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When a utility customer's electric service is terminated for non-payment, the unpaid arrears are often never collected by the utility. Service may be put in another individual’s name and the original debtor may become judgment-proof. In some cases, the customer may file bankruptcy, wipe out the arrearage, and start over with a "clean slate". A well-designed customer arrearage management program can avoid the costs of delinquent customer payments to utilities - such as costs related to collections and customer shut-offs - as well as provide customers with additional advantages and tools to assist them in making future payments to the utility.
Arrearage management program participants are utility customers who have fallen behind on their utility charges. In many cases, without intervention, the customer will continue to fall behind and will find it difficult to keep current and make payments toward past overdue bills. When customers do not pay their utility bills and accrue an increasing amount of back-payments due, utilities often end up writing off these unpaid amounts simply as a part of doing business.
From a utility perspective, poorly managed customer arrearages result in bad debt, negatively impacting the overall costs of doing business for the utility. As such, utilities generally aim to minimize bad debt as much as possible.
BALANCING COSTS AND BENEFITS OF ARREARAGE MANAGEMENT PROGRAMS
Utility rates for all customers are affected by a utility’s collection costs and bad debt. The higher the costs associated with utility collections, the higher the rates. Arrearage management programs reduce utility collection costs, site visits, and other disconnection costs. When a utility customer is enrolled in an arrearage management program, there are no disconnection costs to the utility, there is no need for a site visit, and other forms of collection costs are avoided. Well-designed customer arrearage management programs enable arrearage cost savings to offset the overall utility program’s administrative costs as well as the costs to the utility of writing off customer bill arrearages they are unlikely to collect and write off as "bad debt".
Customers in arrears on their utility bills are likely to have other debts. In many cases the customer will not have enough income to make required payments on all of their household bills. In these situations, utilities are competing for payment with other creditors. These other creditors hire debt collectors to convince the consumer to make other bill payments ahead of utility payments. As such, customers may pay off these other creditors ahead of their utility bill. Participation in a well-designed arrearage management program gives the customer a financial incentive to make utility payments that may be enough to restore the utility bill by making utility bill payments a higher priority debt in the utility customer’s mind.
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