2. Customer Friendly Service and Connection Fees Lloyd Shank, P.E.

3. What Business Are We In? Bureaucrats enjoy brain storming extra customer fees. Many of these are created to “get even” with customers who make the system go out of the way a little or cause a little extra effort. Be careful that extra fees do not get in the way of accomplishing your mission. Bureaucrats enjoy brain storming extra customer fees. Many of these are created to “get even” with customers who make the system go out of the way a little or cause a little extra effort. Be careful that extra fees do not get in the way of accomplishing your mission.

4. Customer Impact Understand what reaction the fee will elicit from your customer. Understand what reaction the fee will elicit from your customer.

6. Early in my career I proposed a special rate to properly recover the cost of bulk tobacco barns. The economy of the community was based on tobacco. Raising cost to tobacco barns was seen as a threat to the entire community!

7. The Customer Point of View Service fees for a trouble call. Service fees for a trouble call. –If the problem is not with our electric system we are going to bill your account for making us go to the trouble to send a representative.

9. Impact on the Customer Weigh the financial impact on your customer constituency to ensure that the charge is affordable. Weigh the financial impact on your customer constituency to ensure that the charge is affordable. What type of arrangements can be made to make the fee more palatable? What type of arrangements can be made to make the fee more palatable?

11. Political Impact Some fees for additional services may conflict with the political philosophy of the community. On the other hand fees may support a particular political purpose. Some fees for additional services may conflict with the political philosophy of the community. On the other hand fees may support a particular political purpose. For example: impact fees may discourage new development. For example: impact fees may discourage new development. Budget Impact vs. Taxes Budget Impact vs. Taxes

12. What’s In The Rates? List all expenses that are considered to be normal that are incurred by most customers and are expected to be recovered in rates. List all expenses that are considered to be normal that are incurred by most customers and are expected to be recovered in rates. Fees should be part of the decision process of rate design. Fees should not be implemented as an afterthought to the rate process. Fees should be part of the decision process of rate design. Fees should not be implemented as an afterthought to the rate process. Remember that the revenue from the extra fees will not make a meaningful budget contribution to your overall sources of revenue. Remember that the revenue from the extra fees will not make a meaningful budget contribution to your overall sources of revenue.

13. Extra-ordinary Expenses List extra-ordinary expenses that are not expected to be recovered in the rates. List extra-ordinary expenses that are not expected to be recovered in the rates. Survey the competition and similar agencies. Do not simply list a fee to be collected because of precedent or because similar organizations have a similar fee. Not having certain charges may provide a competitive edge without carrying a great deal of cost. Survey the competition and similar agencies. Do not simply list a fee to be collected because of precedent or because similar organizations have a similar fee. Not having certain charges may provide a competitive edge without carrying a great deal of cost.

14. Fees to Punish Be careful of getting in a mood to use a fee to punish misbehaviors. Be careful of getting in a mood to use a fee to punish misbehaviors.

16. Fees to Fit the Cost A cost that occurs one time can be recovered at one time. A cost that occurs one time can be recovered at one time. Many costs continue to occur over time. If the fee is not recovered over time all costs will not be recovered. One way of imposing a one time fee to recover costs that occur over time is to add a factor for the time value of money. Many costs continue to occur over time. If the fee is not recovered over time all costs will not be recovered. One way of imposing a one time fee to recover costs that occur over time is to add a factor for the time value of money.

17. Example Reimbursement Problems Replacing an overhead with an underground line. Replacing an overhead with an underground line. –Cost of the underground line. –In place value of the existing overhead line. Cost today adjusted for depreciation (Handy-Whitman index) –Removal cost –Salvage Value

18. Fees for Decorative Street Lights Standard Lighting Layout vs. Decorative Layout Standard Lighting Layout vs. Decorative Layout Standard Lighting Fixture Costs vs. Decorative Fixtures Standard Lighting Fixture Costs vs. Decorative Fixtures Standard Lighting Operating Costs vs. Decorative Operating Standard Lighting Operating Costs vs. Decorative Operating The time value of money will have to be applied to the differential where costs are impacted over time.

19. Extra Facility Charges When utilities install additional capital for the sole benefit of a customer a one time charge does not recover the additional ownership cost of maintaining the item in place over extended years. When utilities install additional capital for the sole benefit of a customer a one time charge does not recover the additional ownership cost of maintaining the item in place over extended years. Use a continuing capital recovery charge. Use a continuing capital recovery charge.

20. The monthly value necessary to recover an initial cost of the extra item over the economic life. The monthly value necessary to recover an initial cost of the extra item over the economic life. 1.7 % per month yields 20% a year or simple pay back in five years. 1.7 % per month yields 20% a year or simple pay back in five years. For a twenty year economic life 1.7 % per month yields a present value of $4.80 for every dollar invested. For a twenty year economic life 1.7 % per month yields a present value of $4.80 for every dollar invested.