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Communicating Smart Meter Value

Sep 9 2010 - 2010-01-01 12:00:00 - Your City

If you are involved in Management or Customer Service and are responsible for communicating the value of smart meters to your utility customers, you don’t want to miss this online discussion - Communicating Smart Meter Value.  more...

Social Media: The new frontier in recruiting, communications and marketing

Sep 13 2010 - 2010-01-01 12:00:00 - Your City

Join social media mavens Matthew Burks and Amanda Shewmake as they provide an insider's perspective on how HR, communications and marketing professionals in energy companies can harness the power of social media to be more effective and productive. more...

Eliminating Obstacles and Delivering the Benefits of the Smart Grid - IBM's Optimized Energy Value Chain (OEVC)

Sep 14 2010 - 2010-01-01 12:00:00 - Your City

The convergence of power and information technologies in the smart grid has created opportunities for finer grained and broader controls of energy flows. These opportunities can improve electric service in multiple dimensions: lower cost, greater reliability, greater customer satisfaction, and more...

Achieving Operational Excellence - What to Consider Before Implementing or Upgrading Your Distribution Management Solutions

Sep 16 2010 - 2010-01-01 12:00:00 - Your City

Significant cost over runs. Changing business requirements. A well thought out plan is essential. Attend this free webcast discussion to hear inside hear three experts in utility operations discuss what utilities need to evaluate when they are considering upgrading or more...

Outsmarting the Smart Grid: IT, Security and Communication Infrastructure  Challenges & Opportunities for Utilities

Sep 21 2010 - 2010-01-01 12:00:00 - Your City

The smart grid is shifting the playing field for utilities. And when the game changes, it pays to be prepared. A nimble solutions partner can help you design the solutions that keep operations on track, even as new challenges come more...

1st CSP Today Concentrated Solar Thermal Power Summit India

Sep 7 2010 - Sep 8 2010 - New Delhi India

Deliver a profitable, productive and commercially successful large scale CSP business in India. Building on the success of past events in USA, Europe & MENA, CSP Today brings to New Delhi the most relevant international experience for the concentrated solar more...

Offshore Wind Energy in North America's Great Lakes Conference

Sep 9 2010 - Sep 10 2010 - Toronto

Two day conference that tackles the most important challenges. A blend of European knowledge from the companies who have been installing offshore wind turbines for the last decade alongside local state governing bodies and leading project developers. Permitting, securing long more...

Autovation 2010

Sep 12 2010 - Sep 15 2010 - Austin, TX - USA

Autovation 2010 is a not-to-miss educational forum that will attract utility executives from around the world looking for new ways to optimize their operations through automation technologies. more...

Global Sustainable Bioenergy North American Convention

Sep 14 2010 - Sep 16 2010 - Minneapolis, MN - USA

The North American convention provides a remarkable opportunity to play a part in guiding renewable energy policy for the 21st century. Attendees will create a resolution that, along with similar resolutions already drafted on four other continents, will help set more...

GridWise Global Forum

Sep 21 2010 - Sep 23 2010 - Washington, DC - USA

Hosted by the GridWise(R) Alliance and the U.S. Department of Energy, the GridWise Global Forum will convene thought leaders from the highest levels of government, business, NGOS, and academia from around the world to discuss the ultimate enabling potential of more...

1. Intro to Nat Gas Trading & Hedging 2. Option Applications in Energy

Sep 20 2010 - Sep 23 2010 - Houston, TX - USA

Introduction to Natural Gas Trading & Hedging - This program provides a comprehensive understanding of the structures that underlie Natural Gas trading. Beyond Essentials: Option Applications in Energy - This course provides a solid practical and conceptual (non-quantitative) understanding of more...

Electric Business Understanding Seminar

Sep 20 2010 - Sep 21 2010 - Houston, TX - USA

Electric Business Understanding provides a comprehensive overview of the electric industry. Position yourself for career advancement by gaining a solid understanding of how the electric business works including key physical, market, and regulatory aspects and how market participants navigate this more...

Electric Market Dynamics Seminar

Sep 22 2010 - Sep 23 2010 - Houston, TX - USA

Electric Market Dynamics offers participants an in-depth understanding of North American electric markets and how they function. Enhance your career by furthering your knowledge of market structures, pricing mechanisms, services offered in markets, and how various participants use the markets more...

