Why aren’t you charging an application fee?

Continuing with the theme of examining trends over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019, this installment looks at application fees.

An application fee, or service initiation fee, is charged to new accounts when applying for service. The purpose of the fee, as described in this blog post, is to recoup the cost of taking an application and starting service for a new customer.

Surprisingly, the percentage of utilities charging an application fee has remained virtually flat over the four years of the Utility Fee Survey. Application fees peaked at 53.3% in 2012, the first year of the survey, then declined in 2015 and 2017 before rebounding slightly to 50.4% last year, as shown in the graph below (clicking on any of the graphs will open a larger image in a new window):

Average fee amounts

Interestingly, as shown in the graph below, the median (an equal number of smaller and larger values) application fee has remained $25.00, while the average (the arithmetic mean) application fee has steadily increased from $31.74 in 2012 to $44.81 last year:

Why the disparity?

It’s valid to ask “why has the average application fee increased while the median fee has remained the same?”. This is because the number of utilities charging a $25.00 application fee has increased from 14 in 2012 to 17 in 2015 to 21 in both 2017 and 2019. This increase, coupled with a rising number of application fees of $100.00 or more (2 in 2012, 3 in 2015, 6 in 2015, and 7 in 2019) contributes to a larger average while keeping the median value the same.

Another contributing factor is the increase in the maximum fee each year. For the first two years, the highest application fee was $100.00, increasing to $150.00 for 2017 and maxing out at $250.00 for 2019. It’s worth noting that some of these large application fees are charged in lieu of a refundable security deposit.

This graph shows the distribution of fees by dollar amount over the four Utility Fee Surveys:

Takeaways

The first, and most obvious, takeaway from this analysis is, if you’re not charging an application fee, you should consider doing so!

Secondly, those utilities charging an application fee have been steadily increasing their fees. Similar to your reconnect fee, the application fee should take into consideration all of the labor, materials, and vehicle usage to process an application. If you haven’t reviewed your application fee recently, now might be a good time to do so!

Is it time to evaluate your fees?

If you’re not currently charging an application fee, or if you want to review all your fees, please give me a call at 919-673-4050, or email me at gsanders@edmundsgovtech.com to see how a business review could help find new sources of revenue.

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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

A look at cut-off fee trends

The 2019 Utility Fee Survey was the fourth Utility Fee Survey, the third of which has alternated years with the Utility Staffing Survey. This means I’ve collected enough data to begin analyzing trends.

Cut-off fee trends

Below is a graph of the average and median cut-off or reconnect fees (or whatever you call your fee) over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019:

The median fee (the value with an equal number of smaller and larger values) has steadily increased from $35.00 in 2012 to $46.50 last year. Interestingly, the average (or mean) value dropped from 2012 to 2015 but increased gradually in 2017 and 2019.

Breakdown by dollar range

To further analyze the data, I plotted the number of fees in $10.00 increments up to $100.00 and then the number over $100.00. This is displayed in the graph below (clicking on the graph will open a larger image in a new window):

This graph helps to understand the anomaly of 2012 where the mean was substantially higher than the median (34.08% higher as compared the next highest year, 2019, at 13.54%). 2012 had the largest number of fees in the $20.01 to $30.00 range coupled with the smallest number of fees at every other interval except for $80.01 to $90.00. The two fees over $100.00 that year were two of the three highest fees from any year.

What does this mean for your utility?

Cut-off or reconnect fees, as with any fee, should accurately recoup the cost of providing the service associated with the fee – in this case preparing the cut-off list, disconnecting, and reconnecting the accounts on the cut-off list.

Clearly, cut-off fees for the average utility have increased over time. If your cut-off fee has remained static for several years, it’s time to reevaluate your fee.

To assist you with doing that, I’ll be unveiling a new online tool, much like the Days of Exposure calculator, to calculate your optimum cut-off fee in the next Utility Information Pipeline.

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

2019 Utility Fee Survey Results – Part III

Over the course of the past few months, I’ve been conducting the 2019 Utility Fee Survey. This is an update to the original Utility Fee Survey in 2012 and subsequent fee surveys in 2015 and 2017. The survey was designed to research what fees utilities charge, how much they charge for each fee, and to see what trends, if any, are occurring with fees.

This is the third, and final, of three consecutive Utility Information Pipelines reporting the results of the 2019 Utility Fee Survey. 135 utilities, representing 22 states, ranging in size from 89 to 539,000 active accounts participated in the survey.

The Utility Fee Survey has become a biennial survey, alternating years with the Utility Staffing Survey.

