Extreme utility rate increases and communicating them effectively

The local media outlets are sharing news that your water rates will increase by 35 percent. Make that 54 percent. How about 165 percent?! A recent summary of the fifty-two water rate increases granted in 2014 by one state regulatory body (in a state where water increases require state approval) showed the 2014 average increase was 30 percent with the largest being 165 percent!

These statistics don’t reflect the many utilities whose rates remained unchanged, nor do they factor in how long it has been since they last increased their rates. But they do point out that, as utility professionals, we must be cognizant of what will happen when we implement our next increase. A few thoughts to consider:

  • Utility communications should focus on dollars rather than percentages. While we always attempt to talk about increases this way, the media highlights percentages which usually appear more severe than they actually are. Do you think the public would react more positively to the title of an article if it was something like, “Average Home to Now Pay 88 Cents Per Day for Water” rather than “Utility XYZ Water Rates to Increase 165 percent”?
  • Of course, nobody wants to see rate increases, but given that costs generally outpace revenue growth, they are bound to happen. Is it prudent to hold off raising rates for as long as we possibly can and then implement major increases?
  • Compare your average residential customer bills historically. Through conservation, the average residential customer is now using much less water than in the past. In my home state, the average residence used 14 percent less water in 2013 than they did in 2007. If you apply the increased unit rates to the reduced volume, you get a truer picture of what your average customer bill change has been.
  • Point out the relative low cost of water. Many utilities charge the average residence less than $1 per day. This pales in comparison to the cost of bottled water and other goods most people consider necessities, including gasoline, telephone, internet, cable TV, etc.
  • Plant the seeds early. Keep your governing board and customers aware of your upcoming financial needs and the resulting rate increases. Nobody likes to be surprised with a rate increase, especially one of great magnitude. As one philosopher stated, “Failure to plan is planning to fail.”
  • What is your governing board’s philosophy—would they rather see annual or biannual incremental rate increases or less frequent, but more drastic rate increases? Have they ever had a formal discussion about this?
  • Equally important, what are the views of your customers?
  • Once the issues driving the change are fully explained, our experience shows that people generally accept more frequent smaller increases rather than less frequent larger increases.

We welcome the opportunity to talk with you. Let us help you develop strategies to maintain your financial integrity while managing customer resistance to rate increases through proactive and informative communication. Learn how Baker Tilly energy and utility specialists can help, contact our team.

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