The agency made changes “on the cheap” and was slow to respond, an auditor says

The Honolulu Board of Water Supply’s plan to put in a new customer care and billing system was “fraught with problems” that not only caused the agency to “back-bill” a number of its customers, but contributed to the eventual cost skyrocketing to more than three times its original price tag, according to a city auditor’s report released Tuesday.

And while the report said the embattled semiautonomous agency has made broad strides in response to a complaint-filled period, city Auditor Edwin Young said there are still areas where BWS management has a long way to go, such as improving dialogue with other city agencies and the public, and creating better ways of justifying its rate increases to customers and auditors.

The audit was ordered by the City Council in March after scores of customers complained about sudden spikes in bills as well as long wait times and confusion seeking help to sort out billing questions.

Councilman Ron Menor, Executive Matters and Legislative Affairs Committee chairman, who pushed for an audit, said the report will be discussed by his committee Tuesday.

While the root problem was resolved in a relatively short time, the situation caused an uproar as water customers deluged the board staff with complaints about suddenly being hit with “back-billed” charges, some of which totaled several thousands of dollars.

The audit said the board “inadequately planned for its utility customer billing information system implementation,” a switch that had been in the works since 2008 but did not activate until January 2013. As of August a plan that was supposed to cost $5 million and take 18 months was carrying a $16.4 million price tag and had taken five years.

“They tried to do a good job, and they had the best of intentions, and they were also trying to save money by doing it on the cheap,” Young told the Honolulu Star-Advertiser on Tuesday afternoon. “But you don’t do information system implementation of this sophistication on a shoestring budget. It really requires a great deal of sophistication and a lot of planning, and a realistic timeline.”

A consultant had warned the agency to be prepared to handle a swell of complaints, but BWS was slow to add the needed personnel, Young said. As a result, the agency’s customer care center became overloaded with calls from June through October 2013, leading to abandoned calls, long waits and more complaints.

The problem was exacerbated because the agency was converting to a monthly billing cycle from a bimonthly period, resulting in what essentially was a doubling in the monthly, flat-rate service fee.

BWS also discovered “an increase in estimated billings and billing errors that resulted in big bills which generated more complaints to the City Council,” the audit said.

After the Star-Advertiser requested information about back-billing of customers who had received estimated bills in preceding months, the board released data showing nearly 8 in 10 of its roughly 170,000 customers received bills that were overestimated or underestimated during the first nine months of 2013. Young’s staff found the same information. BWS officials said a technical glitch during the implementation of the new billing system eliminated large numbers of actual readings and replaced them with estimated ones.

The report called the board’s meter-reading process for determining usage as “inefficient” and a major reason why a large number of charges are based on estimated usage. “BWS has relied on redundant attempts to conduct reads and increased overtime to get accurate reads,” the report said.

Additionally, the report said, the agency’s schedules for increasing monthly water charges to its customers “need to be substantiated, and could be reduced.” The audit said, “Although BWS provided a plethora of accounting and financial data, the BWS staff was unable to convert or synthesize the data into a format that the taxpayer or City Council could accept as substantiation for the increases in water rates and billing charges.”

BWS Manager and Chief Engineer Ernest Lau said agency officials said implementing the new billing system was “a learning experience” and that safeguards have since been instituted to avoid repeats of the same issues.

Lau said he and his staff concur with most of the findings and recommendations in the audit, and noted that many of the recommended improvements have been underway for some time. He acknowledged that dialogue with customers and stakeholders, especially when it comes to justifying hikes in rates and charges, could be improved.

Lau, however, strongly disputed the auditor’s claim that the agency was not able to justify its increases in billing service charges and water rates. “However you cut it, the rate development process is a very complex process, so that’s why we utilize the expertise of consultants to help us with that.”

Paul Kikuchi, BWS chief financial officer, said his staff provided auditors with a cost-of-service study with 24 different worksheets used to determined revenue requirements from both the service charge and water rates.

As for the cost overruns associated with the customer billing system, Lau said a number of factors contributed to delays and other causes that allowed the cost to escalate.

Councilman Ikaika Anderson wants the Council to have the final say over the BWS budget, while Councilwoman Kymberly Pine has sought to bar the agency from seeking compensation through backbilling of those who may have been previously undercharged.

But Menor urged colleagues to hold off on such measures pending the outcome of the audit.

Menor said Tuesday he’s glad the agency appears to be making progress on billing and customer service issues. “However, I am concerned about several findings of the auditor,” he said, including the lack of substantiation for rates and charges and about continued problems with automated meter readers.

Pine said she was disturbed to learn of the cost overruns tied to the new customer information and billing system.

“Ratepayers got a raw deal in the end, paying for a billing system that caused more problems than it solved,” Pine said.