Ofgem, Bad Debt & Collaboration

Ofgem, Bad Debt & Collaboration

Ofgem continues to consider whether higher “bad debt” costs for suppliers should be factored into the default tariff price cap when they next update it on 1 April 2021. Consideration is being given to allowing an annual increase in costs of £21 per household to allow suppliers to recover the higher bad debt costs that are anticipated from the consequences of Covid-19.

Is Anybody There (IAT) is collaborating and developing a partnership approach to the problem of voids and gap sites that every utility company faces. We combine internal and publicly available datasets through our devops pipeline and subsequently apply both predictive models and process expertise to improve the quality of the data (getting it closer to the golden record) and generate predictions on the likelihood of a property becoming vacant or being so. IAT is part of DScience. DScience has successfully applied deep learning and AI to condition assessment and ecological surveys for National Grid and UKCEH as part of their Keen AI product line. 

Across the energy and water sectors it’s likely that bad debt provisions will soar above £1 billion in 2021. Whilst a £21 per household contribution will be welcomed by the energy suppliers it will still leave a huge amount of bad debt expense to be funded. A significant element of the bad debt relates to customers (business and residential) who can pay but choose not to pay. These customers simply push up the costs of those customers who choose to pay. Over 97% of utility customers pay their bills, albeit some need more encouragement than others to pay. However, those that don’t pay generate huge costs for utility retailers in the form of bad debt charges and higher collection costs.

Increased collaboration is required between suppliers, Regulators, innovators and the third sector to develop ways of tackling fuel and water poverty but also addressing the perennial problem of debtors who take evasive action to avoid paying their debts. What knowledge could be shared and leveraged to help the vulnerable and also reduce bad debt and collection costs.

Collaboration could be in relation to data sharing and debt transfer when a customer wishes to switch to a new supplier. Customers could be required to prove who their last supplier was and show that all debts for the services they enjoyed were paid in full. When you seek to open a bank account you are asked for proof of who you are and where you reside, so most utility customers are used to providing proof.

COVID-19 is driving up the number of vacant and temporarily vacant properties, which will place further downward pressure on utilities future revenues and also fuel higher bad debt, billing and collection costs. All of which adversely impacts cashflow during an already challenging time for utilities, when many are making losses, some very substantial losses.

Change of tenancy is and always has been a significant source of bad debt, due to customers leaving the property but not notifying the suppliers of their new address or falsely advising the supplier, often through online portals, that there has been a change in occupier. In other countries the debt remains with the property which mitigates this risk and the associated costs of tracing occupiers. So new legislation would make a difference. However, until then collaboration is required to help suppliers mitigate the significant and increasing risk of bad debt arising.

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