Another Sign of Consumer Stress: Late Utility Payments Rising « naked capitalism

Monday, November 3, 2008

Another Sign of Consumer Stress: Late Utility Payments Rising

The Wall Street Journal provides yet another indicator of strained consumer budgets. More and more are having trouble paying their utility bills, precisely when the service providers are getting tougher about collections:

Utilities are becoming more aggressive about collecting money from delinquent customers, leading to a surge in service shutdowns just as economic woes are pushing up the number of households falling behind on bills.

The utilities say they are under pressure to clean out accounts that are weighing down their books at a time when their stocks are being hammered and earnings growth has slowed.

Meanwhile, the increasing number of homes left without power — which could rise as economic pain deepens — is beginning to worry some consumer advocates and regulators.

In Pennsylvania, PPL Corp. increased shutoffs by 78% in the first three quarters of the year compared with the same period a year earlier. Shutoffs at electric utilities throughout the state increased by 20% in that period. George Lewis, a spokesman for PPL, based in Allentown, Pa., said the utility had been somewhat lax in the past but decided this year to “reverse the trend and prevent people from getting further in debt” by cutting them off sooner. About 3% of the company’s residential accounts have been disconnected for delinquency.

In Memphis, Tenn., the city-owned utility that supplies electricity, natural gas and water to residents cut off 38% more people in the first eight months of the year,…

One bright spot is that many utilities will have more money to distribute next year to poor customers through the Low Income Home Energy Assistance Program. Congress boosted the program’s funds for the current fiscal year by 78% to $5.1 billion. Many utilities are trying to get the word out that people should apply because eligibility rules have been expanded, allowing people with higher incomes to qualify.

State regulators say they have noticed that power shutoffs have moved up the economic chain. “We’re seeing an uptick in middle-class people who have never been in this situation before,” said Eric Hartsfield, director of the customer-service division of the New Jersey Board of Public Utilities.

New Jersey’s biggest utility company, Public Service Enterprise Group Inc., said it saw a 10% increase compared with the year earlier in uncollectible natural-gas accounts, and slightly less on the electric side…

Rising delinquencies are occurring across the country. In New York, the amount of money utilities are owed on accounts at least 60 days past due jumped 22%..Michigan has experienced a nearly 39% increase in electricity disconnections this year compared with last.

More on this topic (What's this?)

Utility dividends for current income (Dividend Growth Investor, 9/30/09)

Bail-out Bill Includes New Tax Breaks For Utilities Installing Smart Meters (Green Stocks Central, 10/15/08)

Utilities Set to Pale in Comparison (Blue Grass Portfolio, 9/25/09)

Read more on Diversified Utilities, PPL at Wikinvest

12 Comments:

alexblack says:

November 3, 2008 at 2:36 am

3% of homes with their electriciy cut off? That’s nothing. Wait until President “Spread the Wealth Around” takes office, enticing Atlas to Shrug….

Actually, I enjoyed living in Manila when the rolling blackouts gave us alternating 4-hour windows of power. Bars with generators got real lively when the whole neighborhood was dark.

EvilHenryPaulson says:

November 3, 2008 at 3:39 am

I think monitoring utilities and credit card accounts, is a really smart and effective way of monitoring what I consider a consumer led recession. More so than retail and restaurants.

It’s worth noting that many northern states prevent utility disconnects during winter. With that knowledge, some homeowners are liable to put off paying utilities, whereas a delinquent credit card could interfere with transportation or food bills immediately.

Did the math on Citgo’s 40% heating oil subsidy of about 112mn gallons which likely won’t be continued. The drop in heating oil prices cancels it out, and there is still a chance of Fed/State increasing funding for LIHEAP (it would have a GDP multiplier of about 1.7) because it is effective stimulus, and good politics. Last year heating oil averaged $3.31 in the NE and it’s down to $2 per gallon this winter

Jojo says:

November 3, 2008 at 4:25 am

You can find other similar stories here:

Anonymous says:

November 3, 2008 at 7:45 am

The lower middle class has been under stress from the Wall Street crowd for a long time. Productivity has been going up while wages have been stagnant or declining all through the GW Bush years. Even in the best years of this decade little trickle down occured. That’s why there is a rebellion against supply-side trickle-down economics.

