One compelling reason to change to billing in gallons

The last Utility Information Pipeline (you can read it here if you missed it) dealt with the difference between billing in thousands of gallons and gallons. After analyzing billing in both units, I concluded, “If you’re billing in thousands and considering changing to gallons, I would only recommend doing so if you have a reason other than pacifying an upset customer! The best reason I can think of is if you are moving from reading with handhelds to some form of automated meter reading, either drive-by or fixed base.”

The point I wanted to make with that article is that, based solely on the billing outcome, it’s not worth the effort involved to change from billing in thousands to billing in gallons.

What I didn’t address was the effect on individual accounts if you are trying to influence your customer base to conserve, as many utilities in drought stricken parts of the country are.

Comments from a customer

In response to the last issue, I received the following e-mail from the General Manager of one of Logics’ customers:

“I appreciate the information below. As you know, [our utility] bills in thousands instead of gallons. We have had many customers complain about what they feel is a possibility of a disparity in actual usage in gallons vs billing in thousands. As you have shown below, I don’t believe there is enough difference either way to make a change. However, we recently received new EPA guidelines that say we should be billing in gallons.

“[Our utility] is in the process of obtaining a US Army Corps. of Engineers permit to construct a reservoir to meet our customer’s needs in times of low flow and drought. In EPA’s comments to our permit application it states that billing in gallons better shows the customer exactly how much water they use and leads to better possibility of conservation of the resource. So it looks like going forward with more conservation awareness and efficiency of our water resource, there will be an effort to get everyone back to billing by the gallon.

“This is good information as we decide how we will respond to EPA’s comments. We either have to tell them that we will be moving back to billing by the gallon, or present information as you have shown that defends the fact that there is very little difference. Of course your case study does not really address the effect of individual customers usage when being billed in gallons vs thousands.”

I always appreciate feedback from subscribers and this was especially valuable given that this customer addressed a point of view that I overlooked. I agree completely with the EPA’s position that billing in gallons provides your customers with much more accurate information about their actual consumption.

Revisiting billing in gallons as compared to thousands of gallons

Let’s take the same two illustrations from the last issue to show the difference between billing in gallons and billing in thousands, except this time carry it one step further to show the average daily usage.

In the illustration below, the customer is only billed for 4000 gallons when the actual usage is almost 5000 gallons and the average daily usage, when billing in thousands, is understated by almost 20%:

Advantage Billing in Thousands

In this illustration, the customer is billed for 4000 gallons when the actual usage is just over 3000 gallons and the average daily usage, when billing in thousands, is overstated by more than 30%:

Advantage Billing in Gallons

Should you reconsider and switch to billing in gallons?

If your intent is to present your customers with the most accurate usage information possible, especially if you are trying to encourage them to conserve, then I wholeheartedly endorse making the change to billing in gallons.

If you have any questions about reading and billing units, or how they impact your customers, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com.

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© 2011 Gary Sanders

Does it make a difference what units we bill in…?

Last week I had an interesting conversation with a customer who was dealing with an irate customer of hers who had taken his complaint before the board. It seems that this gentleman was upset because he thought the utility was billing him incorrectly. So, what were they doing wrong…? Billing him in thousands of gallons, so he contended!

Our customer had to prepare a response to her board and had two questions:

  1. What would be involved in changing from billing in thousands of gallons to billing in actual gallons?
  2. How many other utilities bill in thousands of gallons?

Billing in gallons as compared to thousands of gallons

We discussed the issue for a few minutes and she had a good grasp of the difference between billing in thousands of gallons and billing in gallons. Namely, when billing in thousands, the customer is the beneficiary of a deferred billing for any usage until the meter rolls to the next thousand gallons. In the illustration below, the customer is only billed for 4000 gallons when the actual usage is almost 5000 gallons:

However, billing in thousands can work to the customer’s disadvantage if the previous reading was just less than the next thousand and the current reading is just more than another thousand. In this illustration, the customer is billed for 4000 gallons when the actual usage is just over 3000 gallons:

Obviously, if you are currently reading and billing in thousands of gallons, there is no way to go back and know what the actual reading was in gallons at the time the meter was read. So, unless the customer read his meter at the same time as the meter reader, there is no way he could have known if he was being billed more or less.

So, let’s conduct an experiment…

I decided to conduct an experiment using actual reading data to see what the impact of reading and billing in thousands is compared to reading and billing in gallons. Since our customer reads in thousands, there was no way I could use their data.

I happened to have actual reading data, in gallons, from another customer’s conversion a few years ago on my laptop. So I decided to use that data and calculate a year’s worth of charges using the rates of the customer who called.

Those rates are pretty straightforward – the base charge of $25.00 includes 2000 gallons and all usage over 2000 gallons is billed at $4.00/thousand gallons.

Results of the experiment…

From the sample data, I eliminated all accounts that had less than 13 months of readings. I was left with data from 698 accounts with which to conduct my experiment. Of those 698 accounts, 102 (or 14.6%) were billed the same in gallons and thousands, 312 (44.7%) were billed more in gallons and 284 accounts (40.7%) were billed more in thousands.

The total billed in gallons was $353,413.14 and the total billed in thousands was $353,404.00 for a net difference of only $9.14! The largest difference for any individual account was $7.72 when billed in gallons and $7.60 when billed in thousands.

The table below summarizes the results of the calculations:

Below is the billing detail for the account that was billed more in gallons:

Below is the billing detail for the account that was billed more in thousands of gallons:

As you can see, it’s pretty much a toss up as to whether the customer or the utility benefits from billing in gallons or thousands. In some cases, the customer benefits and in other cases, it works to the customer’s disadvantage.

Why would a utility change billing units?

