Have you seen any of the negative publicity that Detroit is getting for cutting off water to delinquent customers?
I read this story online over the weekend and wasn’t surprised to read that Detroit was finally starting to cut off customers for non-payment.
I had occasion to speak with the CFO of the Detroit Water and Sewerage Department last year. At that time, nearly 82% of their receivables were 60 days or older. On top of that, they hadn’t done cut-offs for non-payment in three years. Yes, you read that correctly – three years, not three months!
Could your utility remain solvent if over 80% of your receivables were seriously delinquent and you weren’t doing anything to tackle the problem? Of course not!
As Tom Curtis, deputy executive director of AWWA, stated in the article “If you never shut the water off for anybody, those people who continue to pay have to shoulder the entire cost of a system that is servicing a lot of customers that aren’t paying. That’s not a sustainable business model.”
There is no excuse, other than poor management, for a utility going three years without cutting customers off for non-payment.
Most of the public outcry is over the fact that, suddenly in the heat of summer, some customers who can least afford to pay are without water.
I believe for-profit and investor owned utilities have a responsibility to set aside some of their profits to offer assistance programs for customers who have legitimate hardships.
I don’t feel the same way about municipal utilities or utility districts whose priority is to provide the best service at the lowest rates for their customers. Most utilities I’m familiar with have a working relationship with local social service agencies, church groups, or other charities that provide assistance with utility bills and refer customers with economic hardships to those agencies.
An effective policy is the best way
The article goes on to highlight the case of Hamtramck, Michigan – another financially strapped city – that shut off customers as a way of stepping up their collection efforts. In a year, the city went from a $350,000 deficit to a $2 million fund balance in the water fund.
The article cites an impressive statistic – cutting off 150 customers caused 390 delinquent customers to pay. This bears out what I’ve always believed – adopting and enforcing an effective cut-off policy as part of an overall customer service policy the best way to reduce delinquent accounts.
Have you reviewed your cut-off policy lately?
Is your cut-off policy up-to-date and as effective as it should be? If you’re not sure, please give me a call at 919-232-2320 or e-mail me at firstname.lastname@example.org to learn how a business review could benefit your organization.
© 2014 Gary Sanders
If you’ve ever asked a question and gotten the dreaded answer of “that’s the way we’ve always done it,” then your organization could be suffering from what I call TTWWADI syndrome.
Is TTWWADI syndrome holding you back?
Back in the day, the 3 R’s referred to reading, writing, and arithmetic.
In an office afflicted with TTWWADI syndrome, the 3 R’s refer to resistance, reluctance, and refusal.
I’m surprised at how often I run into utilities that are resistant to change. Do any of these situations sound familiar to you?
Is the same old way always the best way?
The TTWWADI syndrome isn’t found only in the failure to take advantage of new technologies. Often, antiquated ways of doing things become institutionalized in organizations to the point they are never questioned.
Sometimes, doing things the same way for years makes sense. But other times, when we stop to think about it, many practices – especially informal processes that have developed over time – no longer serve a useful purpose.
In forward thinking organizations, questioning why things are done a certain way isn’t chastised, it’s welcomed!
In forward thinking organizations, questioning why things are done a certain way isn’t chastised, it’s welcomed! If you do something a particular way with no real reason for continuing to do it that way, it behooves you to question why you’re still doing it.
Many times, those closest to a process are oblivious to how redundant or useless it has become. A knowledgeable, objective outsider observing and asking why things are done a particular way can lead to constructive discussions and improvements in how things are done.
Is it time to consider a business review?
Do you ever wonder if your office could be run more efficiently? Or would you just like confirmation that you’re doing things the right way?
In either case, please give me a call at 919-232-2320 or e-mail me at email@example.com to learn how a business review could benefit your organization.
© 2014 Gary Sanders
Recently, I’ve done sales presentations for several utilities that don’t charge a fee for initiating service.
Excellent source of revenue
Many utilities try to keep rate increases that impact all customers to a minimum, but need to find additional sources of revenue. Charging an application fee is a great example of a fee that can generate additional revenue without impacting your entire customer base.
An application (or connection) fee is a prime example of the concept of user fees, whereby customers using a service are charged a fee for providing the service. A fair and equitable application fee should recoup the cost of initiating service for a new account.
A fair and equitable application fee should recoup the cost of initiating service for a new account.
Past Utility Information Pipeline issues have referenced the Government Finance Officers Association’s (GFOA) Committee on Governmental Budgeting and Fiscal Policy’s Best Practice for Measuring the Full Cost of Government Service. That policy states “The full cost of a service encompasses all direct and indirect costs related to that service. Direct costs include the salaries, wages, and benefits of employees while they are exclusively working on the delivery of the service, as well as the materials and supplies, and other associated operating costs such as utilities and rent, training and travel. Likewise, they include costs that may not be fully funded in the current period such as compensated absences, interest expense, depreciation or a use allowance, and pensions. Indirect costs include shared administrative expenses within the work unit and in one or more support functions outside the work unit (e.g., legal, finance, human resources, facilities, maintenance, technology).”
Costs associated with initiating service
Have you stopped to calculate the cost of initiating service for a new account? Here are some of the obvious direct and indirect costs:
- Office staff salary and benefits to enter the application in the system
- Cost of a credit check, if you perform one
- Field staff salary and benefits to drive to the location and take the initial meter reading
- Gas and maintenance expenses for the vehicle used by the field staff
- Updating the turn-on service order and activating the account for billing
If you don’t charge an application fee, your entire customer base ends up paying for the costs associated with activating a new account through your rates. Is that fair to all the rest of your customers?
Is it time to consider an application fee?
If you’re not currently charging an application fee (or if you haven’t reviewed your existing fee in a while) and would like assistance establishing a connection fee, please give me a call at 919-232-2320 or e-mail me at firstname.lastname@example.org.
© 2014 Gary Sanders