How to avoid billing “spikes”

Recently, one of my connections on LinkedIn, Glenn Barnes with Water Finance Assistance, shared this article about smart meters causing water bills to increase.

Meters are like people

It’s a well-documented fact that meters, like people, slow down with age. Therefore, installing new meters, whether they are smart meters or not, will likely result in increased water bills.

It is commendable that the town plans to conduct a public hearing to address the potential impact on customers’ utility bills. Anytime a utility can be transparent and forthcoming with their customer base about upcoming changes, particularly changes which will impact their customers financially, is a positive step.

Billing “spikes”

The article goes on to discuss citizen complaints about “intermittent spiking”. These spikes in monthly bills occur because bills are currently generated in thousands of gallons rather than in individual gallons. The article gives the false impression that it will take moving to smart meters to remedy this when, in actuality, these spikes are due to the TTWWADI syndrome – continuing to do something because it’s always been done that way.

Chances are, meters are still being read and billed in thousands of gallons because this is the way it was done decades ago. Back then, meters were read on paper and bills were produced manually, or with ledger card machines (if you don’t know what that is, thank your lucky stars!).

Even when reading with handhelds (or still on paper, if you’re that outdated), meters can be read and billed in individual gallons. It takes some changes to the existing database, but it’s not rocket science!

Revisiting an example

I originally wrote about this topic eight years ago, in this post where I showed examples of how truncating readings to the thousands place can impact billings.

The following issue discussed the impact of billing in thousands on conservation efforts, as compared to billing in gallons.

The examples in the original post were rates with a base rate of $25.00 for the first 2000 gallons and $4.00 per thousand gallons above the minimum. From their website, the town mentioned in the article has rates of $25.07 for the first 2000 gallons and $12.54 per thousand gallons above the minimum – quite a difference from the original example!

Let’s revisit those original examples using the rates for the town referenced in the article:

First, the account that was billed more by billing in gallons (clicking on either of the tables will open a larger image in a new window):

And here is the account that was billed more by billing in thousands of gallons:

The graph at the top of the article is based on the first table where the customer would be billed more by billing in gallons. Looking at the blue bars in the graph, it’s easy to see how a customer using just over the minimum can think their bill is higher than it should be once it “spikes” above the minimum.

For eight consecutive months (September to April) this customer would have received a minimum bill. Then, in May, when their accumulated usage rolls to the next thousand gallons, suddenly their bill is 50% higher! Imagine if they had used 110 gallons more in May – then their bill in thousands would have been for 4000 gallons, resulting in a bill double what they had been used to!

Clearly, billing in gallons provides your customer with a more accurate bill each month. Any fluctuations from one month to the next are based on actual usage, not the anomalies of whether their reading rolls to the next thousand gallons or not.

Need assistance?

If you are in the process of replacing meters and need assistance explaining this to your customers or if you are currently billing in units greater than individual gallons, such as hundreds or thousands of gallons, please give me a call at 919-673-4050, or email me at for more information about how a business review could help you.

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© 2019 Gary Sanders

What’s it going to be…?

Over the course of the past few weeks, I’ve been involved with several customers moving to automated meter reading systems. One customer is migrating to an AMI system and currently reads in thousands of gallons and applies a multiplier to their readings to bill in gallons. Another is implementing an AMR system and reads and bills in hundreds of gallons.

Both are using a contractor to replace their meters, so I asked if either would be changing to reading and billing in gallons and explained this is the ideal time to make the switch.

Why read and bill in gallons?

I’ve written before about a compelling reason for changing to reading and billing in gallons, but with an AMI system, there is an even better reason. If you plan to offer an online portal so your customers can access their daily usage, as the customer moving to AMI does, do you want them to be able to reconcile their daily usage to their billed usage? If you do, then you will have to read and bill in gallons.

What does it take to make the change?

If, like the AMI customer, you are already billing in gallons, just reading in larger units, all you need to do is drop the multiplier on your readings and start reading meters to the gallon.

On the other hand, if you are like the AMR customer and reading and billing in the larger units, you will have to make some changes to your data. These data fields would need to be changed for each account in the 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

What’s it going to be…?

If you’re making the change to an automated meter reading system and you’re not already reading and billing in gallons, you have two options – make the change or fall victim to the TTWWADI syndrome. What’s it going to be…?

Holiday spending money

If you missed it in a previous issue, I’m offering two $50.00 Visa gift cards, one to a new subscriber and one to a current subscriber who refers a new subscriber.If you refer a new subscriber between now and 11:59 pm on Thursday, November 15, you will be entered once for each referral. For referrals from outside your organization, you will be entered twice for each new subscriber. Be sure to remind the people you refer to enter your name on the Referred By line when they complete the subscription form.

Are you moving to automated meter reading?