Plus the insensivity of higher income spokesmen from Wall Street towards what is happening with people having ordinary incomes in the $20K to $40K a year is nauseating….(with an occasional exception of someone like Ben Stein.. who actually noted middle class consumer shocks awhiles back….who woulda thought?)

The enormous chunks paid to higher management in declining employment-centers (big business) also is turning off the majority of people towards the oligarchy of insiders on Boards of Directors who dictate huge increases of pay for a small chunk of mostly useless ’suits’. (my theory: if we just gave B-school keyboards and shovels the picks and left management to technical people who worked real innovation from the ground up ala Google types we’d have a better economy. B-school is like Econ.Indoctrination cadre training. Ideology trumps all from the business class.)

Anonymous says:

November 3, 2008 at 10:56 am

Let them eat cake.
Big business doesn’t get it. Their lax policies of the last several years created this situation and now they are making it worse by tightening lending standards, raising interest rates or ramping up collections by cutting off the heat and water (especially going into winter). This is simply the use of force against the working class. It will eventually cause a reaction. People will not do much as long as they have the necessities and are somewhat comfortable. Take it all away and they have nothing to lose by finally reacting. Could lead to civil unrest. These are the sorts of unintended consequences that is not even on the ruling class’ radar.

Anonymous says:

November 3, 2008 at 12:06 pm

All of this can be traced back to less regulation and professional lobbyist.

Each industry, insurance, utilities, communication, healthcare and finance each pushed as hard as they could to charge as much as they could. Legislation deregulating many industries led to each industry trying to get a larger share of the consumers paycheck. Wages stay stagnant but cost of living goes up every year. The credit bubble hid this until the bubble popped and now we all are reaping a meager harvest.

I wonder if the current system which has been perverted completely by special interest money can fix the overwhelming problems. My opinion formed from watching the governments bailout process is no.

Anon-in-PA says:

November 3, 2008 at 12:21 pm

Keep in mind that the Pennsylvania electricity generation rate cap ends Dec. 31, 2009, so electric bills in PA will increase significantly in 2010–PPL estimates by 30 percent or more. This could get really, really ugly.

halbhh says:

November 3, 2008 at 1:27 pm

anon-in-pa,

If so, it’s an instance of the dangers of trying to blend public control and private markets (worst case is Enron like).

But…even for a cartel, there is a breaking point where too-high prices backfire badly.

Anonymous says:

November 3, 2008 at 1:51 pm

I’ve heard of saving for a rainy day but saving for rainy years?

Anonymous says:

November 3, 2008 at 1:59 pm

Anon-in-PA- During the summer run up in petroleum and natural gas most PUs pitched for higher rate increases. NW Natural Gas asked for a 40% increase in July and is requesting a 14 percent rate increase in Oregon and a 20 percent rate increase in Washington for residential customers. Don’t they sound reasonable now? What a racket.

The PUC’s across the nation have become an example of crony capitalism. Do some research on who sits on your PUC and never ask why these guys consistently get double digit increases each year. Someday this war will end.

S says:

November 3, 2008 at 2:47 pm

Now that we know in broad outlines what an Obama financial team is likely to look like (Geitner, Rubin, Corzine, Orin Kramer, Dimon) it is worth considering how their policies might differ from the current path. It is highly ironic with all the Change talk that the financial team looks a lot like the team that basically led us into this cul de sac – and that begins with the Clinton era team that was at least an unwitting accomplice to Greenspan and more honestly its co-architect. Robert Rubin is Greenspan. To a lesser degree the same goes for Dimon, Corzine and Kramer (a Carter era relic who presided over the latest NJ Pension investment in LEH at $28 if memory serves). Then there is Geitner. This morning Bloomberg reports that Robert J. Aumann, the Israeli economist who won the 2005 Nobel Prize in economics, said the steps taken by Federal Reserve Chairman Ben S. Bernanke and U.S. Treasury Secretary Henry Paulson to save financial markets “weren’t smart.” So why not bring in Geitner to head Treasury, the guy who shared his NY Fed board with Dick Fuld and is a Rubin protege. This is the guy who began the slow road to hell with the B/S bailout and then opened the window right after its fail to save co-board member LEH, no doubt after consulting with Fuld (and Dimon). Be interesting to see the transcripts of those calls between Fuld and Geitner which I am sure given the Patriot Act the NSA could pull.

