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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

A crisis communications expert shares his hard won, front line experience

How to

Avoid

7 Most Deadly

the

Mistakes in a RateIncrease An insider’s report for board members and general managers By Richard A. Wilson www.ratepayerrelations.com

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Sentium Strategic Communications 4989 Golden Foothill Parkway Suite 6 El Dorado Hills CA 95762-9639 (800) 585-1288 www.RatepayerRelations.com A Note to the Reader How to Avoid the 7 Most Deadly Mistakes in a Rate Increase is copyrighted by Sentium Inc. No portion of this manual may be reprinted or reproduced in any way without the author’s express written permission. Š Copyright 2012 Sentium Inc. All rights reserved.


How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Your Upcoming Rate Increase Handle it well and you will be in for a rather uneventful process. Handle it poorly, and you could be in for the most stressful year or two of your life. Ask anyone in the industry who has been through a difficult rate increase. They’ll tell you about: • Public ridicule • Sleepless nights • Confrontations with ratepayers in public places • Political opposition • Critical articles in their local paper • Nasty letters to the editor • Being voted out of office • Even the loss of their water district by voter opposition (As almost happened to one water district in California’s Gold Country.) All of these adverse effects can be minimized or even avoided. They don’t have to happen to you. The sad truth is that most of the damage districts experience is self-inflicted. This report will show you the 7 most deadly mistakes districts make during a rate increase. Even more important, it will also tell you how to avoid these blunders. This information comes from real-world experience gained by working with districts and handling crises communications. I want to be perfectly clear. These aren’t just theoretical tips. They are based on actual experiences with districts not unlike your own. My hope is that this report helps you avoid a long and costly rate increase disaster. If you are already facing a bad situation, know that you can get the assistance you need to help turn things around. To a painless and successful rate increase,

Founder, Sentium Strategic Communications www.ratepayerrelations.com www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

You’re not alone Your district is not the only one facing the daunting task of telling their customers that their service is about to cost more. A recent report from the American Water Works Association (AWWA) shows “The cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that likely will be met primarily through higher water bills and local fees.” The report also reveals: “...in some communities the infrastructure costs alone could triple the size of a typical family’s bill.” “...Small, rural communities may face the biggest challenge. Places with fewer people living far apart have more pipe “miles per customer” than large, urban systems.” “Postponing infrastructure investment in the near-term raises the overall cost and increases the likelihood of water main breaks and other infrastructure failures.” One estimate is that roughly half of districts in the West are facing a rate increase in the next 36 months. While knowing that other communities are dealing with rate increases may be comforting for you, it doesn’t make your customers any happier. In fact, it may even work against you. As the media produces more stories about rate increases and ratepayer unrest, it begins to set an attitude within your community. When you add the overall frustration and discontent with the economy and government in general, you have an emotional powder keg. The problem is that because you’re working on a local level, you’ll feel most of the force when that powder keg explodes. Don’t despair. There are things you can do to diffuse the situation. By understanding the 7 most deadly mistakes you can learn exactly how to avoid them.

www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Rate Increase Mistake #1 Shoving the increase down the publics’ throat Let’s be honest. You could simply follow the letter of the law with regards to the legal requirements for a public hearing. It’s what many districts do. They mail out the necessary public notices. Included are the predetermined rates that are needed. The public hearing happens and members of the community fill the room. Speakers rise to express their discontent. Some read prepared statements filled with facts and figures based on their most recent bills or the latest article in the newspaper. Others deliver highly emotional pleas about the impact the increase will have on their lives. They are confused, dismayed, angry, and distrustful. These are very real and valid concerns for the public. The emotions they experience are heartfelt. Next, the board members all make statements about how they understand the ratepayers’ pain. They say they have no choice. And then they vote to pass the rate increase anyway. The public feels powerless, unheard, and betrayed. Their understandable anger turns to bitter resentment. They’re right to feel this way. But this is not an inevitable outcome. A well-informed base of ratepayers can make this scenario nearly disappear. When ratepayers understand the real reasons why a rate increase is needed including what will happen if one is not affected, the usual response is approval. It may not be enthusiastic approval, but it’s approval nonetheless. An informed ratepayer is armed with knowledge which allows them to logically decide that while they still don’t like the idea of a rate increase, they can see that it is a best decision. It’s simple and it comes down to willingness. When people have the facts, they can make informed decisions. Most districts make the mistake of not providing the information needed so a rate increase makes sense. Instead, they simply enact a rate increase. The long term negative effects of this “no real information” strategy can be devastating. And again, it is completely avoidable.

