Subprime electricity

Reuters reports that TXU Energy, the biggest utility in Texas, intends to increase its rates -- but only for those least able to pay:

In a new rate-setting tactic for electric utilities, the unit of Dallas-based TXU Corp. plans bigger rate increases for customers with low "credit scores," which are numeric rankings that take into account customer histories of paying electricity, phone and cable bills, the Wall Street Journal reported.

I'm not sure whether this is more evil or stupid, but it's a whole lot of both.

Your "credit score" can be lowered for many reasons -- some legitimate, some arbitrary, many which you are helpless to change regardless of how responsible you may be. One variable which inevitably results in a lower credit score is a lower income.

That's hardship enough for lower-income families when a credit score is only being used for its intended purpose -- deciding whether or not to extend credit. But as credit scores begin to be used for purposes like this it is simple cruelty. This is simply a way to take advantage of the poor and powerless because they are poor and powerless and you can take from them whatever you like.

Credit scores are already being used now to deny people health and auto insurance, or to charge them a higher rate. They are being used by employers, to make sure they don't hire anybody who's unemployed. And now the poor will face regressive pay scales even for their heat and electricity.

And what happens when this portion of these low-income families' monthly budget increases? That's right -- their credit scores will go down. This is obscene. A clumsy measure of wealth is being used as though it were a precise measure of virtue and responsibility.

The bottom line is this: TXU wants to charge poor people a higher rate than they charge rich people. Why? Because those poor people were having trouble paying the lower rate. This ain't a bank loan, it's the freaking utility bill.

Eventually, they're going to figure out a way to charge poor people subprime rates for milk, eggs and butter.

"If they get away with this others will follow," Randy Chapman, executive director of the Texas Legal Services Center, told the newspaper. The Texas Legal Services Center helped uncover TXU's plan.

A state-funded consumer advocate in Texas told the newspaper her office plans to file a formal complaint with the Texas Public Utility Commission, asking it to issue an emergency order blocking TXU from imposing the rate changes.

If the emergency order and the likely lawsuits don't manage to stop this insane reverse-Robin-Hood maneuver, I have a backup plan.

I propose regulation, not just in Texas but nationwide, that rates for utilities and insurance policies based on credit scores may only impose penalties on customers whose score is at least 12 points below the national average.

The national average for a credit score, by the way, is 678.

In other words, let's sic the apocalypse nut-squad on 'em. For once I would agree -- these people really are the Antichrist.

Comments

[Erik]

I love your connection of this horrifying practice to the Beast. I’m reminded of the monk Adso of Montier-En-Der, who wrote (c. 950): “Even now in our own time we know there are many Antichrists, for anyone, layman, cleric, or monk, who lives contrary to justice and attacks the rule of his way of life and blasphemes what is good (Rom. 14:16) is an Antichrist, the minister of Satan.” Seems just as timely now. . . .

[Lisa]

This is ridiculous. If the utility is worried about people's ability to pay, they can demand a deposit covering, say, two months' worth of electricity. From everyone. This is just a sick way to grab money from people who already are struggling. No surprise it's happening in Texas.

[Legomancer]

George Carlin: "Why is it that when I bounce a check, the bank charges more of what they know I haven't got any of in the first place?"

[anon]

Lisa,

Thanks a bunch and a big ol howdy from the Lone Star State. What the heck does that mean: "No surprise that it's happening in Texas." Do we Texans have some character flaw that makes us any more likely to do something as shitty as what TXU is doing? Where is the godly state of all goodness located? Let's all move there, quick!

But seriously. It's bad enough that we have to live in a state that is not even close to a battleground. Every morning I get up and check my backside to see if "property of Tom Delay" has been tatooed there. Try a finer brush next time and our feathers won't get all ruffly on ya.

