HomeMy WebLinkAboutFCS-14-095 - Postage Rate Increase Staff Report
rTC.�r R finance and Corporate Services Department www.kitchener.ca
REPORT TO: Finance and Corporate Services Committee
DATE OF MEETING: June 9, 2014
SUBMITTED BY: Joyce Evans, Director of Revenue and Deputy Treasurer, 519-
741-2200 x7895
PREPARED BY: Saleh Saleh, Supervisor of Collections and Payment Processing,
519-741-2200 x7346
WARD(S) INVOLVED: ALL
DATE OF REPORT: April 24, 2014
REPORT NO.: FCS-14-095
SUBJECT: Postage Rate Increase
RECOMMENDATION:
THAT staff be directed to promote a-post, and implement alternative ways for customers
to view and print their bills as part of the SAP billing system implementation (option #3 in
FCS-14-095) to reduce future postage costs;
AND FURTHER THAT staff be directed to develop strategies to address any current
postage budget shortfall as part of the 2015 budget planning process.
BACKGROUND:
On December 11, 2013, Canada Post announced that it would increase the cost of postage
effective March 31, 2014. The current 2014 operating budget for postage does not account for
the increase in postage costs. During the 2014 Budget process, in lieu of increasing the
postage budget, Council directed staff to consider options to mitigate the additional cost
including strategies to increase the use of electronic bill presentment, potentially moving to bi-
monthly billing and also giving consideration to implementing a user fee to continue receive
paper bills. This report outlines options for council's consideration and direction.
REPORT:
The 2014 Budget for postage is $830,741. A large percentage (70%) of the postage budget
relates to costs of mailing out property tax and utility bills. As a result of the postage rate
increase announced by Canada Post, it is expected that the cost of mailing out a property tax or
utility bill will go up by an average of 15% to 19% depending on the weight of the item.
It is expected that the over expenditure for postage will be $93,000 for 2014 ($50,000 for the
tax-supported budget and $43,000 for enterprise budgets). This amount reflects the increased
costs of postage for 9 months starting March 31, 2014. To mitigate a portion of this variance,
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staff have developed four options for Council's consideration. The options are not mutually
exclusive.
Option #1: Charge $2 for every paper utility bill to be mailed out
This option considers charging customers $2 for every paper utility bill that is mailed out. This
strategy is consistent with what a few organizations do to encourage customers to sign up for
electronic bill presentment and receive their bills online. Advantages of this option include;
recovery of postage charges, additional revenue for the utility base and reduced wear/tear on
the mailing machine. A major disadvantage of this option is the increased cost to the customer
for receiving a paper bill, which would equate to $24 per year, or 1.30% of the average annual
bill. This option could not be implemented for property tax bills because as per legislation, this
fee would need to be sent on a separate paper bill and cannot be consolidated with the property
tax bill. As a result, this option will not solve the tax-supported budget shortfall.
It is also important to note that the Governor General has made a commitment in the throne
speech in October 2013 to end "pay to pay" policies so customers would not have to pay extra
to receive paper bills.
In comparing with other utilities the following information has been obtained with respect to
whether or not they charge for customers to receive paper bills. It does not appear to be the
practice locally for electric, gas, water and sewer utilities.
Organization Charge to receive Comments
paper bill
Kitchener—Wilmot Hydro $ nil Considering moving from bi-
monthly to monthly billing
City of Waterloo (water/sewer) $ nil Bills bi-monthly
City of Cambridge (water/sewer) $ nil Bills bi-monthly
Union Gas $ nil Bills monthly
Rogers $ 2.00 Bills monthly
Bell $ 2.00 Bills monthly
Conclusion: Charging a fee to receive a paper bill is feasible and generates sufficient revenue to
offset the postage cost increase for enterprises by a considerable margin, but would be poorly
received by ratepayers and would not address the tax-supported shortfall($50,000).
Option #2: Provide financial incentives to customers to enroll on a-post
This option involves providing incentives for customers to enroll on a-post which is the City's
electronic bill presentment provider (see Appendix A). An example of an incentive could be
giving the customer a $10 rebate on their utility bill if they enroll and stay on a-post for at least
one year. This option does require additional staff time to configure the existing billing system,
which is not feasible in the short term due to the billing system replacement project which is now
underway. The primary challenge with this option is that unprecedented (unrealistic) growth in
enrollment would be required for this option to offset the postage cost increase. Approximately
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10,000 accounts (7%) of the City's total 145,000 customer accounts are currently enrolled in e-
post. An additional 36,000 accounts or a 60% increase in a-post enrollment would be required
to offset the costs associated with this option.
