Gas and Electricity prices in the UK reached historically high levels during 2022 as a result of numerous factors, including increases in demand due to a post Covid recovery in the economy, risk of a cold winter (which has an impact on gas demand as gas is used for heating the majority of UK homes), a lack of gas storage capabilities, high demand in Asia for Liquified Natural Gas (LNG) and most recently the war in the Ukraine which has resulted in Russia dramatically cutting its supply of gas to Europe.
This gas price crisis has also impacted Electricity prices as UK market mechanisms were designed to emulate theoretical supply demand models. This means that in the wholesale and balancing markets the most expensive marginal cost of energy sets the whole market price and currently (despite the fact gas fired generation accounts for only 40% of energy) the gas fired units set the marginal market price at a very high level.
The UK government proposes to split the markets (fossil / non fossil) to remove this effect but this won’t provide an instant fix. Despite government assistance energy retail prices remain very high. Water prices in the UK have not been affected so significantly, but the cost-of-living crisis in the UK that has been driven by higher energy and food prices has resulted in historically high levels of debt within the sector.
Debt collection in the UK is also hampered by the fact that domestic water consumers cannot be disconnected, so the water bill is often the first utility bill that customers choose not to pay. As the level of indebtedness has risen many Suppliers are managing customer support schemes designed to help economically vulnerable consumers. As a consequence of all these factors, bad debt and debt management costs have become a very significant element of Energy & Water Retailers’v “cost to serve”.
It is often difficult to distinguish between the consumers who genuinely “can’t pay” because of financial hardship and those who choose not to pay for another reason – the “wont pays”. Many utilities are overly cautious in developing their debt collection strategies for the “wont pays” due to their fear of attracting bad publicity or raising the level of complaints as Retailers are measured by the volume of complaints received. These fears are amplified by a UK press that loves to publish stories about big corporations persecuting helpless customers without good cause.
Traditional approaches to debt collection often adopt a one size fits all approach rather than developing a segmented approach which takes into account a customer’s payment history and their current circumstances.
Within the Energy Markets the increasing penetration of smart metering offers suppliers a simpler process for switching consumers to pre-payment tariffs that are able to recover outstanding debts over time, whereas this is not an option for domestic water consumers.
Both Energy and Water Suppliers need to be able to optimise the management of debt collection and financial support provision to minimise the impacts of debt on their business performance.
Energy & Water Retailers can radically improve their ability to manage debt by adopting the MECOMS365/Dynamics 365 Platform to support their business operations.
This state-of-the-art ERP based solution can help you optimise the management of debt collection and financial support provision to minimise the impacts of debt on your business performance by:
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