It's not fair that good customers have to cover the bills for bad customers, but it's a cost of doing business.
The headline on Friday's front page probably got the attention of many local residents.
It read, "Utilities ask to pass on debt." The accompanying story was about a bill that has been introduced in the Kansas Legislature that would allow natural gas companies to automatically increase the amount of their monthly bills to offset the money they lose to customers who don't pay their bills. In other words, customers who pay their bills would be paying not only for the natural gas they use but for the natural gas used by other people who can't or don't pay their bills.
The natural reaction is that this idea is ridiculous. Why should I, who faithfully pay my bill every month, also help pay for natural-gas deadbeats? Why should an elderly person on a fixed income have to pay more for natural gas because of the other people who don't pay at all?
It seems outrageous, but it is common practice in business for paying customers to cover certain losses. The cost of a new dress or loaf of bread is higher because of profits lost to shoplifters or people who write bad checks. The cost of hospital care and therefore, health insurance is higher because hospitals must cover the cost of providing care to indigent patients. It's a cost of doing business.
In fact, the rates charged by natural gas companies already include an allowance for uncollected bills. But those rates are only considered by the Kansas Corporation Commission about every five years, and gas companies say they need the ability to offset unexpected losses more quickly without going through the expensive process of seeking KCC approval for a rate increase.
Although covering losses is a normal cost of doing business, utilities aren't normal businesses. For instance, they don't face the same kind of competitive pressure that makes a retail business owner do his best to stop shoplifting and avoid bad checks. Every penny a retailer loses to such theft or spends trying to recover that money is lost profit. But he can't simply raise prices without facing the possibility that he'll lose business to his competitors.
While it seems reasonable to let utility companies have more flexibility in recovering losses from unpaid bills, limits would be necessary. The companies still need to have an incentive to collect the payments they can.
Other factors also must be considered. Just as fluctuations in payments can hurt a utility's bottom line, fluctuations in the weather or the wholesale cost of natural gas can be a benefit. Part of the problem during the cold winter of 2001, was that state regulators placed a moratorium on natural gas shut-offs. It was a good move from a humanitarian standpoint but certainly didn't help the gas companies' bottom line.
But every business must gamble to some degree. Farmers gamble every year on the weather. Retailers rely on the weather to an extent when they buy seasonal clothing. A warm winter can deeply affect the sale of cold-weather apparel.
Regulation of public utilities is a complicated business, but the idea that good customers have to pay for bad customers doesn't go over well with most people. Even if it's necessary to keep a business afloat, at a basic level, it's just not fair.
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