What’s Trending in the Utility Industry
Within the utility industry, core components of customer operations include revenue protection and growth, and debt recovery—all of which are largely driven by credit risk management strategies. However, developing and applying effective credit risk strategies can be challenging amid dynamic industry issues such as market regulation, increasing retail competition, softening cyclical revenues, technology innovation and more.
Unique market forces are influencing credit risk management within utility provider operations in 2013, based on recent industry research that Equifax conducted with nationwide utility providers in partnership with IDC Energy Insights.
To compete in deregulated markets, achieving business efficiency and revenue potential is critical.
In general, credit risk management focuses on the bottom-line impact on utility customer operations. Specifically, for providers within deregulated, highly competitive markets, top imperatives center on process automation, as a way of maximizing business efficiencies, and expanding customer revenue potential. For example, process automation can help utilities better compete with other retail providers by cutting administrative costs and improving credit decisioning speed, quality and consistency. Likewise, by better understanding their customers, providers in competitive markets can better upsell and cross-sell services to maximize their revenue potential.
In terms of achieving business efficiency, however, utilities struggle with technology gaps. Credit management is often underserved and/or underfunded due to general IT resource constraints, and as such it’s subordinated to larger customer service operations such as Customer Information Systems and smart meter data integration. As a result, key business processes are based on manually administered best practices, and are not optimized through the use of technology and analytics. Examples include collection management, high risk account identification (post-paid customers), late payment notification efficacy, disconnect/reconnect, fraud identification and mitigation and more.
Lowering bad debt is important, but more so for regulated and smaller providers.
Although the reduction of bad debt is a big concern for all utility providers, it’s the top priority within regulated utilities which must operate under universal service access rules that expose them to higher credit risk. Likewise, smaller utilities which have fewer resources than larger providers are also more concerned about bad debt, especially in light of below average industry revenues. Gas utilities worry less about recovering bad debt, since at least for now, gas is becoming increasingly more affordable due to new extraction techniques.
Interestingly, late payments are considered by most utilities as a source of income from low-risk customer segments. However, here’s the rub: distinguishing between low-risk and high-risk customers is more of an art than a science for most providers, since they have access to few technology and/or data tools to support such an analysis.
At account opening, credit checks are used almost universally to set security deposits.
The practice of using credit checks at account opening is a best practice throughout the utility industry, with most providers leveraging the credit score to determine the appropriate amount of security deposit. However, exclusions to the credit check requirement are prepaid services, which do not require a credit check.
Also making its way into the account opening process is social media. With email, mobile phone (text) and Twitter becoming preferred methods of communicating for younger customers, social media is influencing the customer data that utilities collect upfront.
While these issues and practices are just a sampling of the credit risk management topics being discussed and tackled among utilities providers today, the bigger takeaway is that the industry is pushing ahead and realizing unique opportunities to improve business processes, maximize return on business product investments and drive immediate and long-term revenue growth.
Recommended For You
Power your marketing programs with data-driven details about these key consumer groups. We know Boomers are retiring, but where are […]
Identity verification in a digital age — Expand your view to include more consumers, and their devices
Practically everything’s digital these days, which can be both good and bad when you’re performing identity verification while activating a […]
Now is the time to make your marketing dollars work harder, and smarter New customer acquisition campaigns are constantly filling […]
“Focus on Fraud: Exploring the New Frontier and Creating Effective Solutions” at the Annual Utilities Credit and Collections Symposium
The 2018 Annual Utilities Credit and Collections Symposium — a premier event for utility industry credit and collections professionals — […]