www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Rate Increase Mistake #2 Not having a dialog A basic fact of life is that people like knowing that they have been heard and that their concerns are understood. Communication is a two-way process. It is key for understanding. It is easier for people to understand you when they know you have listened to them. Most districts only talk. They don’t listen. And it’s no wonder when quite often, the only time a water district hears from its public is when there’s a problem or complaint. Almost in selfdefense most districts seek to have as little to do with their ratepayers as possible. So, notices go out. Postings are put on websites. Legal requirements for a rate increase are met. What’s missing is honestly engaging with the community. What’s missing is understanding exactly what the community’s concerns are. And finally, the community also has to know that you understand their concerns. This may seem obvious, but it should never be underestimated. A very successful strategy we’ve used to get a real exchange of understanding in place is to form a community advisory committee. By having committee members from the community expressing their concerns you have already alleviated many of their worries. And you now have an opportunity to show them the problems the district is facing. They ask questions. You provide open and honest answers. Together solutions are explored. Recommendations based on this dialog are presented. Often the recommendations given by the committee are the same as what the district would have made initially. Remember though, that their recommendations are not the most important part of this process. Most important is that your community was involved. They were heard. They had an opportunity to become part of the solution. They buy in to the action plans. The bonus is that sometimes real and viable solutions that no one on the district staff even considered are suggested. Many districts claim they don’t have the time or resources to create a dialog with the community. The truth is, they don’t have the time or resources not to.

www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Rate Increase Mistake #3 Describing the complex issues around your rate increase in a complicated way Let’s face it. Your district has a number of factors that all led up to the need for a rate increase. Try to explain them all and it gets complicated. To communicate the district’s problems and needs effectively to the public, they need to be made simple. Its harder than it looks. When the issues are complicated, the public will simplify them themselves. Unfortunately, they will often simplify them in the worst possible way. “They’re all a bunch of crooks.” “They’re wasting so much money overpaying their staff and giving benefits and they’re sticking it to us.” “They want more money because they’ve mismanaged everything for years and now we have to pay for it.” Don’t let anyone else define what is needed by your district or why. It can only make the situation that much more volatile. Start with the honest facts and simplify them so they make sense. Doing so is the key to your public understanding why a rate increase is needed, and why it is the smart thing to do.

www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Rate Increase Mistake #4 Speaking in technicalese The problem with most utilities is that they talk, well, like utilities. They use technical terms that make sense to others in the industry, but are incomprehensible to the average ratepayer. The public knows from experience that people who try to confuse them are often trying to rip them off. Ask anyone who has been taken by a short change scam artist and they’ll tell you that confusion is the primary tool of the trade. So when you use confusing terms, you immediately create a sense of distrust. Even if your intentions are pure, if you are confusing, you will be perceived as a fast-talking, used-car salesman. Use simple everyday language. It’s harder than you think. To people who live in a world full of specialized terms it’s hard to spot what may be confusing to an average person. Here’s a rule of thumb: Explain things the way you would to a ten year old. No, I’m not suggesting you be patronizing to your ratepayers. But taking on this viewpoint allows you to easily strip out the technical terms and keep things simple. A “CCF” becomes “a hundred cubic feet. Roughly what it takes to fill 18 standard bathtubs with water.” “Funding depreciation” becomes “paying for repairing and replacing worn out pipes.” “Infrastructure” becomes “the pumps, the water treatment plant, and the miles of pipes that bring water to your home.” Avoid the technicalese and you avoid creating additional confusion and distrust with your customers.

