Step 9: Assess collection issues

The extent of collection issues (i.e., unpaid bills) should be assessed, and mechanisms should be put in place to address poor cash collections. Collections are crucial from both the utility and customer perspective. From the utility’s perspective, low collections result in lost revenues, are a worry for private investors, and as a result can threaten the financial viability of the sector. From the customers’ perspective, the burden of nonpayment is usually covered by paying utility customers, in the form of excess charges on tariffs in subsequent regulatory periods.

Several methods can be adopted to reduce collection issues:

• penalties can be implemented for non-payment. Importantly, penalties should be greater than the interest rate charged on late payments, so that customers are motivated to pay their energy bills on time;
• implement service disconnections for customers that have unpaid bills that are overdue for longer than a specified threshold. Notably, if the utility issues a notice of pending disconnection of service to the customer, the utility must adhere to the stated deadlines;
• create social tariffs (i.e., reduced rates) for essential services (e.g., hospitals) and low-income customers;
• do not allow for governmental influence for non-paying customers; and/or
• establish pre-payment schemes, where some customers with poor payment history are required to pay for power before they use it.

Collection also relies on the rule of law and the ability to enforce contracts. If a utility is unable to implement disconnection policies for fear of the physical safety of its staff, or judges will not enforce collection orders, utilities have limited tools to improve collections.