Customer Friendly Service Customer Friendly Service and Connection Feesand Connection Fees

Lloyd Shank, P.E.Lloyd Shank, P.E.

What Business Are We In?What Business Are We In?

• Bureaucrats enjoy brain storming Bureaucrats enjoy brain storming extra customer fees. Many of these extra customer fees. Many of these are created to “get even” with are created to “get even” with customers who make the system go customers who make the system go out of the way a little or cause a little out of the way a little or cause a little extra effort. Be careful that extra extra effort. Be careful that extra fees do not get in the way of fees do not get in the way of accomplishing your mission.accomplishing your mission.

Customer ImpactCustomer Impact

• Understand what reaction the fee will Understand what reaction the fee will elicit from your customer. elicit from your customer.

Early in my career I proposed a Early in my career I proposed a special rate to properly recover special rate to properly recover the cost of bulk tobacco barns. the cost of bulk tobacco barns. The economy of the The economy of the community was based on community was based on tobacco. Raising cost to tobacco. Raising cost to tobacco barns was seen as a tobacco barns was seen as a threat to the entire threat to the entire community!community!

The Customer Point of ViewThe Customer Point of View

• Service fees for a trouble call.Service fees for a trouble call.– If the problem is not with our electric If the problem is not with our electric

system we are going to bill your account system we are going to bill your account for making us go to the trouble to send for making us go to the trouble to send a representative.a representative.

Impact on the CustomerImpact on the Customer

• Weigh the financial impact on your Weigh the financial impact on your customer constituency to ensure that customer constituency to ensure that the charge is affordable.the charge is affordable.

• What type of arrangements can be What type of arrangements can be made to make the fee more made to make the fee more palatable?palatable?

Political ImpactPolitical Impact

• Some fees for additional services Some fees for additional services may conflict with the political may conflict with the political philosophy of the community. On the philosophy of the community. On the other hand fees may support a other hand fees may support a particular political purpose.particular political purpose.

• For example: impact fees may For example: impact fees may discourage new development. discourage new development.

• Budget Impact vs. TaxesBudget Impact vs. Taxes

What’s In The Rates?What’s In The Rates?

• List all expenses that are considered to be List all expenses that are considered to be normal that are incurred by most customers normal that are incurred by most customers and are expected to be recovered in rates. and are expected to be recovered in rates.

• Fees should be part of the decision process of Fees should be part of the decision process of rate design. Fees should not be implemented rate design. Fees should not be implemented as an afterthought to the rate process.as an afterthought to the rate process.

• Remember that the revenue from the extra Remember that the revenue from the extra fees will not make a meaningful budget fees will not make a meaningful budget contribution to your overall sources of contribution to your overall sources of revenue.revenue.

Extra-ordinary ExpensesExtra-ordinary Expenses

• List extra-ordinary expenses that are List extra-ordinary expenses that are not expected to be recovered in the not expected to be recovered in the rates. rates.

• Survey the competition and similar Survey the competition and similar agencies. Do not simply list a fee to be agencies. Do not simply list a fee to be collected because of precedent or collected because of precedent or because similar organizations have a because similar organizations have a similar fee. Not having certain charges similar fee. Not having certain charges may provide a competitive edge without may provide a competitive edge without carrying a great deal of cost.carrying a great deal of cost.

Fees to PunishFees to Punish

• Be careful of getting in a mood to Be careful of getting in a mood to use a fee to punish misbehaviors. use a fee to punish misbehaviors.

Fees to Fit the CostFees to Fit the Cost

• A cost that occurs one time can be A cost that occurs one time can be recovered at one time.recovered at one time.

• Many costs continue to occur over time. Many costs continue to occur over time. If the fee is not recovered over time all If the fee is not recovered over time all costs will not be recovered. One way of costs will not be recovered. One way of imposing a one time fee to recover imposing a one time fee to recover costs that occur over time is to add a costs that occur over time is to add a factor for the time value of money.factor for the time value of money.

Example Reimbursement Example Reimbursement ProblemsProblems

• Replacing an overhead with an Replacing an overhead with an underground line.underground line.– Cost of the underground line.Cost of the underground line.– In place value of the existing overhead line. Cost today In place value of the existing overhead line. Cost today

adjusted for depreciation (Handy-Whitman index)adjusted for depreciation (Handy-Whitman index)– Removal costRemoval cost– Salvage ValueSalvage Value

Fees for Decorative Street Fees for Decorative Street LightsLights• Standard Lighting Layout vs. Decorative Standard Lighting Layout vs. Decorative

LayoutLayout

• Standard Lighting Fixture Costs vs. Standard Lighting Fixture Costs vs. Decorative FixturesDecorative Fixtures

• Standard Lighting Operating Costs vs. Standard Lighting Operating Costs vs. Decorative OperatingDecorative Operating

The time value of money will have to be The time value of money will have to be applied to the differential where costs are applied to the differential where costs are impacted over time.impacted over time.

Extra Facility ChargesExtra Facility Charges

• When utilities install additional When utilities install additional capital for the sole benefit of a capital for the sole benefit of a customer a one time charge does not customer a one time charge does not recover the additional ownership cost recover the additional ownership cost of maintaining the item in place over of maintaining the item in place over extended years. extended years.

• Use a continuing capital recovery Use a continuing capital recovery charge.charge.

• The monthly value necessary to The monthly value necessary to recover an initial cost of the extra recover an initial cost of the extra item over the economic life.item over the economic life.

• 1.7 % per month yields 20% a year 1.7 % per month yields 20% a year or simple pay back in five years.or simple pay back in five years.

• For a twenty year economic life 1.7 For a twenty year economic life 1.7 % per month yields a present value % per month yields a present value of $4.80 for every dollar invested.of $4.80 for every dollar invested.