An ISO 9000 certifiable Revenue Assurance &Audit process (RA&AP)

1. An ISO 9000 certifiable Revenue Assurance &Audit process (RA&AP) Rui Mano Manager/Principal Consultant, KEMA Brazil Denis Maciel Maia CEO, Choice Technologies S.A. Renato Cespedes, PhD Director, KEMA Latin America

2. Introduction • Why RAAP (Revenue Assurance & Audit Process)? • Non-technical losses (NTLs) may exceed 20% in some countries • Lack of efficient NTLs processes • Loss numbers are not precise

3. Introduction • Lack of human and financial resources to perform all necessary actions • Field investigation, service orders • Debt negociation, consumer disconnection • Internal process auditing

4. Non-technical Losses - NTL • Energy theft (illegal connections) • Meter frauds, meter by-passes • Meter errors & metering errors • Frauds may be done by employees or third-party service providers Commercial Administrative Receivables

5. NTL • Internal process flaws and database inconsistencies • Errors • Incorrect tariff • May not avoid internal fraud Commercial Administrative Receivables

6. NTL : • Delayed Payment • Defaulter consumer • High volume & aging of receivable accounts • HIGH CO$T Commercial Administrative Receivables

7. NTL consequences – a vicious circle Reduce EBITDA • NTL reduce EVA • NTL may increase tariffs • NTL prevention is demanded byStockholders and Regulators Reduce CAPEX Reduce Investment Capacity and Operational Efficiency

8. Current NTL prevention methods New meters New billing systems • Why NTL keep rising? • Frauds are dynamic • Fraud is now a criminal activity done by professionals • How far can we ever avoid fraud? What else ? New seals More investigation teams

9. Revenue assurance process requirements Efficient process, integrated to other company’s departments Revenue Assurance Process Operational Resources are Limited Market Requires: R, C - Reduce tariffs SH - Increase revenue Historical data, Team knowledge Field / administrative actions

10. RAAP Process is based on ISO 9001 (PDCA ) Detect, Analyze, Correct and Feedback/Review

11. RAAP

12. Why automate processes ? • Make better decisions based in high volume of data available in different databases • Provide reliable information to field / administrative teams and to management • Log / document / control all eventsWorkflow • Constant improvement by tuning / optimizationFeedback

13. Macro-function : DETECTION • Function : to develop investigation rules • Transform non-structured knowledge in logical rules, formed by logical clauses • Compare several independent information sources simultaneously • Rule = a combination of logical clauses and filters • Examples : • Rule for reduction of consumption • Rule for investigating non-regularities in installations • Rule for verification of field measurements (against historial data) • Ex.: Rule A = (Clause 1) AND ((Clause 2) OR (Clause 3)) • Manipulate high volumes of historical information

14. Macro-function : DETECTION

15. Macro-function : DETECTION • Functions : to develop alarms, execute investigation rules and check the alarm rules • Define weight for each rule • Define alarms for each rule • Define priority levels • Define responsible persons • Send alarm via e-mail • Guarantee analysis events are generated

16. Macro-function : ANALYSIS • Function : to identify behavior patterns for consumer contracts • Find out indications of possible loss/fraud through multiple dimensions (consumption patterns, field data, type of service order, etc) • Filter information by any dimension (geographical area, type of consumer, etc.) • Multidimensional analysis • Filter hierarchical dimensions • Uncover behavior patterns

17. Macro-function : ANALYSIS • Function : to develop and execute investigation profiles • Profile = a combination of investigation rules and filters • Examples : • Profile of consumers that are susceptible of paying their debt in 90 days or a profile of defaulter above 360 days • Profile of a geographical area or a specific type of business (for example, a shopping center, a bakery, an industry) • Ex.: Profile A = (Rule 1) AND ((Rule 2) OR (Rule 3))

18. Macro-function : ANALYSIS • Function : to filter, sort and select Consumer Contracts • Select consumer contract sorted by : • Risk level = sum of the weights for all intercepted rules • Financial relevance = financial impact calculated for the offense • Prioritize offenses / actions by fraud probability and expected value to be recovered

