With many households under growing financial pressure from burgeoning electricity, gas and water costs, it is not surprising to see a growing number of utility customers defaulting on bill payments. Large numbers of energy and water utilities around the world, along with telcos, are indeed grappling with increased payment arrears and are faced with a challenge to not only recover revenues from non-paying customers – but to also correct behaviours and achieve customer payment continuity.  The resurgence in prepay metering technologies used in conjunction with specialist billing and CRM systems is now providing a worthy solution for clawing back arrears and managing non-paying customers. 

AN ESSENTIAL TOOL FOR REDUCING UTILITY BILL ARREARS

Surprisingly, arrears growth has not been consistent, even among providers of multiple utility services to the same customer base. 

To understand why, it is useful to look at the UK utility industry to compare the increase in monies outstanding from domestic customers in energy sector with those in the water sector. In 2008/09, the UK water industry experienced a 13% year on year growth in outstanding revenues, with over 5 million customers owing money to their water supplier (Utility Debt Week conference presentation” Nov 2009, Water UK. www.water.org.uk). Energy debt on the other hand has been fairly static for many years and although it did start to rise at the end of last year, the numbers of electricity households in arrears are still only a third of that of water. 

Obviously, the water industry’s inability to disconnect supply for non-payment has a significant influence on bill payment prioritisation. However, the fact that 5.8 million households (http://www.nea.org.uk/prepayment-meters) have a prepayment energy meter will have also played a large part in keeping arrears growth lower than in other sectors.  

And prepayment meters seem to be popular with those who use them. In the UK, the National Energy Action group (NEA) reports satisfaction rates are commonly 70-80%, even higher amongst those on low incomes. The NEA notes that consumers “like the discipline of controlled expenditure and the avoidance of unexpectedly high bills”. 

THE CHALLENGES SURROUNDING PREPAYMENT

Despite the benefits prepayment meters provide to both utilities and their customers, global uptake has been confined to only a few countries. China, South Africa and Turkey, along with the UK, account for 97% of the worlds installed prepay meters (Prepayment Metering Report 2007, ABS Energy Research).

In Australia and New Zealand, along with the majority of other countries, penetration has limped along at about 2 or 3% of the installed meter base. Thus far, the barriers to uptake have been significant. 

1)         Infrastructure Costs – The costs of deploying and maintaining a separate infrastructure for prepay meters has been prohibitive for many utilities.  In addition to the cost of installing a different meter and having to physically update it for any tariff charges, the expense of managing a separate payment network is often considerable

2)         Social Concerns - The issue of fairness, and the capacity of prepay meters to contribute to, and increase energy disadvantage, is of concern to consumer advocate groups and regulatory bodies alike. Even in the UK, the lowest cost tariffs are normally not available to prepay meter customers. Indeed prepay tariffs are often higher than average, reflecting the higher infrastructure costs. Comparing tariff plans between retailers can be difficult and switching is not as easy, resulting in customers often being trapped in non-competitive supply situations

3)         Regulatory Requirements - Many regulators, rightly acting to protect consumers from further disadvantage, have created ‘Codes of Practise’ for prepayment meter provision. Compliance to which however, can be onerous and costly. For example, in many Australian jurisdictions, customers must have a mandatory trial period after which the meter can be removed at the behest of the customer and at no cost. There are restrictions on how much debt can be recovered, if any (often the primary reason a retailer may want to move a customer onto prepay) and reporting obligations are significant

4)         Self Disconnection - Prepayment meters by their very nature allow self disconnection. Consumers, who may otherwise be protected from disconnection through hardship programs or legislation (for example, no disconnections during periods of extreme weather conditions), could disconnect themselves with serious health consequences for one or more household members. This is particularly relevant for vulnerable households and for those with a medical dependency. 

PREPAY OR SMART METER – YOU CHOOSE

The advent of the ‘Smart Grid’, and the deployment of smart meters as a key component for demand-side participation, finally offers utilities both a low cost and socially fair means of increasing their prepay customer footprint. 

Mandated in many jurisdictions, smart metering deployment (
View Larger Map) continues to be led by both retailers and networks dependant on meter ownership structures and challenges in respective jurisdictions.  While smart metering technologies have been deployed for benefits such as deferred investment in network infrastructure, removal of estimated reads and ‘real-time’ interval data, (http://www.smartmeters.com/the-news/99-smart-meter-benefits-widely-accepted-around-the-world.html) just to name a few, there are also significant cost advantages for utilities that wish to leverage prepay offerings off the back of these smart metering platforms. 

The need for utilities to run two parallel metering and payment infrastructures is now removed with advanced metering technologies available. A typical pre-pay meter scenario including integration with a utility’s billing, CRM and collections components is outlined in figure 1. 

Figure 1: Integrated Prepay metering, Billing and CRM.

In Part 2 of this Blog, read about:

-       Prepay integration with specialist CRM and billing systems

-       Prepay interoperability

-       Removal of prepay barriers