BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN ------------------------------------------------------------ |SB 1159 - Sher |Hearing Date:April 13, | S| | |1999 | | |------------------------------+--------------------------+--| |As Introduced: February 26, | | B| |1999 | | | |------------------------------+--------------------------+--| | | | | |------------------------------+--------------------------+--| | | | 1| |------------------------------+--------------------------+--| | | | 1| |------------------------------+--------------------------+--| | | | 5| |------------------------------+--------------------------+--| | | | 9| |------------------------------+--------------------------+--| | | | | ------------------------------------------------------------ DESCRIPTION Current law establishes procedures for a customer to change electric service providers and requires the electric service provider to contract with a third-party to verify that the customer intended to change electric service providers. This bill deletes the third-party verification requirement for residential customers when the change is made via the Internet or via written transaction. When the change is made via the Internet, this bill requires the customer to be asked to respond to a separate screen acknowledging their desire to change electric service providers. When the change is made via written transaction, this bill requires the customer to sign an acknowledgement that they do indeed want to change electric service providers. Current law says that a change in electric power providers by an aggregator does not trigger the third party verification/confirmation procedures in current law. This bill deletes this provision. This bill requires the aggregator or provider of electric power to keep a record of the verification or confirmation for two years and to make those records available to the California Public Utilities Commission (CPUC). KEY QUESTION 1)Should the current requirement to verify a customer's desire to change electric service providers be relaxed? BACKGROUND For telephone customers, the unauthorized switching of a customer's long-distance telephone company has been a rampant and persistent problem. This problem, known as slamming, has been the most common complaint received by the CPUC over the past several years. A series of federal and state laws have been enacted to attempt to get a handle on the problem and the change in state law that seems to be the most responsible for a decrease in slamming complaints is the requirement for third-party verification. Under this requirement, a long-distance telephone company must use a third-party to verify the customer's desire to switch. Concerns about similar slamming problems arising in the newly-competitive electric industry prompted a similar third-party verification requirement to be imposed when competition was first permitted in 1998. The author believes the current verification requirements are too strict and lead to customer frustration, and can delay, or in some cases prevent, a customer from switching electric service providers. To overcome these problems, this bill eliminates third party-verification when a customer changes electric service providers through the Internet or in writing. Under those circumstances, this bill requires customers to confirm their desire to switch providers by using a separate screen to confirm a switch order in the case of the Internet and, in the case of a written order, by requiring a separate signature set off in a box. Because the author believes slamming problems arise primarily in a telemarketing setting, this bill retains current law's third-party verification requirements when a customer is telemarketed. COMMENTS 1)The supporters of the bill argue that the third-party verification requirements are unnecessary, causing unwanted telemarketing and unnecessary delay in switching electric service providers. This bill, according to the supporters, does not unduly dilute consumer protections because the third-party verification requirement remains for telemarketers. Further, according to the supporters, this bill benefits electric service providers, because their cost of acquiring new customers will be reduced. 2)While the supporters of the bill articulate a reasonable case, it should be noted that evidence that the third-party verification slows down or prevents customers from changing electric service providers is largely anecdotal. The traditional consumer protection groups don't share the concerns of this bill's supporters, though they do not oppose the bill. Given the impending lifting of the rate freeze in San Diego Gas & Electric's service territory, customer confusion may be high for some time which may create an atmosphere ripe for consumer rip-offs. 3)While it could be argued that "if third-party verification is good enough for the telecommunications industry, then it's good enough for the electric industry," it should be noted that differences between the two markets are significant: 1. Profit margins in telecommunications markets are much higher than in electricity markets. 2. It's far easier to switch telecommunications companies than electric service providers. Telecommunications companies only require the customer's telephone number to switch, while electric service providers require the customer's account number. 3. The qualifications to be registered as a telecommunications company are far easier to meet than the qualifications needed to be registered as an electric service provider. 1)The bill deletes the third-party verification requirement when a customer goes through a written transaction, instead requiring the customer to confirm their desire to switch by signing a separate line acknowledging that they want to change electric service providers. The experience with the telecommunications industry has shown that obtaining a customer's signature is far from being a foolproof way to ensure that the customer knowingly wants to switch providers. Unscrupulous companies have fraudulently obtained customer signatures by getting customers to sign documents which are checks or look like sweepstakes entries. Unbeknownst to the customer, that signature authorizes the switching of their service provider. The author may wish to consider an amendment requiring the signature to be on a separate document, one that isn't a check or sweepstakes form, clearly stating the customer's acknowledgment and desire to change providers . 2)The bill deletes the third-party verification requirement when a customer changes providers via the Internet, instead requiring the customer to confirm their desire to switch by responding to a separate screen. However, when dealing with sales over the Internet, the seller has no way of knowing if they are dealing with the decision-maker for the account. On written documents, signatures can be checked, but over the Internet no such verification exists, absent the use of a digital signature. Indeed, because of the anonymity of the Internet people feel freer to do or say things they would never do or say in person. Add to this the relatively unregulated, untamed, caveat emptor world of the Internet and the potential for problems is high. These problems could be mitigated by strengthening the penalty provisions of current law, which impose a penalty when verification procedures aren't followed. The author may wish to consider imposing the penalty when the customer has been switched without their consent, and to not hold the customer liable for any premium above what they would have paid under their original provider . 3)The bill also requires electric service providers to retain their change confirmation records for two years and to make those records available to the CPUC. The author may wish to consider amending the bill to also make those records available to the customer upon request . POSITIONS Support: California State Council of Laborers Clean Power Campaign Green Mountain Energy Resources New Energy Ventures, Inc. (NEV) Office of Ratepayer Advocates Southern California Edison Company Oppose: None reported to Committee. Randy Chinn SB 1159 Analysis Hearing Date: April 13, 1999