I’ve been preparing for an upcoming speaking engagement for the Alliance of Indiana Rural Water’s annual Leadership Summit where one of my topics will be “Is it Time for a Rate Increase?”
One of the points I make in this presentation is deferring needed rate increases isn’t good for either the utility or their customers. Expenses increase every year and increasing revenues accordingly only makes good business sense.
Annual rate increases
For a hypothetical illustration, let’s assume a $50.00/month average bill and a 2% annual rate increase. Here’s what that looks like:
Absorbing a monthly increase of $1.00 (or $1.20 in year 10) for an average bill of $50.00 isn’t going to please all of your customers, but it shouldn’t upset anyone’s family budget too much.
Impact of deferring a rate increase
On the other hand, if you defer any rate increases until things reach a crisis point at year 10, it requires an increase of $10.95 or 21.9%. This kind of sudden increase is likely to stir up quite a few angry customers, and rightfully so!
Review your rates every year
Each year, at budget time, you should review your rates, even if you don’t anticipate a rate increase. Doing so enables you to ensure your revenues will at least keep pace with your expenses. If you see that isn’t going to happen, then a rate increase is called for.
Express your rate increase in dollars
When it comes time to publicize a rate increase, I encourage you to explain it in terms of the dollar increase in an average bill. In the illustration above, for year 1, your customers will relate to a $1.00/month increase much easier than they would to a 2% increase.
Don’t forget to increase your security deposit
If you’ve heard me speak or completed the Days of Exposure worksheet online, you know your security deposit should be a function of your average utility bill. As your average bill increases (even in small increments) you should raise your security deposit accordingly. Failing to do so will ultimately lead to more bad debt write-offs.
Do you need assistance with a rate increase?
Is it time to increase rates but you’re not sure where to start? Please give call me at 919-673-4050 or email me at email@example.com to learn how a business review could help. If it turns out you do need assistance conducting a rate study, I can refer you to someone who can assist.
2022 Utility Staffing Survey
There’s still time to complete the 2022 Utility Staffing Survey, if you haven’t already participated.
If you’d like to complete the 2022 Utility Staffing Survey, please click here. This should only take a few minutes to complete and I will publish the results in future newsletters.
Thank you in advance for taking the time to complete the survey and please feel free to share it with your peers at other utilities.
© 2022 Gary Sanders