Conclusion: Providing financial incentives to enroll on a-post, as an offset for increased postage
costs, does not have a viable business case at the present time.
Option #3: Expand the promotion of a-post and implement alternative ways for customers to
view and print their bills as part of the SAP implementation
This option considers the continuous promotion of a-post via mail inserts, partnering with
Canada Post on a marketing strategy and increased communication with customers on the
benefits of a-post both at the counter and on the phone. The advantages of this option include
reduction of postage costs and the ability to leverage the implementation of a new billing system
to allow customers to view their bills online. The disadvantage of this option is that it will take
time for additional customers to adopt a-post or on-line billing given the trend line over time.
Further, it will result in a budget increase as the City would still need to fund the cost of postage
until there is a sufficient amount of enrollment in a-post or online bill viewing.
Conclusion: Promotion of e-post and other on-line options available through the new SAP
billing system will reduce postage costs over time.
Option #4: Move from monthly to bi-monthly billinq
This option contemplates moving from current monthly billing for utilities to bi-monthly billing.
The major disadvantages of this option are; reduced cash flow to the City (which would cost far
more than the postage increase), perceived by customers as a service level reduction especially
in situations where inaccessible meters may result in reads which cause 4-6 months to transpire
between actual reads, reduced ability to provide value added services like "high bill" alerts, and
the possibility of increased arrears due to inability of customers to pay large bills bi-monthly.
This option would also require a reconfiguration of the existing billing system which is not
feasible at this time. The advantage of this option is the reduction in postage costs and lower
meter reading costs for the Enterprises.
This option also involves reading meters on a bi-monthly basis. In 2002, the City made a
decision to read meters monthly mainly due to a large number of customer complaints related to
estimated consumption. Reading meters and invoicing bi-monthly is not recommended as this
will be seen as a service level reduction resulting in a high volume of customer complaints,
larger bill amounts and an increase in the number of customers who are in arrears. Further, the
City's Direct Purchase program (vendors supplying customers) relies on monthly consumption
information being reported and remitted on a monthly basis.
This option will not solve the tax supported shortfall as tax bills would still need to be mailed out
at the prescribed dates.
Conclusion: Moving from monthly to bi-monthly billing is not a feasible option and would be
perceived as a service level reduction by ratepayers. Further, this option would not address the
tax-supported shortfall.
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The following table summarizes the four options
Option #1 Option #2 Option #3 Option #4
$2 charge for Provide incentives Continue to Move from
every paper utility to switch to a-post promote a-post and monthly to bi-
bill mailed out other bill view monthly billing
options
Pros -Recovery of -Consistent with -Recovery of partial -There will be
postage costs corporate strategy postage costs savings on
-Additional to reduce costs in -Ability to leverage postage as bills
revenue for the the long run the implementation will only be sent
utility enterprise of a new billing out bi-monthly.
system (SAP) to -There will be
increase the level of savings
customer service associated with
and provide reading meter's bi-
alternatives to e- monthly.
post.
Cons Option #1 Option #2 Option #3 Option #4
-Customer -Unrealistic growth - Unrealistic growth - Reduced net
backlash requirements in use requirements in use interest as the City
-Not an of a-post. of a-post. will only receive
environmentally -Many customers -Need to fund payments bi-
sensible option like to receive increased costs of monthly
-Staff time paper bills. postage -For high gas
required to -Staff time required consumption
configure billing to configure billing months, the
system. system. customer will have
a large payment to
-Does not resolve -A $10 incentive make at one time
costs for tax- may be too low to as a result of bi-
supported attract customers to monthly billing,
operating budget a-post. and use of
(property tax bills) -Canada Post has estimates could
previously spent further worsen the
large amounts of situation.
advertising dollars -Customers will
to promote a-post consider bi-
with limited monthly billing a
success. service level
-Customers who reduction.
are currently -May not be able
enrolled on a-post to detect water
may demand leaks quickly if
similar incentives to meters are read
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continue. bi-monthly.
-High upfront costs -Increase in
due to marketing complaints due to
costs related to this estimated reads.
option. -Possibility of
increased arrears
due to inability of
customers to pay
large bills bi-
monthly.