Are you considering moving to an automated meter reading system and wondering how to get started? To find out, please give me a call at 919-232-2320 or e-mail me at to learn how you could benefit from a business review.

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© 2018 Gary Sanders

An interesting rate application…

Recently, during a sales presentation, I was presented with a rate scenario I’ve not encountered in my 35 plus years of working with utilities. Rather than billing new accounts activated in the same billing period starting at zero, this utility bills the new account by resuming where the old account maxed out in the rate table. For lack of a better term, I’ve decided to call this a block continuation rate.

For example, consider a hypothetical rate structure with three blocks – the first 3,000 gallons, next 7,000 gallons, and all over 10,000 gallons. If the customer who moved out used 4,000 gallons, and the new customer used 2,000 gallons, the new customer would be billed for their usage at the second tier, not the first tier, as is the practice for most utilities.

Rationale for the rate structure

In the 35 plus years I’ve been involved with utility billing, this is the first case I’ve experienced like this. Admittedly, this utility is a little unique. To provide some background, they only bill semi-annually (that’s every six months) and their rate structure is an increasing block rate as shown below:

They bill using this block continuation methodology so as not to lose revenue, given the length of time between billings and the number of potential new customers each billing period.

Revenue comparison

Below is a chart of the actual charges for two hypothetical customers at the same address, both with identical usage within the six month billing period, billed using both block continuation rates and traditional rates:

This revenue comparison is also plotted in the graph at the top of this newsletter. Up until 3,000 gallons, the two methodologies generate the same revenue, because the usage is all within the first tier. From 4,000 to 7,000 gallons, the rate structures start to diverge, maxing out with a revenue difference of $38.00 (the first 20,000 gallons for the new customer being billed at $1.90 more per thousand gallons using the block continuation rate). From 7,000 to 33,000 gallons, the difference remains $38.00.

I didn’t include it for illustration purposes, but the same thing occurs again with the second block at 34,000 gallons per month for each account, maxing out at 67,000 gallons for an increase in revenue of $248.00.

Multiply these differences by a few hundred new customers in a semi-annual billing period, and this begins to make a difference in revenue for the utility! This utility experiences a significant increase in revenue from using block continuation rates for two reasons – the length of time between billings and the large increases from one rate tier to the next. Billing more frequently with smaller increases between rate tiers wouldn’t have nearly the impact it does in this case.

Do you have unique or creative rates?

If you have seen similar rates, or other unique rate structures, please leave a comment at the end of this post. If you’re wondering how you effective your rates are, please give me a call at 919-232-2320 or e-mail me at to learn how a business review could help.

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© 2018 Gary Sanders

Do you separate your base charge…?

If your utility is like most, your rates include a base (fixed) charge in addition to the usage charge. The base charge, sometimes called an administrative fee, should generate enough revenue to cover the fixed costs associated with operating your utility. This includes things like the customer’s meter, the infrastructure necessary to provide service to the customer’s location, and reading the meter each billing period. Some water utilities charge different base charges according to the size of the meter under the premise that a larger meter costs the utility more to provide and maintain, both for the meter and the infrastructure to supply water to the meter.

Conversation with a customer

I’ve recently had a conversation with a customer who is considering separating the base charge from the usage component of his city’s water and sewer rates. There are pros and cons to doing this, so this issue will examine those.

Benefits of separating the base charge

The biggest advantage of breaking out the base charge from the usage charge is transparency for your customers. Showing each as a separate line on the bill more clearly communicates to your customers what they are being charged.

A second advantage of separating the base charge from the usage charge is it’s easier for your customers to see the impact of increased or decreased usage on their bill. This is especially true if you institute water conservation rates in times of drought and even more important if you have increasing block rates, so that your customers see the impact of their water consumption. If you’ve recently switched to increasing block rates and haven’t reevaluated how you bill for multiple units, you might want to read this.

The third advantage of splitting the charges is it’s now much easier to track the revenue generated from each component of your rate. Rather than seeing one combined total on billing registers and reports, you will now see separate totals for each.

Disadvantages of separating the base charge

The disadvantage to separating the base charge from the usage charge is customer education. This can be mitigated if you publicize the transition well enough but, in spite of your best efforts at educating your customers, some won’t realize the change is happening until they receive their first bill with the charges separated.

Several years ago, a customer that provides both water and sewer decided to break out the base charge from the usage charge for both services. This meant their customers went from receiving a bill with two line items – water and sewer – to a bill with four line items – water base charge, water usage, sewer base charge, and sewer usage. They didn’t publicize the change well and, needless to say, their phones rang off the hook. Customers, mistakenly thinking they were being charged for additional services, were irate. They ended up paying bonuses to their customer service representatives because of all the verbal abuse they took from customers!

So the moral of the story is, if you decide to do this, publicize it as much as you can well in advance!

