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HomeMy WebLinkAbout05/00/1990, 3 - CHANGES IN UTILITY BILLING PRACTICES �,nl��pfll�l'I�III w MI DATE: • • D city 011" san tins osisP o 1% COUNCIL AGENDA REPORT R ITEM NUMBER: EC lisp= IV — LJ FROM: William C. Statler, Director of Finance SUBJECT: CHANGES IN UTILITY BILLING PRACTICES APR 2 0 1990 y:ao Xk CITY CLERK CAO RECOMMENDATION SAN LUIS OBISPO,CA Adopt a resolution implementing a monthly utility billing cycle at an estimated net annual cost of $147,600; amending the 1989-91 Financial Plan to reflect this change; and approving .the transfer of billing responsibilities for residential refuse collection services to San Luis Garbage Company per their request. OVERVIEW Evaluating alternatives to the existing bimonthly utility cycle and reviewing the current practice of billing for residential refuse collection are Reportable Objectives for the Financial Administration Program in the 1989-91 Financial Plan (page D-89). This evaluation and review has been completed, and the following changes in the City's utility billing practices are recommended at this time: • Implementing a monthly rather than bimonthly utility billing cycle. • Transferring responsibility for billing for single family residential refuse collection services from the City to San Luis Garbage Company. Implementing a monthly utility billing cycle will require four additional regular positions (two in Finance and two in Utilities) and other support materials and services at an estimated annual cost of $192,600; however, based on increased interest earnings of $45,000 due to improved cash flow from a monthly system, the net annual cost is estimated to be $147,600. This reflects an increase of approximately $1.00 per billing, which staff believes is a modest cost to incur in achieving the benefits of providing more frequent billings and more timely usage information to our customers. MONTHLY UTILITY BILLING The following is a discussion of the primary objectives, factors supporting the recommended change, alternatives, and fiscal impact of changing to a monthly utility billing cycle. Primary Obiectives Conversion from a bimonthly to monthly billing cycle will achieve the following objectives: • More appropriately reflect the cost of water and sewer services in comparison with other utility services which are billed on a monthly basis. • Reduce the impact of the City's combined utility billing (water and sewer) on our customers by spreading the payment for services over 12 rather than 6 payments per year. • Support the City's water conservation efforts by providing usage information on a more timely basis to both customers and staff. Improve the financial position of the City's water operation through enhanced cash flow and improved delinquency collection. 3-1 city Or san lues OBISPO ARNMe COUNCIL AGENDA REPORT Primary Factors SuonortIne the Change The following factors support the implementation of a monthly utility billing cycle: Recent rate increases for water and sewer services have resulted in a doubling of the billing for many of the City's customers. The impact of this change has been significant, especially with a bimonthly billing cycle. • Major rate increases anticipated for water and sewer service charges in the near future will further impact the effect of a bimonthly billing cycle on the City's customers. e Although the cost of City utilities are increasing, they are still reasonably priced relative to other utility services. However, the bimonthly cycle distorts customer cost comparisons. In considering customer billing frequencies, there are a wide-variety of standard cycles available: weekly, monthly, bimonthly, quarterly, semiannually, and annually. The selection of an optimal billing frequency is based on several factors, including: • Potential for significant variability in the billing. • Dollar value of the billings. • Administrative and operational cost of the billing function. Prior to the early 1970's, bimonthly billing cycles were the standard for the utility industry (gas and electric as well as water, sewer, and trash). However, with the energy crisis, most gas and electric utilities converted to monthly billings due to increased unit prices and the need for more timely reporting of energy use to facilitate conservation efforts. Until recently, water and sewer rates were relatively inexpensive, usage constant, and water supplies were not a major concern. However, this situation has changed rapidly, and will continue to do so for the foreseeable future. As such, a more frequent billing cycle is recommended at this time. Alternatives Continue with Bimonthly Billing Under this approach, no augmentation in billing resources is required. However, the impact of increased billings on customer budgets and the desirability of more timely usage information will remain unaddressed, and as such, this alternative is not recommended. Estimated Billing With this approach, billings would be mailed and processed monthly, but the first billing within a two-month cycle would be based on an estimated rather than actual reading, which would be reconciled with an actual reading in the second month's billing. By reducing the need for additional meter readings, the cost of this option can be reduced by $91,600. Although this approach would address the financial impact of a bimonthly system on the City's customers, it would not achieve the objective of providing them with more timely information regarding their water usage. Further, there is a high potential that the estimate system would mislead and confuse customers regarding their actual usage when the reconciling reading is provided in the second cycle billing. The resulting frustration and misunderstanding may far offset any benefits achieved from this approach. Due to these factors, this alternative is not recommended. 