Costs, Services, and Annoying Utility Bills

Imagine going into a restaurant looking at the menu, picking out a nice thick steak and baked potato plate for $12.95, or if you are vegetarian, picking out an overpriced tomato and sprouts sandwhich for $12.95, and then having a great meal. After you are done the server brings you a bill that says:

Entree: $12.95
Beverage: $1.50
Order Processing Fee: $4.95

Subtotal: $19.40

You, astonished and bewildered at this strange $4.95 fee that has appeared on your bill, ask the server exactly what the "order processing fee" is for. Your server then explains to you that "order processing" is the process by which they take the order as you have given it to the server, communicate that information to the cooks, get out the raw materials for your food, prepare those ingredients to be cooked, cook them, arrange them in an attractive display on your plate, and bring the order back to your table. All of these things cost money to do and thus the additional charge. After all, you do want your order to be "processed" don't you?

I have been living in Austin, Texas for about two and a half weeks, and today I got my very first phone bill. On it is an "order processing fee." The order was for them to make my phone line work and give me a phone number. Of course, the phenomenon of random administrative fees on utility bills is not unique to Texas. I once got a phone card that advertised 2.5 cents per minute. It was a ten dollar card that promised 400 minutes of long distance calling. Once you activated the card however you discovered a $1.50 activation fee, another $2.00 administrative fee, and an additional "service charge" of about 75 cents every time you used it.

Likewise my old water bill used to include a $10.00 "meter reading fee." I told the property management company that was also managing our water that we would read our own meter for free, but they did not think that was funny.

Here is my problem. Utilities tend to have this nasty little habit of charging their customers for costs rather than for services. In some cases, this is understandable as when there are 3 or 4 different taxes that have to be added. If you are in a state like Georgia that is suffering those fabulously liberating effects of "partial deregulation," you may also understand why on your gas bill you have additional meter reading fees since the meters are read by a separate company than the one that is "marketing" your gas.

Of course, since you are paying for how much you use, it makes sense to have a bill that says something like:

Basic service $10.00,
amount of water used X kiloliters = $14.85.

Now maybe I am splitting hairs here, but it seems ridiculous to me to have "administrative fees" and "order processing fees" and even "meter reading fees." Basically they are saying: "Yes you agreed to buy this service at $25.00 a month, but in order for us to keep record of the fact that you ordered our service, paid for our service, and send you bills for your service, not to mention all the filing and typing involved we will have to charge you an additional $4.95 administrative fee." Or perhaps it's: "yes you ordered this service for $12.00 a month but in order for us to do the things that it takes to actually provide that service to you it's going to cost an additional $4.95 to process your order, $10.95 to 'activate' your service, $7.95 a month to keep track of and mail out your bill, and $10.00 a month to go out to your house, and read your meter so that we can figure out how much to bill you. Additional fees may apply."

If in the above restaurant I were paying by how much steak I actually ate, I would expect the cost of checking my plate for how much steak I had eaten to be included in the original advertised price. I would also expect any costs that come from "processing" my order to be a part of the service I was originally paying for. After all I did not simply pay for a steak; I paid for it to be stored, prepared, cooked, displayed, served to me, and ultimately, I paid for whatever it may have cost to bring me the bill, and keep track of what I owed. The tip is not a charge for services rendered but an additional amount I choose to pay (or not to pay) directly to the server for the quality of service rendered. Utilities of course are not exactly like food in a restaurant, but it would be nice if utility companies started acting like they are actually providing a service. Instead they treat us customers as if they are simply passing on the costs of bothering to do business with us. I suspect this is the result of the fine customer care and service that results from years of operating as government protected monopolies. Thankfully though that is starting to change.

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Thinking out loud here: It

Thinking out loud here:

It would strike me as being a bit fraudulent if additional charges and fees show up on a bill when you were initially sold on one price. If not fraudulent, then certainly a bit shady.

My first reaction is to think that when a company is limited to, say, cost+fixed fee, the incentive for the company is to find as many costs as possible to maximize cashflow (since costs can be passed on to the consumer/client). Of course, down the road when it comes to renegotiate such a contract (for private companies that do work for cost+fixed fee) clients may be wary if your costs get out of line, but that would be a delayed reaction/adjustment.

When one is billing for the entire service, then it would seem that customers could get a "view at a glance" of a company's cost structure- a company that has outrageous costs would necessarily have to try and recoup them through the final price (or eventually go out of business), and so choosing on lowest price would tend to coincide with lowest cost. Then the incentive for the company that wanted to maximize cashflow (as in the first example) would be to find the market price and then cut as many costs as possible to rake in the most dough after expenses.

So cost-based pricing would seem to ultimately inflate costs in the industry/company that gets to operate that way (or, at least there isn't immediate pressure to reduce costs).

One of the many reasons that

One of the many reasons that I will be disconnecting my land lines (telephone) in favour of Cell-only. The phone co even charges me a "bill preparation fee" in addition to series of taxes so that I can provide rural telephone access. Of course then there are the myriad of other fees, taxes, charges and gratuities thy slap me with for service that, frankly, blows.

Of course in the example of

Of course in the example of being charged a basic service fee and then a fee for the amount of water you used the implications is that you are being charged a flat rate of like x dollars per kiloliter or something like that. Thus it's not merely the company passing on a cost, but allowing them to customize your bill according to how much of the actual good you use. Utilities often provide both a service and a good. The service of bringing the good to your house, maintaing the lines etc., and the actual good i.e. water. I do agree though that a cost based billing system gives companies an incentive to inflate the costs. It also gives them an incentive to break down their costs into very specific activities and charge what is equivlalent to a "retail" price for those specific costs. The "4.95 administrative fees" for example. I highly doubt that the administrative work cost the company $4.95 for every single customer they serve. If that were true wouldn't the costs vary from month to month. It's purely a "we are charging you this because we can, additional fees apply" charge that has significant markup just because they can. Perhaps their incentive is to keep costs low but diverse so they can charge a standard fee for each different aspect of their job and rake in the difference that they overcharge their customers.