Your customers don’t like utility rate increases. You need to do them anyway.
Russ Hissom
I specialize in advising power and utilities companies navigate their financial, accounting, and rates needs, ensuring they achieve financial success and deliver outstanding service.
We turn our attention to the necessity of maintaining rates that cover the cost of service delivery to customers and the adverse effects of postponing rate increases. Explaining the benefits to customers may not convince them of the importance and benefits, but making the effort is worthwhile.
Why Are Rate Increases Delayed?
Procrastinating on rate increases merely defers the inevitable. Conversely, routine rate adjustments can acclimate customers to how your co-op or utility meets their needs.
What Criteria Do Bond Rating Agencies Use?
Bond rating agencies emphasize the importance of regular rate increases in their evaluation process. According to Moody’s criteria:
Effective business processes should integrate planning and forecasting tools to provide concrete evidence to the Board that a rate increase is necessary, along with the consequences of not implementing such increases.
Regularly conducted cost of service studies, whether internal or outsourced to a consulting firm, can significantly enhance business planning.
What Are Customer Expectations?
Customers expect reliable service. While they may grumble about rate increases, they will express greater dissatisfaction if service reliability declines.
The rate increase process should involve public Board meetings, workshops, and listening sessions to help the public understand the need for rate adjustments.
While these sessions might not always lead to greater acceptance, they demonstrate the co-op or utility’s commitment to due diligence and public engagement in justifying rate changes.
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Consequences of Delaying Rate Increases
Postponing necessary rate increases can lead to several negative outcomes:
Review your systems and educate your Board and ratepayers to potentially achieve a more favorable outcome in the rate approval process.
How I Can Assist Your Organization
If you are seeking to enhance your processes in these areas, I can help. Please contact me with any questions, or we can schedule an appointment to discuss your improvement needs in more detail.
Thank you for reading this article. Please send me any suggestions for other topics. I am always looking for ways to address current issues and serve as a resource for utilities and electric cooperatives.
About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists, LLC a firm that provides power and utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.