Jun 10, 2019 Public Utilities Board on 2019-06-10 9:00 AM

Okay, it's 9 o'clock and we do have a quorum, so let's call to order the Public Utilities Board on Monday, June 10th to order. Before we begin, I'd like to move the closed meeting to the end of the agenda. It will make it more efficient for the staff. So the first item will be the work session, receive a report and hold a discussion regarding the fee charged to commercial accounts when utilizing the online and phone payment system. Good morning Madam Chair, PUB, Tiffany Thompson, Director of Customer Service. We're here this morning, Krista Foster, our customer service manager, is going to be giving a presentation. During our budget discussions, we did mention that we're going to have to make a change with our merchant services contract and specifically how we charge fees for our commercial customers. Right now there's a 2.7% fee when they pay with a credit card or a debit card. We're currently in a contract extension and needing to seek council direction, your direction on next steps for that. We did have this discussion with council last week just because of the timing of the city council meetings and how quickly we need to move on the implementation, but we wanted to bring forth what our options were and then what council ultimately did decide. We did brief Madam Chair Parker a couple weeks ago prior to going to council, so she was aware of it, but we wanted to come back to the entire board so you're aware of what we were working through and then what we're going to, our next steps are. So with that, I'll bring up Krista Foster, our customer service manager. Madam Chair, PUB, I'm Krista Foster, customer service manager, and I am here to speak with you this morning about some of the credit card fee regulation changes that impact the way that we assess payment fees to our commercial customers. So we're gonna look at a little bit of background on this, talk about what we do currently, the regulations that have changed, we're gonna go through some options and then talk about what council has directed us to move forward with. So in 2011, customer service began looking at the $4.95 fee that we charge to all credit card transactions, both commercial and residential. We received a lot of complaints about that from both residential and commercial customers, and in June of 2011, it was decided to eliminate that fee. It did a great thing for our credit card adoption rate, it more than doubled, but what we began to see was the growth of the fees outpaced the growth of utilization. And as we looked into that in 2014, we found that many commercial entities, larger businesses, were using reward credit cards, so it had caused our credit card fees to go up from about $34,000 a month or $30,000 to about $58,000 a month, and that was related specifically to those reward cards, they were about 58% of our monthly cost, while only representing 8% of our transactions in total. So in December of 2014, we elected to put in place a 2.7% convenience fee that only applied to commercial customers, it did change those behaviors. At the time when we put that fee into place, the average fee for a commercial customer would have been $31. As of last year, that same average fee would now be $10.50. So our current fee structure is that we do not charge any residential fees, so whether that's e-check or a credit or debit card, for commercial customers, they do have a free of charge e-check option on our website, but they do pay that 2.7% fee for credit card transactions, the fee covers all of the commercial costs, and we do get about 99% of our commercial transactions at this point being small business customers. That is the customers who are continuing to pay via credit card online today. As Tiffany had mentioned, we are on a contract extension that ends in May of next year, so we are needing to move forward with making changes and implementing a new structure that will prevent us from having interruption of service to any of our customers in their payment channels. Right now, we have been able to utilize the structure that we are under because although we are seen as a utility entity, we are able to be designated as a general government designation. Going forward, that will not be possible. Credit card regulations have changed since we had started our contract with Elevan in 2013, and we can no longer be designated as a general government entity. We have to follow the same rules as any other utility provider. Additionally, we live in the state of Texas. Texas is one of 11 states which restricts all utility providers to if you choose to charge a fee, it must fall under the convenience fee model. So we are even more greatly limited by being in the state of Texas. What that means for a convenience fee model is it has to be a flat fee and a fixed rate. We cannot tier it, we cannot cap the maximum payment size, and we cannot do any type of a percentage-based structure. It does have to apply to all of our convenient options, so that's online payments that are both debit and credit card, as well as our e-check options, and it also has to apply to telephone and online, as long as it's not in person. So the final thing that we have with that is we can no longer accept recurring payments by e-check or credit card from our website. So if we choose to charge any form of a fee, it must fall within these guidelines. And as you can see, they're very restrictive. We've looked through and will provide four different options that we were able to identify, but none of these options are favorable. The first option that we have is to absorb the cost of all credit card processing. This would have no impact to any of our current customers, with exception of the small businesses now getting a free of charge option so that they can continue to pay by credit card. It does have an annual cost of about $800,000 more than what we're paying today for the cost of processing credit card and debit card transactions. We would have to anticipate that without the cost containment in place, that the old payment behaviors would be returning, and we have a larger customer base and a larger revenue base, which accounts for that money. The positives on this is it absolutely has no negative impact to our small businesses. It does leave the recurring payments as an option for all of our customers, and it exists with our functions with our existing web portal. This is also consistent with all of our area municipalities, of 