Bad debt plagues every utility: electric, water, sewer, phone, gas – you name it. A utility can spend thousands of dollars trying to recover the costs of delinquent accounts, and unfortunately, utilities with bad debt meet a costly fate. Bad debts are assumed by the company, and categorized with other necessary expenses; it has become a sacrifice that companies are expected to make. The accumulation of bad debt has become so normal for these companies that estimates are made, dollar amounts are calculated, budgets are finalized, and subsequently, bad debts are forgotten.
Delinquencies and bad debt can be caused by customers who have a harder time paying their bills, whether because of financial constraints or difficulties in communicating with the utility. To improve customer service, utilities can try to identify areas or customers that may need additional assistance or target outreach programs that can help customers communicate with the utility.
Shadi Eskaf is a senior project director for the Environmental Finance Center at the University of North Carolina at Chapel Hill.
“What is the [national/state/recommended] threshold of affordable rates? Is it 2.5 percent MHI?”
If I had a dollar for every time I get asked this question, I don’t think I’d have to worry about affording my own water and wastewater bill. Percent MHI has become a popular indicator for utilities, agencies, and organizations across the country, and even we use it in our Rates Dashboards. Although different groups have their own unique interpretation of the resulting value, the calculation is relatively standard. One of the two variables needed to calculate this indicator—the Median Household Income (MHI)—is usually obtained from the U.S. Census Bureau and taken on face value. Digging deeper into this variable, however, reveals that it is not as simple as most people consider it to be. Using the Census Bureau’s MHI as-is automatically builds in important qualifications into the percent MHI indicator that could significantly affect the interpretation of its value.