Utility Service Rates – Are Your Rate Structures in Compliance with NC General Statutes?

Thursday, April 29, 2021

As more fully explained in Professor Kara Millonzi’s blog on utility rates, local governments and public authorities must have a utility-based reason for charging Customer A one rate and Customer B a different rate for the same type of service, such as water, sewer, or electricity. It’s common practice for local utilities to charge residential rates to its residential customers, and commercial rates to its businesses. Some have institutional rates for schools, churches, or other larger users that don’t really fit the commercial category. Most entities charge a base rate that includes X number of gallons, and a per 1,000 gallon rate for any gallons over the base amount. All of these arrangements are generally fine – there is a utility-based reason for setting such structures. Residential customers typically have smaller meters than commercial ones, because the flow in and out is not as voluminous. Other reasons justify the different rates – for example, pre-treatment may be needed for some commercial waste.

What is not allowed is a different rate for a class of user that has no utility-based reason for the classification. Some units may offer employees or former employees a discounted rate or may charge the base rate only regardless of use. Some entities charge churches and non-profits a lower rate (or give them free services) than a rate charged to other similar users. Public safety volunteers and their families are sometimes given free service or reduced rates as a “thank you” for their service. While the intentions of units offering these types of discounts may be good, these discounted or free services are not permitted by law. In fact, free or reduced services provided to employees creates a taxable fringe benefit for them that should be reported on their W-2s as taxable income. Failure to comply can be very expensive in terms of penalties and interest assessed by the IRS.

Public utility providers must also be non-discriminatory in the development and application of cut-off and collection procedures. Users should not get a pass on a late bill simply because they are an employee, an elected official, or other individual with the ability to persuade utility staff not to enforce collection. Most collection procedures include approved alternatives for customers with health needs or other circumstances that would override cut-off for non-payment.

Finally, in any system some meters may be unreadable – they are either broken or inaccessible. As the owner of the utility system, it is generally the unit’s responsibility to repair broken meters, and uncover and relocate, if necessary, meters that are inaccessible. If a unit believes that meters are being tampered with intentionally – such as a water meter is paved over by the user to avoid having it read – meter tampering ordinances should be enforced.

Unit managers, utility directors, finance officers, and billing staff should all be aware of the requirements around rate setting and collections. Units’ independent auditors should also be aware of the requirements.