Affordability is a top concern cited by policy makers and utility managers. From a big picture perspective, unaffordable utility rates create two problems: 1) hardship for ratepayers, and 2) inadequate revenues for the utility. This article does not address how or why utility charges may reach a level that is viewed as unaffordable. Rather, it discusses the practice of billing frequency and the role it can play in revenue adequacy for a utility.
One way that utilities strive to maximize revenues is by minimizing delinquent accounts and uncollectible revenue (bad debt). Bad debt represents accounts receivable for which the user cannot be located or is unable or unwilling to pay. All utilities face some level of delinquent accounts. Although this varies for each community in part based on demographics, how this topic is handled can affect the success rate in achieving a high collection rate.
Prompt revenue collection is a key benefit of a monthly billing cycle. In our region, the majority of utilities utilize monthly billing practices. The chart below summarizes the reported billing frequencies by state for respondents to the 2016 AE2S Annual Rate Survey.
Monthly billing practices are beneficial as the lag time between occurrence of the cost and receipt of a bill is relatively short. The monthly billing process also follows other major billing schedules, such as mortgage or rent payments, with which consumers are familiar. The monthly time frame also allows customers to react more quickly to individual billing changes associated with changes in water use, and allows the utility to identify and respond more quickly to potential leaks or faulty meters.
Although fairly uncommon in the region, the benefit to a bi-monthly or quarterly billing schedule is primarily that of reduced billing costs. This is not an insignificant point, as reduced billing/meter reading costs usually translate directly to lower fixed charges for users.
Regardless of billing frequency, there are practices many utilities have adopted to support increased revenue collection. Some of the common practices are noted below.
- Install automated meter reading systems to improve accuracy and decrease reading-to-billing time;
- Place the bill for rental properties in the property owner’s name, making the landlord responsible for the bill;
- Collect a deposit equal to one month’s estimated bill and hold it in reserve for a specified period of timely payments;
- Clearly communicate and promptly apply late fees and shut-off practices;
- Consider formal or informal arrearage management practices, the goal of which is to achieve continued payment in some amount from all customers rather than no payment. This is generally the goal of late fee/lien practices. Many gas and electric utilities have formal arrearage management programs, components of which could be applied to public utilities in instances where conventional late fee practices are ineffective.
Communication is a critical component of establishing a successful relationship between rate payers and a utility, and there are a myriad of ways to deliver messaging, such as website, social media, or bill stuffers. Topics can include anything from the explanation of a rate increase, to water conservation best practices, or special messaging for low income users.
- Tagged: Billing Frequency
The SourceThe Source is a quarterly technical-based newsletter that features financial and utility rate issues and resources for utility managers, city finance managers, and auditors.
Get The Source delivered to your inbox!Subscribe »
- MPCA Announces Section 319 Funding Application DeadlineBy Heather Syverson on February 8, 2018
Utility Rate SurveyAE2S Nexus conducts an annual rate survey of utilities in the Upper Midwest to help utilities gauge their rates against similar sized systems. Learn More
Bolstering Financial Stability and Sustainable Infrastructure Management
AE2S Nexus, a dedicated Financial and Asset Management company, is comprised of individuals committed to fully understanding issues such as State and Federal funding programs, project financing, utility financial health (revenue adequacy, cost of service, etc.), and asset management.
Together we work as an integrated team, providing our clients with the perfect marriage of financial and engineering expertise that enables us to truly understand your organization and bolster your financial stability.