Reducing Revenue Leakage

by Penni McLean-Conner

“What keeps you up at night?” Utility executives addressed that question during the invitation-only Executive Summit at the CS Week Conference in May. At the top of their list of concerns was, “How do I reduce revenue leakage?”


Studies on meter-to-cash cycle losses indicate that 80 percent of those losses can be attributed to theft, defective metering and soft shutoff policies.
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Industry experts estimate that on average utilities are losing between 2 percent and 4 percent in revenues in the meter-to-cash cycle. Studies on electric and gas meter-to-cash cycle losses, also referred to as non-technical revenue losses, indicate that 80 percent of these losses can be attributed to theft, defective metering and soft shutoff policies.

Utilities are responding by breaking new ground with technology-based strategies and process re-engineering to reduce losses in these areas. Addressing revenue leakage can be beneficial-at NSTAR, our success with a revenue loss initiative has been impressive. In the first year, we realized a contribution of more than $5 million to revenue, which escalated to $12 million over the three-year period.

Loss from theft

Statistics from the FBI and the International Utility Revenue Protection Association indicate that energy theft is a $6 billion problem anually, just behind theft associated with credit cards and autos.

With the advancement of automated meter reading (AMR), the utility’s traditional approach of identifying potential theft with a meter reader’s visit to the site is becoming obsolete. Data analysis, aided by sophisticated computer programs, is now the best approach to identify theft.

As part of its revenue loss project, NSTAR partnered with a firm that specializes in data analysis that provides leads based on usage patterns and other data. The program was remarkably successful-the hit rate on leads has been 30 percent since the partnership began three years ago.

Reviewing the process by which utilities address theft can pay dividends. At NSTAR, revenue protection billings have increased more than 130 percent, while the cost per case processed has decreased by 25 percent. The improvement is due to leveraging the lead generation partnership and streamlining the process with automated reports, fewer handoffs and triage of theft cases.

Defective metering

Metering equipment that operates appropriately is a foundation for accurate billing. The impact of defective equipment can be mitigated with meter equipment testing, installation and replacement strategies.

At NSTAR, we overhauled our meter installation and verification process to minimize the opportunity for error and a meter test plan was put into place to verify the accuracy of our installed meter base by testing a statistically significant sample of meters.

Utilities may identify a need for meter or equipment replacements. In particular, gas utilities with AMR are facing a replacement decision associated with ERT failures. Studies indicate that ERTs, encoder receiver transmitter devices that relay the meter data to the mobile collector, have a 15-year life with a rapidly escalating failure rate after the 15-year mark. Utilities are modeling failure rates against the installed meter equipment database and structuring planned replacement approaches that are more cost-effective than replacing ERTS one by one as they fail.

Soft shutoffs

Utilities use soft shutoff practices as a customer convenience and as a way to reduce operational costs. With a soft shutoff, when a customer closes an account the utility service remains connected. Obviously, that exposes a utility to revenue leakage for usage incurred between tenants.

Utilities with soft shutoff practices, or those considering them, find that completing an economic analysis of the soft shutoff process is required for good decision-making. An analysis contrasts the costs associated with physical disconnection to the energy losses associated with leaving the service connected. The breakeven point of the two approaches identifies and justifies resource allocation to either move to a soft shutoff approach or more effectively manage a soft shutoff environment.

At NSTAR, a review of our soft shutoff practice indicated that stronger controls and additional resources were needed to cost-effectively manage the system. The analysis indicated that it was cost-effective to physically disconnect all commercial and industrial accounts between tenants. On the residential side, the analysis determined the levels of use or inactivity that were acceptable. From this, control reports were developed that identify at-risk accounts for soft shutoff.

Author

Penni McLean-Conner is the vice president of customer care at NSTAR, Massachusetts’ largest investor-owned electric and gas utility. McLean-Conner, a registered professional engineer, serves on several industry boards of directors, including the CS Conference, the Consortium for Energy Efficiency and the Massachusetts Technology Collaborative. Her first book, “Customer Service: Utility Style,” has been published by PennWell Books.

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