JANUARY 2006 IN
RICK ASTER’S WORLD

Consolidating Utilities

Every month I get a bill in the mail from the local water utility. Only a small part of the money they want me to pay is for the water I have used. The bulk of it is a “customer charge” — essentially, an account maintenance fee. The water company would like me to believe this money goes to pay my share of the pipes and meters that bring water to me. In reality, most of this money goes to pay the accountants, bankers, and other people needed to run the legacy accounting system that the business depends on. Although it wouldn’t be listed as such on the income statement, accounting, customer service, and financial transaction costs have become the largest expense area for a water utility.

It is even more so in the telephone business. The reason local telephone companies are trying so hard to sell flat-rate plans for unlimited calling within the country is that it saves them the expense of preparing an itemized monthly statement of toll calls. If you are an average telephone customer, the cost to the phone company to prepare and mail you a bill every month is greater than the cost of operating your share of the telephone network.

The same can be seen in other industries as well. The United States pays more, for example, for medical paperwork than for any actual medical treatment. But the high cost of keeping track of customer transactions is especially vexing in the area of utilities, where, by definition, everyone is looking for a service that is pretty standard. Almost everyone uses the same kind of electricity, for example, so why should each of us have to pay the electric company some $100 a year just to keep track of that fact?

I believe utility operations will continue to become more streamlined and the account maintenance fees more conspicuous. This could eventually lead to consolidation among utilities. If you could get your telephone, cable, electric, and Internet access services all from one company and save several hundred dollars a year, with only one combined bill to pay each month, wouldn’t that be simpler?

In my opinion, there is a role for municipalities to play in this. In other words, it may be time to go back to the old idea of public utilities. In this plan, you pay a monthly bill to the city and it sees that you get electricity, water, and whatever other utilities it has agreed to supply you. We would still need the electric company, of course, but only to generate electricity, not to send you a personal bill for it every month. The idea of consolidating customer service for utilities in a single office right in your town might seem frightfully old-fashioned, but I think it just might work.


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