It seems I get asked the same question with each Utility Fee Survey, “Why aren’t deposits included with the Utility Fee Survey?”.
For starters, the obvious answer is a security deposit isn’t a fee. By definition, fees are non-refundable and security deposits are, of course, refundable. For some utilities this is after a sustained period of good payment history, for others not until the account is closed.
Additionally, I don’t believe comparing deposits between utilities is a useful exercise, which I’ll explain.
The results of the Utility Fee Survey provide a useful tool for utilities to compare themselves to other utilities to determine if their fees are up-to-date and reasonable. I’ve had several utilities tell me they’ve implemented new fees, or increased existing fees, based upon learning what other utilities are doing.
Periodically reviewing your fee schedule, and comparing it to other utilities, is a useful exercise. Because fees are assessed only to customers who are provided a specific service, they generate additional revenue without raising rates across the board. And, as any utility knows, generating increased revenue without raising rates is a good thing!
Not a relevant question
Periodically, on some of the listservs I follow, someone will ask what other utilities charge as a security deposit. Presumably, this question, much like the question in the opening paragraph, originates from trying to determine if the utility asking the question is charging a fair deposit, compared to other utilities.
The reason for charging a security deposit is to ensure your utility gets paid the final bill when a customer closes an account. A fair and adequate security deposit depends on several factors, including your rates and delinquency policies.
Trying to compare security deposits between utilities without taking into consideration the difference in rates, customer usage patterns, and business practices is pointless.
Is your security deposit adequate?
To assist utilities in determining if their security deposit is adequate, I’ve developed a formula I call Days of Exposure. Days of Exposure is the total number of days of service a customer ends up owing for if they are disconnected for non-payment and never reinstate service.
I’ve developed a online tool to calculate your utility’s Days of Exposure. If you’re interested in finding out if your security deposit is sufficient, please click here to calculate your Days of Exposure.
No one stepped forward after the last Utility Information Pipeline to volunteer to track the time involved in taking various types of payments.
If you remember, my premise is that taking cash and check payments isn’t “free” and I’m looking for a few utilities to gather real data to help me analyze the true cost of taking payments.
If you’re willing to participate, please email me and I’ll give you a call to discuss the process in more detail.
There’s still time to complete the 2019 Utility Fee Survey
If you haven’t yet completed the 2019 Utility Fee Survey, please click here to complete the survey. It should take less than five minutes to complete.
If you have any questions, please feel free to e-mail me at firstname.lastname@example.org or call me at 919-232-2320.
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.
Unsure if your security deposit is adequate?
If you’re wondering if your security deposit is adequate, please give me a call at 919-232-2320, or email me at email@example.com for more information about how a business review could help you find out.
© 2019 Gary Sanders
I’m intrigued by the early results from the Days of Exposure tool that was featured two issues ago. If you remember, Days of Exposure is the total number of days of service a customer ends up owing for if they are disconnected for non-payment and never reinstate service.
I had a suspicion most utilities don’t charge a sufficient security deposit, and the early results have confirmed that. Thus far, 40 people have used the Days of Exposure tool. Of those 40, seven don’t charge a security deposit, so this analysis is based on the remaining 33.
The Days of Exposure tool doesn’t ask who is completing the page, but it does log the values for each entry. This means I don’t know which utilities are represented by the results shown here:
Days of exposure
The Days of Exposure for those utilities that bill monthly ranged from 53 days (1.77 billing periods of exposure) to 116 days (3.87 billing periods of exposure). 53 Days of Exposure might be the lowest I’ve seen over the course of several years of using this calculation. In case you’re wondering, here’s how they arrived at 53 Days of Exposure:
Refunds vs. potential write-offs
As shown in the graph above, seven of the 33 responses (21.2%) charge a security deposit sufficient to cover their potential liability, based on their Days of Exposure. The remaining 26 responses (78.8%) risk potential write-offs ranging from a paltry fifty cents to a whopping $308.33!
Five of the 33 responses are within $10.00 of charging a security deposit that exactly covers their potential liability. Of these, two are refunds – $2.00 and $8.33 – and the other three are potential write-offs of $.50, $1.49, and $6.00. Kudos to these five utilities for doing a stellar job of determining their security deposit!
If you haven’t already done so, I invite you to take a minute and click here to calculate your utility’s Days of Exposure and determine if you are at risk for a potential bad debt write-off.
Holiday spending money
If you missed the last 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 your days of exposure as low as they could be?
Are your days of exposure as low as they could be? To find out, please give me a call at 919-232-2320 or e-mail me at firstname.lastname@example.org to learn how you could benefit from a business review.
