnections and late penalties expires. A local government could specify that upon termination of the EO, it will resume disconnections and late penalties if minimum amounts are not paid according to the terms of the payment plan.

May a local government utility wait until after the EO terminates to adopt the payment plan terms? Yes. A local government is not allowed to disconnect residential service for nonpayment between March 31, 2020, and June 1, 2020, and is not allowed to impose late penalties for new delinquencies that occur during this period. It may be to the local government’s advantage to set a residential customer up on a payment plan as soon as he/she goes delinquent to continue to receive some revenue and to avoid having the customer accumulate as substantial an account balance. Having said that, if it is administratively easier and financially feasible, a local government utility could wait until the termination of the EO to offer the payment plan(s). In that case, the utility could calculate the exact amount owed and divide by 6 to calculate the monthly payment plan amount that the customer must pay during the six-month grace period.

Once the EO expires, may a local government utility disconnect service and/or impose late penalties for residential account delinquencies that occur after the expiration date of the EO? Yes. Once the EO is terminated, the local government utility is free to resume its normal policies for disconnecting service and applying late penalties to any accounts that incur delinquencies after the termination date of the EO (currently after June 1, 2020).

What if a customer refuses to sign up for a payment plan and/or refuses to honor the payment plan terms? A local government utility must make a payment plan option available to its residential customers who incur a delinquency between March 31, 2020 and June 1, 2020, but nothing requires a residential customer to make a payment under the plan. Even if a customer makes no payment on the account, the utility may not disconnect service or apply a late penalty to the account because of nonpayment for the duration of the EO.

However, once the EO expires, if a customer chooses not to participate in a payment plan or chooses not to honor the (reasonable) terms of a payment plan, the local government utility will be able to resume its normal disconnection and late penalty policies. In other words, the local government utility only has to provide the six-month grace period after the termination of the EO if a customer is abiding by the terms of the payment plan.

May a local government utility submit delinquent accounts to a collection agency or to the state’s debt set-off program while EO 124 is in effect? Yes and Maybe. A local government is free to proceed with its normal collection remedies (except disconnection) for any delinquency incurred before March 31, 2020. A local government may submit the amounts owed to a collection agency or to the State’s set-off debt collection program, among other things.

If, however, a delinquency occurs between March 31, 2020 and June 1, 2020, the answer is less clear. By the terms of the order a utility “shall not bill or collect any fee, charge, penalty, or interest for a late or otherwise untimely payment that becomes due from the date of this Executive Order [March 31, 2020].” A plain language interpretation of this provision suggests that the prohibition against collection for amounts that come due during the effective period of the EO only applies to late penalties. However, a local government is not authorized to charge any late penalties during this time, so there would be nothing to collect anyways. By including the word “collect” the Governor may have intended to halt all collection efforts of amounts that go delinquent from March 31, 2020 through June 1, 2020. In the absence of additional guidance from the Governor or Attorney General, a local government utility should consult its own attorney before proceeding with collection efforts on any amounts that come due during the effective period of the EO.

How much may a local government reasonably ask a residential customer to pay per month (or per payment period)? In offering a payment plan to its residential customers, a local government must impose reasonable terms. There is a lot of discretion to determine the exact nature of those terms, though. Here are some ways that a local government might calculate the minimum monthly payment. Note that this is not an exhaustive list.

  • Mandate that a specific % (such as 10% or 20%) of the delinquent amount must be paid each month. This method has the advantage that if the customer incurs more delinquencies during the EO period, the minimum amount owed will adjust automatically.
  • Calculate the average amount owed during a two-month billing cycle and divide by 6 to set the minimum payment. If a customer fails to pay his/her bill at all during the effective period of the EO, this could approximate pay-off of the full amount owed within the six-month period after termination of the EO.
  • Set a fixed amount as the minimum payment, such as $10 or $25. The amount could vary based on the average two-month billing amount per customer and could vary depending on whether or not the customer has an outstanding balance as of March 31, 2020.
  • Allow the customer to select a minimum amount. This provides the most flexibility to a customer to help manage his/her finances during the crisis, but it places some risk on the customer and government that there still will be a substantial amount owed at the end of the grace period.
  • Wait until the end of the EO to offer the payment plan and then calculate 1/6th of the total amount owed as the monthly payment amount.

Note that during the six-month repayment period (after the EO terminates), a customer must also pay any current charges during each billing cycle.

How can you get customers to sign-on to a payment plan and honor its terms? As discussed above, the normal incentives that a local government utility has to compel payment or to compel compliance with a payment plan are temporarily suspended. For the 60-day period between March 31, 2020 and June 1, 2020, residential customers do not have to make any payments and they will still receive utility service without incurring late penalties.

A local government may consider offering an incentive program to spur its residential customers to sign-on to a payment plan. Here are some possible incentive programs. Note that this is not an exhaustive list and you should always consult your local attorney about the legality of your particular incentive program. Also, your board will need to amend your utility ordinance to authorize any incentive program.

  • Grace period. Inform customers that if they sign on to a payment plan and abide by its terms, they will be given the additional 6-month grace period once the crisis is over and the EO is terminated. If a customer does not agree to a payment plan or abide by its terms, the utility will commence disconnections and late penalties as soon as the EO is terminated. In other words, the grace period does not apply if a customer does not make the minimum payments under the payment plan once the EO is terminated.
  • Discount or Credit. Provide a small discount or credit on future service if the customer pays off amounts owed under payment plan before the end of the six-month grace period, or if the customer otherwise meets payment benchmarks. If you offer this type of incentive, you may also want to offer a slightly higher financial incentive to residential customers who continue to make all payments on time during and after the EO. This may help dissuade customers from not making payments simply because they can even if they do not face financial hardship.