Gas and Electric Business Understanding Seminar

Oct 5 2010 - Oct 6 2010 - Los Angeles, CA - USA

Gas and Electric Business Understanding provides a comprehensive overview of the natural gas and electric industries. Position yourself for career success by gaining a solid understanding of how each business works, including key physical, market and regulatory aspects, as well more...

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Five Fast Ways to Reduce Utility Write-offs
9.24.09   Ted Nolte, Managing Consultant, PA Consulting Group

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    Interested in this topic? Need more information? Energy Central has created a complete information service focused only on Customer Care & Business Operations. There is no better way to stay informed. Get more information on Customer Care & Business Operations today!
    As the media pundits point to glimmers of hope of an economic turnaround this year, the reality remains that more people are unemployed or underemployed now than in the previous 20 years. High unemployment, restrained consumer spending, and growing bankruptcies increased utility write-offs approximately $400 million in 2008 to an estimated $2.8 billion according to PA Consulting Group's Polaris Customer Service benchmarking data. For the companies surveyed, average utility net bad debt as a percent of revenue increased to over 0.7 percent of revenue from 0.6 percent a year earlier. As businesses and consumers manage payments with diminishing income, and the more unscrupulous customers attempt to exploit loopholes in business processes and regulations to avoid repayment, utilities are scrambling to ensure that customers pay attention when their bills are sent and reduce write-offs.

    Although it's safe to say that collection is getting more and more difficult in today's economy, it's not time to raise the white flag just yet. Nor is it prudent to sit idly by waiting for the economic recovery to take hold as customer delinquencies will still be challenged through this year and into the next. Rather than take a wait-and-see approach, the following five ideas can be implemented quickly and cheaply and will protect against customer defaults and increased write-offs.

    1. Increase securitization (deposits) on all risky accounts

    While tariffs and consumer protection rules vary from state to state, nearly every state across the country allows a utility to request a deposit from high risk customers. These are either new customers who have been determined to be a risk based on previous payment history or credit scores; or, existing customers who have recently been disconnected or eligible for disconnect due to non-payment. While companies generally do a reasonable job in determining risk of new customers, most companies often overlook the opportunity to get deposits from existing customers. According to PA's Polaris Customer Service benchmarking program1, approximately 26 percent of new residential accounts are being requested to pay a deposit while 38 percent of delinquent customers have deposits on hand. For deposits on existing customers, over 40 percent of the companies in the program responded that they don't reassess existing customers for deposits.

    In this economy, utilities should be looking to increase the number of deposits requested from both new and existing customers. For new customers, utilities should reassess the credit score cut-off threshold to determine if the credit score is set high enough. Typically, utilities set this number conservatively (i.e., low) allowing marginal customers to enroll without a deposit. By raising the cut-off score, utilities can increase the number of customers required to pay a deposit by 10 percent to 20 percent or more depending on how low the initial score was set.

    For existing customers, companies can query their systems to identify those customers who do not currently have a deposit with the utility but would qualify for a deposit based on the company's tariffs and the customer's payment history. Collections campaigns can then be developed based on risk factors like the number of times the customer has been disconnected or the number of broken payment arrangements. In some cases, the deposit could automatically be billed on the next bill cycle. In others, it can be used as a negotiation tool to be waived if customers pay outstanding delinquencies. Either way, getting deposits or reducing delinquencies on these higher risk customers can cut exposure to individual customer credit losses by between 50 percent and 60 percent.

    2. Use available resources to identify customers with trailing debt

    It's no surprise that customers get creative when trying to avoid past due bills. Customers have been playing "The Name Game" or signing up for service under assumed names for years. Customers who often have difficulty paying the utility bill will ask for payment arrangements and credit extensions and, when those options run out, will attempt to establish service under a different name as if they have just moved into the premise. Based on the information from Polaris, nearly all companies search for previous accounts on name, social security number or Federal tax ID with fewer than 30 percent requesting more specific information than that. If a customer is attempting to avoid a previous bill, they will not likely provide any information that could link them to a prior account such as name or social security number.

    When the utility is unable to link the previous account to the "new" customer, the best they can hope for is to request a deposit from the customer. It's not a stretch of the imagination to suggest that utilities have hundreds, if not thousands of customers on the books that have had prior accounts and possibly millions of dollars written off. Since effective risk management starts at the point of sale, more needs to be done to identify customers who repeatedly attempt to avoid repayment.

