NFG Directed by PSC to Eliminate Late Charges on Deferred Payment Agreements

The Public Service Commission (PSC) recently ordered National Fuel Gas Distribution Company (NFG) to drop the 1.5% per month interest fees that it charges its residential customers on deferred payment agreement balances. In a December 2007 rate case order the PSC directed NFG to “eliminate . . . assessment of late payment charges on balances recovered through a residential deferred payment agreement.”

Public Service Law § 37 requires utilities to offer written deferred payment agreements (DPA) to all residential customers who are threatened with service termination. DPAs allow customers to pay outstanding utility charges over a period of time and service will not be terminated if customers stay current with their monthly bills and make incremental payments on their arrears as provided for in the DPA. Section 42.2 of the Public Service Law prohibits any late payment charge on a deferred payment agreement. Under Section 42.1, utilities may assess a late fee if a customer fails to timely pay DPA installments, but they may not charge interest or late fees on the original amount covered by the DPA.

Despite a PSC order issued almost a decade ago, finding that “application of late payment charges to amounts covered by a DPA is prohibited by statute,” NFG continued to assess these charges. In documents submitted to the PSC in the course of its rate case, NFG estimated it would collect over $6.8 million dollars in interest charges on DPA balances in 2008 alone. Much of this would have been collected from low-income consumers.

In its order establishing new rates for NFG’s gas service, the PSC rejected the utility’s argument that late payment fees on DPA balances were lawful, and it ordered NFG to file tariff amendments eliminating these charges and to remove the amount of its projected collections from its 2008 revenue forecasts.

The late payment charge controversy began in 1982, when the PSC promulgated rules to implement the Home Energy Fair Practices Act (“HEFPA”), but failed to specifically preclude late payment charges on DPA balances in the language of its regulations. By 1998 when the PSC initiated a proceeding to resolve the issue, the only utilities that continued to impose these charges on their customers were NFG and New York State Electric & Gas Corp. (NYSEG). NYSEG discontinued the practice after it was sued in 2005 by a customer represented by PULP.

In a generic companion order issued by the PSC on the same day as its decision in the NFG’s rate case, applicable to all electric and natural gas utilities and large water companies in the state, the PSC again held late payment charges may not be assessed on DPA balances. The PSC identified NFG as “the sole major utility to assess [late payment charges] on DPAs. . . .” The PSC concluded, however, that there is no basis for refunds to NFG customers of the unlawful charges, because they were levied pursuant to a filed NFG tariff. Under the “filed rate” doctrine, retroactive changes in tariffs are not possible.

In the generic order, the PSC cites its 1982 case in which HEFPA regulations were adopted to implement the statute, and mentions the position of “a party” who contended then that the Public Service Law did not permit late payment charges to be imposed on DPA balances, and urged the Commission to prohibit this. That “party” was PULP. The PSC finally resolved this issue in 2007, after the matter languished for 25 years, permitting some utilities to collect scores of millions of dollars from customers who could least afford to pay.

By Geraldine Gauthier
Staff Attorney