Why argue with your customers?

Recent Utility Information Pipelines have been examining trends over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019, and this one continues that theme.

With this installment, let’s take a look at what I consider a very important best practice regarding charging the cut-off fee (or reconnect fee or whatever you call your fee) on cut-off day.

If you’ve been a Utility Information Pipeline reader for any length of time, you know I’m a firm believer in the best practice of charging the cut-off fee for non-payment to all accounts as soon as the cut-off list leaves the office. By this, I mean not playing the age-old game on cut-off day of contacting the field service technicians each time a customer comes in to pay to see if they’ve been cut off yet or not.

The inevitable argument

As soon as you institute this policy change and start charging the cut-off fee to everyone at the same time, rather than waiting until the account has been cut off, invariably you’re going to have a customer protest. This customer is going to make the argument of “you can’t charge me a cut-off fee if you haven’t cut my service off”, or something similar.

So why not avoid this argument entirely! How do you go about doing this, you ask?

What other utilities have done

Other utilities, faced with the same dilemma from their own argumentative customers, have adopted what I’m referring to as “non-traditional terminology” to describe their cut-off fee. By non-traditional terminology, I mean basically anything not containing any of the following terms:

  • Cut-Off
  • Cut-On
  • Disconnect
  • Lock
  • Off
  • On
  • Reactivate
  • Reconnect
  • Restore
  • Shut-Off
  • Suspension
  • Termination
  • Turn-Off
  • Turn-On

Analyzing the trend toward non-traditional terminology

This graph below shows the trend over the four Utility Fee Surveys away from traditional terminology to non-traditional terminology. Traditional terminology is still king, but non-traditional terms are slowly gaining in popularity. Clicking on the graph will open a larger image in a new window.

What are some popular non-traditional terms?

For utilities who have adopted a non-traditional term for their cut-off fee, the graph below displays the 10 most popular terms reported for the four Utility Fee Surveys:

Is it time to revise your cut-off fee?

If you’re considering revising any part of your delinquent process – from late fees to the cut-off process, please give me a call at 919-673-4050, or email me at gsanders@edmundsgovtech.com to see how a business review could help you find out.

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© 2020 Gary Sanders

How much should your cut-off fee be?

The last installment analyzed cut-off fee (or reconnect fee or whatever you call your fee) trends over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019.

Based on the data, I don’t believe some utilities are charging enough for their cut-off fee.

How do you go about setting your cut-off fee? One option is to compare your utility to neighboring utilities and simply follow what they are doing. But is that really the best way to go about it? A better option is to calculate your costs and establish a fair and equitable fee.

This issue unveils a new cut-off fee calculator to help you determine if your cut-off fee is sufficient. But first, let’s look at what goes into calculating a fee…

GFOA best practice regarding fees

The following paragraph is from the Government Finance Officers Association (GFOA) website best practices regarding Establishing Government Charges and Fees:

 
Calculate the full cost of providing a service in order to provide a basis for setting the charge or fee.
 

  • Full cost incorporates direct and indirect costs (including operations and maintenance), overhead, and charges for the use of capital facilities. Examples of overhead costs include: payroll processing, accounting services, computer usage, and other central administrative services.
  • One useful tool for calculating service costs is Activity Based Costing (ABC). ABC assigns costs to the activities required to deliver a service and can be more accurate than traditional costing methods.
  • The associated costs of collection need to be addressed.

Even if your utility isn’t a government entity, this is good advice to follow in setting fees, including your cut-off or reconnect fee.

Activity-based costing for cut-off fees

When determining how much your cut-off fee should be, it’s helpful to analyze the activities required to complete the process. These activities include:

  • Preparing the cut-off list
  • Delivering final notices (if you use one)
  • Disconnecting delinquent accounts
  • Collecting payments from cut-off accounts
  • Reconnecting accounts
  • Dealing with escalated calls from unhappy customers

Included in these activities are the following costs – labor (including fringe benefits), fuel, wear-and-tear and depreciation for vehicles, and consumables (paper, toner, ink, pens, and pencils, etc.)

What is your fringe benefit rate?

An often-overlooked component of the labor cost of any fee is fringe benefits. There are the obvious payroll-related expenses of FICA, Medicare, retirement, and employer-paid health insurance. But that’s not all – don’t forget paid time off.

If you have a full-time employee who earns three weeks of vacation a year, one sick day per month, and eight paid holidays per year, that’s 35 days each year this employee is paid, but doesn’t work. That’s an effective fringe benefit rate of 13.46% (280 non-working hours divided by 2080 annual paid hours).

The U.S. Department of Labor Bureau of Labor Statistics research indicates the fringe benefit rate is 60.51% for state and local government and 42.65% for private industry. If you’re interested in how the BLS arrived at these numbers, please see Table 1 in this press release from September of last year.

Cut-off fee calculator

I’ve developed an online tool, much like the Days of Exposure calculator, to calculate your optimum cut-off fee.

To use the tool, you will need to know the average hourly rates and miles driven (if applicable) for each of the activities enumerated above. You will also need to know the average miles per gallon and price of fuel for your vehicles, your fringe benefit rate, and the cost to mail or place automated calls for final notices.

In addition to the activity-based costs listed above, the tool adds five percent for consumables, much like an auto repair shop adds a percentage to your bill for shop supplies.

To calculate your cut-off fee, please click here.

Is your cut-off fee adequate?

If you’re wondering if your cut-off fee is sufficient, please give me a call at 919-673-4050, or email me at gsanders@edmundsgovtech.com to see how a business review could help you find out.

Click here to subscribe to my free, bi-weekly email newsletter...

© 2020 Gary Sanders