www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Rate Increase Mistake #5 Talking in percentages This is a technique often used by the media to make a situation more dramatic. It will almost certainly be used by your opposition. They will talk about your increase in percentages rather than real numbers. Which is more dramatic? A 23% increase? Or, an increase of $3.32 a month? For many people, a jump of 23% is excessive and irresponsible. At the same time, $3.32 is about the cost of a single latte at your local Starbucks. While a 23% rate increase is enough to get people up in arms, the price of one cup of coffee a month is hardly worth getting in their car to go to a meeting. The amount is the same in both cases. How it is being expressed is the only difference. One will promote outrage. The other only mild discomfort. Do not let anyone in your organization talk in percentages. Always use real numbers. The media will try to use the more inflammatory percentage figure. Your opposition will state it in meetings. Do not fall into this trap. Always restate the figure in real terms. Make sure that every staff or board member understands this. One careless comment in a public meeting can become tomorrow’s headline. Here’s an easy transition for changing the point of reference in a rate increase discussion. When someone spouts a percentage of increase, you can say: “Keep in mind, the amount we’re talking about is $3.32. That’s less than the cost of a stick of gum a day.” Stating the actual amount is almost always less emotionally charged. By comparing it to some everyday item such as a cup of coffee a month or a stick of gum a day makes it even less dramatic.

www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Rate Increase Mistake #6 Not communicating the need so people can see it, touch it, hear it, smell it, or taste it The problem with water districts is that when they are running well, they become invisible. The public fully expects to go to a faucet, turn it on and get an unlimited supply of clean drinkable water. That is what happens 99.8% of the time. There’s no need to ever think about it. At the same time, much of the district’s work is hidden. Pipes are underground. Pumps and treatment plants are in out-of-the-way places. So when you talk about the need to replace aging infrastructure, you are often met with a blank stare. It just isn’t real to people. A good communication program makes the needs real to the community. It means showing the leaking pipes. It means showing the aging holding tanks with a projected lifespan of 30 years that were installed 40 years ago. One color photo of a cross section of pipe that was 50% filled with corrosion made the front page of one client’s newspaper. Ratepayers suddenly understood why replacing aging pipes was needed. Another client arranged tours of their treatment facility. When people saw the sagging temporary holding tanks that looked like they were about to burst, the needs became very clear. If people don’t understand how the added money will be used, a rate increase doesn’t make sense. The assumption is that the rate increase is being demanded to cover wasteful operations and to further pay an already overpaid staff. In reality, that’s very rarely true. But until your ratepayers can tangibly understand the actual needs, they will assume the worst of you.

www.ratepayerrelations.com

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How to Avoid the 7 Most Deadly Mistakes in a Rate Increase

Rate Increase Mistake #7 Waiting too long to get started Building trust and educating the public is a long-term process. It doesn’t happen overnight. If you’ve made any of the previous mistakes, the task is even more difficult. To handle things well, smart districts begin communicating the needs for a rate increase about a year before it will actually happen. That provides the time to get the message out clearly in multiple ways. If you are any closer than that, the task becomes more difficult. At the same time, the need to be effectively communicating to your community becomes even more critical. One thing has been proven time and again. Implementing a rate increase well is always less expensive than doing it poorly. Start early in preparing for a rate increase. It will save you time, public backlash, and money. If you’re closer than a year off, get started now. Every day can make a difference for you and the health of your district.

You can get the professional help you need. Getting an effective communications program in place to assure your rate increase is a success is easier than you think. It starts with a simple phone conversation. The Sentium team has a proven track record for success in dealing with rate increases. We can provide this expertise for you. Since each program is tailored to the needs and size of each district, the costs are proportionate to the task at hand. Find out for yourself. Call (800) 595-1288. Interested in learning more about how we’ve helped other districts like yours? Go to www. ratepayerrelations.com

www.ratepayerrelations.com

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About the Author Richard Wilson is a 34 year communications veteran with an expertise in water and wastewater districts. He is the coauthor of the book, The Death of a Water District — How a bad rate increase pushed one water district to the edge of extinction. (Publication date: October 2012.) Richard is a highly respected speaker and has been featured at conferences for a number of national associations, including the American Water Works Association. He is the founder of Sentium Strategic Communications. Headquartered in Northern California, the Sentium team serves clients located throughout the United States. Richard can be reached at (800) 595-1288. His email is rwilson@ratepayerrelations.com

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