19. Macro-function : ANALYSIS

20. Macro-function : CORRECTION • Functions : • Generate corrective actions with defined responsibles, and calculated financial relevance • Follow-up execution until finalized • Follow-up schedules per actions, per responsible, per sector, per type of action • Update Consumer Contract status though corrective actions • Provide information to other systems (billing, inspection..) • Statistics – effectiveness of rules and corrective actions • Feedback – tuning / optimization of rules / weights

21. Benefits of ISO 9000 certification • Guarantee the conformity with international standards • Guarantee the adequacy with other corporate processes • Guarantee to Stockholders that best practices for revenue assurance are being applied and return of investment is being maximized • RAAP is based on ISO 9000 principles – certifiable process.

22. Case Study

23. Case Study • The Cataguazes-Leopoldina System (SCL) • 5 distribution companies (Energipe, Saelpa, CELB, CENF, Cataguazes) • Founded in 1905 • 1.8 million consumers • ABRADEE Award 2002 NorthEast and SouthEast • ABRADEE – the Brazilian Association for Electric Energy Distribution Companies

24. Information used by RAAP in SCL • Information sources (databases) for commercial loss investigation : • Substations • Feeders • Consumer Contracts • Billing • Service orders

25. Example of a simple rule BILLING database (Consumption: Average of last 03 months is 25% lower than at least 02 consumptions in the 12 months period before the 03-months considered period.

26. Example of a more sophisticated rule COMSUMER database Group: B and Status: Connected and Class: Urban and Connection: One-phase or 2-phase or 3-phase AND G 1 AND SERVICE ORDERS database (Non-regularity: Glass of meter is broken or instalation is suspect of fraud or meter with wrong connection AND NOT Service Order : reconnection with instalation of meter, or supply suspended with meter removed, or instalation of meter, or removal of meter, or meter test, or meter verification, or field inspection, or urgent reconnection with meter instalation or meter replacement when SO date is after date of metering.) (G 3 AND G4)

27. Example of an actual rule created by RAAP COMSUMER database Group: B and Status: Connected and Class: Urban and Connection: Monophase or 2-phase or 3-phase AND G 1 AND (Consumption: Average of last 03 months is 25% lower than at least 02 consumptions in the 12 months period before the 03-months considered period OR BILLING database (G 2 OR (Non-regularity: Glass of meter is broken or instalation is suspect of fraud or meter with wrong connection AND NOT Service Order : reconnection with instalation of meter, or supply suspended with meter removed, or instalation of meter, or removal of meter, or meter test, or meter verification, or field inspection, or urgent reconnection with meter instalation or meter replacement when SO date is after date of metering.)) (G 3 AND G4)) SERVICE ORDERS database

28. Rule implemented by RAAP

29. Results in SCL • Results of RAAP in SCL : • Find NTL, uncover unknown NTL • Increase recovered revenue, EBITDA and EVA • Reduce cost of recovery actions • Creation of a Loss Fight Intelligence Dept. to reduce NTL and keep it low • Auditable result statistics to demonstrate benefits to Management and Stockholders.

30. Conclusion

31. Benefits from incorporating RAAP with Revenue Assurance software • Compare data from several independent sources (consumer records, billing, service orders, fraud records, energy balance, GIS, real-time data, call center data, receivable accounts, social-economic information, etc) • Manipulate large volume of data (hundreds of millions records) • Transform human non-structured knowledge in structured knowledge – build a knowledge database • NTL analysts build / edit rules - human-friendly interface, no programming necessary.

32. Benefits from incorporating RAAP with Revenue Assurance software • Uncover fraud patterns • Optimization of the investigation process • Follow-up corrective actions • Workflow guarantees analysis and correction events • Feedback process for tuning and optimization • Integration with other departments • Based on ISO 9000 – subject to be certified. • SOUND RESULTS – VERIFIABLE AND AUDITABLE