BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
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|SB 1159 - Sher |Hearing Date:April 13, | S|
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|As Introduced: February 26, | | B|
|1999 | | |
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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