National Drinking Water Clearinghouse
West Virginia University
PO Box 6893
Morgantown, WV
26506-6893


Paying The Bills
Collecting Whats's Owed to a Water Utility

by Jamie Knotts
On Tap Assistant Editor

jknotts@wvu.edu

 


Along with the all the work a utility must do to produce a safe, consistent water supply comes the unpleasant task of bill collection. For many systems, collecting delinquent bills is a headache. Billing clerks and others in contact with paying—and non-paying—customers have probably heard every excuse possible about why a bill can’t be paid on time, if at all.

In some cases, a utility must go to great lengths to collect an outstanding debt from a customer. Shutting off a customer’s water supply for lack of payment is one way to gain the customer’s attention. But even then, the process for disconnecting a customer is complicated and, in many states, regulated by public service commissions (PSC). As a last ditch effort, utility management can take customers to court or turn bills over to collection agencies. These efforts too have their disadvantages.

For the Washington County Service Authority (WCSA), in Abingdon, Virginia, late payment is just something they contend with. David Dawson serves as the water utility’s general manager. He says that the utility uses a monthly billing cycle and typically applies late charges to 17 percent of accounts. A late charge is added when the bill is not paid by the posted due date on the billing invoice. He says that two percent of customers wind up receiving a shut-off notice during a monthly billing cycle. One-half percent of customers have their service terminated because they didn’t pay their bill.

“These numbers hold true month after month among our 18,000 accounts,” Dawson says. “Another way to present this information is that one of six customers pays late, nine of 10 pay with a late charge before a disconnect notice is issued, and three of four getting the disconnect notice paid before service is terminated.”

“To decrease delinquency, we provide a return envelope in the bill and offer direct debit from a customer’s bank account at no charge,” he says. “We also offer options for extensions and time payments,” he adds that once a service has been disconnected, the customer must pay the past-due bill or set up a payment plan before the utility restores service.

Are shut offs legal?
Delinquent water bills occur everywhere in the country. In New York, many utilities deal with debt collection in an unusual way—through property taxes.

“Most systems have a problem with delinquent customers,” says David Cole, training specialist with New York Rural Water Association. “It’s just a fact of life. The problem lies in (that) there is no avenue for enforcing customer payment here in the state. The PSC (public service commission) doesn’t regulate the municipalities up here so many water systems don’t follow PSC rules that would normally cover conditions for service disconnections.”

Cole works with a lot of small utilities that don’t fall under state PSC regulations. Because of that, he says, utilities fall in a gray area where systems may not be entitled to shut off service for lack of payment. “The real question here is whether it’s legal in New York to do shut offs( for systems not under PSC regulation). Is it legal to shut someone off with legal notification? Some say no and some say it’s legal.

“The official word is that you can’t legally shut someone’s water service off. It’s something no one likes to do, but business is business,” Cole says. “I tell water boards in my presentations that a water system needs to be run like a business. It’s like with anything else, if someone doesn’t pay, then they need to take the service away.

“They (state leaders) need to set a standard policy up here,” he says. “It’s no different than your electric, gas, or your phone. If you don’t pay the bill, then you don’t get the service. I’m from the old school where if you have a bill, then you pay it.”

Cole says that many utilities in New York have found a way around water shut-off problems and still collect their customers’ debt. He says that systems add the uncollected debt to the customer’s property tax at the end of the year. “If they don’t pay the water bill, they put it on the property tax,” Cole says. “But the problem with that is the property owner gets to deduct the amount from their income taxes the following year, and that’s not right. A lot of systems seem to be going that route because it’s easier to collect the money, but it’s not the right way in my mind.”

Cole says that municipal officials worried about the legality of shut offs for non-payment turn to the property tax method of payment. “The big scare is that customers can sue a system for shutting off water,” he says. “Municipalities are concerned about the expense of the court case. They see the easier route is to add the amount to the taxes.”

One particular negative to collecting debt through property taxes is the burden it places on rental property owners. Cole says that rather than the user paying the water bill, the property tax method shifts the debt to the rental owner who didn’t incur the bill. That forces the owner to collect the bill from the tenant.

“I was a small system operator serving 2,500 customers for ten years,” Cole says. “We used to send out a 60-day notice and 30-day notices and wind up with a hand-written notice, but now they don’t take the time and expense to do that. They just put it on the tax role.

“There’s no question; there are very few shut offs anymore,” he says. “Most have gone to the property tax collection method.”

Cole says in his years in the water system, he’s listened to every imaginable customer excuse for not paying a bill. “Speaking with boards now, I see that they’ve all heard them all, too. Unpaid water bills are an issue that a lot of systems deal with.

