Industry expert Gary Sanders has partnered together with MuniBilling to help give readers an in-depth look into the world of Utility Billing Systems.
For today's Ask The Expert blog we'll be focusing on the importance of fees for utility billing organizations and how to best define a fee schedule to help increase revenue!
Q: Why are fees important to a utility?
Utilities have a need to increase revenues to keep pace with rising costs but continually find themselves under pressure to control rate increases.
Many utilities consider rate increases to be the only option for generating additional revenue, however, user fees are an often-overlooked source of income to supplement rate revenues.
Q: What is the difference between rates and fees?
Unlike rates, which are charged to all ratepayers (customers) based on their class of service and are often charged based on consumption, fees are charged only to customers who incur that fee.
For example, a returned check fee is only charged to customers who write bad checks.
Q: Is there anything a utility should take into consideration when establishing their fee schedule?
Fees should recoup the full cost of providing the service, which for some fees like an application fee or cut-off fee, can involve many components.
The Governmental Finance Officer’s Association (GFOA) Best Practices Measuring the Full Cost of Government Service (https://www.gfoa.org/materials/full-cost-accounting-for-government-services) states:
"The full cost of a service encompasses all direct and indirect costs (both operating and capital) related to that service.
Direct costs include the salaries, wages, and benefits of employees while they are exclusively working on the delivery of the service, as well as the materials and supplies, and other associated operating costs such as utilities and rent, training, and travel.
Likewise, they include costs that may not be fully funded in the current period such as compensated absences, interest expense, depreciation or a use allowance, and pensions, and other post-employment benefits."
"Indirect costs include shared administrative expenses within the work unit and in one or more support functions outside the work unit, the entity-wide indirect costs (e.g., legal, finance, human resources, facilities, maintenance, technology). It is important to include both types of indirect costs."
Even if your utility isn’t a government entity, this is still good advice to consider when establishing or updating your fee schedule.
Q: How can I tell how my utility’s fee schedule compares to other utilities?
I have conducted Utility Fee Survey every other year for the last eight years. If you attended MuniBilling’s How to Increase Revenues without Raising Rates webinar in December, the data for that webinar came from the 2021 Utility Fee Survey.
You can view the results of previous Utility Fee Surveys by visiting my website at https://utilityinformationpipeline.com/surveys/.
Q: How can I participate in the Utility Fee Survey?
You’re in luck because the 2023 Utility Fee Survey is ongoing right now. If you would like to participate in the 2023 Utility Fee Survey, you can do so by clicking here.
Gary's 40+ years of experience in the industry has granted him valuable knowledge for any billing entity. With the wealth of his knowledge you can request an Operational Analysis for your organization from him!
You may be wondering, what exactly is an Operational Analysis? Well, it essentially is when Gary looks through ALL of your systems, and interviews your team, to figure out how best you can improve your billing operations.
Here are a few of your organization's systems that Gary will assess:
- Billing System
- Accounting System
- Metering System
- Service Delivery System
The end goal with this analysis is to figure out how to best save your organization time and money. This could also mean suggesting another company's platform if it's the better fit for YOU.
Gary has hosted his blog for the past ten years. Some of his more notable credentials are that he has designed, built, implemented, and supported both ERPs and Utility Billing systems. Thankfully, he's only a hop, skip, and jump away.