32 municipalities that we reviewed, 11 of them actually absorb the cost of all credit card processing. Option two is if we were to charge a fee to our commercial credit card customers only, we could segregate our payment channels to separate residential from commercial. That would mean that the average fee would be $10, because it is flat, no matter the payment amount. That does mean that if we have a small business customer who's paying a $100 bill, they pay the same $10 processing fee as one of our larger customers paying a million dollar bill. They pay the same $10 fee. For this particular method, it does require that we would have to create a new commercial website for all of our online payment transactions, and every commercial customer would have to re-register with that. It does mean that commercial customers would no longer be able to do recurring payments. Right now, we receive about $1,100 a month, and that is about $450,000 a month that we receive on recurring payments from commercial customers today, and they would have to find new means of payment for all of those. It is a little more cost efficient than absorbing the cost of all fees at $520,000, but for only a $280,000 a year savings, it has a significant impact to our small businesses. Mission number three is if we charged a lower fee, but applied it across all customers, that would be residential or commercial. We could move to a $3 fee, but again, it damages our relationship with all of our customers at this point. We would lose 8,600 recurring payments a month that right now is totaling $1.3 million in revenue that's being paid that the customers would need to find a new means of taking care of. If we were to move this to a $4 fee, that would actually be enough that it would become a revenue production, so we went with the lowest possible amount to cover the cost. It still does entail a slight increase to what we're paying today at about $17,000 a year. And then option number four, we have the option of taking no commercial credit card payments at all. If we were to do this, it absolutely would exist with our web portal that we have today. It does damage our customer service relationship with some of our small businesses because all of the customers who would be, 90% of the customers who would be impacted with no longer being able to pay by credit card are actually small business customers. It does stabilize the credit card cost, this is a cost containment strategy if we were to look for doing that, but it would definitely have impacts to our customers. It is also very inconsistent with the area municipalities. Of all 32 of the municipalities surveyed, none of them restricted credit card payments based on the class of customer. They allowed customers to pay no matter that class. What customer service recommends after looking through the options is that the city moved to absorb the cost of all processing fees for credit cards, debit cards, and e-check. This is something that is consistent with our mission. This is something that would have a negligible impact to our rates. All of the balances that we are dealing with are very healthy and it has a minimal impact. It would still allow all of our customers to have good relationships with us and it would actually improve our relationships with some of our small businesses and keep to remain that flexibility that they need to maybe be able to put charges on a credit card versus having to have a greater cash flow. This is actually what was accepted by city council and they gave us direction to move forward to go ahead and absorb the cost of all fees. Good. Questions? Go ahead. I do have a few. Sure. It seems a little moved because they have already provided direction. Your presentation raises a few questions in my mind. You say fee. Credit card transaction fees are divided into convenience fees and surcharges. Correct. Are we talking about convenience fees or surcharges? Convenience fees. Do we charge a surcharge? Currently we charge a surcharge or is it a surcharge currently? Okay. I'm sorry. What did you say? I'm sorry. We're calling it a convenience fee currently but the way the fees are structured, if it is a percentage fee, it's actually a surcharge, a convenience fee is actually a flat rate charge that applies to all payments and that's one of the restrictions that the state of Texas has is that if you are designated as a utility provider, you only have an option to use the convenience fee model that charges a flat rate fee. Does your group use certain legal counsel within the city to analyze those regulations that you're talking about? We have not. One of the things that counsel did direct us to do was to move forward to prevent any interruption of service and to actually look into with either a consultant or legal counsel is there some way that we could restructure part of our operation so that we could be viewed as a government entity again? Right. I think you'll find that last year those laws all changed. Texas is no longer one of those 11 states. It came under some freedom of speech stuff from the U.S. Supreme Court and so Texas really doesn't fall under some of the rules that I think you're referencing to anymore and so I just like to know that you guys went through and checked all your bases just because I know that those regulations are difficult to understand and they've changed very recently. I apologize. We actually had been in discussion with both our current merchant services provider and Wells Fargo who would be the new merchant services provider regarding that and we were under the impression that some of those things had changed they have not yet adapted to that if it had happened but it is something that we are watching because if that were to become an option then that's something that we've kept to watch. How many of the so you mentioned that we have an existing provider and we've already decided on a new one I guess. A percentage of this project is being driven by the fact that we're going to Wells Fargo. This is not being driven by the move to Wells Fargo. This is being driven because our contract with Elevon has expired. What we were doing we were looking to migrate to Wells Fargo because the city elected Wells Fargo as the merchant services provider and awarded them that contract in 2015 but our contract with Elevon has already technically ended. We are on an extension that as we began transitioning is when we discovered that the rules had changed. We actually