As was the case in each of the previous surveys, the results include too much information for a single issue. If you’re interested, here are the results from the 2012, 2015, and 2017 Utility Fee Surveys:

The first results issue summarized the demographics of the survey respondents as well as water and sewer tap and impact fees. The last issue dealt with delinquent fees and policies. Today’s issue is the third and final survey results issue and recaps all remaining fees.

Returned check fees

All 135 participating utilities charge a returned check fee ranging from $10.00 to $50.00, as this graph illustrates (clicking on any of the graphs will open a larger image in a new window):

Interestingly, only 83 (or 61.5%) of the responding utilities charge the maximum fee allowed by their state. 24 utilities (representing 17.8%) charge less than the maximum allowed and 28 (or 20.7%) charge more than the maximum allowed.

If you’re interested in seeing how your fee compares to the maximum allowed for your state, here is a table with all 50 states.

Application fees

In one of the earliest Utility Information Pipeline issues, I wrote about application for service best practices. One of my recommendations was to charge a non-refundable application fee, in addition to any security deposit, to all new accounts. This year, 68 of the 135 utilities (representing 50.4%) responding to the survey charge such an application or administrative fee. This is up from 47.9% in 2017, but down from 51.9% in 2015 and 52.3% in 2012. These application fees range from $5.00 to $250.00 as shown below:

Transfer fees

This year, for the second time, the Utility Fee Survey asked how much utilities charge as a transfer fee for transferring service from one account to another. 62 of the 135 utilities (representing 45.9%) charge a transfer fee ranging from $5.00 to $100.00. This is up from 44.1% in 2017. Transfer fees charged by the responding utilities are shown in this graph:

Meter reread fees

28 of the 135 utilities (or 23.0%) charge a meter reread fee if the customer requests their meter be reread. This is down slightly from 23.7% in 2017 and 23.6% in 2015. In many cases, this fee is waived if it turns out the customer was correct and the utility misread the meter. Of the utilities that charge a meter reread fee, the fee ranges from $5.00 to $50.00, as this graph shows:

Meter tampering fees

101 of the 135 utilities (or 73.3%) charge a meter tampering fee. This is down from 77.1% in 2017 and 73.6% in 2015 but up from 60.2% in 2012. Seven utilities charge the actual cost of repairs or cost plus an administrative fee. One additional utility recovers their costs through the judicial system. Six utilities have an escalating fee that increases with each meter tampering offense. The remaining 87 utilities charge a flat fee ranging from $25.00 to $1000.00 as shown below:

Of the six utilities that charge an escalating fee, here are the charges for the first, second, and third offenses:

Convenience fees

One of my earliest issues explained why I believe utilities should accept credit cards. Of the 135 utilities responding to the survey, 122 of them (or 90.4%) accept credit cards. This is an increase from 89.0% in 2017, 81.1% in 2015, and 62.5% in 2012. Clearly, credit card acceptance has become standard practice for most utilities. Of the 122 that do accept credit cards, 85 (or 69.7%) of these charge a convenience fee on at least one method of credit card payments as shown below:

This is the second year the survey asked if the convenience fee is charged by the utility or by a third party. Of the 85 utilities that charge a convenience fee, 69 (or 81.2%) are charged by a third party as shown below. This is up from 69.4% in 2017.

The convenience fees charged by these utilities are too diverse in how they are assessed to be graphed, so they are presented here in a table.

Other fees

In addition to the fees that have been described in the three results issues, the survey asked what other fees utilities charge. Below I’ve listed a few of the more creative fees that were reported:

Meter test or calibration fee

At least 15 utilities charge a fee if the customer requests that their meter be tested or calibrated. The survey didn’t specifically ask about meter test fees however, most only charge the fee if the test results validate that the meter is registering correctly.

Return trip fee

When turning a meter on, most utilities will not leave the water on if the meter indicates water is running inside the house and no one is home. This requires the utility to make a return trip when the customer is home to turn the meter on again. Several utilities charge a return trip fee to cover the time and expenses involved in returning to the customer’s home.

Field collection fee

Most utilities have adopted the best practice of not collecting money in the field on cut-off day. At least one utility still allows customers to pay the field technician to avoid being cut off and they charge an additional $25.00 to provide that service.

A special offer

I still have a few slots left for the special offer I’m offering to the first five Utility Information Pipeline subscribers who respond. If you are one of the first five to respond, I will conduct a personalized fee consultation for one-third off the regular price. That’s $1,000 rather than the usual $1,500 price for this service!

I will review your utility’s current fee schedule and conduct an in-depth phone assessment to learn more about your fees. You will receive a presentation quality document illustrating how your fees compare with other utilities. Also included will be my recommendations for revising any existing fees and suggestions of new fees you should consider charging.

If you are interested in this special offer, please contact me by calling 919-673-4050 or e-mailing me at gsanders@edmundsgovtech.com. Remember, the special discount offer is only available to the first five people who respond!