“The moral of the story is that people take their water for granted and that’s the problem,” Cole says. “Water needs to be protected and valued, and it’s undervalued now. Some systems just seem to give it away with low rates, but unfortunately with the drought problems we’ve experienced lately, some systems are now beginning to value the product they produce and sell.”

How To Write A Typical Shut-off Notice

In Arkansas, the public service commission spells out what a utility’s shut-off notice must contain. Though specific to just one state, the content is typical for notification requirements in other states:
1.The title “SHUT-OFF NOTICE,” “CUT-OFF NOTICE,” or “DISCONNECT NOTICE” in type at least one-quarter inch high;
2.The name and address of the customer and the address of the service, if different;
3.The reason for suspension and any overdue amount;
4.A clear statement of what to do to avoid suspension;
5.The date after which the utility will suspend service unless the customer takes appropriate action;
6.A statement that, “YOU MAY QUALIFY TO PAY YOUR BILL IN INSTALLMENTS AND AVOID SHUT-OFF, BUT YOU MUST CONTACT THE UTILITY’S BUSINESS OFFICE BY THE CLOSE OF BUSINESS ON THE LAST DAY TO PAY PRINTED ON THIS NOTICE AND ASK FOR A DELAYED PAYMENT AGREEMENT”;
7.A statement that a residential customer who has a serious medical condition, is 65 or older, or is handicapped may contact the utility about qualifying for delaying suspension;
8.What it will cost and what a customer will have to do to get service reconnected;
9.How much the customer can be charged if utility personnel must go to the premises to collect the bill;
10.The telephone number and address of the utility office where the customer may pay the bill, make payment arrangements, or make a complaint; and,
11.A statement that any customer with an unresolved complaint may contact the Arkansas Public Service Commission. The statement shall include the Commission’s mailing and street address and local and toll-free numbers.


Arkansas’ Shut Off and Late Fee Policies
In Arkansas, the states’ public service commission regulates four drinking water systems. The state allows its regulated utilities to charge both a collection fee for discontinuing service for delinquent bills and a reconnection fee if a utility restores service after a suspension. Fees vary from utility to utility and are allowed to compensate the utility for the costs involved in discontinuing and restoring service.

If a utility intends to suspend service, the water system must notify the customer in writing five days before the suspension. If the notice is delivered to the site, the notice must be in a conspicuous place that’s easy to see. If mailed to the residence, the five days begin three days after the date the notice is sent by first-class mail to the customer’s last known address. (See Arkansas’ shut-off notice requirements at right.)

The commission also allows a utility to charge a fee for handling a check that’s returned unpaid for reasons other than bank error. The returned check charge must be clearly outlined in the utility’s schedule of fees and charges.

Have a Policy in Place
For those systems that do resort to service disconnections for delinquent payment, make sure state policies and procedures are followed to the letter.

“I recommend that utilities have a system in place so that when they send their bills out, the customer is clearly notified of the payment and disconnection procedures,” says Suzanne Hand, office manager with Maine Rural Water Association (MRWA). “The next biggest thing is that the utility follows through with disconnection.”

In Maine, the Maine Public Utility Commission (MPUC) enforces the state’s drinking water laws. Under MPUC regulation, utilities have terms and conditions that they must follow. These terms explain the conditions of the utility service and list all charges to customers. Regulations allow systems to shut off service after 30 days for outstanding bills.

“When you have a very small utility with 50 customers and everyone knows everyone in town, it’s very hard to shut thecustomer off for lack of payment,” Hand says. But shesays she’s seeing a change in how water utilities in Maine do business.

“What’s happening is that utilities are enforcing the rulesbecause if the utility wants a rate increase in the future, the PSC is going to look at accounts receivable to see whether or not they are collecting their rates,” says Hand. “If they are not following up on delinquent accounts, then the PSC might say, ‘Hey why aren’t you collecting these bills?’ and, in turn, might deny the utility a rate increase.”

This carrot-and-stick approach is encouraging small utilities to follow through with the disconnect procedures, which the MPUC clearly outlines.

“Right now we’re (MRWA )working with four or five very small systems that haven’t disconnected in years.” Hand says. “I’m working on their terms and conditions so the customers are notified of the utility’s procedures. By the time they’ve come to us, they are ready to do something. We help them set up the process to collect the money that’s owed to them.”

