scenic picture from Washington state
SubjectsPublic Works and Utilities › Collection Practices for Delinquent Utility Accounts
Updated 03/2012

Collection Practices for Delinquent Utility Accounts

Contents

Delinquent Accounts

Delinquent utility accounts occur all too frequently. The most effective tool for collection of delinquent water and sewer accounts is the city's authority to shut off water service. RCW 35.21.290 and 35.21.300 authorize the termination of water service for nonpayment of water bills (and also delinquent sewer bills if a municipality operates its own water system as well as sewer system). This process is covered on the page relating to Liens. Other legal remedies include use of collection agencies and courts to collect the unpaid charges. The information presented on these pages is intended as a resource to Washington local governments on the many issues associated with utility collection practices. Information in this document is most applicable to sewer, water, and storm drainage utilities. Much of the information provided can be extrapolated to other utility services such as gas, electric, and solid waste, but only after confirmation by legal counsel. Where noted, Special District statutes have been included along with those applying to cities, towns, and counties. Please note that this information does not include or substitute for accounting principles in accordance with accepted standards and directives by the state auditor’s office. This does not include utilities regulated by the Washington Utilities and Transportation Commission. For information on those utilities, see the UTC website.

Statutes Relating to the Collection of Delinquent Utility Accounts

Notice of Delinquency - Procedures

A customer must be given adequate notice of the delinquency and an opportunity to bring the account current, particularly before shutting off a utility for nonpayment. It is very important for a city to establish a step-by-step process prior to service termination and apply this process to all customers in a consistent, rigorous, and timely manner. The U. S. Supreme Court decision in Memphis Light, Gas and Water Division v. Craft, 56 L. Ed. 2d 30 (1978) indicated that due process considerations require that certain notice procedures must be satisfied before utility service may be terminated (See Termination of Utility Service). The following checklist should help guarantee that all necessary procedural requirements are met:

  • Clearly identify billing and due dates on the utility bill.
  • Note on the utility bill or in a customer letter that charges remaining unpaid after a specified number of days of the billing or due date (30 days is the average used by cities) will be considered delinquent and subject to interest and penalties;
  • The method used for computation of penalties should also be shown on the utility bill if space allows;
  • The order of payment applicability (see Combined Utility Accounts) should be stated clearly in the utility's policies and on the utility bill if space allows;
  • Provide notice that if delinquent charges are not paid within a specified number of days from the due date (10 days is the average), water service will be discontinued and shut off at the meter (also identify pertinent municipal code or ordinance provisions);
  • Mail notice of delinquency as soon as an account becomes delinquent;
  • Include in the notice a statement of the utility's procedures regarding termination of service, including notice of hearing rights, deferred or budget payment availability, penalties, interest, and any additional charges for reestablishing service.
  • Notify delinquent customers that termination of service does not relieve them of the obligation to pay all outstanding bills and charges;
  • Customers should also be notified that before service can be resumed, all outstanding bills and charges, including a water turn on charge, must be brought current and that an additional deposit may be required.

Policies regarding all unpaid utility bills may not be waived arbitrarily or applied in a discriminatory manner, but must be applied equally to all customers. Policies may be adopted which allow delinquencies to be paid over time, and if the necessary terms and conditions for repayment can be agreed upon, utility service can be restarted. This option must be available to all similarly-situated customers.

Sample Provisions Containing Procedures for Delinquent Accounts

See also examples in Comprehensive Provisions for Utility Billing and Collection

    Utility Liens

    Water service liens are not true liens and can only be enforced by shutting off water service. Other types of utility liens, such as sewer, garbage and gas, which may be enforced against the property, are outlined in specific statutes. Legislation regarding liens for unrecorded utility charges was enacted in 1996 and codified in Chapter 60.80 RCW. The intent of the legislation is to provide a method for cities to collect unrecorded utility charges at the time of closing when property is being sold. The unpaid charges may include all lawful charges assessed by a utility even if not evidenced by a utility lien.

    Ch. 60.80 RCW provides that at closing, the seller of an interest in real property is responsible for satisfying any utility lien for services provided under 35.21 RCW (garbage water, electric light, electric heating), 35.67 RCW (sewers), 36.36 RCW (water or on-site sewage disposal for aquifer protection area), 36.89 RCW (stormwater), 36.94 RCW (water and sewer), 57.08 RCW (water and sewer) and 87.03 RCW (irrigation charges). The initial burden is on the closing agent to send a written request for a final billing of utility service for the property to be sold. The city must provide a written estimate or actual final billing. If the procedures outlined in the statute are not followed within the prescribed time limits, the utility may not recover unpaid charges from the purchaser of the property. A city sewer lien is also enforceable by disconnecting the water.

