Worst of Covid impact ‘yet to come’ for utilities sector

Utilities must take urgent action now to help customers avoid escalating debt or face a crisis, a new report has warned.

Baringa Partners has investigated the potential impact of coronavirus on the sector over the coming months. The report has concluded that if they do not take appropriate action, companies face a three-fold increase in typical bad debt charge (BDC) write-offs which could tip those with low to negative margins into administration.

It makes comparisons with the 2008 financial crash which saw BDC increase by around 200 per cent, with a strong correlation to falls in GDP and unemployment.

The report predicts the fall in GDP due to Covid is expected to be three times worse than the 2008 financial crash and that the industry is only in the early stages of realising the economic impact, with the worst still to come.

Baringa added that, while it understands the reasons most utilities paused debt collection and, in some cases, billing, it believes these actions exacerbated the future risk of debt. It also recognises that regulators have taken actions to deal with some of the immediate challenges, but given the scale of the challenge further measures are likely to be required going forward.

In order to mitigate the effects of debt, Baringa outlines three actions:

• Clear the backlog by proactively targeting pre-Covid debt book challenges:

This involves using analytics to identify key areas of concern for individual customers and help them with their debt.

Companies should deploy multi-skilled “meter-to-cash” customer support teams made up of people who can resolve a number of issues involved with the process of supplying energy.

• Help customers avoid future debt through addressing root cause issues:

This can be achieved by enhancing billing and payment processes and controls and proactively identifying customers that are financially vulnerable. Companies should help customers avoid bad debts through prepayment plans, smart prepay and efficiency advice.

For business customers, companies should proactively and continuously manage credit risk by using data to identify and engage with businesses likely to struggle financially. They should also adopt an end-to-end approach to debt prevention spanning the entire customer journey and support the program with a suite of KPIs to guide management focus across key areas.

• Help customers get out of debt faster:

By improving the effectiveness of collections journeys and using internal and external debt recovery channels, as well as improving options on how customers pay and manage their debt.

Speaking to Utility Week, James Cooper, partner in Baringa’s Energy practice, said the report aimed to strike a balance between the need to help customers and the suppliers themselves.

“It is in everyone’s interest to avoid debt. Suppliers should be taking a proactive approach to avoid their customers falling into debt”, he said.

Cooper added: “Actions could take the form of revising end-to-end collections strategies and proactive interventions to support customers.”

Meanwhile Will Lewis, director in Baringa’s Energy practice, said: “In the utilities sector, we are in the early stages of realising the impact of Covid, and the worst is yet to come. Utilities are particularly affected by the crisis as unlike other industries, they cannot simply stop supplying an essential good.”