© 2018 Gary Sanders
If you’ve been a Utility Information Pipeline reader from the early days, you know I’ve written about days of exposure in one of the earliest issues and revisited itagain three years ago.
I feel like this is an important enough topic to not only write about it again, but to also create a tool so you can calculate your days of exposure. First, let’s review how days of exposure are calculated…
Components of days of exposure
Days of exposure is the total number of days of service a customer ends up owing for if they are cut off for non-payment and never reinstate service. It takes into account six specific time periods:
The sum of these six values results in days of exposure. Dividing days of exposure by the number of days in the billing period (days between meter readings) yields periods of exposure. Multiplying the periods of exposure by the average residential utility bill and then subtracting the security deposit arrives at the potential bad debt write-off (or deposit refund if the security deposit is adequate).
In my experience, taking steps to reduce days of exposure is an exercise that would benefit nearly all utilities, so I’ve developed an online tool to calculate days of exposure.
Calculate your days of exposure
If you’ve attended my Improving Revenue Collections for Utilities presentation at a utility conference, you’ve had the opportunity to complete a days of exposure worksheet. If not, or if you’ve forgotten what yours was, I’ve created an online, interactive days of exposure calculator.
You enter the number of days in each of the six stages, plus your average residential utility bill and residential security deposit, and the tool will calculate your days of exposure and potential bad debt write-off or deposit refund. To calculate your days of exposure, please click here.
Are you surprised by your days of exposure?
Are your days of exposure excessive or are you left with a potential bad debt write-off? If so, please give me a call at 919-232-2320 or e-mail me at email@example.com to learn how a business review could help evaluate how to improve your days of exposure.
© 2018 Gary Sanders
The 2017 Utility Fee Survey is a tool for researching what fees different utilities charge and how much they charge for each fee. I was asked why the survey doesn’t include a question about security deposits.
Beyond the obvious
Obviously a security deposit isn’t a fee because fees, by definition, are non-refundable and security deposits are refundable.
Rate increases are never popular, and the best alternative to increasing rates (which impacts all customers) is to charge equitable fees. Fees, such as an administrative fee for activating new customers or a disconnection fee for non-payment, are assessed only to those customers using the service covered by the fee.
Comparing what fees your utility charges, and how much you charge for each, to what other utilities charge is a useful exercise. Such comparisons provide a benchmark for determining if your utility is charging all available fees and if the amount of those fees is fair.
Security deposits, on the other hand, are a function of each utility’s rates, business practices, and customer usage patterns. I’ve written previously about why comparing your security deposit to other utilities is pointless. A better exercise would be to review your own business practices to find ways to reduce your days of exposure.
Complete the 2017 Utility Fee Survey
If you haven’t already completed the 2017 Utility Fee Survey, and would like to, please click here to complete the survey. It should take less than five minutes to complete.
If you have any questions, please feel free to e-mail me at firstname.lastname@example.org or call me at 919-232-2320.
I’m hoping for as much participation as possible in the survey, so please feel free to pass this on to your colleagues at other utilities.
Thank you in advance for your participation in the 2017 Utility Fee Survey.
North Carolina Rural Water Association presentation
If you, or any of your co-workers or board members, will be attending the North Carolina Rural Water Association Annual Conference, please be sure to attend my presentation on Improving Revenue Collections for Utilities at 8:30 am on Thursday, May 18.
Part of this presentation includes an exercise for calculating how much your security deposit should be, based on your days of exposure.
If you or someone from your utility does attend, please be sure to introduce yourselves!
Aging workforce seminar
A major issue facing management of all utilities, large and small, is an aging workforce. As more key employees approach retirement age, utilities across the country are having to face the issue of replacing the loss of institutional and operational knowledge these long-time workers hold.
Does your utility have a plan in place to deal with the aging workforce?
The Utility Management Committee of the NC AWWA-WEA, of which I am a member, is sponsoring an Aging Workforce Issues – Best Practices Panel & Luncheon seminar. This seminar, originally scheduled for last October, has been rescheduled to Thursday, May 4 from 11:30 am to 1:30 pm.
If you are located within driving distance of the University of North Carolina at Chapel Hill, I encourage you to join us. If not, you can still participate in a live webcast of the seminar.
The seminar moderator is J.D. Solomon, PE, CRE, CMRP; Vice President of CH2M. The panelists are:
- Rod Dones, Organizational Development & Learning Specialist, Charlotte Water
- Tamara Byers, Human Resources Manager, Charlotte Water
- Ed Kerwin, PE, Executive Director, Orange Water & Sewer Authority
- Matt Bernhardt, Director of Public Works and Utilities, City of Gastonia
- Courtney Driver, PE, Utilities Director, City of Winston-Salem
For more information, or to register for the seminar, please click here.