If you’re already reading and billing in gallons, I can’t think of any reason to change to a larger billing unit.

If you’re billing in thousands and considering changing to gallons, I would only recommend doing so if you have a reason other than pacifying an upset customer! The best reason I can think of is if you are moving from reading with handhelds to some form of automated meter reading, either drive-by or fixed base.

An excellent time to make the switch from billing in thousands to billing in gallons is the conversion to a new billing system.

Let’s go back and answer the original two questions from our customer…

What would be involved in changing from billing in thousands to billing in gallons?

If you were to decide to change from billing in thousands to billing in gallons, the following data fields would have to be changed for each account in your billing system:

  • Previous reading
  • Current reading (if readings have been updated)
  • Usage (if readings have been updated)
  • Any usage history used to calculate the moving average
  • Moving average
  • Number of dials

How many other utilities bill in thousands of gallons?

To answer this question, I turned to the 2010 North Carolina Water and Wastewater Financial Practices and Policies Survey conducted by the Environmental Finance Center at the University of North Carolina and the North Carolina League of Municipalities. This survey tallied the responses of 277 utilities across North Carolina about their financial practices and policies. Even if your utility is not located in North Carolina, this document is filled with useful and insightful information.

The following graph appears on page 3 and answers the question, “At what level does your utility round measured consumption to calculate bills?”:

As you can see, billing in thousands of gallons is the most common billing unit of the utilities surveyed. I assured our customer that her utility is on solid ground with their policy of billing in thousands of gallons.

If you have any questions about reading and billing units, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com.

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© 2011 Gary Sanders

Win a $50 gift card!

Would you like to win a $50 gift card just in time for Christmas?

To increase subscribers to my bi-weekly e-mail newsletter, I’m offering a special promotion through Wednesday, November 30. Each new subscriber to my newsletter between now and 11:59pm, November 30 will be entered into a drawing for a $50 Walmart gift card.

If you are already a subscriber (or once you become a subscriber) you can also be entered to win a $50 gift card by referring colleagues and co-workers. For each new subscriber who lists you in the “Referred By” field of the signup form, your name will be entered into a drawing for another $50 Walmart gift card. To qualify, referrals must be involved in the utility industry in some way. No, you can’t sign your kids up (unless they work in the utility industry)!

Click here to participate in the drawing and subscribe to my newsletter, or click on the “subscribe” button in the top right corner of this page.

Good luck!

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© 2011 Gary Sanders

Can we charge a convenience fee for credit card payments…?

If you’ve read past issues of this newsletter, it should be obvious by now that I firmly believe utilities should accept credit cards. If you missed them, please see Issue #4 or Issue #7 for past discussions about accepting credit cards.

So, now that you’ve been convinced to accept credit cards, you may be wondering if you can recoup any of the costs of offering credit cards by charging a convenience fee. The answer is “It depends…”. This issue will help shed some light on the confusion surrounding convenience fees…

If you’ve been reading these newsletters for a while, you’ve probably realized that I have some pretty strong opinions about a number of business practices. The topic of convenience fees is one that I have completely changed my mind about. I used to be of the opinion that utilities shouldn’t charge convenience fees because customers aren’t accustomed to paying a convenience fee to pay by credit card anywhere else they do business.

Having seen how well received Logics’ WebPay and PhonePay have been for several of our customers that do charge a convenience fee has changed my mind. Our largest customer has seen payments by WebPay and PhonePay increase to nearly 10% of their customers and a $3.50 convenience fee has not deterred any of them!

When can’t you charge a convenience fee?

When looking at convenience fees, the first thing to consider is how the credit card payment is being received – what Visa and MasterCard call the “payment channel”. Visa and MasterCard define the “traditional payment channel” as credit card payments received over the counter or through the mail. Without specific legislation in your state giving you the authority to charge a convenience fee, Visa and MasterCard will not allow you to charge a convenience fee for payments accepted via the traditional payment channel.

When can you charge a convenience fee?

Eliminating payments made over the counter and through the mail leaves the following types of payments eligible to be assessed a convenience fee:

  • Phone, with a person answering the phone
  • Interactive Voice Response (IVR), automated phone payments
  • online bill pay
  • Kiosk

How much can you charge for the convenience fee?

The purpose of a convenience fee is to recover the cost of providing alternate ways for your customers to pay by credit card, not to recover the merchant fees associated with credit card payments. Now that I’ve said that for the record, I do realize that many utilities use the convenience fee to recover the cost of merchant fees.

Do the same rules apply to all credit cards?

Of course not, because that would make things easy!

Visa has more stringent requirements than either MasterCard, Discover or American Express. Among other requirements, Visa stipulates that the convenience fee must be a flat amount. The website cardfellow.com has an excellent discussion of convenience fees.

Can we charge a convenience fee as a percentage or does it have to be a flat amount?

As noted in the previous section, Visa will only allow a convenience fee that is a flat amount. So if you want a consistent policy for all credit card payments, it seems only logical to assess the convenience fee as a flat amount.

What happens if we charge a convenience fee for all credit card payments?

So, what happens if you’re currently charging a convenience for all credit card payments, including over the counter payments? I am aware of one utility that assessed a convenience fee for in person credit card transactions. One of their customers reported them to Visa. The utility received a very stern letter from Visa advising them to stop assessing the convenience fee immediately or face revocation of their ability to accept Visa payments. Needless to say, they stopped assessing the convenience fee for over the counter payments immediately.

If you have any questions about credit card payments or charging convenience fees, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com.

Editor’s note: As a result of the Interchange Settlement, checkout fees are now allowed for some utilities effective January 27, 2013. Click here to read my blog post about checkout fees.

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© 2011 Gary Sanders