Payments Blog

Supporting vulnerable utility customers

March 17, 2017

Best practice in supporting vulnerable utility customers and reducing bad debit was shared at Utility Week’s Consumer Debt Conference

Figures from Ofwat, the water regulator, show that bad debt within the water market has risen 17% in four years between 2010 and 2014 – that’s equivalent to adding £21 a year on every water bill in England and Wales.

And with Universal Credit reducing the support for low-income families, the theme of supporting vulnerable customers and reducing bad debt had added poignancy. 

This, ahead of changes to the way Ofwat regulates the market and the price review in 2019 (PR19) – demanding further performance commitments from water companies, including around affordability for all and vulnerable customers.  

So what is the sector doing to address vulnerability and bad debt?

There are some really good examples of water companies collaborating to offer low-income households social tariffs. 17 water companies now offer social tariffs, according to Ofwat, with more than 130,000 customers taking these up. Back in 2013, the take-up was just 44,000. However, less than 50% of those eligible have signed up. The idea being that the cost of collecting debt from those that can’t afford their bill in the first place is no good to anyone – not the customer or the utility company.

Instead, supporting customers with a better matched tariff and educating them on usage can see them reduce their bills, use their energy/water efficiently and stay out of debt.

One of the more innovative ways of ensuring take-up of these tariffs – and reducing the administration of assessments – is in evidence in Cambridge. There, the council is working with Cambridge Water to ensure that all those receiving Discretionary Housing Payments for support with housing costs are put onto a social tariff – a reduction of 80% off the tariff.

Thames Water – reducing debt to revenue ratio

Thames Water has reduced its debt to revenue ratio from 3.6% to 3% in a year by reaching customers in debt quicker, through the better use of data and more innovative customer contact channels such as automated phone and SMS text.

It has a direct debit collection rate of 65%. It’s currently moving to smart meters to better manage its water balance and supply, with meter reads being taken automatically every 15 minutes, providing the customer with an up-to-date reading of their usage. Currently two-thirds of its customers are unmeasured, but it plans to roll out meters to all of its customers - a big change for the company moving from payment in advance to paying in arrears. Part of its meter roll out will be meeting each customer and collecting data to assess vulnerability.

Southern Water – reducing water consumption through metering

Southern Water has completed a metering roll-out programme, with 90% of customers now on a meter. As a result, it’s reduced its consumption by 16.5%. 60% of customers are better off, with 40% worse off – and it’s the latter where it’s targeting support for efficient water usage and affordable tariffs.

It’s also working collaboratively with local authorities and housing associations. With Brighton and Hove Council (which has 14,000 properties) it’s working collaboratively to educate tenants on water usage and consumption and seeing if they qualify for a social tariff that will avoid them going into debt. As a number of consumers are both customers of the council and Southern Water, the council’s housing team is able to speak to the tenants to assess whether they are eligible for a social tariff. Generally speaking, it said, if customers have a bill to income ratio of 3% or above they would fall into one of its affordability schemes.

Energy

Ofgem said it was working collaboratively with Ofwat with a view to data sharing to support customers with its head of consumer vulnerability strategy Meghna Tewari adding that Ofgem wants to see a demonstrable effort by all industry participants to support vulnerable consumers and that there was no excuse for not improving standards for the vulnerable.

She added that the number of energy suppliers in the market now stands at 50 and that interestingly research has shown that average debt repayments were higher among customers with small and medium sized energy providers.

One of the measures designed to address consumer vulnerability is the forthcoming prepayment cap from April 1 2017 which Ofgem is responsible for updating every six months. Around 15% of energy consumers are on prepayment meters.

RWE npower says prepayment has helped to reduce energy debt in the sector and with the roll-out of smart meters – providing the ability to switch customers between prepayment and credit mode and making it easier to top-up – this will only help further.