[emjaybee]

Well, I'm from Texas, and it doesn't surprise me one bit. After I learned that the Midlothian (near Dallas) cement plants are fueled by *burning toxic waste*--which then goes into the air--and huh, Dallas has had to go from Red Ozone Alerts to Purple (!) Ozone Alerts--and no one cares--I can only conclude that my home state has a Hellmouth somewhere in it (Crawford?), spawning Bushes and DeLays and their demonic ilk.

[anon]

sigh.

don't mud wrestle a hog. you both get filthy and the pig actually enjoys it.

I get to breath the same stinking air you do, btw. Yes, it is shameful. Is it a uniquely Texan shame?

fwiw, I lived in NC before I became a Texan. The same NC that elected John Edwards also elected Lauch Faircloth, Jesse Helms, and good old Helms-on-wheels, John East.

I just think that being ashamed of being from Texas because GWB was governor makes about as much sense as being ashamed of being an Arkie because Bill Clinton was governor there. If we can reduce all evils to the short hand of "==texan" then why bother to think at all?

[Patience]

Well, I couldn't help wondering about TXU's own creditworthiness and found this story from December 2002:

"Moody's cuts TXU's rating to 'junk' " -
http://www.bizjournals.com/dallas/stories/2002/12/09/daily52.html?jst=s_rs_hl

I'm no financial expert, so I do wish someone with more knowledge would write a followup about TXU's present credit rating.

Really, some people are just shameless.

[ElizabethVomMarlowe]

Yes, I know that tactic well.

I went to grad school on the Main Line. I had to pass a freaking credit score to get a phone. Despite having been gainfully employed before becoming a grad student, I had to have my mother co-sign my phone number.

I could go on, but there's no point.

[Buhallin]

The Law of Profit:

As stated above, the cosm of Marketplace is based entirely upon the concepts of profit and loss. Its axioms are specially configured to favor those with great wealth and penalize those who are poor... According to the Law of Profit, goods and services cost less when purchased by those of means than when purchased by the underprivileged... This law does not mean that the instant a wealthy character steps up to a cash register, all the price tags magically change. Instead, the lower prices are found in the better neighborhoods.
****

That's from a role-playing game that came out in the late 80s, describing an alternate universe. I haven't played Torg in years, but that sprang to mind when I read this.

I only wish this WERE an alternate universe. At least then it might make sense :(

[thedarkbackward]

This isn't a newsflash to me - I've run into similar behavior here in sunny California.

Had a bad marriage a while back (still kinda lingering, but...anyway) and my credit was driven to the ground. Because of this, I have to live in a tiny 65 year old apartment in a crime-ridden area with no lease and high rents.

I make over 40k a year and NO ONE will rent me an apartment. I and my two children have been rendered nearly homeless twice because of this and I will NEVER forget this and the dozens of experiences that I encountered as a young man when I was poor. The economic bullies of this society will not ever understand what it is to be poor and completely SCREWED.

[maura]

nice that this company is based out of dallas, where delta's cost-cutting will be felt really hard.

[gazould]

The fun background on this is that Texas is purposefully the only state whose electric grid is not tied into any other state's. That means that FERC can't touch them. In the rest of the country, utilities can't set rates according to impermissible characteristics like this, but Texas can do whatever it wants.

Absolutely outrageous. Of course I've been convinced for years that the electric companies are evil incarnate. This just confirms it. So if Granma can't pay the bill and maybe has a low credit score due to lack of activity ie. house & car are paid in full, she doesn't believe in credit cards or doesn't shop til her credit card burns up...she's gonna get charged more? How do these people sleep at night and isn't there or shouldn't there be a law against this?

[Riggsveda]

Not incidentally, if such a policy can be shown to have a disparate impact on protected classes (race, age, sex, etc.)much as predatory lending in PA has been shown to have such an impact, a good case can be made for illegal discrimination, and the company could be sued under both federal and state laws.
The chances are good that the policy can be shown to be discriminatory, because so many lower income folks do indeed match the profile.

[PusBoy]

Goddamn. Is this pure evil, or what?