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

© 2019 Gary Sanders

2019 Utility Fee Survey Results – Part II

Over the course of the past few months, I’ve been conducting the 2019 Utility Fee Survey. This is an update to the original Utility Fee Survey in 2012 and subsequent fee surveys in 2015 and 2017. The survey was designed to research what fees utilities charge, how much they charge for each fee, and to see what trends, if any, are occurring with fees.

This is the second of three consecutive Utility Information Pipelines reporting the results of the 2019 Utility Fee Survey. 135 utilities, representing 22 states, ranging in size from 89 to 539,000 active accounts participated in the survey.

The Utility Fee Survey has become a biennial survey, alternating years with the Utility Staffing Survey.

As was the case in each of the previous surveys, the results include too much information for a single issue. If you’re interested, here are the results from the 2012, 2015, and 2017 Utility Fee Surveys:

The last issue summarized the demographics of the survey respondents as well as water and sewer tap and impact fees. Today’s issue deals with delinquent fees and policies. The next issue will be the third and final survey results issue and will recap all remaining fees.

Late fees

Of the 135 participating utilities, 133 charge a late fee. As shown by this graph, charging a late fee as a percentage of the bill is the most popular method (clicking on the any of the graphics will open a larger image in a new window):

Compared to the 2017 Utility Fee Survey, utilities charging a percentage is down (52.6% vs. 59.3%), while those charging a flat amount is up slightly (27.8% vs. 26.1%). The largest increase is in utilities charging something other than a percentage or flat amount (up from 13.0% to 19.5%).

Utilities that assess the late fee as a percentage charge from 1% to 25%, with 10% again being by far the most popular, as this graph depicts:

Late fees range from $5.00 to $50.00 for utilities that charge a flat amount. This graph illustrates the late fee flat amounts:

Thirteen of the utilities (up from eight in 2017, a 62.5% increase) charge a hybrid late fee – a combination of a percentage with a minimum amount. Here is a graph showing what they charge:

Seven utilities charge a base amount plus a percentage as shown below:

While not technically a fee, this year’s survey again asked how, other than the utility bill, each utility notifies customers that a late fee or penalty has been applied. Here are the responses to that question (the total of all responses is greater than the number of participating utilities because some utilities use multiple methods of contact):

Cut-off fees

Seventeen of the 135 utilities do not cut off for non-payment. All of the 118 that do cut off for non-payment charge a cut-off or reconnect fee as a flat amount. Three of the responding utilities charge an escalating cut-off fee whereby the more times a customer is on the cut-off list, the higher the fee becomes. In those cases, the amount shown in the graph is for first offenders. Additionally, three of the utilities charge a separate disconnect fee and reconnect fee. In those cases, the graph represents the combined total of both fees. Finally, three additional utilities charge a cut-off fee per service. In those cases, the graph assumes all services are being disconnected.

Cut-off or reconnect fees charged by the 118 utilities range from $15.00 to $550.00 as shown below:

Of the 118 utilities that cut off for non-payment, 76 of them (representing 64.4%) assess the cut-off fee as soon as the cut-off list leaves the office. Surprisingly, the percentage of utilities charging the cut-off fee immediately is down 9.5% from the 2017 Utility Fee Survey.

Cut-off fee terminology

As utilities adopt the best practice of charging the cut-off fee as soon as the cut-off list leaves the office, many are finding that terms such as “cut-off fee”, “disconnect fee” or “reconnect fee” are becoming outdated. For that reason, the survey asked what each utility calls its cut-off fee. The results are displayed in the following chart:

For the number of responses, including the 26 terms included in the “other” category, please click here.

Again this year, Reconnect Fee is still the most popular term, but Non-Payment Fee has replaced Cut-Off Fee as the second most popular term, as many utilities adopt terms that do not refer to cut-off or reconnection. Calling your cut-off fee Non-Payment Fee, Delinquent Fee, Service Fee, or any of the other terms not implying cut-off or reconnection helps to avoid the inevitable arguments with customers who must pay the fee but have not been cut off.

As with late fees, the survey also asked how, other than the utility bill, customers are notified that they are about to be cut-off for non-payment. The responses are shown below (again, the total of all responses is greater than the number of participating utilities because some utilities use multiple methods of contact):

This year’s survey also asked how utilities notify customers after they have been disconnected for non-payment. The responses are shown below (again, a few of the participating utilities employ multiple methods of contact):

After hours reconnect fees

Of the 118 utilities that cut off for non-payment, 61 of them (representing 51.7%) will reconnect after hours and charge a fee for this service. This is down from 42.6% of responding utilities in the 2017 Utility Fee Survey. 43 of the 61 utilities (or 70.5%) will reconnect anytime after regular office hours. The remaining 18 utilities will only reconnect during selected time periods as shown below:

After hours reconnect fee amounts range from $15.00 to $300.00 as shown by the following graph:

Same day reconnect fees

A new question in this year’s survey asked how many utilities charge a fee for same-day reconnection for non-payment. Five utilities charge a fee for this service, ranging from $10.00 to $35.00, as shown below:

Next issue

Part III – October 29, 2019

The final survey results issue will showcase any remaining fees, including application, returned check, meter reread, meter tampering and convenience fees.

