North Carolina advocacy groups are raising social-justice questions about the credit checks and deposits that utilities require of new customers, saying they’re unfair to people with modest incomes.
The N.C. Utilities Commission is reviewing rules written in 1970, when owning a house or having a good payment history was enough to turn the lights or gas on.
Utilities now commonly use credit scores to decide whether new customers have to post deposits to get service. Utilities say credit ratings are accurate indicators of risk.
But critics including the advocacy group for seniors, AARP, argue the scores don’t necessarily predict whether a customer will pay his utility bill.
“The concerns we hear about are low-income folks in situations where they have been paying on time and go to get utility service and are asked to make a deposit. When you’re low-income, it’s harder to get that money,” said Al Ripley of the N.C. Justice Center. “With credit scores, having a low score does not necessarily mean that you’re not going to pay your utility bills.”
The 1.7 million state residents living in poverty, the center adds, are more likely to have low credit scores even if they regularly pay their utility bills on time.
Utilities counter that they have to be cautious because bills reflect service that’s already been provided. Unpaid bills are absorbed by other customers in the form of higher rates.
Duke Energy charges new residential customers a deposit, when required, equal to two months’ average utility bills – about $230 in the Charlotte area. Duke gets a pass-fail signal from credit agencies, not the actual scores, to assess customers, said spokesman Jeff Brooks.
“We find this practice is an impartial, fair way to evaluate a customer’s credit risk,” Brooks said. “When the rules were written, credit-rating agencies didn’t exist as they do now. Today, with the availability of automated checks, we feel that’s an accurate and fair way to evaluate a credit history.”
Duke Energy Carolinas, which serves the Charlotte area, says 2 percent of all new customers with good credit scores defaulted on their bills in 2013 and 2014. Customers who didn’t post deposits, based on their previous payment history, had an 11 percent default rate.
The Utilities Commission decided to revisit the rules after a Raleigh man filed a complaint in 2012.
Bob Mitchell and his wife had moved from California a few years after his real estate mortgage company filed for bankruptcy.
He said Progress Energy, now part of Duke, demanded a deposit of more than $200 to connect service to their apartment. Progress refused to accept his references from four different electrical utilities, he said.
“We had landed here on a hope and a prayer,” Mitchell said, “and honestly it came down to paying a deposit or buying food.”
When Progress wouldn’t split the deposit into three payments, Mitchell said, he complained to the Utilities Commission.
Progress argued the rules don’t prohibit using credit scores. The state’s consumer advocacy agency, the Public Staff, said Progress didn’t treat Mitchell unfairly.
The commission dismissed the complaint but invited comment on whether rules on utility deposits should be changed.
The Public Staff recommended the rules be revised to reflect the use of online credit reports.
But advocates are pressing the commission to go further, such as by spreading deposit payments over several months.
AARP North Carolina says the commission should allow alternatives to credit reports, which it says may not include utility payment histories or could contain inaccurate information. The N.C. Justice Center says the Utilities Commission should do a cost-benefit analysis to evaluate the worth of using credit scores.
Mitchell, now in his own home and with an improved financial outlook, has a personal perspective.
“They need to come up with a criteria to be judged by – what’s the minimum credit score needed – instead of leaving it to be judged by each utility,” he said. “I think it should be based on the history of utility payments, instead of on credit history. My bankruptcy had little to do with my personal credit history.”