5.5. ERMUSR 07-09-2007~i
Elk River -~
Municipal Utilities
13069 Orono Parkway • P.O. Box 430
Elk River, MN 55330-0430
July 3, 2007
To: Elk River Municipal Utilities Commission
Jerry Takle
Jerry Gumphrey
Jim Tralle
From: Bryan Adams
Subject: Customer Deposit Policy
Phone: 763.441.2020
Fax: 763.441.8099
At our June 2007 Elk River Municipal Utilities Commission meeting, one of our agenda items
was customer write-offs for unpaid bills. During that discussion the need for a Customer Deposit
Policy was introduced.
Attached is the following information for your review.
1) Proposed Deposit Policy
2) Survey of other utilities concerning their customer deposit policy
Five to Six years ago, the Elk River Municipal Utilities did have a customer deposit policy. It
was discontinued for the following reasons.
I) Write-offs were small - at about our current level of 1 %.
2) Administrative efforts became burdensome with tracking deposits, interest and letters of
credit.
3) Perception of electric utilities being hard to work with and need to come to utility office
to obtain service.
With the economic times, we are seeing many more delinquent bills. Also, the public in part
views utility services as an entitlement, not a service that needs to be paid for. The proposed
policy offers the following advantages over the previous policy.
With the proposed policy residential customers with good credit and providing social security
numbers can complete applications over the phone and do not need to come to our offices. This
will probably be 75% of our customers. Our previous policy, we only required deposits from
rental properties and this could be viewed as somewhat discriminating.
Elk River Municipal Utilities
Customer Deposit Policy
In order to minimize the risk of collecting payments from customers who default on their accounts, the
Elk River Municipal Utilities (ERMU) has adopted this Customer Deposit Policy. The amount of deposit
required will depend on the risk identified with the customer. To assess this risk, the ERMU will utilize
available known credit history through on -line resources and their applicable nationally recognized
scoring methods (such as FICO or Beacon) and/or ERMU past experience with the customer.
For residential customers, the risk of nonpayment will be assessed as follows:
A: If credit score falls above 68% probability of non default and no negative history (disconnection for
non- payment or late payment 2 times in 12 months) with the ERMU, no deposit is required. Failure to
provide a social security number will result in the required deposit.
B: For all others, a deposit of 2 times estimated average monthly utility bill (electric, water, sewer) will
be required before utility service will be extended. With good credit history for a period of 3 years, the
deposit will be credited to the customer's utility account. The appropriate interest will be applied to the
monetary deposit per State statutes
For commercial and industrial customers, a service agreement would need to be signed that identifies
the guarantor of their business and the guarantor's social security number. A deposit of 2 times the
estimated monthly bill will be required. The deposit shall be in the form of a cash deposit, personal
payment guarantee, or an irrevocable letter of credit. The irrevocable letter of credit will be renewed as
required and failure to do so will result in an established penalty applied to the monthly utility bill. With
good payment history for a period of 3 years, the deposit will be credited to the customer's account or
personal guarantee/ letter of credit will be returned to customer.
For residential, commercial or industrial customers who are disconnected for non-payment, a 2 month
estimated utility bill deposit will be required before reconnection.
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