have spoken with Elevon as well. Even at the end of the contract we're on with them now they also confirmed that if they were to create a new contract with us that it would fall under the same guidelines. So the rules would be the rules regardless of the motion. And we actually even looked at dare I say it allowed dropping visa and saying what happens if we just say we're not going to play with visa. And we discovered that the credit card rules are basically the rules that MasterCard follows the same rules so we did not have an option for that as well. And one more final question. So we'll just roll the $800,000 that it costs us to accept credit cards into the total cost of service and make everybody else pay a little share of that? As of right now because it is a minimal impact to any of the funds that we're talking about it is not anticipated that there would be any form of a rate increase. The amount in the allocations to each of these groups is less than a quarter of a percent. So it's less than about $2,500 per million as an impact to any of their budgets. How was the convenience fee justified in the first place then if it was an insignificant amount of money? That I would not have. Tiffany would you like to speak to that? But there was none for residential. It was just commercial. Right. I understand that. But the reason you charge a convenience fee is you demonstrate that it's going to actually cost you something in providing that service. But then you just answer that question that's saying it's really not that much money. It's not really that much to do. So that seems weird. So it's a great question. So we implemented the fee based off of a cost containment strategy. The costs were increasing. We were paying almost $56,000 a month and we were like what can we do? And we found it was a small credit card adoption with these commercial reward cards that were driving up the majority of our costs and then we assessed are we able to implement a fee structure and once we found out that we were able to do that, that's when we implemented that. But the rules have changed and now we can't charge it the same way we do currently with it. So that's why we wanted to bring it back to say these are the rules we're operating from now. But it came forth based off of a cost containment strategy. Okay. And one more question. How do you decide where this increased annual cost goes to in each utility? We actually. That's got to be complicated. We actually have our allocations based on the percentage of work that we're doing for those different groups and the funds that we're collecting and the amount of time that we're spending in each of those different areas. So it is based on a percentage by how much of the volume belongs to that group. Based on the cost of your usual customer service budget. Correct. Okay. Correct. Thank you. You're welcome. Which is another reason why you're trying to get this so you can include that in the budgets. Correct. So we know what the impact will be. It's very unfortunate timing and normally we would not want to come to you guys after we've had to go to council but if we were to continue to wait until July, it would become more problematic. Yeah. Any other questions? No. All right. Thank you. All right since we moved the closed meeting, we'll go into the consent agenda. Does any board member wish to pull an item? I'd like to pull item number F, please. Okay. Any others? We have a motion to approve A through E and G, H. All in favor say aye. Aye. Aye. Motion carries. Item F. Just another house cleaning question for item number F. Since this is coming through the utility and other departments will use this, is that just, why is it just coming through public utilities board if it's going to be used by a lot of different other entities? I ask the same question Mr. Cheek as Cassie comes to the podium and she can correct me and my understanding is some of the utility departments use barricades when they're doing their projects so it was just a means to bring that forward to you all because an expenditure hitting those water and wastewater budgets. It'll start out in our budget but it'll get divvied up to the other departments as they use them of course, right? Because you're talking about special events in here and. I believe all those funds are allocated within each respective budget. It's just that the overall contract comes through a number of departments can utilize that contract and again those expenses are charged to that respective budget parks, streets, water, wastewater, but it's just because again there is an expense line in those utility budgets. It's just coming to you all just for approval but it doesn't mean that you're. A little later to go through the utility this way? Correct. Okay. Since our budget is a little bit bigger than a lot of them. Well I mean again at the end of the day it's going to go to council as well but again those expenses are portioned out by the department it's just giving, it's just that's been vetted through the PUB because there are expenses that are hitting barricades in one or a wastewater budget but it doesn't mean that all the funds are being spent out of those those departments. Okay fair enough. I'll move approval. Second. Okay we have a first and a second. All in favor? Aye. Opposed? Motion carries. Okay items for individual consideration the consider approval of the public utility board minutes does anybody, of May 20th, does anyone have any changes or corrections and they're approved as presented. ACM update. Mario. Yes. Good morning. In your packet there is a informal staff report that was sent over to the council back in early June regarding a follow-up item about credit and collections follow-up a summary. If you all have any questions we're here to answer those Krista Foster can answer those questions if you have anything specific but just as a matter of routine anytime we have an item an informal staff report that goes out to city council that involves utilities we'd like to just as a courtesy continue passing those on to the PUB and this just as an opportunity to put in the record. Thank you and then we do concluding items okay any concluding items any items that someone would the board member would like added in the future. Alright so now I always forget how to do this do I adjourn and we go into a closed meeting okay do we have a motion to adjourn into closed meeting? So moved. Okay all in favor say aye. Aye. Alright closed meeting.