A special offer

I’m offering a special offer to the first five Utility Information Pipeline subscribers who respond. If you are one of the first five to respond, I will conduct a personalized fee consultation for one-third off the regular price. That’s $1,000 rather than the usual $1,500 price for this service!

I will review your utility’s current fee schedule and conduct an in-depth phone assessment to learn more about your fees. You will receive a presentation quality document illustrating how your fees compare with other utilities. Also included will be my recommendations for revising any existing fees and suggestions of new fees you should consider charging.

If you are interested in this special offer, please contact me by calling 919-673-4050 or e-mailing me at gsanders@edmundsgovtech.com. Remember, the special discount offer is only available to the first five people who respond!

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

© 2019 Gary Sanders

2019 Utility Fee Survey Results – Part I

Over the course of the past few months, I’ve been conducting the 2019 Utility Fee Survey. This is an update to the original Utility Fee Survey in 2012 and subsequent fee surveys in 2015 and 2017. The survey was designed to research what fees utilities charge, how much they charge for each fee, and to see what trends, if any, are occurring with fees.

The Utility Fee Survey has become a biennial survey, alternating years with the Utility Staffing Survey.

As was the case in each of the previous surveys, the results include too much information for a single issue. If you’re interested, here are the results from the 2012, 2015, and 2017 Utility Fee Surveys:

This is the first of three consecutive Utility Information Pipelines publishing the results of the 2019 Utility Fee Survey. The other two installments will be published on October 15 and 29.

Demographics of survey respondents

135 utilities (a 14.4% increase from 2017), representing 22 states (a 15.8% increase from 2017), ranging in size from 89 to 539,000 active accounts participated in the survey. Click on the links below to see charts of the various demographic data:

Tap fees and impact fees

The survey started with water and sewer tap and impact fees. There are some key distinctions to bear in mind when comparing tap and impact fees.

Tap fees should recover the cost of making the actual water or sewer tap. This includes direct costs such as labor, materials, and vehicle use as well as any indirect costs associated with completing the tap. Tap fees are classified as operating revenues.

Impact fees, sometimes called availability fees or system development charges, are designed to cover the incremental capital cost of adding an additional user to the water or sewer system. Impact fees are classified as non-operating revenues.

For utilities charging an impact fee based on number of bedrooms, monthly or daily usage, square footage, or lot size, I assumed three bedrooms or 3,000 gallons per month or 1700 square feet or one-quarter of an acre.

Residential water tap fees charged by utilities responding to the survey range from $150.00 to $10,925.00 as shown below (clicking on the any of the graphics will open a larger image in a new window):

One other utility charges based on the time and materials cost incurred for a residential water tap at actual cost.

Utilities responding to the survey charge residential sewer tap fees ranging from $75.00 to $6,300.00 as depicted by this graph:

One additional utility charges the actual time and materials cost incurred for a residential sewer tap.

Residential water impact fees charged by utilities responding to the survey range from $11.60 to $4,000.00 as shown in this graph:

One additional utility charges water impact fees to commercial customers based on the type of business.

Utilities responding to the survey charge residential sewer impact fees ranging from $50.00 to $5,540.00 as shown here:

One additional utility charges sewer impact fees to commercial customers based on the type of business.

Upcoming issues

 

Part II – October 15, 2019

The next issue will deal with delinquent account fees and policies, including late fees, cut-off fees, and after-hours reconnect fees.

Part III – October 29, 2019

The final survey results issue showcases any remaining fees, including application, returned check, meter reread, meter tampering, and convenience fees.

A special offer

I’m offering a special offer to the first five Utility Information Pipeline readers who respond. If you are one of the first five to respond, I will conduct a personalized fee consultation for one-third off the regular price. That’s $1,000 rather than the usual $1,500 price for this service!

I will review your utility’s current fee schedule and conduct an in-depth phone assessment to learn more about your fees. You will receive a presentation quality document illustrating how your fees compare with other utilities. Also included will be my recommendations for revising any existing fees and suggestions of new fees you should consider charging.

If you are interested in this special offer, please contact me by calling 919-673-4050 or e-mailing me at gsanders@edmundsgovtech.com. Remember, the special discount offer is only available to the first five people who respond!