Final week for the Utility Staffing Survey!

The 2018 Utility Staffing Survey will be closing on April 15 at midnight, so if you haven’t yet participated, this week is your last opportunity to do so. To complete the survey, please click here. This should take less than five minutes to complete. The results will be published in the next two Utility Information Pipelines.

Please feel free to share this survey with your peers at other utilities.

Thank you in advance for taking the time to complete the survey and for sharing it with other utilities.

Are your policies up-to-date?

If you are considering changing your rates or otherwise need help deciding how to best present information to your customers, please give me a call at 919-232-2320 or e-mail me at to learn how a business review could help your utility.

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© 2018 Gary Sanders

Are you tracking non-revenue water?

Does your utility track non-revenue water (NRW)? Non-revenue water is the term that replaces what was formerly called water loss reporting.

Graphic courtesy of Tata & Howard –

What is non-revenue water?

Non-revenue water is defined as your total system input volume (either water produced or purchased) less billed consumption.

From the chart below you can see that your system input volume falls into one of two categories – authorized consumption or water losses. Each of these are then further divided into two sub-categories – authorized consumption into billed and unbilled authorized consumption and water losses into apparent and real losses.

Non- revenue water is the total of unbilled authorized consumption, apparent losses, and real losses.

Let’s analyze each of these in more detail…

Billed authorized consumption

This is pretty straightforward – this is what your utility is in business to do! Billed authorized consumption can be either metered or unmetered, but it is accounted for and you (hopefully) get paid for it!

Unbilled authorized consumption

Unbilled authorized consumption can also be either metered or unmetered. Unbilled metered consumption would include your own facilities if you don’t bill yourself. Examples of unbilled unmetered consumption would be flushing lines or the fire department drawing water from hydrants in your system.

Apparent losses

Apparent losses are also broken down into two types – unauthorized consumption and customer meter inaccuracies and data handling errors. Unauthorized consumption is self-explanatory – it’s stolen water or any other consumption without the utility’s authorization.

Customer meter inaccuracies includes meters slowing down over time due to wear and tear. Remember, meters are like people – they slow down, not speed up, as they get older! Metering inaccuracies could also be due to failing to install a compound meter for a multi-unit apartment building and not registering low flows during off-peak times.

Data handling errors would encompass such things as meters that are billed using the wrong billing units. For example, if a meter is read in thousands of gallons but billed in hundreds of gallons, the apparent loss is a factor of 10.

Real losses

Real losses are further defined as leakage in transmission and distribution mains, leaks and overflows from storage tanks, and service connection leaks up to the meter.

Leaks in transmission, distribution, and service lines are what first comes to mind for most people when they think of water loss, but leaks and overflows from storage tanks must also be considered.

AWWA resources

The American Water Works Association (AWWA) offers free water audit software to assist with accounting for non-revenue water. They also offer a concise, three page document describing water audits with definitions and performance indicators to help explain the process.

Need help getting started?

If you need help getting started with performing a water audit, please give me a call at 919-232-2320 or e-mail me at and I can put you in touch with consultants who specialize in this area.

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© 2018 Gary Sanders

What’s a compound meter?

In the last Utility Information Pipeline, I wrote about the pros and cons of metering individual premises. That article went on to briefly mention the possibly needing a compound meter, if a master meter were to be installed. So, what exactly is a compound meter…?

Compound meters

Compound meters (sometimes referred to as high/low meters because they have high and low flow sides) are used in situations where large volumes of water need to be metered, but at other times slower flows must also be recorded.

Such a scenario could be a large, multi-unit apartment building or a hotel that must be able to meter high usage first thing in the morning, when many residents are showering at the same time, but also measure low flows in the middle of night to record the occasional toilet flush. A manufacturing plant that uses large volumes of water while the plant is in operation, and minimal usage at other times, is another example of a prime candidate for a compound meter.

The Alliance for Water Efficiency has a good, easy to understand description of compound meters in this article.

For billing purposes, with compound meters, two sets of meter readings are taken – a larger meter for the high flows (the “high side”) and another, smaller meter, for the low flows (the “low side”). The usages are then added together and the customer is billed for the combined usage.

Don’t be fooled

The “high side” of a compound meter may not always be the higher reading of the two. The high side could have already rolled over, and have a lower reading, or there could be relatively little high demand. In the latter case, most of the water used would be metered by the “low side”.

Does your billing system support compound meters?

Many older billing systems don’t properly support compound meters. Some require creating two accounts – one for the high side meter and another for the low side meter. Others require manipulating the readings before entering them as a single, combined meter.

If your billing system doesn’t easily handle compound meters, it may be time for a change. If you’re in this situation, please give me a call at 919-232-2320 or e-mail me at to learn how a business review could benefit your utility.

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© 2017 Gary Sanders