4.2. ERMUSR 12-08-2015 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Tom Sagstetter—Conservation and Key Accounts
John Dietz—Chair Manager
Al Nadeau—Vice Chair Jennie Nelson—Customer Service Manager
Daryl Thompson—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
December 8th,2015 4.2
SUBJECT:
Security Deposit Policy
BACKGROUND:
Based on recent commercial customer experiences and direction from the Utility Commission,staff has
been reviewing the Security Deposit Policy, The goal of the policy review is to have measures in place
that are consistent with industry standards and minimize the financial risk to the Utility and all customers.
At this time,the focus of the policy review is for the commercial customer class only because of the
magnitude of financial risk with the largest customers, A number of items regarding the policy were
already discussed at the November commission meeting. Per commission direction, staff has identified
several options to strengthen procedures and minimize risk.Below is a list of information staff has
assembled to determine next steps in the policy review.Attached is the current Security Deposit Policy
for reference.
DISCUSSION:
The goal of the security deposit policy revision is to minimize the risk to all ratepayers,yet still provide
an environment that encourages business to locate within the ERMU service territory. The policy also has
to be executable and administratively manageable for staff in order for this to be successful. Also,the
administrative costs need to be reasonable in comparison to the risk mitigation. Staff understands that risk
will always be a part of this business,but we know that there needs to be a balance between
policy/procedure and economic development.
Staff also surveyed several utilities in the area and found that our current policy is very similar to others,
even a tad more strict.With all of those thoughts in mind, staff has created a new procedure for
commercial account move-ins. The new move-in process is made of roughly three different parts: new
commercial application,security deposit dollar amount and pre3ayment,and a revised service agreement
that needs to be signed in person.Below are bullet points outlining the potential new procedure:
1. Account Application
a. New commercial application
i. Based on other local utilities' applications
ii. Signed by local customer authorized representative
iii. Help obtain current property owner or broperty management contact information
to assist with disconnects that may be needed
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2. Calculating the Security Deposit
a. Credit Report
i. Corporate if registered as an LLC
ii. Individual if sole proprietor
b. Past Utility Bills(Minimum of 12 months with current electric provider)
c. Estimating deposit based on connected load(New or expanding business)
d. New Application Fee(Cover cost of credit report and administrative costs)
e. Process for ERMU staff
i. Receive completed application
ii. Review completed application
1. Credit check
2. Determine security deposit based on utility bills or connected load
calculations furnished by company representative.
3. Security deposit is subject to re-evaluation over time if the deposit is too
low or too high depending on past 12 months of use on ERMU system.
4. Customer will be required to come to the office to sign the service
agreement and pay the security deposit as well as the application fee
prior to establishing the account in the business" name.
3. Determining the credit risk of commercial customers
a. Credit score of less than or no established credit will require a deposit of 3 times
their highest bill in the past 12 months or that monthly estimated cost based on the
connected load submitted on the application.
b. Based on the credit score and a risk matrix that is being developed,the customer will
have a security deposit that ranges from one to three times their highest monthly bill in
the past 12 months or the estimated monthly cost determined by ERMU staff.
c. Commercial customers can also submit a letter of credit for the security deposit instead of
cash.
d. ERMU may,in its discretion,waive or reduce the required deposit for commercial or
industrial customers based on credit risk.
Even with recent events resulting in larger losses due to non-payment,it is important to remember that
ERMU is currently doing a good job protecting our customer's interests.These are few and far between.
The Average National Write-Off percentage is between.10%and .41%. ERMU's write off percentage is
well below this average at.01%currently.Also,our current policy and procedures are very similar to
other utilities.This said,there is an opportunity to strengthen both. This is not a problem you solve,but
rather an issue you manage; this requires periodic review as our world changes. Staff is looking for the
commission's approval to continue working in the direction identified above and determine final policy
revision language. Staff will also create the new service application form and revise the commercial
service agreement that will be brought back to the commission for an approval at a later date.
After revision and commission approval of any changes to the commercial customer portion of the
security deposit,staff will review the residential security deposit policy and process. Staff will also
review risk associated with credit card payments for residential and commercial accounts. These will be
brought back to the commission for discussion throughout this process over the coming months.
ACTION REQUESTED:
Provide staff with guidance on the measures outlined for further research and policy development.
ATTACHMENTS:
• ERMU Policy A.6—Customer Deposit Policy
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Elk River
Municipal Utilities
A.6—Customer Deposit Policy
1.0 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.
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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.
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 90 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.
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Adopted 3/9/2010
Revised 2/14/2012
Revised 6/16/2015
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