evaluate. measure. verify.
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 deliquent 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 utilty perspective, poorly managed customer arrearages result in bad debt, negatively impacting the overall costs of doing busines 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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Program administration costs associated with enrollment of customers, program monitoring and evaluation of annual program portfolio adjustments
Utilties calculate a level monthly payment to be made by the program participant for the first year of the program, based upon 1/12th of the estimated utility charges for the coming year. The estimated charges are based on anticipated usage and applicable customer class discount rates.
Under a typical program, after year one the utility adjusts the expected annual charges, factoring in changes in energy prices, changes in fuel assistance program payment amounts, and changes in customer usage. The level monthly charges assessed during the previous period are then deducted from the current annual amount. The remaining amount owed is then divided by the months remaining under the program participant's payment plan.
Costs to entities operating social services and related assistance programs that function in parallel with the uility arrearage management program should be considered. For example, anticipated fuel assistance payments are usually deducted from annual arrearage management program charges before computing the participant's monthly level payment.
Customers participating in arrearage management programs are usually more likely to end up paying their outstanding balance than those who do not participate.
In many cases, there is a greater likelihood that program participants will continue to pay after completing the program.
Arrearage management programs designed to place the customer with other assistance programs further encourages the customer to make utility payments.
Arrearage management programs help utilities to manage and avoid the risk of taking on unnecessary bad debt, as well as the rate increases needed as a result of poor management on the part of the utility. Keeping customers ahead of debt can help utilities to to stay ahead of their overall bottom line, while also preventing the need for the utility to socialize the costs of bad debt onto other customers.