HomeMy WebLinkAbout05/00/1990, 3 - CHANGES IN UTILITY BILLING PRACTICES �,nl��pfll�l'I�III w MI DATE: • • D
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COUNCIL AGENDA REPORT R ITEM NUMBER:
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FROM: William C. Statler, Director of Finance
SUBJECT: CHANGES IN UTILITY BILLING PRACTICES APR 2 0 1990
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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.
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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.
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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.
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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
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i
Resolution No. (1990 Series)
APPROVED:
City A inistrative Officer
it Atto n
Director of Finance
l )