Every year, electric companies write off millions in bad debt caused by customers who don’t pay their electricity bills. But opportunities exist for electric companies to reduce this annual expense.
Typically, the utility seeks to pass those bad debts along as additional costs to the ratepayers who pay their bills, OR the company’s shareholders absorb the losses.
Most regulatory bodies understand electricity to be a necessity that must be provided and require electric companies to take proactive steps with customers before disconnecting services. In some cases, regulators limit the debt that can be rolled back into the rate structure, a situation affecting shareholder value, the electric company's balance sheet, and ultimately, the electric company's credit rating.
Other root causes accelerating this issue include:
1 - Too low a management priority - Historically, electric utilities have not placed bad debt prevention high on their agenda. In good times, electric companies tend to focus their efforts elsewhere. This approach backfires in recessionary periods when these companies need management focus and investment to control the rising tide of bad debt.
2 - Not a significant part of the customer strategy - Typically, customer segmentation strategies focus on increasing customer numbers, avoiding customer complaints, or reducing the cost to serve customers. But few electric companies take the credit risk of customers into account. Most debt-prevention activity kicks in very late in the cycle when collections teams are limited to "mopping up" and collecting what they can.
3 - Inconsistent execution levels - Often, electric companies underestimate the challenge required to prevent bad debt. It is data-intensive and analytically complex, requiring ongoing process review and optimization. However, lower prioritization may mean these teams are starved of sufficient resources to consistently and effectively execute strategies.
Understanding these challenges and identifying the opportunities to use advanced technology and personalized services can provide electric companies with comprehensive solutions to tackle this mounting concern.
About Deposit Alternatives
Deposit Alternatives, founded in 2016, is a leading innovator in the utility industry. Drawing on over seventy combined years of expertise in the utility and financial sectors, Deposit Alternative has disrupted the world of utility deposits to provide better service and greater customer satisfaction with innovative deposit solutions across the US.