3-2 ����► imi�IIII�Iinq�B�II city of san Luis OBlspo COUNCIL AGENDA REPORT Selected Accounts The utility billing cycle could be monthly for larger, selected accounts, and remain bimonthly for single family residential accounts and smaller commercial customers. This approach would reduce the estimated annual cost by approximately $96,300. For larger customers, who may benefit the most from the improved billing frequency, this approach would achieve all of the objectives stated above. However, staff believes that smaller customers will also benefit from more frequent billings and readings, and as such, this alternative is not recommended. Fiscal Impact As reflected by the following, an increase of 100% in billing frequency only requires an increase of 34% in resources due to economies of scale associated with the billing operations; this increase is reduced further to 26% when enhanced interest earnings are considered: Current Additional Total Costs Costs Costs Finance Staffing 160,700 55,000 215,700 Supplies & Materials Postage 21,000 21,000 42,000 Billing Supplies 7,500 7,500 15,000 Other 2,500 2,500 5,000 Contract Services 38,400 5,000 43,400 Minor Capital 10.000 10,000 Total Finance $ 230,100 $ 101,000 $ 331,100 Utilities Staffing 127,500 72,600 200,100 Supplies & Materials: Meters 74,300 0 74,300 Other 4,500 2,000 6,500 Contract Services 19,300 2,000 21,300 Capital Outlay _ 0 15.000 15.000 Total Utilities 225,600 91,600 317,200 Indirect Costs @ 25% 114,000 0 114,000 TOTAL COST 569,700 192,600 762,300 Interest Earnings from Improved Cash Flow _Q (45.000) 4( 5.000) NET COST $ 569,700 $ 147,600717,300 Based on six billings annually to 12,500 customers (75,000 annually), the current per billing cost to start and stop service, read customer accounts, prepare billings, process payments, manage delinquent accounts, and provide counter customer service is $7.60; under the recommended monthly utility billing cycle, the average cost is reduced to $4.78. This represents significant improvements in the cost-effectiveness of the billing operation while significantly improving customer services: for approximately $1.00 extra per billing, our customers can receive the benefits of more frequent billings and more timely receipt of usage information. 3-3 City or San LUIS OBISpo COUNCIL AGENDA REPORT Implementation Prior to implementing a monthly billing cycle, the following tasks must be accomplished: • Developing plans, schedules, routes, and organization as required for an effective conversion to a monthly cycle, including advance notification to customers through the media and/or special mailings regarding the change. • Recruiting, staffing, and training of Finance and Utility personnel and purchasing required supporting supplies and equipment. Based on the need to perform these tasks prior to implementation, it is anticipated that the first monthly billing would not be issued until at least two months after Council approval. TRANSFER OF REFUSE BILLING In accordance with the City's current franchise agreement, San Luis Garbage Company has submitted their request for City review of refuse collection rates over the next two years. In their submittal, San Luis Garbage Company has requested that they assume responsibility for billing all refuse accounts in the City. Under the existing franchise agreement, the City bills all single family residential customers for trash services; San Luis Garbage Company bills all other customer accounts (multifamily residential, commercial, industrial, institutional). This change will have a minimal financial impact on the City; under the current franchise agreement, San Luis Garbage Company reimburses the City 1.5% of billings for this service, which generates approximately $13,500 , annually. In considering San Luis Garbage Company's legitimate desire to control their financial destiny by assuming responsibility for the billing function as well as the City's staff resources required to coordinate their customer service function, staff concurs with their request. Accordingly, it is recommended that the Council approve this transfer to be implemented as soon as administratively possible. Based on the coordination and communication required to ensure a smooth transfer of customer service and billing responsibilities, it is anticipated that the first billings processed by San Luis Garbage Company will not be issued until at least two months after Council approval. SUMMARY Implementing a monthly utility billing cycle and transferring responsibility for refuse collection billing for residential accounts will significantly improve the effectiveness and efficiency of the City's utility billing function. Staff believes that the enhanced customer service resulting from more frequent billings and more timely water use information far offset the increased costs associated with this change. Accordingly, it is recommended that the Council adopt the attached resolution establishing a monthly utility billing cycle, amending the 1.989-91 Financial Plan to reflect this change, and conceptually approving the transfer of refuse collection billing for single family residential accounts to San Luis Garbage Company. 89-91FP/3WTRCSTS —� RESOLUTION NO. (1990 Series) i A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO APPROVING CHANGES IN UTILITY BILLING PRACTICES WHEREAS, the Department of Finance has evaluated alternatives to the existing bimonthly utility billing cycle and reviewed the current practice of billing for residential refuse collection in accordance with the Financial Administration Program Objectives approved in the 1989-91 Financial Plan; and WHEREAS, monthly utility billing is a generally accepted business practice for most public utility organizations and will improve customer'services by providing more timely billings and water usage information, reduce account delinquencies, and improve the efficiency and effectiveness of the City's utility billing operation; and WHEREAS, San Luis Garbage Company has requested that theyassume responsibility for billing for refuse collection services provided by them to single family residential customers. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo that: SECTION 1. The City's utility billing cycle shall be changed from bimonthly to monthly as soon as administratively possible. SECTION 2. The 1989-91 Financial Plan for Fiscal Year 1990-91 is hereby amended in the amount of $192,600, and regular staffing is hereby augmented by four (4) regular ^\ positions in order to support this change. SECTION 3. San Luis Garbage Company's request that the City transfer to them the responsibility for billing for refuse collection services for single family residential accounts is hereby approved. This transfer shall be implemented as soon as administratively possible. Upon motion of seconded by , and on the following roll call vote: AYES:. NOES: ABSENT: the foregoing resolution was passed and adopted this _ day of 1990. Mayor Ron Dunin ATTEST: City Clerk Pam Voges 3-5 i Resolution No. (1990 Series) APPROVED: City A inistrative Officer it Atto n Director of Finance l )