[Dezz Staarlinn]

I'm surprised it was Buhallin, not I, who invoked Marketplace (the mega-corporate reality from That Other Roleplaying Game). A depressingly high percentage of adsinistration policy makes sense if you look at it through the prism of "These people are advance agents of the High Lord 3327." (Remember, in the Possibility Wars, how quick the Delphi Council were to jump in bed with 3327's advance agents.)

[pfc]

It has always been more expensive to be poor than to be rich.
A rich person can afford a well made version of something that will last practically forever. A poor person can only afford a cheaply made version that will wear out. Over the lifetime of the well-made version, the poor person's item will have been replaced enough times to make them more expensive than the rich person's well made item. But the poor person doesn't have access to the capital at the beginning that enables them to buy the well made item.

This is usually described with boots. And in terms much more eloquent than I am doing now.

That this has always been so doesn't make it right. And it certainly doesn't excuse it in the case of electricity, where the same electron flow is delivered to different houses, without regard to the ability to pay of the customers.

[Buhallin]

On a completely off-topic note, it's nice to see someone else remembers that particular bit of my past, Dezz... Still have all the books on the shelf, one of my favorite games of all time :)

Who knows - the Cyberpope would be cool to see, maybe he's next ;)

At the risk of repeating myself, though, I was stunned when I read that at how much it fit that particular axiom. When you start losing track of which universes are the alternate ones, you know we're in trouble.

[emjaybee]

"When you start losing track of which universes are the alternate ones, you know we're in trouble."

Well, yes. Or when The Onion actually predicts the news instead of parodying it.

[David Weisman]

Is this legal? Even insurance companies have to demonstrate reasons statistically before charging different groups different rates.

[animus]

"The poor will always be with you" is not a commandment.

[animus]

"The poor will always be with you" is not a commandment.

[phil]

In New York City, ConEd gets a $200 deposit from people with poor credit. That way, they have enough money to pay for any unpaid bills before they can finally turn off someone's electricity. In the meantime, everyone pays the same residential rate per kilowatt-hour.

There's no justification for any other method.

While I don't support TXU's plans, your claim that income is a ingredient in credit scoring models in incorrect. Past payment history and the amount and number of existing available credit lines is part of the calculation but income is not included in credit scoring models (at least not the major's like FICO).

Visit http://www.myfico.com/myfico/CreditCentral/ScoringWorks/FICOIgnores.asp

That said, lenders do consider income when evaluating credit applications to determine debt to income ratio's. I don't believe TXU would be considered a lender and will most likely lose a lawsuit if they try include income as a factor in their pricing schedule.

Either way, TXU's plan will have a more detrimental effect on those least able to pay. And people with low incomes are disproportionately represented here. For basic services I find this particular risk mitigation strategy reprehensible.

I suppose it goes without saying that TXU's chairman, Erle Nye is a big moneybag for Bush. Along with another Bush crony, Ken Lay of Enron, he was appointed to the Bush energy transition team.

Hey, anonymous commenter above: Fred didn't say that "income is an ingredient in credit scoring models". He said low income is a factor that invariably leads to poor credit ratings. You could argue about "invariably", but it's hard to dispute that the poorer you are, the likelier you are to have had trouble paying your bills and loans - and the less likely you are to have been approved for a lot of credit in the past (since, as you pointed out, lenders certainly consider income), thereby reducing your chances of boosting your rating by borrowing a lot and repaying it on time.

[A Texan in Maryland]

animus: "The poor will always be with you" is not a commandment.

A-MEN!

I grew up (Texas Southern Baptist!) hearing that verse cited as the reason why any attempts by the government to reduce poverty were immoral and doomed to failure.

Thanks for pointing it out so succinctly.

