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CITY OF COLTON AGENDA REPORT FOR COUNCIL MEETING OF DECEMBER 20, 2005 TO: Honorable Mayor and Council Members FROM: Jeannette Olko, Electric Utility General Manager ITEM #7 SUBJECT: Request for Approval of Elimination of 2% Discount on Early Utility Payments and Implementation of Late Fee for Delinquent Utility Payments DATE: December 12, 2005 BACKGROUND: On January 18, 2005, the City Council approved the award of a contract to Navigant Consulting, Inc., to perform a cost-of-service/rate design study for the electric utility. The purpose of the study was to determine if the existing rate structure was appropriate given the current cost structure, and to recommend new rates, if necessary, that are equitable, fair, nondiscriminatory, based on the cost of providing service, produce sufficient revenues to meet revenue requirements and bond covenants, and provide overall rate stability for the utility. The results show that the current rate structure does not allow the electric utility to fully recover its revenue requirement; in fact, the electric utility is projected to under -collect its revenue requirement by $2.66 million for fiscal year 2005-2006. Therefore, an average 8.35% electric rate increase was recommended to the City Council in order to collect the $2.66 million shortfall. On December 06, 2005, the City Council approved the first reading of the ordinance that establishes the new electric utility rates. Also, staff was directed to bring back to the Council a proposal to eliminate the 2% discount for early payments and implement a late fee charge on delinquent utility payments. DISC USSION/ANALYSIS: The 2% discount for early payments on accounts receivable and the late charges on delinquent accounts receivable were both established by ordinance in 1996. The 2% discount is currently only applied to utility charges, and cost the electric utility $141,731 in lost revenue for fiscal year 2004-2005. The projected loss in revenue resulting from the 2% discount for fiscal year 2005- 2006 is estimated to be $186,944. Although a late charge fee on delinquent accounts receivable was established as a monthly fee of 10% of the unpaid balance, there was concern that this charge may be excessive with regard to utility payments, and has not been enforced. Staff recommends modifying Section 3.38.020 of the Colton Municipal Code to authorize the city to charge a late fee of 5% of current charges for utility accounts receivable. This late fee would be applied to utility accounts that have not been paid 30 days from the billing date on the utility bill. However, staff also recommends exempting utility bills which are under $20.00 from this late fee requirement. It is anticipated that the late fee would generate approximately $77,400 additional revenue for fiscal year 2005-2006, and an additional $232,000 in annual revenue to the electric utility each full fiscal year thereafter. FINANCIAL IMPACT: The savings from the elimination of the 2% discount is anticipated to be approximately $62,315 for fiscal year 2005-2006. The implementation of the late fee is anticipated to generate approximately $77,400 for fiscal year 2005-2006.