The New Age of Arrears Forgiveness Programs

Progressive utilities are implementing innovative strategies

High energy prices combined with a sluggish economy are putting increased pressure on customers already struggling to pay their bills. Progressive utilities have responded by implementing new strategies to proactively address arrears, including innovative arrears forgiveness programs combined with rate design.

Successful arrears forgiveness programs are designed to target customers who, with the right training, assistance and support, can move from needing some sort of assistance to self-sufficiency. These programs are comprehensive and cost-effective, offering budget counseling, payment plans, arrears forgiveness, energy efficiency and links to other financial grants and assistance. Customers benefit from a reduction in their electric and/or gas bill arrearage, with the ultimate goal of independently managing bill payments more effectively.

In the new age of arrears forgiveness programs, key structural components include customer qualification, adminis-tration, procedures, quality assurance, evaluation and rate design.

Customer Qualification

Successful models clearly define customer qualifications so that administrators can efficiently screen candidates. Customers may be required to agree to budget counseling, take advantage of energy efficiency programs, have some minimum amount in arrears, and qualify for a discount rate.

Administration

Utilities may administer a program themselves, but many are turning over administration to the social service experts at low income agencies. This approach provides one-stop shopping for the customer. A good administrator will screen qualified candidates for the program, ensure that the customer takes advantage of energy efficiency programs to reduce ongoing usage, provide budget counseling, and link the customer with other applicable assistance or grants.

Procedures

Best practice in arrears forgiveness is to reward good behavior. Customers are given arrears credits each time they make a payment on the account. These programs also offer frequent communications and reminders to customers on their status and payment commitments.

Quality Assurance

Providing training and support to agencies and administrators is a critical step to ensuring a quality program. Training should include customer qualifications, process and procedures. The utility will provide reports and regularly review the program performance with administrators to identify improvement areas.

Evaluation

The evaluation confirms the value of the program to the customer and utility. It looks at the program design and implementation, and includes surveys with the agencies and customer along with review of customer utility records on arrearage and recovery of write-off.

Rate Design

Utilities working collaboratively with low income advocates are designing rates that are positive for both the credit-challenged customers and the utility. For eligible customers, these low income rates are generally a discount below normal rates. This discount is then typically recovered from all other customers. In some states, such as West Virginia, the discount is paid from the state’s general funds. In other states, when the discount is paid by the other customers, there have been discussions about identifying the amount paid so that other customers could classify it as a tax paid, and then use it as a tax deduction.

Benefits of Debt Forgiveness Programs

Programs that incent customers to improve their credit managing ability by rewarding them with debt forgiveness are relatively uncommon. Recovery of these costs net of benefits the utility derives is made in the same manner as the low income discount. While the costs of the debt forgiveness and incremental administrative costs are easy to identify, tangential benefits, such as having a creditworthy customer in the future or reducing the debt forgiveness for debt that would have been written off in the absence of the program, are much harder to identify and must, in many cases, depend on several years of experience.

NSTAR recently revamped its arrears forgiveness program to this comprehensive approach. While too early to complete the economic analysis, the results are very positive. Participating customers are consistently meeting their payment promises, and the feedback on the program has been tremendous. For customers, this comprehensive approach helps them achieve self-sufficiency. For the utility, this approach avoids costly field work and can result in reduced write-offs. The new age of arrears forgiveness is truly a win-win for customers and the utility.

For more on this topic, read “Affordable Service and Utility Profit: Doing Well by Doing Good in the Utility Industry,” by Jerrold Oppenheim, counsel to the Massachusetts Low-Income Energy Affordability Network, McLean-Conner and others, which will be published online at elp.com, on Oct. 9.

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 CIS 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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