Maximizing Revenue Protection Efficiency: Key Parameters and Strategies

1. Central Revenue Protection Unit David Watson 12th October 2009

2. Introduction • For any Revenue Protection solution to be effective it must • Have access to, and the drivers to use, information to operate proactively, not just reactively. • Have the ability to effectively handle theft once detected. • Have proper and effective incentives to improve performance and provide cost savings. • Properly allocate costs and benefits to the correct places. • Central Revenue Protection Unit (RPU) must be judged against these parameters.

3. Proactivity • We can demonstrate that working reactively is insufficient. • Value detected up 500% in two years following switch to proactive theft detection in 2007. • Remove reliance on “tip-offs”. • This means using supplier held data to drive leads • Payment data, consumption data, meter read cycles, no / refused accesses, customer contact notes, meter error reports, non-purchase reports, AMR data, AQ data etc. • For a Central RPU to work a mechanism will need to be found to provide them with this data. • Duplication of existing supplier databases. • Complexity of managing volume of data across all suppliers. • Data Protection Act concerns?

4. Incentives • Given the need for maximum inputs there is still a need to incentivise the provision of data from suppliers to a Central RPU. • What mechanism will exist to make suppliers collate, interpret and flow the right information? • Case study • Electricity model. Recognition that incentives model required in electricity. • DNOs rely on information provided to them by suppliers but have found that without incentives to provide data, leads have dried up. • Therefore not mutually exclusive with SETS or other incentive scheme.

5. Governance • Governance. • How will they be licensed? • How will they be regulated? • How will their performance be managed by the industry in order to drive future improvements? • Suppliers should be able to opt out and provide their own solution, enforced with incentives. • We as a supplier have (a) the customer relationship and (b) access to all the data we need in order to manage theft. • Mandating this solution would see a reduction in the volume of theft detected on our portfolio. • If mandating it, would supply licence change be required? • Very sensitive area and many will not want to give up control of brand image to third party.

6. Costs • As a “monopoly” service provider, costs will be higher than other solutions. • Lose the benefits derived from competition between RPU providers. • Administering cost recovery looks complicated in this model. • Proper allocation is key to ensure costs and benefits are properly allocated. • Market share? Would not allocate costs correctly. • Results based? Would provide a disincentive to provide leads. • Lessons learnt from electricity show a wide variance in RPU costs showing that it is possible to deliver reductions. • What incentive does this model have to ensure that a national provider would deliver efficiencies?

7. Dual Fuel • The premise that this could provide a complete dual fuel solution is flawed. • How will they disconnect electricity customers? • Only MOP / DNO activity. • Will DNOs retain the benefit of losses detected on their network or would this be provided to suppliers?

8. Change of supplier • Suggested that this would provide a solution for the issue of customers changing supplier. • Without rights of disconnection and reconnection however, this is no better than the status quo. • Regardless of whether Central RPU or supplier pursuing payment, bad debt provision unlikely to be different without disconnection / reconnection rights spanning change of supply. • If the Central RPU takes responsibility for pursuing payment, suppliers may lose objection rights. • How would they handle “found” shipperless customers when appointed by all suppliers?