March 6, 2020

Unpaid Utility Bills: When and How to Act

Cities provide an impressive number of services, particularly considering the limited funding mechanisms available. As government entities, cities maintain infrastructure, ensure better quality of life through law and regulatory enforcement, and provide for the general welfare of its citizens. Cities frequently venture into the realm of services traditionally considered private sector, specifically in providing public utilities. This article addresses a few questions regarding the day-to-day operation of public utilities that cities frequently ask.

Deposits

Utilities have varying deposit requirements for customers. The amount of deposit required may vary depending upon whether the property is owner-occupied or rental property and whether the customer has previously been disconnected from utility service for nonpayment. Kentucky law allows a utility to charge “a reasonable cash deposit.” The Kentucky Office of the Attorney General has interpreted this language to mean that utilities can charge a somewhat larger utility deposit to renters than to property owners. However, if the deposit is placed in an interest bearing account, then any interest accrued on the deposit must be returned to the customer when the service is ended and the customer is entitled to a return of the deposit.

Billing, Rates and Fees

Utility bills can be combined but cannot be added to, or included with, tax bills. Responsibility for utility bills generally lies with the customer. In Kentucky, a spouse cannot bind another spouse to a contract. This means that one spouse cannot be held responsible for the delinquent utility bills of another. However, public utilities can require owners of rental property to be responsible for the delinquent utility bills of tenants. Cities must pass a properly enacted ordinance to hold rental property owners accountable.

Rates for public utilities must be established by ordinance to give customers notice. Ordinances establishing utility rates can include provisions allowing annual adjustments tied to the Consumer Price Index. This allows cities the flexibility to account for natural fluctuations in prices but requires cities to adopt any substantial increases by ordinance.

User fees are an option for cities to pay for necessary projects involving city utility infrastructure. Cities often pay for necessary storm water repair, water line repair, and other substantial projects by adding special user fees. These fees must be adopted through a properly enacted ordinance and cover only the cost of completing a particular project. User fees cannot simply be a new source of revenue for the city. Therefore, it is important that cities establish a separate fund for these fees and carefully track every expenditure. Should a fund exceed the cost of the project, the city must refund the excess monies to the consumers. Any city considering adopting a user fee should work with the city attorney in drafting the implementing ordinance and developing a strategy to manage the fund.

Finally, cities frequently charge fees for late payments, to reconnect services that are discontinued, for tampering with public utility equipment, credit cards, and for returned checks. Any fees charged by a public utility must be reasonable. Fees of this type can be adopted by ordinance, municipal order, or in some cases by utility board policy. Regardless of how utility fees are adopted, customers must be given notice of any potential fees before they are assessed. This means that a written ordinance, order, or policy explaining any late fees must be publicly available and provided to consumers when they sign up for service.

Disconnections

Public utilities can cut off service to any customer who fails to pay after being provided reasonable notice and some opportunity to object. If a utility disconnects a customer’s service in error, it will be responsible for any damages resulting from the cut off. Reasonable notice can be a matter of a few days. A disconnect process must be established in ordinance, municipal order, or utility board policy. This includes the amount of notice a customer will be given before services are disconnected, penalties, late fees and total costs, and how the customer may challenge or object. KLC suggests including information regarding public assistance agencies in late payment and disconnection notices, particularly during seasons with dangerous temperatures.

For questions or assistance on these or any other issues, please contact Morgain M. Patterson, Director of Municipal Law and Training at (859) 977-4212.