One has to wonder how Obama could trumpet change and bring to the table such a collection, if reports are accurate. It is telling that yet again we have a group of Goldman Sachs executives; as if the firm has proven anything other than they are no different from anyone else. Foreign Policy magazine has a list of dream teams for the incoming administration and there are some interesting perspectives. But the easy bet is that we end up with these retreads, including Rubin. Rubin at least demonstrated some mindfulness of long term interest rate woes, deficits and the challenging structural issues facing the US (http://query.nytimes.com/gst/fullpage.html?res=9404E2DC173DF933A0575AC0A9679C8B63). But he also acted in the interest of the financial complex where he threw in his lot – just like Paulson. I would being willing to wager both still think the US is the world leader in financial innovation – to include central banking.

Along the same lines CNBC reported this AM that Rubin was interviewed on CNN over the weekend in his capacity as a spokesperson for Obama and was very much opposed to another major stimulus, likely because of his worry over the interest rates blowing out at some point and the bond market being lost.

What will the new team come up with to try and retard the seemingly inevitable freight train in the form of a growing chorus from FCBs demanding an end to abusive dollar hegemony and the resulting rate implications? Or will he reverse and opt for the devaluation path?

How will Rubin reverse this psychology and build a renewed consensus behind a strong dollar policy (even though his admonitions heretofore suggest he knows such wishes defy gravity)? Virtually the entire premise of the Rubin engineered strong dollar policy has turned out to be a mirage, one that enabled the US to over consume and exploit its capital/corporate advantage (as the dollar was rising through the 90s). Rubin engineered the growth of the financial services segment (the bet that a capital account surplus was a sustainable solution – perhaps was the real new economy he envisioned) at the expense of the necessary investment for real sustainable growth over the longer horizon. Now we get structurally lower growth rates.

So as the world forecloses on the dollar what options are left for the the incoming administration? Strong dollar has 0 merits. Deficit spending on top of bailouts will reach its market imposed ceiling – as GDP needs incrementally more debt to grow. Is the only real option a long period of stagnation as the total debt (350% GDP) gets worked down to a sustainable level? Or will Rubin and team try and re-invent innovation in a manner that disguises the inflation/devaluation regime that is really looking like the only feasible alternative. What might such a program look like? And will the world be fooled again?

datadave says:

November 3, 2008 at 11:47 pm

Great comments, S! I am voting Obama just to stick a needle in the eye of Republicanism…but know all too well how disappointing Presidents Carter and Clinton were in contrasting themselves with Republicans. Obama’s looking like yet another Republican-lite type of Democrat. Carter lost his Presidency by playing the anti inflation card and increasing unemployment and misery. Clinton sold the Lincoln Bedroom to the highest bidders…. but generally people do better financially under Democrats than under Republicans. The recession of 1980 got much worst under Reagan until Labor lost all influence and the uptick in the middle Reagan years was only a temporary uplift that declined with another Reagan recession post ‘87. The Bush Senior years generally sucked and then the Clinton era due to a mild tax increase that funded infrastructure improvements saw the “longest peacetime” period of growth. Bush 2 generally sucked for the middle class.

It’s those Harvard boys again mucking the thing up if they are again on team Obama? He’s Harvard Law after all. But his Chicago roots might constrain the Harvard guys who love Shock Therapy….like Russia? I am with Krugman, Reich and Galbraith on the drastic need for a hefty Stimulus for the middle class. Demand side economics needs to be reinstated. The average consumer is so strapped I see negative growth in spending for manufactured goods to a massive degree next year. I look at myself even with a windfall…I want it only for investment and savings…not spending. I am driving my old car into the ground. We can’t have an economy based on massive unemployment, high health care profits, oil company profits and little else. Incomes have to rise for the middle class or this countries going to stagnate big time.

My Question: Is Obama the new Hoover or the new FDR? Hopefully better than either…but with those Harvard advisors…he could end up a Yeltsin!

Subscribe to: Post Comments