Does a residential customer have to sign a payment plan contract? No, but it may be a good idea to try to get a customer to sign a payment plan contract. A payment plan contract allows a utility to clearly specify the payment plan terms. And signing the contract may cause a customer to more carefully honor those terms. Thus, having a customer sign the contract may compel better compliance. A utility has to balance this with the administrative burden of managing the actual contracts, though. Even if it does not require a customer to sign a payment plan contract, at a minimum, a local government utility’s governing board should amend its ordinance to incorporate the payment plan criteria and terms. That ordinance should already be incorporated by reference in the service contract that the utility has with the customer.

Do you have to offer payment plans to non-residential (eg commercial, industrial) customers? No. A local government may suspend disconnections and late penalties and/or may offer payment plans to non-residential customer classes, but it is not legally required to do so by EO 124. These decisions are in the discretion of the local government utility’s governing board. In order to take any of these actions, the governing board must amend the utility’s current fee and policy ordinance(s).

What terms should be included in a payment plan? At a minimum, a local government utility should address the following in its payment plan terms.

  • Who qualifies for a payment plan option?
  • What is the minimum monthly (or bi-monthly) payment and/or how will it be calculated?
  • What are the payment due dates?
  • How must payment may be made (check, electronic payment, etc.)?
  • What happens if the minimum payment is not made both now and after the termination of the EO?
  • Who should the customer contact with questions or concerns about meeting the minimum payment requirements?
  • Statement that payment plan does not waive or extinguish account balance and that account holder remains liable to pay any amounts currently owed and that will accrue on the account during the next 2 months.
  • What happens when the crisis is over and the EO terminates?
  • Details about any incentive programs to compel compliance with payment plan.

Sample Payment Plan

The following is a sample payment plan outline that encompasses the terms discussed above. Each utility will have to tailor its payment plan(s) to its own unique circumstances and should have the plan(s) reviewed by its own attorney.

Sample Payment Plan for Water and/or Wastewater Services Subject to Executive Order 124 (issued by Governor Cooper in response to COVID-19 pandemic on March 31, 2020)

Governor Cooper’s Executive Order 124 (EO 124) requires providers of end-user, residential water, wastewater, electric, and natural gas service to, among other things, suspend disconnections of residential service for nonpayment through June 1, 2020, and suspend assessment of all penalties for late payments of monthly [bi-monthly] service charges incurred from March 31, 2020 through June 1, 2020. [The monthly service charges are EXPLAIN WHERE CUSTOMER CAN FIND MONTHLY SERVICE CHARGES OR PROVIDE VISUAL EXAMPLE OF SAMPLE BILL.]

Please note that EO 124 does not extinguish or waive your account balances. If you had an unpaid account balance as of March 31, 2020, you will need to continue to pay toward that account balance. And [UTILITY NAME HERE] will continue to bill our normal charges for services provided after March 31, 2020. You remain legally responsible to pay all amounts due on your account.

EO 124 is currently effective until June 1, 2020. Unless the EO is extended by the Governor, we will resume our normal disconnection and late fee policies after that date. You will, however, have until December 1, 2020, to pay any delinquencies that you incur from March 31, 2020 through June 1, 2020.

Recognizing the financial hardship many of you now face, and in compliance with EO 124, we are offering the following payment plan to our residential customers who are unable to pay their current account balance in full and/or who will be unable to pay their account balances between now and June 1, 2020. To the extent you are able, we encourage you to continue to pay the full amount owed on your account to avoid accumulating large account balances.

[OPTIONAL] To participate in the plan, please sign below and return this form to [DESCRIBE HOW CUSTOMER SHOULD GET SIGNED FORM TO UTILITY. INDICATE WHETHER OR NOT ELECTRONIC SIGNATURES WILL BE ACCEPTABLE]. If you have any difficulties completing the form, please contact [LIST CONTACT        PERSON(S) HERE].

Payment Plan Terms

To participate in the payment plan, the undersigned agrees to pay a minimum of [______] per month [OR WHATEVER YOUR NORMAL PAYMENT CYCLE IS] toward your residential [WATER, WASTEWATER, ELECTRIC, NATURAL GAS] account balance.

Payments may be made by [LIST ALL THE WAYS THAT A CUSTOMER MAY MAKE PAYMENTS].

If you are unable to meet the minimum payment requirement, please contact [LIST CONTACT PERSON(S) HERE].

The undersigned acknowledges that the payment plan does not extinguish or waive the account balance. The undersigned remains legally responsible to pay the account balance in full. Upon termination of EO 124 or June 1, 2020, whichever occurs later, [UTILTY NAME HERE] will resume its normal practices of applying late penalties to any new charges not paid on time on or after that date. It will also resume its normal policies of disconnecting services if charges incurred after June 1, 2020 are not paid on time or if the minimum payment plan amounts under the terms of this agreement are not paid on time.

You will have until December 1, 2020, to pay any delinquencies incurred between March 31, 2020 and June 1, 2020. Between now and June 1, 2020, you will not incur any late penalties or be disconnected for nonpayment, even if you do not honor the terms of this payment plan. However, upon termination of EO 124 or June 1, 2020, whichever is later, your services may be disconnected if you fail to make the minimum payment amounts due under this payment plan and/or if you fail to pay the full amounts owed for services billed after June 1, 2020.

If the undersigned signs this agreement and abides by the terms of the payment plan, [UTILITY NAME HERE] agrees to [PROVIDE SOME SORT OF INCENTIVE HERE SUCH AS CREDIT TOWARDS FUTURE BILL OR ALLOWANCE OF ADDITIONAL TIME TO PAY OFF BILL].

I hereby acknowledge and agree to the terms of this payment plan.

___________________________________              ____________________________________

Account Holder’s Signature                        Date

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Topics - Local and State Government