“Are you sure this electricity bill is correct?” A common question raised in the energy industry. What can energy companies do to avoid hearing it so often?
First, let’s consider the current state of play. The speed with which multiple factors are impacting business models and processes of incumbent and even recent-entry electricity and gas suppliers, is increasing. Most of the larger corporations are not yet adapted to deal with the initial changes introduced by governments and regulating bodies.
The break-up of the value chain is still being implemented, plus distributed production and storage of energy, digitalisation and the changing means of transportation usage, are all factors forcing companies to reinvent their business.
As margins are already under pressure, or are shifted to one layer in the value chain, not getting business processes right becomes an even more costly business. Another downside is that mistakes become visible through reduced revenues, profits (regulators issue heavy fines when it comes to electricity suppliers who incorrectly bill their customers) and customer bases.
This is the reality of the sector. Energy suppliers have hundreds of thousands, if not millions, of customers who have their contracted services delivered with the help of procedures and software systems. As millions of transactions take place every month, generated from millions of customer contracts with multiple tariff plans and taxes applied to each transaction, you can imagine the complexity involved.
To give you an idea… Are all registered customers being billed? Are they billed per their usage? Are they billed the correct tariff? Are bills sent to customers that switched to another supplier? Are the correct taxes included? And the list goes on.
Unfortunately, it is near impossible to verify the accuracy of every individual bill sent to consumers. Periodic audits on processes and systems are helping companies to avoid errors, but they are not watertight; they are done once a while and cover only a percentage of all transactions.
It is estimated that consequently electricity utilities lose between 1% to 5% of their revenues due to systemic and procedural errors. Currently, the only way to find out if each bill is accurate is to verify the entire process on an individual level for all customers and transactions. That is a difficult task when you have four million invoices going out every month!
Consider this potential error: an electricity customer contract shows that the tariff of 19 cents per kWh consumed applies to electricity consumed from 06:00 to 09:30 during working days. From 09:30 to 16:30, the tariff is 10 cents. From 16:30 to 21:00 the tariff is 19 cents per kWh. From 21:00 hours onwards to 06:00, the tariff drops to 10 cents again. At the end of the month, a bill is sent: 1863 kWh used at 10 cents per kWh, totalling €186.30.
In fact, 1197 kWh was spent at 19 cents and 666 kWh at 10 cents. The utility company under-billed to the value of €107.73. This translates to 37% in lost revenue.
Will the customer will notice the error? And if he does, how likely is it that he would call the utility company to pay the difference?
In our example, a meter reads the consumption of electricity in kWh and sends data to meter-reading software located at the utility company. This software is integrated with CRM software, where the customer contract conditions are stored.
The usage data is related to the customer’s contract and sent to the billing system where the calculations for the invoice are done. It is at that point that an integration error with the CRM software determines that all usage is attributed to the lowest tariff, the 10 cents per kWh rate.
Relevant taxes are then applied and the bill is sent to the customer. A registry of the invoice is sent to the collection system, which will follow up on the payment by the customer. No error is detected at the utility company although it loses revenue every month it bills the customer.
So, how can companies avoid this costly error?
The good news is that there is a solution out there now that can rise to the challenge. Our System and Process Assurance solution (SPA) allows companies to easily check each invoice amount is correct before the final bill is sent to the customer.
It works by loading specific raw and unprocessed data from each individual system into its own independent database. Relevant business rules are then applied, basically simulating a customer situation, with real data.
Using our previous example to explain: the data of the meter reading software shows usage in the 19 and 10 cents tariff periods of the day. The SPA solution compares that data with the data in the invoice and notices if there is an inconsistency.
If there is a problem, it generates an alarm, seen by an analyst who will research the cause and an improvement process can be set in place to avoid the situation in the future. The system also provides indications as to where the error comes from and whether it is process, system or human related.
As the assurance process is run before the bill is sent, the error will not be seen by the customer and the company will not lose money on an incorrect bill. Interestingly, we’ve found that on average, companies that have implemented an SPA solution have seen a return on their investment within a single year.
The below diagram shows how the assurance process is performed:
The traditional business process includes the step 1 to 4:
- Periodic reading of the meter is performed
- Contracted tariffs, discounts and payment conditions are applied in the CRM
- The usage related to the customer is billed accordingly
- The money the customer should pay is collected
Let’s consider the customer’s perspective: service optimisation and back office efficiency are key to achieving happy customers. They are also key to optimising costs of sales.
In our earlier example, bearing in mind that the billing amount was incorrect, had the customer noticed, his perception of the company may have been lowered. Even though the customer was not over charged (rather charged too little), he may have been left thinking that the energy company isn’t professional since they can’t get their sums right.
Worse, imagine if the error was flipped and the customer had been over charged? Either the customer would have been making some angry phone calls or might have cut his losses and switched to another supplier.
Applying the SPA process means that the service delivered to the customer is professional, accurate and of a high standard, resulting in a positive perception and a happy customer. From a company’s point of view, maintaining good customer experience is what pays the bills… no pun intended!
Getting the back-office running smoothly with an SPA solution allows companies the valuable opportunity to make timely changes to avoid process defects which cause losses. This method allows tight control over costs, revenues and therefore, profits. Happy customers and happy companies.
If you’d like to talk to us about how this solution could help you, please get in touch.