5.2. ERMUSR 01-13-15 i
Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, P.E. —General Manager
John Dietz—Chair
Al Nadeau—Vice-Chair
Daryl Thompson- Trustee
MEETING DATE: AGENDA ITEM NUMBER:
January 13, 2015 5.2
SUBJECT:
Customer Deposit Policy Review
BACKGROUND:
In 2008 and 2009 the downturn in the economy resulted in significant increase in utility
customer delinquencies, customer disconnections due to those delinquencies, and then ultimately
bad debt being written off by those utilities. ERMU, along with many utilities,began addressing
this issue through procedural and policy changes in an effort to minimize risk and limit
subsidization of the bad debt by the customer base.
In March 2010 the Utilities Commission adopted a Customer Deposit Policy. This policy
established the deposit levels and guidelines for customer deposits. The policy specifies that the
form of the deposit shall be a cash deposit or an irrevocable letter of credit. Deposit exceptions
were made for customers that signed up for automatic bank pay.
The deposits were collected on new accounts only; those already established as customers were
not required to pay a deposit in most cases. If an existing customer were to be disconnected for
delinquency, they would be required to pay a deposit prior to being reconnected.
The policy originally was written to return the deposit after the new customer had established
three years of good payment history with ERMU. This has since been revised by the
Commission to hold the deposits until service is terminated.
DISCUSSION:
Since this policy was adopted in 2010, the economy has begun to recover. However,the risk
remains even if bad debt write off has decrease. The utility industry has learned a lot through
this recent recession. It makes good business sense to review this policy from time to time to
ensure it adequately protects our customers, is not too burdensome to administer, and that it is
not too restrictive that it stifles growth and economic development.
EN
IPOWEHED it
Page 1 of 2 NATURE
Reliable Public
Power Provider P O W E R E D T O S E R V E
118
There are a number of details that should be discussed:
1. The deposit amounts for residential customers are fixed and should be reviewed and
adjusted on some schedule to ensure they are adequate for typical average usage.
2. The deposit amount for commercial customers is based on 2 months actual or projected
usage. This amount was established to cover the risk but can be large enough that it may
be a barrier to attracting new commercial customers into the ERMU service territory.
The amount can be lowered if the risk is lowered. This could be accomplished through
shortening the time between usage and payment.
3. Making a deposit requirement exception for customers who sign up for automatic bank
pay works really well for most customers. However, there is some risk. The risk is
minimal for residential accounts, but could be significant for some commercial
customers. This could still be an option for commercial customers if the risk was to be
reduced. This could be possible by implementing bimonthly billing for commercial
customers. This is not possible with our current operations,but may be possible after we
transition to our new billing software next month.
ACTION REQUESTED:
Customer Deposit Policy review, discussion, and direction.
ATTACHMENTS:
• ERMU Policy 8.24—Customer Deposit Policy—March 9, 2010
® PDIEIED 11'
Page 2 of 2 NATURE
Reliable Public
Power Provider P O W E R E D T O S E R V E
119
Elk River Municipal Utilities
Customer Deposit Policy
In order to protect its ratepayers from customers who default on their accounts, the Elk
River Municipal Utilities(ERMU)has adopted this Customer Deposit Policy.
Deposit Required: All residential, commercial and industrial customers of ERMU will
be required to submit a deposit in the form set forth below subject to the exceptions set
forth below. In addition, customers who have been disconnected by ERMU for non-
payment of amounts due shall be required to submit a deposit before service will be
reconnected. Failure to submit the required deposit when due shall be cause for ERMU
to immediately terminate service.
Amount of Deposit: The amount required to be deposited for residential services shall
be:
$100 for apartments
$100 for water and sewer service
$150 all electric service
$250 for all services
The amount required to be deposited for commercial services shall be equal to two times
ERMU's estimate of the customer's highest monthly utility bill, at a minimum of$250.
Form of Deposit: The deposit shall be in the form of a cash deposit or an irrevocable
letter of credit. If in the form of an irrevocable letter of credit, the letter of credit shall be
renewed at least 30 days prior to its expiration. Failure to renew a letter of credit will
result in the letter of credit being drawn on and the cash recovered from the letter of
credit being held by ERMU as a cash deposit. If ERMU is not able to draw on the letter
of credit, the customer shall submit a cash deposit prior to expiration of the letter of
credit. Failure to submit the required deposit shall be cause for immediate termination of
service by ERMU.
Receipt for Deposit: ERMU shall furnish the customer with a written receipt at the time
a deposit is made. The receipt shall specify the conditions pursuant to which the amount
of the deposit will be diminished upon return of the deposit to the customer.
Return of Deposit: Any deposit received by ERMU shall be returned to the customer
within 45 days of termination of service,provided that the customer has paid in full all
amounts due on the account. If the customer has not paid in full within 30 days of the
termination of service, the deposit will be applied to any outstanding amounts owed by
the customer to ERMU. If the deposit exceeds the amount due, the balance will be
returned to the customer. If the deposit is not sufficient to cover the amount due, the
customer shall remain liable to ERMU for the balance and shall pay the balance due
within 15 days of notice from ERMU. ERMU reserves the right to use reasonable legal
means to collect amounts due.
1
120
Interest on Deposits: Interest shall be paid on all deposits in excess of$20 at the rate
established by Minnesota Statutes. ERMU may, at its option,pay the interest at intervals
it chooses,but at least annually, by direct payment or as a credit on the customer's
account.
Submission of and Exceptions to Deposit Requirement:
A. Residential Customers.
Residential customers may submit the required deposit at the time service is
requested, or have the deposit billed with the customer's first bill for services provided.
Failure to pay a deposit when billed shall be cause for ERMU to immediately terminate
service. ERMU may, in its discretion, waive the required deposit for residential
customers if the customer consents to ERMU's collection of credit history data on the
customer, the customer's credit score falls above 68 percent probability of non default,
and the customer has no history of disconnection for non payment to ERMU, and no
history of late payments to ERMU two times in 12 months.
B. Commercial and Industrial Customers.
All commercial and industrial customers shall submit the required deposit and
enter into a service agreement with ERMU at the time service is requested. The
customer's application for service shall identify the individual or business entity entering
into the service agreement. The service agreement shall be an agreement on the part of
this individual or business entity to make payment of all amounts billed by ERMU for
electric, water and sewer services, and to be liable for any default or non-payment of
amounts billed by ERMU. ERMU may, in its discretion, waive or reduce the required
deposit for commercial and industrial customers if a service agreement is executed by the
customer, the customer has provided ERMU with sufficient information to allow ERMU
to analyze the credit risk of the individual or business entity executing the service
agreement, and ERMU, in its sole discretion, determines to waive or reduce the deposit
required based on its analysis of credit risk. Waivers and/or reductions in the deposit
requirement shall be reserved for rare exceptions when the risk of default is minimal.
Adopted 3/9/2010
Revised 2/14/2012
GP 2740880 v4
2
121