AUSTIN, Texas -- Switching electric providers in Texas has left some utilities with losses from customers who make a habit of paying a deposit, racking up bills and then opting for a new company and leaving the old debt behind.
The Texas Public Utility Commission this month is scheduled to consider preventing some nonpaying customers from switching providers until they pay their previous electric bill.
"There's a healthy segment out there of people who do switch professionally," said Stream Energy chairman Rob Snyder.
Snyder's company gave away about $30 million worth of electricity last year to people who didn't pay their bills, and as much as $7 million was to people who manipulated the system by switching to another carrier, The Dallas Morning News reported Wednesday.
Some consumer advocates say halting switching is counter to the spirit of open-market competition and could be illegal.
"It certainly runs antithetical to a notion of a market of choice, and you can't have it both ways," said Rep. Sylvester Turner, D-Houston.
Unpaid bills equal about 4 percent of total revenue, according to electric companies representing about a fourth of the Texas industry. Before deregulation, bad debt amounted to about 0.125 percent to 0.675 percent of revenue.
"If bad debt goes from 3 percent to 5 percent, you're calling the Chapter 11 (bankruptcy) attorneys," said Snyder.
The utilities commission is considering a "switch-hold" rule that would allow retailers to place holds on certain nonpaying customers.
If a customer owes on a previous bill and agrees to a payment plan or to pay a fixed average each month, the retailer could place a switch-hold on the customer if the person defaults. This would prevent customers who get cut off from buying electricity elsewhere until paying off their debt.
Consumer advocate Carol Biedrzycki, executive director of Texas Ratepayers' Organization to Save Energy, opposes the switch-hold rule.
Retailers have other tools to protect against bad debt, such as charging late fees and deposits, according to Biedrzycki.
Reliant Energy chief executive Jason Few said the electricity industry must learn to manage bad debt, like any other industry.
"Bad debt is a risk, no different for us than for an institution that lends money, because that's effectively what this industry does. We lend money for using power and then we get paid later," said Few.
Texas regulators require electric companies to extend credit to some customers, regardless of the financial risk. Electricity providers cannot cut customers off on hot summer days, and they cannot cut off customers who use electronic medical devices to survive.
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