In the deregulated utilities industry, organisations have significant pressures to improve margins while combating competitive forces, in addition to the pressures that their regulated cousins experience from the regulators for operational efficiencies.
Revenue losses in the industry are ranging from 1% to over 25% globally, depending on the environment, maturation, and economic forces. The number most often stated is approximately 12%. If your company’s revenue is ~ $100 million, your losses could go as high as $12 million or perhaps even more.1 Now that is significant!
In today’s environment, a loss of this magnitude is the perfect formula for disaster. At deregulated companies stakeholders would retreat, banks would deny credit, and the competition would have a field day. For regulated companies, the regulators would be ‘displeased’ and make life very difficult when a request for a higher tariff is received.
Declining margins are making investors – who are keen to see improvements on return on investments (ROI) from suppliers, distributors, and retail operations – somewhat nervous. A concerted, comprehensive, committed effort must be placed on reducing losses, enhancing efficiencies, and improving stakeholder wealth. Revenue assurance programmes are a structured approach to identifying areas, systems, and methods where losses are being generated. With top level commitment, significant loss reduction is possible and future savings can be realised.
DEFINING REVENUE ASSURANCE
Let’s establish some common definitions for terms associated with revenue assurance. Revenue assurance is any activity an organisation performs to ensure that processes, practices, and procedures result in revenue that is billed and collected completely, accurately and in a timely manner. This involves all areas of the organisation, from customer care and network systems to invoicing and collections and finance, crossing all boundaries.
Figure 1 – Provisioning is the process by which a service is designed, implemented and tracked
Revenue leakage is revenue the company has earned, but has neither billed for nor collected. This revenue is lost. Leakage can be classified as technical or non-technical. Technical losses can be either unavoidable or avoidable. Unavoidable losses are those associated with the distribution of the commodity, usually iron and copper losses within the network system. Unavoidable losses are not segregated from the total loss equation and therefore are unknown, uncorrected and a drain on the optimum efficiency of the distribution system2.
Non-technical losses represent all other losses. These are some of the more significant:
Errors represent multiple troubles with meters. Meter replacement is an open invitation for errors when a newly installed meter cannot be identified by the meter data management organisation and the record is discarded. Problems occur with meters that record higher amounts than the historical recorded usage, causing customer complaints (justified or not). Defective meters or ‘dead’ meters are not recording usage and are therefore effectively providing free energy. Ageing meters may understate or overstate usage.
Tampering is a well-known problem in the industry. From bubble gum to spiders, thieves are very creative in eliminating or reducing the accumulation of usage.
Data-related fraud is falsification or non-reading of meters by individuals. Manual meter reading is an invitation to errors and fraud. A meter reader may simply not read meters, allowing the organisation to estimate month after month, or possibly alter the reading to reduce the kWh. Adjusting or resetting the meter inappropriately is data fraud, allowing free flow of energy.
An illegal connection is where someone illegally taps into the distribution system for free energy3. The extreme danger of such an action should be a key deterrent for individuals, but the safety of the distribution point and potential energy loss to surrounding areas is a great concern for utilities.
CI/B (CUSTOMER INFORMATION/BILLING)
Service Order – From customer care to invoicing, the service order is the driver of the charges. If the service order is incorrect, the bill can never be correct. Some examples of this are:
- Service orders that require manual correction (system design failure) and are queued to error files and are not completed correctly.
- Incorrectly selected tariff/product for customer type.
- Billing was notified of disconnection, but actual disconnection is delayed in the field; billing stops, but energy flow continues.
- Common mistakes causing delays and errors in account profiles, creating incorrect billing.
- Manual processes that create havoc in automated processes.
Provisioning – “The process by which a requested (ordered) service is designed, implemented and tracked.”4
Figure 2 – Third party interface agreements
So, from the service order, we need to design the service, implement the service and track what was done. The losses associated with the provisioning process will come from each of the three phases – design, implement, and track. Some examples of this are:
- Inaccurate provisioning not to designed specifications.
- Order is implemented in the field, and the billing system never gets the data necessary to invoice the customer.
- Manual interventions to automated process.
Load Profiling/Settlement – This process is to provide the generation, distribution, wire service providers/pipes companies, brokers/agents and retailers with a consumption curve for ‘like’ groups of end users for load purposes and settlement estimates of consumption when actual figures are not received at bill cycle.
Data Collection – The activity within the organisation where data is collected, stored, and exchanged for the purpose of billing.
- There is a system failure and the customer data is incorrectly restored, dropped or incomplete.
- Data exchange interface mismatches.
- Data base discrepancies.
Rating/Pricing – The process of applying product and service tariffs to usage, either daily or at bill cycle processing.
• Incorrectly applied rates and tariffs.
• Inappropriate zero-rating.
• Misapplied credits and adjustments.
THIRD PARTY SETTLEMENTS
In the deregulated environment, the monopolistic utility is usually broken up into discrete parts. This arrangement requires third parties to have interfaces, settlement or payments agreements between the parties. Generation companies generate energy/search and capture gas and then sell to the distribution companies; distribution companies transmit the energy or gas to the wires or pipes; wires/pipes provide power to the end user; retailers provide customer care and billing to end users. Between all parties, data is exchanged, invoices generated for services, and payments are sent.
With the multiple parties and data exchanges, inaccuracies and losses are not uncommon, but the situation is compounded by the following:
- Multiple jurisdictions.
- Multiple providers.
- Incompatibilities between data protocols used by various parties.
We have listed situations of revenue leakage. Now, what do we do? An organisation was developed to address the global issue of meter losses – IURPA, the International Utilities Revenue Protection Association.
For the other myriad of reasons why organisations lose revenue, revenue assurance teams are usually developed to address the non-technical losses. When a determination to establish revenue assurance teams is made, several issues must be addressed to ensure success.
- A thorough understanding of the systems involved (customer care, orders, provisioning, load profiling and settlements, rating, and invoicing) is critical to asking the right questions.
- Top executive buy-in. Obviously, a business case is needed to get the support of senior management.
- Cross-functional participation. The team will be looking at multiple areas to perform an effective root cause analysis and to make functional and/or procedural changes based on that analysis. The IT department should be on the team to support the data gathering and analysis requests.
- “Don’t shoot the messenger”. These teams are there to improve the organisation’s financial health. Guidelines must be developed to ensure that the team is empowered to carry out the approved recommendation without retribution.
For years corporations have implemented programmes to improve the bottom line, which may or not have included a structured approach such as revenue assurance. With a comprehensive understanding of all internal processes and systems, and a team of knowledgeable employees, a revenue assurance team can achieve extraordinary results.