    As indicated in the section on delinquent water accounts, RCW 35.21.290 and .300 provide for a so-called "lien" against the delinquent property, which authorizes a city to terminate water service after four months of delinquent bills have accrued. The basic rationale for limiting the water service lien to a period of four months is to prevent an injustice against a new property owner who purchases a piece of property which has a large delinquent water utility bill.

    Statutes Authorizing Liens for Delinquent Utility Charges

    • RCW 35.21.290 - City/Town - Utility services -- Lien for
    • RCW 35.21.217 - Utility services -- Deposit -- Tenants' delinquencies -- Notice -- Lien.
    • RCW 35.67.200 - City/Town - Sewerage lien -- Authority.
    • RCW 35.67.290 - City/Town -Sewerage lien -- Enforcement -- Alternative method.
    • RCW 35.21.140 - City/Town - Garbage -- Notice of lien -- Foreclosure and
    • RCW 35.21. 150 - City/Town - Garbage -- Lien -- Priority.
    • RCW 35.21.300 - City/Town - Utility services -- Enforcement of lien -- Limitations on termination of service for residential heating (cutting off services waterworks, electric light, or power)
    • RCW 36.36.045 - Aquifer Protection Area - Lien for Delinquent Fees
    • RCW 36.58.140 - County - Solid waste disposal district -- Excise tax -- Lien for delinquent taxes and penalties
    • RCW 36.58A.040 - County may collect fees of garbage and refuse collection company -- Disposition of fees -- Subrogation -- Lien
    • RCW 36.89.090 - County -Storm water control facilities - Lien for Delinquent Charges
    • RCW 36.89.093 - County - Storm Water Control Facilities - Alternative Procedures for Lien on Delinquent Charges
    • RCW 36.94.150 - County - Lien for delinquent charges (Sewerage and/or Water)
    • RCW 57.08.081 - Water-Sewer Districts - Rates and Charges - Delinquencies (Includes interest penalties, liens)
    • RCW 87.03.445 - Irrigation District - Acquisition, construction and operating funds -- Tolls and assessments, alternative methods of -- Liens, foreclosure of -- Delinquencies by tenants
    • Chapter 60.80 RCW - Lien for Unrecorded Utility Charges

    Ordinance Provisions

      Penalties and Interest

      Public utilities can and should charge interest on delinquent account balances. Each month, the state maximum interest rate is published in the Washington State Register. The allowable state rates appear in RCW 19.52.020. These limits appear to apply to interest charged on delinquent utility bills, although specific statutes may a limit the amount of interest allowed to be charged by a utility. See list below.

      A municipal utility may also establish a late charge or penalty, but the policy should specify whether a penalty is a fixed or flat amount and how it is applied to the delinquent utility bill. Some penalties on delinquent charges are set by statute. The policy should also clarify whether penalty and interest are cumulative. Any delinquent account should reflect the actual billing plus previously applied penalties and interest. Also, as described above in Combined Utility Accounts, a city may wish to establish the order in which payments will be applied, with the most current billing as the last priority.

      Additionally, fees may be imposed for shut-off and reconnection services when utilities are terminated due to delinquent accounts. Such fees should bear a reasonable relationship to the actual costs involved to the municipality.

      Selected Utility-Related Statutes Setting Interest Rates and Penalties

      • City or town sewer services ...by ordinance may provide that delinquent charges shall bear interest at not exceeding eight percent per annum computed on a monthly basis (RCW 35.67.200)
      • Counties operating a system of sewerage and/or water... interest fixed by resolution at eight percent per annum from the date due until paid. Penalties of not more than ten percent of the amount due may be imposed in case of failure to pay the charges at times fixed by resolution. Also applies to Aquifer Protection Districts (RCW 36.94.150)
      • Solid waste disposal district shall have a lien for delinquent taxes and penalties, plus an interest rate equal to the interest rate for delinquent property taxes. (RCW 36.58.140)
      • County storm water control - Either same interest rate as provided for city sewer services (RCW 35.67.200) or Any county may provide, by resolution or ordinance, that delinquent storm water service charges bear interest at a rate of twelve percent per annum, computed on a monthly basis, in lieu of the interest rate provided for in RCW 35.67.200 (RCW 36.89.090)
      • Water-Sewer Districts - charges and any penalties added thereto and interest thereon at the rate of not more than the prime lending rate of the district's bank plus four percentage points per year (RCW 57.08.081(3))
      • Irrigation Districts - The board may provide by resolution that where such rates or tolls and charges are delinquent for any specified period of time, the district shall certify the delinquencies to the treasurer of the county in which the real property is located, and the charges and any penalties added thereto and interest thereon at the rate not to exceed twelve percent per annum fixed by resolution shall be a lien against the property to which the service was available, subject only to the lien for general taxes (RCW 87.03.445(6))

        Service Termination and Reconnection

        Termination of service is a powerful tool for collection of delinquent water and sewer utility accounts, however, it can also be an unpleasant experience for both the customer and the utility. A firm set of policies and consistent application of those policies is necessary. Equally important, however, is a common sense approach to the problem. If the customer does not respond by the time shown on the disconnect notice, a utility may want to check with neighbors, relatives, or employers to determine if the customer is on vacation or is elderly, on life-support or indigent. In such cases, termination should be postponed until other remedies have been explored.

        Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1 (1978), sets out the due process procedures which must be followed prior to utility termination. The notice requirements that are mandated by due process are not burdensome. Basically, the utility must give written notice to the customer prior to termination of utility service. All written notices advising of the termination must clearly, and in layman's terms, inform the customer of the available opportunities to present his objections to the bill to the municipality, and identify the telephone number, address, and department of the person who will handle the complaint. The opportunity for this informal hearing must be available in advance of the termination date. The employee responding to the customer communication as outlined in the written notice must have the authority to review the facts and files, to correct any errors in the billings, and arrange for credit terms.

        A city is authorized by RCW 35.21.290-.300 to shut off water service to a property until delinquent charges have been paid. This statutory authority was modified by O'Neal v. Seattle. In a September 1995 ruling, the Ninth Circuit Court of Appeals decided that a city must provide water service to new tenants of rental property and cannot hold them responsible for the water service debts of a former tenant. O'Neal v. Seattle, 66 F. 3d 1064 (9th Cir.,1995). Instead, the city should pursue payment from the prior tenant and the landlord. See "Municipal Utilities Termination and O'Neal v. Seattle," by Bob Beaumier, Legal Notes, Information Bulletin No. 503 (April 1999), at 11b-3. See also Landlord Tenant Issues.

        Some utilities "bundle" their services together and require that if one is "turned on" then all must be, with the same policy applying to shut-off for either delinquency or temporary discontinuance of service. Marysville and Walla Walla require that water/sewer and garbage/recycling services be turned on and shut off together. Several cities require all residents to pay for garbage service, whether used or not, while also allowing a temporary discontinuance of water/sewer services for extended vacancies (usually for period of at least one month). Mountlake Terrace allows temporary discontinuance of garbage service for periods greater than one month.

        RCW 9A.61.020 makes it a crime to defraud a public utility (reconnection without authorization or consent), and allows for a penalty, restitution, and costs. So if a terminated customer makes an unauthorized re-connection to the water main, the city may prosecute this as a criminal or civil action (or both). RCW 80.28.240 allows for recovery of civil damages for tampering with utility property and unauthorized connections. It also allows for treble damages, plus costs and attorney's fees. See related article, You'd Be Surprised Who's Stealing Your Water, On Tap, Winter 2004.

        Statutes

          Use of Collection Agencies

          Under RCW 19.16.500, cities, counties and taxing districts may retain, by written contract, collection agencies licensed for the purpose of collecting public debts. Authority exists to add a "reasonable" fee to the outstanding debt. No debt may be assigned to a collection agency unless there has been an attempt to notify the debtor of (a) the existence of a debt and (b) that the debt may be assigned to a collection agency if it is not paid. The debt may not be assigned to a collection agency until 30 days after the notice is sent.

          Sample Provisions

          • Auburn Municipal Code Ch. 3.30 - Use of Collection Agencies
          • Bainbridge Island Municipal Code Section 1.28.047 - Use of Collection Agency Authorized

            Write-Offs

            After reasonable attempts to collect delinquent accounts have failed, many jurisdictions have written policies for writing off bad debts.

            Sample Provisions

              Landlord/Tenant Issues

              About Utility Service to Rental Properties

              Many utilities in this state have a provision requiring that accounts be in the name of the property owner, who will be primarily responsible for payment of the bill. Other utilities provide that tenants may establish their own utility account, with the owner's concurrence.

              In O'Neal v. Seattle, 66 F. 3d 1064 (9th Cir.,1995), the court ruled that Seattle's policy of refusing to provide water service to an innocent third party, a new tenant, because of a debt owed by the prior tenant, was held to be unconstitutional. The O'Neal case does not mean that utilities cannot shut off water for nonpayment, but it does mean that a utility cannot refuse to provide water service to a new tenant. The delinquent bill is still a debt owed to the utility and the utility has the right to pursue payment from the prior tenant and the landlord. This can be done by utilizing a collection agency, small claims court, or superior court if the amount involved is sufficient -- in other words, any legal means which are available to the utility for the collection of debts. See Service Termination and Reconnections

              Statutes

              Sample Code Provisions

              Need more information?

              Feel free to Ask MRSC. Washington cities, counties, and our contract partners can call or email MRSC for more information and advice - free of charge.