In the earlier article today, I referenced $25 million in overcharges. So how did the City manage that trick? Well, stupidity and arrogance, of course.

Back in 2012-2013, the City Controller’s (Ron Green’s) office did an audit of UCS’s Water Meters and Transmitters. Seeing as they’re not particularly technically adept, it was really an audit of policies and procedures, not the mechanicals, but it was prompted by years of complaints by the customers of inaccurate meters. (They’re not. As I’ve said for years, the problems are with the transmitters, and, as will be obvious here, the business processes.) The summary of issues found reads as follows:

In performing our work, we noted the following issues:
 UCS has the opportunity to improve business processes and internal controls related to interpreting misreads, enforcing fieldwork technician performance and analyzing system notations from fieldwork orders to more efficiently schedule workloads. Based on information provided by PWE/UCS, remediation efforts could lower technician re-read work orders by up to 267,881 and thus potentially reduce technician cost by $2,670,774 during the 18 month period reviewed; (See Findings #1 and 2)
 The ERTs have had some history of malfunction and recall, which is being addressed between UCS and the vendor; and
 The business processes related to fieldwork activity and some aspects of customer service were not consistent with policies and require improved internal controls. (See Findings #3 and 4)

Let’s take just the first one of those bullets: “…the opportunity to improve business processes…” This is auditor-speak for “Either the management or employees don’t know what they’re doing.” Frankly, if the employees don’t, it’s a clear sign that the managers don’t, so let’s change “or” to “and”. I could make several articles out of this audit, but the point here is supposed to be $25 million in overcharges to rate-payers, and how it happened.

To set the stage, let’s look at the history of late penalties. For several decades now, the City has charged a penalty of ten percent of the water and sewer charges, if the customer didn’t pay on time. Prior to sometime around 2006, “on time” was considered to be “when the next bill came out.” However, unlike credit cards, utility billing dates are based on when the meter reading was obtained. That in turn, is dependent on many factors: weather, staffing, traffic, ERT maintenance, etc., so customers never knew exactly what their last day to pay might be. Eventually, an apartment owner who kept trying to time his payments at the last minute got fed up and sued. The judge sided with him, so PWE got the ordinance to change so that the penalty would be charged nineteen days after the billing date. Ironically, this was actually quicker than before — “by the next bill” usually meant 30-31 days, sometimes as little as 28.

Pissing the City off by forcing its hand isn’t a good idea.

But one thing didn’t change at the time, and that was that the penalty was always 10% of what was originally billed for water and sewer, not, as the ordinance said, 10% of the past due. In other words, partial payments didn’t reduce the penalty. The auditor noted that in Finding #5:

FINDING # 5 – INCORRECTLY CALCULATED LATE CHARGES ON PARTIAL PAYMENTS
RISK RATING (IMPACT AND MAGNITUDE) = LOW
BACKGROUND:
Chapter 47, Article II Section 47-69(a) states that “All potable water bills shall be payable in full based upon the rates and schedules provided in this division, on or before the due date stated on the customer’s bill, unless the customer notifies the department in writing that he or she desires to challenge the correctness of the bill in an administrative hearing as described in section 47-70.1. If payment in full is not received by the department or an authorized agent by the due date and the customer has not requested an administrative hearing, the department shall bill such customer ten percent of the past due amount as a charge for late payment.” The ordinance does make an exception for senior citizens in Section 47-69(b).
Customers included in our testing population had received high water bills and were therefore more likely to owe past due amounts because of an inability to pay the bill following the receipt of a bill reflecting a sudden increase in consumption. Senior citizens in our population did not receive late charges which is appropriate per Section 47-69(b) of the Code of Ordinances.
FINDING:
 Penalties are not calculated correctly when partial payments are made on past due amounts.
A water utility customer’s December 2011 bill was $205.15 (Water – 88.92, Sewer – 106.21, Drainage – 10.36 less overpayment credit of $.34). The customer made a payment of $200.00 which was credited to the account on the due date of the payment (12/19/11). The customer was charged $20.55 in late penalties ($8.89 – water penalty, $10.62 – sewer penalty, and $1.04 drainage penalty) which represents 10% of the entire December 2011 bill rather than 10% of the past due amount of $5.15.
RECOMMENDATION:
We recommend that late charges assessed customers should be based only on the past due amount as stated in Chapter 47, Article II Section 47-69(a) of the Code of Ordinances.

Note the example and recommendation: “….the past due amount…” What happens if the customer has a terrible pay history and is always paying late, or making partial payments? Well, if the City cuts off water service like it should, the situation will get resolved. But if it doesn’t, and a situation extends, past dues start carrying over from month to month. And shockingly (as in “I’m shocked there’s gambling to be found at Rick’s!”), UCS is terrible at turning off water for scofflaws, poor people with leaks, illegal users, and politically influential apartment owners (most of them, really).

The result is compound interest, because “the past due amount” is not the same as “the unpaid portion of the most recent current charges,” which is what the auditor (and the ordinance) should have said. I’ve bitched about this before — I swear Legal lets their interns write the ordinances.

Now UCS knows the difference, but somehow in the email exchanges with the Controller’s office, nobody managed to make it clear. The auditors kept insisting they were right, and UCS kept failing to make itself understood, until finally, someone in charge said, “fine, we’ll give them exactly what they’re asking for!” Was it deliberate? I don’t know. I really don’t, but I’m sure the question will be asked.

So they changed the billing without asking Legal if there would be any issues. That was December 2013, and by the time an employee in UCS got fed up with the clearly illegal interest charges and told them, months had passed. Months in which many customers were overwhelmed by the compounded charges, and/or closed their accounts. Now the City is in the process of refunding $25 million in charges. The first notices went out today, and it will take approximately 30 days to finish notifying everyone. The average refund is small, but let’s face it: no one cares about the average, and those won’t make the headlines. Cases like the lady who suffered a leak that went on for months, and piled up $17,000 in compounded late fees even after her water was turned off. That’s what people will remember about this debacle.

A pity this is only the tip of the iceberg.

Update: There were 171 calls into the UCS contact center about the late fee yesterday. This was the very first day of the notices, meaning only customers with e-billing had received notices, and only about 10% of our customers get e-bills. Note that a variance about of 10% (which this is barely under) in call volume will produce the “stall effect,” significantly lengthening call response time. This is reference to how a freeway loaded to near-capacity will handle traffic smoothly — until a car stalls in one lane. Then the traffic starts piling up at the choke point. If you imagine the incoming phone lines as a freeway, and the extra traffic as the stall…

The first paper bills should be delivered today and tomorrow. Don’t expect to be able to reach UCS in a reasonable about of time.