Utility might take plastic

Southern California Edison and other utilities want ratepayers to be allowed to use their credit cards to pay their energy bills, opening up a potential $25 billion in frequent-flier miles (that's 500,000 frequent-flier tickets to Europe).

But legislation to allow it has hit fierce, last-minute opposition from credit card companies.

The issue is who should pay for the convenience of using the credit card: only the ratepayers who use credit cards, all ratepayers - whether they use the option or not, or the utilities, which can't easily pass the cost to all ratepayers.

AB746 would allow utilities to pass along part of the transactional surcharge (which averages 2 percent) to people who want to use their credit cards to pay their bills.

"When people are trying to rack up frequent flier miles, we don't want to ask those who are low-income and paying cash to help other people pay for their trips," said Assemblyman Sam Blakeslee, R-San Luis Obispo, author of AB746.

Credit card companies oppose the bill because they fear the surcharge could steer business away from them. Card companies also fear that this legislation would open the door for other utilities, such as phone companies, to demand similar rights.

Those companies and some consumer advocates say everyone benefits when a credit card is used because utilities actually save money by having bills paid by credit card.

"This limits consumers options by penalizing those who choose to pay by credit card vs. checks," said Susan Molinari, national chairwoman for Americans for Consumer Education and Competition, a Washington, D.C.-based consumer organization that is funded by Visa USA. We want to give consumers as many options as possible." Popularity Plastic has emerged as the modern tool of convenience. Reward cards promising free trips or cash allow consumers to reap benefits for every dollar spent on one credit card.

Troy Niswander's Discover and Visa cards are well worn, but the Foothill Ranch resident rarely has more than a few dollars in his wallet and seldom writes any checks.

"At the end of the year, I take my cash-back and my mileage and take a vacation," said Niswander. He said he enjoys the added benefit of keeping all his finances in one bill. "I'm not all over the place. I get so many bills a month, it's hard to keep track." The number of credit card payments has increased by 6.7 percent annually in the past three years, from 15.6 billion transactions to 19 billion transactions, according the U.S. Federal Reserve.

But each swipe isn't free.

Credit card companies charge retailers a fee that is based on the amount of each sale.

Fees associated with processing credit cards have also been increasing, according to a March report by Morgan Stanley. In 1998, it cost retailers an average of 1.58 percent to process a credit card. In 2004, that figure was 1.75 percent.

Retail stores and grocery stores can absorb the cost of that processing fee by adjusting prices on everything else in the store.

But governments and utilities, such as Southern California Edison, cannot as easily adjust the rest of their costs because what they can charge per kilowatt and fees is regulated by the state.

"We just can't absorb a cost like a retail merchant can. The state acts as a barrier to recovering these costs," said Tim Schmelzer, legislative policy manager for Southern California Edison, who is pushing for the bill.

Governments are allowed to pass along the credit card charges to consumers.

The University of California and California State University systems charge students 2.5 percent to 3 percent to charge their registration fees.

Efforts to eliminate the fees have so far failed.

California's own Department of Motor Vehicles tried to absorb credit card fees since July 2004. But this year, the department requested an additional $6.6 million from the cash-strapped state to pay processing fees, according to a state Senate analysis.

Bankers, however, argue that other forms of payment cost money, too.

Cash requires retailers - and utilities - to pay cashiers to handle the money and hire armored vehicles and pay banks to handle the money.

Checks take days to clear, meaning utilities would have to float that amount until payment comes through. Utilities also have to pay third parties to process the checks and account for bounced and fraudulent payments.

Why should all these costs be borne by consumers who decide to pay by credit card, they ask.

"This puts consumers in an unwinnable bind," said Doug Heller, executive director for the Foundation for Taxpayer and Consumer Rights, who said he thought utilities could afford to absorb processing costs because of the money card payments could save.

"It just seems like a legislative stretch to hand money out to our already bloated utilities. What do they want? If we could send them blood with our payments, they'd write legislation for that too," Heller said.

The bill In spite of last-minute protests, the bill has sailed through the Legislature.

To assuage consumer concerns, Blakeslee added provisions that would return money to utility customers who use their credit card, if credit card processing saves money. The bill also prohibits utilities from pocketing the surcharges as profit.

"This bill is all about ensuring that those who have the ability to choose between cash, check, credit and debit card have that choice and allow those who voluntarily use it to know what the costs are involved with that," Blakeslee said.