Putting the Negotiation in Negotiated Payment Plans National Community Action Foundation (NCAF) Roger D. Colton Fisher, Sheehan & Colton Public Finance and General Economics November 2004

Issues to consider n 1-strike you’re out provisions. n “New” vs. renegotiated vs. cured payment plans. n “Late fees” on payment plans. n Force majeur for consumers. n Forcing a utility to exercise its discretion. n Forcing a utility document its consideration of required factors. n Bargaining for time up-front. n The role of non-level payment plan payments. n Bargaining for “free” or “reduced” months. n Bargaining for an absolute payment plan cap. n The role of multiple payment plans.

One-strike you’re out provisions. n Most regs require consideration of ability-to-pay. n Ability-to-pay is more than level of income; includes “fragility” of income. n Low-income disproportionately hourly wage workers. –No paid leave –No flex time –“Involuntary part-time employment” n Put in income assumptions. n Put in renegotiation clause. n Even if refused, of legal significance. –No “agreement”--duress –Adhesion contract.

The need for “cure” provisions n Many regs provide that a utility is not required to offer a new payment plan. n Be sure to distinguish between: –New payment plan –Renegotiated payment plan –Cure of payment plan default.

Applying force majeur provisions n Force majeur allows a change in contract for external circumstances yielding substantially changed conditions. n Payment plans require payment toward arrears plus current bill. Level of current bill is assumed. n Changes in assumed current bill due to weather or price volatility should yield force majeur. n At the least, doctrine of mistake.

Refuse late payments on DPAs n Late payments are to pay cost of collection. n Late payment fees serve as incentive to pay. n Neither function served by late payment fee on payment plan. n In addition, capital costs of payment plans embedded in base rates.

Force a utility to exercise discretion. n Most regs do not establish a set time for payment plans. –“Up to 12 months” –“At least” 12 months. n It is necessary to distinguish between: –Utility practices –Utility tariffs –PUC regulations. n A refusal to exercise discretion is legally “arbitrary and capricious.”

Force a utility to consider all relevant factors. n Most regs require a consideration of set of specific factors in setting payment plan. –Time arrears outstanding. –Reason for arrears. –Ability to pay. n Basic rule of law: a failure to consider all relevant factors makes a decision “arbitrary and capricious.” n Document factors and payment plan demands based on that/those factors.

Negotiate time up-front n Often a time-sensitive reason for nonpayment. n The need is not simply to spread payments out, but to get beyond the period of need. n Mortgage workouts are precedent. n Exchange higher downpayment for delayed payment. –E.g., use EITC to make initial payment for delay in additional payments for 3 months. –Pay EITC in Month 1--next payment Month 4.

Negotiate for non-level billing plan n Most regs do not require levelized payment plan payments. n Most regs require a consideration of ability-to- pay in setting payment plan payment. n Consider household income. n Consider household expenses, including other energy expenses. n Lower summer/winter payment plan payments.

Negotiate for “free” or “reduced” months n Most regs do not require equal payment plan payments. n Most regs require a consideration of ability to pay in setting payment plan amounts. n Consider fixed non-recurring expenses in setting payment plan payments. n School and Christmas obvious. Document other non-recurring expenses: winter clothes, car/home insurance/school activities/property taxes.

Negotiate absolute cap on payments n Most regs require a consideration of ability to pay in setting payment plan amounts. n Setting an absolute cap on the payment plan payment is reasonable. n For example, the payment plan payment is not to exceed average monthly bill.

Break arrears into multiple parts n Genesis of notion of multiple payment plans in some of the arrearage forgiveness provisions of USF programs. n Take arrears $500 or $1,000 at a time per payment plan. –Once completed, negotiate payment plan on next increment. n Collecting anything is better than collecting nothing.

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