    The good news is that new services are available that can help identify customers, aliases and customer relationships that make it more difficult for customers to play the name game and deny previous account relationships. These services from companies like Experian and Equifax are built from years of credit data that identify all former account relationships and allow utilities to transfer old account balances. These services can be used one time to clean up customer databases once a year or in the call center every time a customer requests new service.

    3. Improve Outside Collection Agency Performance

    Collection's agencies have their work cut out for them in this economy. The influx of placements has substantially increased the volume of accounts they are working as consumers fall further and further behind. On top of this, higher unemployment and tighter consumer credit are making it harder and harder to collect. According to the Polaris benchmarking program, average collection agency recovery rates were approximately 13 percent across primary, secondary and tertiary placements with average commissions of 23 percent.

    Now is the time to re-evaluate your agency commission structures and work with your agencies to give them added incentive to work your accounts harder. In addition, utilities should be employing champion-challenger models to introduce competition among agencies as well as employing a risk segmentation strategy on placement timing by risk. Collection agency yields will be under added pressure this year so the status quo will mean lower returns.

    4. Ensure your credit scoring model is accurate

    Because of the "black magic" associated with credit scoring models, there is a presumption of a level of accuracy that may not actually exist. The accuracy of the model is important as deposit decision, risk segmentation and collections treatment strategies may all be determined by a customer's initial credit score. If the score is not accurate, higher risk customers may be granted service without a deposit or given more latitude with respect to payment arrangements which will only serve to increase potential credit losses.

    If you have not performed a model validation with your credit bureau recently, now is a good time to request one. The model validation uses your own internal customer payment data to determine the credit bureau model with the closest correlation to your actual performance. The better the correlation, the more predictive the score is to a customer's future payment patterns. The two factors to look for when doing the model validation are the model's match rate or the percentage of customers that the model was able to identify and return a score and the model's K-S score. The K-S score, the Kolmogorov-Smirnov score, is the statistical test that measures the accuracy of the model to the customer sample. The higher the K-S score the better. Scores above 50 are considered reasonably accurate. Scores between 40 and 50 are marginally accurate. Scores below 40 are not considerate accurate at all. Performing a model validation and choosing a more accurate model will help ensure that customer risk is assessed properly.

    5. Place closer scrutiny on commercial accounts

    Though the major focus for many utilities is on the residential portfolio due to the sheer volume of accounts, the commercial portfolio represents a significant and rising risk. Even though there have been some positive signs in the economy recently, most economists agree that it will be some time before banks loosen the reins on credit. So while the hundreds of billions in economic stimulus programs make their way through the economic machine, small to medium-sized businesses will continue to struggle to maintain cash flow and working capital in the face of slower consumer spending. The strain on small companies is obvious as commercial bankruptcies increased 53 percent in 2008 over 2007 and are expected to continue climbing.

    In this current economic climate, utilities should reassess commercial accounts to determine if they are adequately secured and identify potential problem accounts in the portfolio. At the high end, publicly available financial reports and information from providers such as D&B make assessing counterparty risk easier for larger commercial and industrial accounts. Credit managers can evaluate capitalization ratios, turnover, cash flow and profitability growth rates to their heart's content. However, the lack of information available for small and medium-sized commercial customers should not hamper the ability to adequately assess risk in the commercial portfolio.

    As credit bureaus continue to improve small business scoring models, simple tools or scorecards can be used at enrollment to gather information on small and medium-sized businesses to assess risk. Factors such as how many years in business, how many employees and the type of business can be weighed to assign a risk level or segment. After enrollment, these same accounts can be more closely managed by tracking month-over-month roll rates and using credit bureau account monitoring services to ensure that small problems don't turn into big ones. Since balances for commercial accounts are larger than residential, adequately assessing risk of small to medium-sized businesses at enrollment and throughout the account lifecycle will help protect against much larger potential losses in the future.

    Conclusion

    Each one of the five recommendations above can be implemented relatively easily in two to eight weeks at very low costs. However, each of these recommendations has the potential to lower credit exposure, reduce delinquencies and lower bad debt at a rate that far exceeds the cost. The good news in this economy is that, unlike other areas of the utility business, improvements in credit & collections carry very clear and significant returns on investment. In some cases, reductions in bad debt can actually increase earnings per share. Wouldn't it be nice to have good news for the CEO this year?

    References
    1. Based on PA's Polaris benchmarking program results for the 2008 program year.

    For information on purchasing reprints of this article, contact Tim Tobeck ttobeck@energycentral.com.
    Copyright 2010 CyberTech, Inc.
     
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