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Home My WebLink AboutUtilities 2010-01-26 Item 3C - Policy - Utility Billing Refunds and Back Bill PolicyTO: City of Tukwila INFORMATIONAL MEMORANDUM Mayor Haggerton and Utilities Committee FROM: Peggy McCarthy, Deputy Finance Director DATE: January 21, 2010 SUBJECT: Utility Billing Refunds and Back Bills ISSUE When a customer is overcharged or undercharged for utility services how far back should the refund or back bill extend? BACKGROUND Billing corrections are necessary for many reasons. Meters can become stuck preventing accurate recording of consumption; fire line services can unknowingly be charged to the wrong customer or the charges may be for incorrect line sizes. Under previous Finance Directors Alan Doerschel and Kevin Fuhrer, the policy limited back bills and refunds to 12 billing periods from the claim or discovery date or to the point of ownership change, whichever occurred first. For comparison purposes, the City of Auburn's policy provides for a 36 month adjustment period. The policy reads as follows, "In the event of a meter being out of order and failing to register properly, the consumer shall be back charged or refunded the difference between the billing volume they were charged for and the average volume of monthly consumption as shown by the meter when the meter was in proper working order as determined by the city. The maximum period of billing adjustment is three years." Although the policy is not required to mirror the statute of limitation laws, these laws may influence policy decisions and therefore are briefly discussed below. DISCUSSION The statutes of limitations, which are set out in chapter 4.16 RCW, do not expressly address utility accounts over- or undercharging. However, the state court of appeals in Western Lumber v. Aberdeen, 10 Wn. App. 325 (1973), applied the statute of limitations for fraud in RCW 4.16.080(4), which is three years, to an overcharge situation created by having two water meters on the water line serving the business. Upon discovery of the situation, the city refunded the business for overcharges dating back three years, but not more. The business sued. The court of appeals concluded that the facts of the case triggered application of the three -year statute of limitations set out in RCW 4.16.080(4), regarding action for relief on the ground of fraud, because the term "fraud" encompasses innocent misrepresentations of fact or honest mistakes. Jim Haggerton, Mayor INFORMATIONAL MEMO Page 2 The three -year limitations period does not begin to run until discovery by the aggrieved party of the facts constituting the fraud. In other words, the customer has three years to bring suit after discovery of the error and is entitled to seek reimbursement of all overcharges that can be proven regardless of how far back in time they reach. If the customer fails to bring a lawsuit within three years of discovering the error, then the customer is limited to recovering overcharges incurred in the past three years. Although the Western Lumber decision has not been overturned and is presumably still good law for an overcharge situation, a more recently enacted six -year limitations period may apply to an undercharge situation because amounts owed to a city arguably meet the definition of an "account receivable." RCW 4.16.040 provides for a six -year statute of limitations for various actions, including an action upon an account receivable. As amended effective July 22, 2007, RCW 4.16,040(2) provides: An action upon account receivable. For purposes of this section, an account receivable is any obligation for payment incurred in the ordinary course of the claimant's business or profession, whether arising from one or more transactions and whether or not earned by performance. It appears that the Legislature amended this provision in response to the Washington Supreme Court's decision in Tingey v. Haisch, 159 Wn.2d 652, 665 (2007), which concluded, in relevant part, that the plain meaning of "account receivable" as used in RCW 4.16.040(2) is "an amount due a business on account from a customer who has bought merchandise or received services." Thus, when a customer underpays for utility services provided by the City, an "account receivable" situation is created that would appear to be subject to the six -year limitations period under RCW 4.16.040(2). Although a three -year limitations period seems to apply to overcharge /refund situations whereas a six -year limitations period seems to apply to undercharge/back bill situations, the period for refund and back bill should be a length that would not cause undue hardship for the customer in the case of back bill, or the City in the case of a refund. The policy should be easy to apply without need for excessive record keeping, research or analysis. For consistency's sake and ease of administration, the refund period should be the same as the back bill period to achieve parity between the customer and the City. A three year period seems to satisfy these criteria and is therefore the suggested refund back bill period. RECOMMENDATION Information only. ATTACHMENTS Draft Utility Billing Refunds and Back Bill Policy POLICY AND PROCEDURE Subject: Index: UTILITY BILLING REFUNDS AND BACK BILLS FINANCE Number: 1 Effective Date: Supersedes: Page 1 of Staff Contact: Immediately Finance Director 1.0 PURPOSE: To establish policy for utility billing refunds and back bills. 2.0 ORGANIZATIONS AFFECTED: Finance department. 3.0 REFERENCES: Finance Safety Information Memo, 4.0 JOLICY: Date: Approved by: For a refund to be issued, the City must receive from the customer written notice describing the circumstances and rational behind the claim. If the City determines a refund is due, the refund period will begin with the billing period immediately preceding the date the written notification is received and extend back 36,rnonths, or to the date of ownership change if this occurs first. If an underbilling is discovered, the customer will be back billed for a maximum period of 36 service months starting with the billing period immediately preceding the date the error is discovered and extending back 36 months, or to the date of ownership change if this occurs first. 5.0 DEFINITIONS: N/A 6.0 PROCEDURE: payment may be made with the Finance Director. The Finance Utility Billing staff will research all customer claims using information and data..' maintained by the ,Finance, Water, and Sewer departments to determine the validity, extent and amount of the error. If an overcharge claim is determined to be valid, the ,Finance staff will notify the customer in,;' writing that an adjustment will be made to the account. At the discretion of the Finance staff and based on the complexity of the refund. additional supporting information will be provided to the customer, If_a customer has been undercharged, the Finance staff will send the customer a pack bill, that explains the circumstances and the basis for the Jill. Upon the customer's request, additional supporting information will be provided_ If the back bill eouals or exceeds $500. arrangements for Deleted: ING 1 Deleted: 21 -1 Deleted: No. Deleted: 4.0 Formatted: Indent: Left: 0" --1 Deleted: T Justified Deleted: billing periods Formatted: Justified, Indent: Left: 0.38 No bullets or numbering Formatted: Justified I Deleted: Deleted: financial impact Deleted: Utility Deleted: Fiscal Coordinator Deleted: The basis of the adjustment including the refund period, the source data and the computations used in the refund calculation will be included.¶ Deleted: Deleted: Utility Fiscal Coordinator Deleted: special Deleted: ing fDeleted: back Deleted: calculation including the back bill period, the source data, the computations used and any other pertinent information. J J