-Staff time
required to
configure billing
system.
Budget Impact Option #1 Option #2 Option #3 Option #4
(Surplus)/Deficit *($1,400,000)- $160,000 —Deficit $124,000 —Annual Budget impact
Surplus for year one of the Deficit ($93,000 for unknown due to a
-Approximately promotion. 9 months in 2014) number of factors
$1.4M would be Assumptions Assumptions such as:
generated in -Promotional -Based on historical -Additional
revenue as a budget of$60,000 trends arrears/write-offs
result of the $2 that may occur as
chargeback. -Assumes an a result of
*-If more additional 10% of customers not
customers enroll customer enroll for being able to pay
for a-post as a e-post higher utility bills.
result of the $2 -A 10% enrollment -Additional staff
charge, expected for a-post will result time required to
revenue will be in savings of reconfigure the
lower than $1.4M approximately existing billing
as the $2 charge $25,000 per year system.
will not apply for
customers
enrolled on e-
post.
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ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
Foundation: Effective and Efficient Government
Goal: Financial Management
Strategic Direction: Maximizing value through cost effective service delivery.
FINANCIAL IMPLICATIONS:
Option #1: If a charge of $2 per bill was implemented, it is expected that approximately
$1,400,000 in revenue will be generated. This is based on the assumption that there will be no
net change in enrollment for a-post. This will offset the enterprise postage shortfall of $43,000
but not address the tax-supported shortfall of$50,000.
Option #2: Providing incentives to switch to a-post is expected to cost approximately $60,000 in
marketing and promotions. If we assume an increase of 10% enrollment for a-post, it is
expected that this option will still cost the City approximately $160,000.
Option #3: If the City was to continue to promote a-post and other bill view options once a new
financial system is implemented, it is expected over time there could be significant savings as a
result of combining a-post and online bill viewing options. In the short-term (2014 Budget), it is
expected that the postage budget lines will incur a deficit variance of approximately $93,000
($124,000 annualized - $57,000 tax-supported and $67,000 enterprise). In addition, the
increased costs for postage will need to be budgeted for in 2015.
Option #4: The financial impact of moving to bi-monthly billing cannot be estimated at this time
mainly due to unknown factors such as a possible increase in write-offs and additional staff time
to reconfigure the existing billing system.
CONCLUSION:
The increased cost of postage implemented by Canada Post has created a budget challenge for
The City of Kitchener. It will cost an additional $93,000 in extra postage for the 2014 Budget
year. Staff have identified four options to fund this shortfall in the postage budget lines. All four
options presented require the continuous promotion of a-post to help reduce costs for both the
customer and the City. In view of the considerations outlined above, staff recommend option #3
be implemented. In addition to promoting a-post, the recommended option involves leveraging
the implementation of a new billing system to allow customers to view their bills online. It is
anticipated with the availability of the online bill view feature, customers will be more likely to
forego receiving a paper bill.
In summary, staff will continue to promote a-post in partnership with Canada Post and
aggressively pursue the online bill view feature when the new billing system is implemented.
ACKNOWLEDGED BY: D. Chapman, Deputy CAO, Finance and Corporate Services
& City Treasurer
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APPENDIX A- ELECTRONIC BILL PRESENTMENT(e-post)
What is a-post?
E-post is a service that is provided by Canada Post where customers can access their bills
online.
How it works?
E-post allows customers to check bills and statements in one place with no requirement to
remember multiple user names and passwords for multiple web sites. Customers can also store
bills and statements electronically for up to seven years.
Why the City went with a-post?
Customers who did not want a paper bill requested that the City provide an alternative for
customers to receive their utility and property tax bills electronically. The Municipal Act at the
time required that the delivery of property tax bills be done by Canada Post. The Municipal Act
has since been revised and there is no longer the requirement that property tax bills have to be
delivered by Canada Post.
Why stay with a-post?
E-post currently is the only option the City has in terms of delivering online bills. It is also a
cheaper alternative (currently at 0.35 cents per transmission) when compared to mailing out
paper bills.
How will implementation of a new billing system help?
The City is currently in the process of implementing a new billing system (SAP). It is expected
that an online bill viewing option will be one of the new features that will be available to
customers. Further, as part of the implementation project an option to send out electronic bills
in-house will also be investigated.
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