If, after completing the 2017 Utility Fee Survey, you’re wondering if your fee schedule is up-to-date, or if you need to find ways to reduce your days of exposure, please give me a call at 919-232-2320, or email me at email@example.com for more information about how a business review could help you review your entire office operation.
© 2017 Gary Sanders
The last Utility Information Pipeline dealt with your Red Flags Rule policy and if it is up-to-date. Today, we’ll take a look at applying the Red Flags Rules at various phases of the account lifecycle.
The graphic below is from LexisNexis and identifies key areas in the life of a utility account where potential identity theft and fraud, two key areas addressed by the Red Flags Rule, can occur. If you’re not familiar with LexisNexis, many utilities use their services to research and validate social security numbers. Your utility may already use their services if you operate in a state with a debt set-off program and need to locate social security numbers for bad debt accounts.
For most utilities, the infographic below is primarily relevant for the Account Opening process, but can also apply to Account Management and Account Collections:
When a new customer applies for service, you should insure the applicant is who he or she claims to be. The two best ways to do this are to require photo ID and proof of residency (lease agreement or closing documents) for the address for which they are applying for service.
You should also perform a bad debt search using relevant identifying information (name, driver’s license number, social security number and date of birth) to see if the applicant is a previous customer with possible unpaid bills.
Finally, if you base your security deposit on the applicant’s credit rating, insuring the applicant is who they claim to be is vitally important.
Insuring the person you are talking with is indeed the account holder is important before divulging any financial information for an account. If the customer is in your office, their identity can easily be verified by comparing their face or current photo ID to the photo ID on file.
Customers on the phone aren’t as easily verified, so many utilities require the caller to provide either the last four numbers of their social security number or answer a security question.
If a customer who previously had no history of delinquencies suddenly appears on your cut-off list, do you have a policy in place to insure they have an adequate security deposit?
The key to collecting final bills is to be diligent and have an aggressive program in place to follow up with unpaid final bills. Waiting until the end of your fiscal year, just before writing off bad debt accounts, is too late to follow up. You should actively pursue unpaid final bills after each billing.
Is it time to reexamine your processes?
If you aren’t doing all you can to protect against identity theft and fraud or to collect bad debt accounts, 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 help you evaluate how to improve your effectiveness.
© 2016 Gary Sanders
In one of the listservs I subscribe to, a question was recently asked about what other utilities’ deposit policies are, including deposit amounts. While I think inquiring about other utilities’ policies is worthwhile, comparing the amount of their deposit without knowing their rates and business practices can be futile.
How much is an adequate deposit?
A sufficient deposit should protect your utility against bad debt customers who leave and never pay their final bill. How much that is depends on your average utility bill and your business practices.
Worst case scenario
The worst case scenario for a security deposit is that customer who ends up on the cut-off list and skips out without paying. Your utility is owed the original bill which caused the customer to be on the cut-off list, the next bill (if one has been issued) and any usage since the most recent bill. To illustrate this, let’s look at a hypothetical situation…
Days of exposure
I’ve written before about days of exposure, the total number of days of service you would be owed for by the worst case scenario customer described above. For our hypothetical customer, let’s assume:
- meters are read on the 10th of the month
- bills are mailed the last day of the month
- bills are due on the 25th of the month
- bills are considered delinquent 5 days after the due date
- a final notice is mailed 5 days after the delinquent date
- cut-off occurs 5 days after the final notice is mailed
Here is how that looks in a timeline (clicking on the graphic will open a larger image in a new window):
This adds up to 90 days of exposure (admittedly, this is a bit extreme, but it’s only for illustration purposes):
Assuming you bill each customer monthly, 90 days of exposure equates to three months of bills. You would then have to multiply your average monthly utility bill times three to determine how much an adequate deposit is.
If your deposit is less than this, then you are at risk for write-offs from bad debt customers.
If your deposit policy needs updating or if you would like to explore ways to reduce your days of exposure, please give me a call at 919-232-2320 or e-mail me at email@example.com to learn how a business review could help your utility.
Last call for the 2015 Utility Fee Survey
I will be concluding the 2015 Utility Fee Survey soon, so if you haven’t yet participated, please take a few minutes to do so. Please click here to complete the survey. It should take less than five minutes to complete.
If you have any questions, please feel free to e-mail me at firstname.lastname@example.org or call me at 919-232-2320.
I’m looking for as much participation as possible in the survey, so please feel free to pass this on to your colleagues at other utilities.
Thank you in advance for your participation in the Utility Fee Survey.
© 2015 Gary Sanders