My roommate got rejected for our lease because he had no credit history - straight out of college, no credit cards because he was raised to believe that if you didn't have the cash for it you had no business buying it, and his cellphone was in his parents' name. At first, he wasn't going to be permitted to live in my apartment at all, even though I qualified for it on my own income and credit score and was willing to take full responsibility for the rent. Finally, after going over the head of the local property manager, we managed to get someone up in corporate to see the difference between unknown credit risk and bad person. He's now an authorized resident; that doesn't do anything for his credit and I'm still fully responsible for the rent, but at least he wasn't stuck at Mom and Dad's. He has since gotten a very low-limit credit card with a ridiculous interest rate and pumps a few hundred dollars a month through it, paying it off immediately.

I, on the other hand, have carried anywhere from $5,000 to 8,000 in credit card debt since senior year of college (slowly dropping). My credit score? 640 when I applied for a car loan in August 2002, 720 now. Never been rejected for anything, and have decent rates on the cards and the car loan.

Something is severely wrong when I receive a higher score than my thriftier, budgeting roommate, and that higher score translates into easier access to more capital and preferred treatment by landlords and insurance companies. I guess it's because I'm behaving the way our screwy market wants 20-somethings to behave...

[Monica_CA]

It's a tinfoil hattish thought in a way, but this kind of thing can't help but make me suspect that these types of rules really only serve the purpose of creating a new underclass of serf-like indentured servitude. The modern twist is that one is beholden to a conglomerate of corporations rather than an individual or family (although, in colonial times, there were corporations that had their own indentures that worked for them).

Credit checks are de rigeur for so many things now. I know a guy searching for roommates (in the San Francisco Bay Area, even 40 and 50K salaries mean having to have roomies for a lot of full-grown adults) who runs credit checks. Even trailer parks do them on prospective tenants/owners nowadays. It's not about having a healthy American economy, IMO, it's about creating a new economy of corporate feudalism. Philip K. Dick is screaming "I told you so" right now, but you can't hear it, since it's coming from six feet below.

I don't know how my husband and I have managed to be able to find a place to live with our bad credit, but we have. Problem is that your choices are very limited, and the time required to search out a landlord who'll rent to you based solely on say, a decent rent history and no nonpayment evictions is not available to most of us working stiffs with our new "higher productivity" 70 hour work weeks.

Combine this sort of practice with the new overtime regulations the Republican congress and senate are so hot for, and what you get is a lot of formerly middle-class people being forced to live like paupers, with wages that no longer increase to meet inflation, less health coverage, and a society based on amassing large amounts of debt in order to "proove" one's ability to pay bills. Many people are one major illness, layoff, or natural disaster away from being blacklisted out of the American dream by bad credit.

Add this to the new movement to just do away with all minimum wage laws, and you get misery compounded, with a denial of basic services required for participation in American society.

And the middle class, in order to maintain their lifestyle, must now be in debt, just in order to have that good credit required to get mortages or sign leases or even to do what you'd think would be allowed of anyone, like make payments on dental work.

I see a concerted effort to not only erode the middle class, but ghetto-ize and swell the numbers of poor willing to work for super-low wages just so the rich can get a little richer.

[Fred]

"Eventually, they're going to figure out a way to charge poor people subprime rates for milk, eggs and butter.

'They' already do. Compare the prices of a suburban grocery store or super-walmart, and of an inner city food store. It is easy to imagine the overhead costs correlate nicely with credit scores, even if there are exceptions at both ends. For example, cash payments through third party counters have a much greater cost vs. automatic bank draft, as would mailings to support late payment collection.

Electricity delivery is a business, and this seems like a legitimate competitive practive.

Public funding has many potential benefits in electricity provision - winter fuel subsidies, wind-power, and perhaps general low income assistance with utilities. But let's call a duck a duck and not blame privately held companies for sensible business practices.

[Rob]

Look at it this way, this could be a good thing..... Perhaps the use of credit scores, which have enormous bias against the poor and minorities in general, is in conflict with the 14th amendment.... Oooo….. Very interesting!

