REDUCING UTILITY BILL
ARREARS – A NEW DAWN
FOR PREPAY METERING
With rising unemployment and many
households under increasing financial
pressure, 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. This paper
explores the renewed potential of prepay
metering and integrated billing and CRM
to meet these challenges.
Gentrack Whitepaper | Reducing utility bill arrears – A new dawn for prepay metering
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REDUCING UTILITY BILL ARREARS – A NEW
DAWN FOR PREPAY METERING
An essential tool for reducing utility
bill arrears
With rising unemployment and many households under
increasing financial pressure, it was inevitable that
growing numbers of utility customers would default on
bill payment. And large numbers of energy and water
utilities around the world, along with telcos, are indeed
grappling with increased payment arrears.
But 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 compare the increase
in monies outstanding from domestic customers in the
UK 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
supplier1. 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.
NEA notes too 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 world’s installed prepay meters3.
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
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 tariffs charges, the
expense of managing a separate payment network
is considerable.
2. Social concerns
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 households2 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 7080%, even higher amongst those on low incomes. The
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.
1
Utility Debt Week conference presentation, November 2009, Water UK. www.water.org.uk
National Energy Action Group. www.nea.org.uk/prepayment-meters
3
Prepayment Metering Report 2007, ABS Energy Research
2
2
Gentrack Whitepaper | Reducing utility bill arrears – A new dawn for prepay metering
Coercion is also a common concern, particularly for
changing tenancies. Although the new tenant may
have a good credit history, they may still have to use
the pre-existing prepayment meter.
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.
Mandated in many jurisdictions, smart metering
deployment 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 ‘realtime’ interval data, 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 (overleaf).
The prepayment billing system is now as
relevant as the meter
We know cost is only one of several barriers to
prepayment metering uptake. The need to address
regulatory and social concerns is just as pertinent. As
much as advanced metering is the prepayment
enabler, a utility’s ability to tackle customer centric
issues will often come down to the performance of its
back office billing system. Prepay billing and
supporting CRM capabilities should include:
• Embedded CRM
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.
Accurately capturing the details of all potential
prepay customers and determining their suitability
before they make that switch, is crucial if high risk
self-disconnection is to be avoided. Systems with
preconfigured call scripts facilitate identification of
vulnerable and medically dependent customers,
Gentrack Whitepaper | Reducing utility bill arrears – A new dawn for prepay metering
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Figure 1: Integrated Prepay Metering, Billing and CRM
and other information to assist with determining
prepayment suitability. The details of the financial
counsellor or welfare agency contacts can be linked
to each account where required for hardship grants
or similar schemes.
Capturing and ensuring the continued accuracy of email
and mobile contacts for low credit alerts also becomes
systematic.
• Flexible Rules Engine
With many utilities running one billing system for
multiple jurisdictions or states, the different
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regulatory rules surrounding prepay customers
must also be supported. A system with a flexible
rules based engine enables utilities to attribute the
correct trial periods, debt recovery caps and
“disconnection not allowed” periods to each
customer. Regulatory guidelines can be easily
configured, updated and due process automatically
followed with flags raised for manual intervention
as required.
Such flexibility can also be used to run special
prepay promotions for a restricted period to grow
market share or customer value. For example, a
Gentrack Whitepaper | Reducing utility bill arrears – A new dawn for prepay metering
consumer could receive extra credit if they opt for
dual fuel or purchase other products via their energy
retailer.
But as smart meter deployment ramps up across many
regions, utilities are beginning to investigate the role
this technology can play in providing a customer
friendly, competitive, prepay supply option.
• Interoperability
One of the criticisms of existing prepayment meters
has been the difficulty many customers have in
accessing available energy hardship grants. With the
billing and collections systems having a direct
interface with welfare agencies, local authorities and
other third parties, such as Centrelink in Australia,
any monies can be automatically credited to prepaid
accounts directly, and information to support grant
applications is easily accessible. Integration with
other payment processing, billing and credit
management systems used by the utility is essential
to ensure information is shared across the entire
organisation to support stronger decision making
and prepay customer services.
• Flexible Tariff Handling
In the UK in particular, many consumers proactively
opt for a prepayment meter as a budgeting and
consumption management tool, even if they aren’t
in debt to their supplier. But these consumers still
demand a competitive and transparent energy tariff.
A system that allows utilities to quickly modify and
update tariffs will ensure they can compete for
prepaid customers.
They will discover that leveraging their smart meter
investment will dramatically reduce the cost of prepay
supply. However, it will become apparent that it will be
the type of back office billing, CRM and collections
system deployed that will determine the relative
success of any prepay offering.
Certainly there are billing systems that can handle
both post and prepayment in parallel. But for those
utilities running less agile systems, many will find it
cheaper, faster and easier to deploy a more flexible
rules based system to manage their prepay accounts
only. Undoubtedly, there is still work to do. Utilities,
regulators, consumer bodies and welfare agencies
need to work together to refine existing processes and
protocols to ensure the maximum benefit for all
parties.
But the barriers to a cost effective, socially equitable,
prepay energy supply are, at last, coming down.
The barriers are, at last, coming down
In the clamber to justify smart metering investment,
attention has tended to focus on estimating potential
energy efficiency gains and meter reading cost
reductions. The benefits of using advanced metering
infrastructure to both recoup debt and prevent further
arrears have been largely overlooked.
Gentrack Whitepaper | Reducing utility bill arrears – A new dawn for prepay metering
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