Utility Deposits and Late Fees

The rules for running municipal utilities are a blend of local ordinances approved by the council and regulations of the Iowa Utility Board (IUB). These rules vary depending on the type of utility, but cities should consider several strategies to minimize potential losses by late payments or non-payment of utility accounts.


City ordinance establishes the amount required for each deposit. Generally, the utility returns the deposit after 12 months of prompt payments (allowing a one month grace period). Interest may be paid on the deposit; however, an interest payment is not required. A city may want to use the deposit return as an incentive for customers to make their payments on time. With few exceptions, the city can by ordinance establish when and how the deposits are used to offset utility receivables or as a refund when the account is closed. 

The IUB regulates deposits for rate-regulated utilities such as gas and electric. However, IUB has no jurisdiction over municipal utilities in this area. It is a good practice to use the IUB rules as a guideline, setting deposits to be the amount of the highest monthly billing during the previous 12 months of service.

It is also important to create a written service contract with all non-dependent adults living at the service location. Having all residents listed as the customer allows the utility to prevent a group of related or unrelated residents from running up a bill in the name of one resident, defaulting on the bill and then demanding a new account in the name of another resident.

Late Fees

IUB rules do not apply to municipal utilities, but can be used as a model. IUB rules do not allow late fees in excess of 1.5 percent per month of the delinquent bill. This could compound to an annual rate of 18 percent. There are some cities that charge a flat fee for each late occurrence or a one-time late fee, such as 5 percent, which is not compounded. The city ordinance should spell out what the late fee is, and it should be applied uniformly.

It is in the best interest of the city utility to enforce all deposit and non-payment provisions in a consistent and timely manner for all customers. Any repayment schedules should be established and closely monitored for compliance. This makes retrieval much easier and is much fairer to those customers that make the effort to pay their bills on time.

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