Hand says that she’s seen customers try to use the system to get around paying their water bills. “The customer learns to work the system,” she says, “which slows down payment and makes collections more difficult. Medical emergencies are one way to delay disconnection. Medical emergencies might include a new baby in the house, a resident on dialysis, or another medical problem where water is necessary. With a note from a doctor, customers’ water cannot be disconnected in these situations.”

Another way to delay payment involves changing accounts at the same address. “Mom gets the water bill in her name, then dad gets the bill changed to his, and then a son will come to change the account to his,” Hand says. “If the system can prove that’s what’s going on, then it can go to the MPUC and say look, the mom, dad, and son have all come in to register the account in a new name to avoid payment. The MPUC can then back up the utility by saying that the utility doesn’t have to accept a new customer from the same address.” From there, the system can go through the regular outlined notification and disconnection procedures to collect the bill.

Of course, as is the case with most regulated utilities, the customer can file a complaint and have a formal hearing if he or she disagrees with the utility on the issue. In most states, at the point a complaint is filed, the collection or disconnection process is halted until the issue is resolved before the utility commission. The utility may or may not be allowed to disconnect the customer, depending on the outcome of the hearing.

In Maine, utilities can collect on outstanding debt even if the debt was incurred years ago. Utilities can hold the debt for six years, and if a debt holder moves back and wants to establish water service, arrangements to pay the old bill must be made before the utility will connect the service.

Hand says utilities have other options for retrieving outstanding debts from customers. She says water systems can turn outstanding debts over to a collection agency or take a customer to small claims court. But Hand doesn’t recommend doing that unless the delinquent bill is a few hundred dollars. “It’s just not worth going to court over $40 when the court costs are probably going to be more than that.”

Reminder notices or not?
“Here in Maine, utilities are not required to send a reminder notice for late payment,” Hand says. Many other states do require this notification, though.

“In the utility that serves me, they do give notice. After day 25 of no payment from a customer, the utility sends a reminder notice. After day 30, interest starts accruing. At day 45, a disconnect notice is sent to the customer. The day before it’s scheduled to be turned off, the utility must make some effort to tell the customer that the shut off will happen. This is usually done by phone, but a system can also use a note on the door.”

Hand says that if the utility comes out to shut off the water and the customer tries to pay the outstanding debt, the workers can accept the payment. But the customer must also pay an additional $10 collection trip fee to cover the time and effort to come out. While this additional fee is allowed in Maine, some state utility commissions do not allow systems to recoup the added costs of collecting outstanding debt.

In West Virginia, the PSC denied a utility’s request for a $10 charge for each monthly shut-off notice sent by registered or certified mail to the delinquent customer. The PSC denied the request and ruled that the costs involved in mailing and collection are “in the category of ordinary operating and maintenance expenses and are reflected in base rates.”

Delinquent Bills Less of a Problem in Oregon
In the Northwest, the Oregon Public Utility Commission (OPUC) regulates customers’ rates and services of certain investor-owned water utilities. For those systems that are regulated, the commission clearly outlines expectations for the utility and customer. On its Web site, the OPUC advises customers of their rights and responsibilities as well as those of the utility.

“If you are applying for service or have service with a utility company in Oregon, you have certain rights and obligations,” OPUC’s Web site notes.

The OPUC allows regulated utilities to require customers to pay a deposit. If a deposit is necessary, customers may have the right to pay it in several installments. Before a system can disconnect a customer’s service, the OPUC requires that water systems provide written notice at least five days before service is disconnected. Under certain circumstances, the OPUC allows utilities to add late-payment charges to bills not paid on time. Oregon does not recognize medical certificates for water service.
Rebecca Hathhorn is a program manager of the Water Section at OPUC. Hathhorn says that delinquent payments are probably the least of OPUC’s concerns. She said the commission deals with far more water service quality issues than complaints about outstanding or unpaid bills.

Water utilities that are rate regulated in the state have asked for various miscellaneous fees to recoup costs of water terminations and bill collection.

“A company is entitled to charge what is fair, and if they convince the commission that the charge is fair, then we generally will allow the rate the utility is asking for,” she says.

While collecting customer debt can be a problem for utilities, certain customers may qualify for public assistance to help them pay their water bills. To find out if your state offers a program or for more information about the policies and procedures for disconnecting customers, contact the PUC or PSC. For a complete list of state utility commissions, visit www.pueblo.gsa.gov/crh/utility.htm.

About the Author
Jamie Knotts recently finished his master's degree in education. As he taught youngsters, he learned a valuable lesson along the way that applies to writing articles:
Keep it simple and always try to convey the material through stories or people's own words. This approach makes difficult or complicated material much easier to understand.