I think it would be an interesting challenge of the validity of this kind of data. Not sure where the courts would stand (well, if Bush is re-elected, I think we all know where the Sup. Ct. would stand). But it IS an interesting question.... This could be just the opportunity to raise a significant challenge to a very troubling practice of using credit reports to keep people down.

[Konopelli]

Fred:
Slavery and child labor were also regarded as 'sensible business practices' in another generation, I recall reading somewhere. And then there were some labor camps in central Europe in the last century which were would, under the proper paradigm, have earned the same distinction. I mean, what's the matter with people? Right, Fred? Don't they know a buck's a buck?

[Brenda Helverson]

Yes, Texas is a bad place. It hasn't given America a decent leader since LBJ and is responsible for much of the chaos that we see today. For the sins of siring Tom DeLay and foisting him upon us, I would gladly give your whole state back to Santa Ana.

If there had been a back door to the Alamo, there would be no Texas today.

[bellatrys]

Texan in Maryland - do the Southern Baptists use a different Bible than the rest of us?

In my copy of the KJV, looking at Deuteronomy, that verse (15:11) goes:

"For the poor shall never cease out of the land: therefore I command thee, saying, Thou shalt open thine hand wide unto thy brother, to thy poor, and to thy needy, in thy land"

and it's in the context of a whole slew of other proclamations about giving stuff away for free to the poor and disadvantage instead of maximizing the profits in your wheatfield/vinyard/olive orchard.

[jfk]

Two comments on areas I haven't seen addressed yet:

Fred's suggestion that penalty rates may only be imposed "on customers whose score is at least 12 points below the national average" of 678 means that there would probably still be at least 100 million people that would be affected. I'm guessing that the electric company is looking at even lower scores already, probably 600 or lowerm and the full range for most credit scoring companies is 300 - 800.

I disagree with the entire practice, because for an essential service such as electricity, where people don't have an opportunity to shop around, good business practice must include a level of social responsibility. I mean c'mon, folks, this is basic morality here!

Which leads me to my second point: So much of what's been discussed here already can be categorized as "economic violence" (or threat thereof), where the economically strong (e.g. wealthy) prey on the economically weak (e.g. poor). If this was about *physical* violence, like a mob protection racket, people would be arrested, but since it's economic, many people seem to think it's okay. It's a different form of power, but it's still an abuse that derives from an imbalance of power.

Many such power abuses which have been accepted and legal in the past (slavery, child labor, etc) are now illegal and unacceptable. Physical violence is less acceptable now than in the past, and even some economic abuses (e.g. debtor's prisons) have been eliminated, but I still think we have a long way to go.

The national average for a credit score, by the way, is 678.

America may have been born out of rebellion, but today's Americans are not very rebellious -- even in ways that carry no personal risks and would have positive benefits. We're also not very creative.

In response to the proposed Texas utility "screw the poor" rate adjustments: People should organize dozens of non-summer month protests that involve unplugging just about everything but their refrigerators for 12-hour periods. You get hundreds of thousands of citizens doing that, it hurts the utility and saves the protestors money at the same time.

Basically, screw'em back.

[Ted]

I've been a customer of TXU for many years, and I've been unemployed for the last few.

I think it's only acceptable to use credit ratings to determine utility rates if it's mandatory and universal -- everyone with a below-average credit score pays a premium that's clearly marked on their electric bill every month.

And I'm also a big advocate of the 2nd amendment. A well regulated Militia, being necessary to the security of a free State, I think the state of Texas ought to issue an assault rifle to each and every citizen with a below-average credit rating.

I think that those two actions, taken together, would lead to a renascence of political expression by the common people.

We'd soon have better electric service than Baghdad. No, wait.... Maybe that's not such a good idea.

[burritoboy]

Actually, Joel Podolny at Harvard Business School proved that companies with higher status paid significantly less for the same goods than companies with lower status. Now, that's companies and not people, but it's completely probably that the same happens on the individual level. You can find the paper on his website. If some schmuck challenges you, just sweetly ask why Joel is teaching at Harvard and the schmuck is not.