THROUGH THE LOOKING GLASS

Perception....it's all about perception. A few years ago, a water company client filed with the utilities regulatory commission for a very substantial rate increase. It was an inflationary economic period, and operating expenses had increased to a point where revenue hardly covered them and yielded no appreciable return. The numbers clearly seemed to justify the requested rate relief.

The commission, however, denied any increase in rates whatsoever. In a subsequent meeting with staff of the commission, the company was told that rate relief had been denied because of perceived poor quality of service. The company had not addressed or overcome a perception that it was not providing good service.

Perception--how customers and regulators perceive their service provider--obviously is important. In reality, however, in this context perception is not what a customer sees, but rather what a customer believes he or she sees.

So, in a proceeding for a rate increase, if a customer perceives that a utility provides poor service or has rates higher than prevail in another community, the customer likely will object to the proposed rate increase. However, that perception or belief may be based upon historical data, not current service, or a misunderstanding how rates are set elsewhere.

How does a utility overcome erroneous perceptions? Certainly, not by deferring needed rate increases and then proposing a huge increase; not by deferring maintenance or needed upgrades, thereby reducing service quality; and not by ignoring customer complaints and concerns. And certainly not by lack of employee supervision. In another rate proceeding, a customer testified that he saw a group of the water utility's service men spending a long time at a local donut shop instead of working in the field. The work break may have been legitimate, but it created a negative perception-the belief that service was being ignored.

If quality of service has improved, customers must be informed of this. If new investment in infrastructure or additional operating staff was required to make the improvement, then the utility must say so. If cost increases are driven by more investment in plant or personnel, or by more stringent environmental rules, or by price increases in chemicals or electricity, the customers should be told this. If a utility's rates are higher than those of a nearby utility, customers should be informed of differences between the systems that lead to rate differences.

Interestingly, another water utility client had a much different experience with customer perception when it proposed a rate increase to the regulatory commission. At an evening hearing in the community for the purpose of receiving public comment, no customer appeared. The utility had met with, and informed, municipal officials, the press and customers as to the need for rate relief prior to filing for the rate increase. The public, and ultimately the regulators, correctly perceived and believed that rate relief was reasonable.