Maryland PSC to Review Inclusion of Termination Fees in Purchased Receivables

June 1, 2011
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The Maryland PSC will consider at the July 13 administrative meeting whether early termination fees for competitive electric supply are "commodity" charges which can properly be purchased under Purchase of Receivables.

The current electric utility tariffs state that the utility shall not purchase receivables for non-commodity charges when consolidated billing is being utilized by the retail supplier. However, whether an early termination fee (ETF) is a non-commodity charge has not been previously addressed.

According to a PSC notice regarding the issue, "Staff ... characterized the ETF as a contractual fee and not a direct charge for the commodity being supplied by the retail provider."

Currently, some retail suppliers which treat an early termination fee as a commodity charge are including it in the utility consolidated billing amounts, and the utilities are billing and purchasing these termination fee amounts when they are included in the amounts sent by the supplier via EDI. The utilities' billing systems are not programmed to bill two distinct supplier charges when only one amount is purchased by the utility.

Staff, which brought this matter to the Commission's attention after discussions in the Supplier Coordination Working Group, noted that early termination fees can be as high as $720 for residential customers on a three-year contract, and thousands of dollars for business customers.

Staff further noted that, after being purchased by the utility, receivables associated with early termination fees are subject to the late fees if not paid on time, and also subject the customer to disconnection if not paid.

Additionally, in the event that the customer disputes a charge that includes the early termination fee, the utility is unable to disconnect service for the non-payment of this disputed amount and is unable to collect the charge for which it has already made payment to the retail supplier.

Staff is further concerned that if the utility is ultimately unable to collect the amounts that include the early termination fee, the discount for the purchase of receivables may increase, because the amount of retail supplier uncollectibles is a factor used to calculate the POR discount. "Retail suppliers in other proceedings have stated that the higher the percent of the POR discount, the less incented a retail supplier is to provide competitive offerings in the State," the PSC noted.

Staff reported that the Commission's Office of External Relations has handled approximately 100 residential complaints involving early termination fees. "According to Staff, it believes that these complaints have been addressed by returning the customers to their original supplier (by the customer's choice) and the supplier has credited the ETF to the customer's bill," the PSC said.

The Commission agreed with Staff that treatment of early termination fees under POR must be resolved. The Commission accordingly asked for comments on:

(1) whether an early termination fee should be deemed a "commodity charge;"

(2) if the early termination fee is a "commodity" and subject to purchase by the utility, should it be reflected as a distinct charge from the electricity supply charge; and, if so, what is the cost to the utility to program its billing system to be able to bill a commodity charge separately from an early termination fee;

(3) if the early termination fee is a distinct charge, should the utility be able to terminate the service of a customer who refuses to pay the early termination fee;

(4) if the customer disputes the early termination fee, what is the process for the dispute (for example, should the retail supplier be required to remove the charge from the bill and refund the payment for the early termination fee to the utility, until the matter is resolved); and

(5) if an early termination fee is purchased, and later waived by the retail supplier, what is the method for crediting the amount and reimbursing the utility for the amount purchased from the retail provider.

Initial comments are due June 20. The PSC's notice is Maillog #131649.

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