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Universal Service: A Performance-Based Measure for Competitive Industry

Fortnightly Magazine - June 15 1998

company as well, which loses future revenue and incurs disconnect costs.

This score is calculated by dividing residential service terminations by the number of residential customers. The termination practices among companies are compared without regard to differences in company size by comparing a specified period with the base period. For matching its base level, the company matches receives a score of 5. For each 0.10-percent divergence from the base, it receives a plus or minus rating of 1 on a 10-point scale.

PAYMENT PLAN SUCCESS. Unsuccessful completion of deferred payment plans imposes a social cost on the household and a business cost on utilities by requiring renegotiation or other credit and collection measures.

This score is calculated by dividing the number of plans completed without renegotiation or disconnection by total number of deferred payment plans in a given period. This figure is compared with success rate in a base period. For matching its base level, the company receives a score of 5. For each 4-percent divergence from the base, it receives a plus or minus rating of 1 on a 10-point scale.

MONEY AT RISK. This index provides insight into the total financial exposure for a utility due to nonpayment of bills. Collectability rates of 95 percent and more should be expected for current bills; arrears older than 60-days drop sharply.

This score is calculated by adding total dollars in arrears, including those subject to deferred payment plans. This figure is compared with the base period. If the two sums are the same, the index is 1.0. (If the base year is 100 and the study year is 110, for example, the index is 1.10.) For matching its base level, the company receives a score of 5. For each 0.2 percent divergence from base, the company receives a plus or minus rating of 1 on a 10-point scale.

CUSTOMERS IN ARREARS. A utility should be able either to collect past-due bills or negotiate a reasonable deferred payment agreement with the defaulting customer. Households that are in arrears and not on a payment agreement represent a serious risk of loss to a utility. By entering a deferred payment plan, the customer's risk of service loss lessens.

This score is calculated by dividing the total number of residential customers in arrears (but not subject to payment plans) by the total number of residential customers. This component compares the annual performance of a specific company to the average "customers in arrears" rate for a base period. For matching its base level, the company receives a score of 5. For each 2 percent divergence from base, it receives a plus or minus rating of 1 on a 10-point scale.

WEIGHTED ARREARS. This index indicates the extent to which a customer's service is in jeopardy because of nonpayment. However, since it can be misleading because of differences in bill sizes, a weighted statistic is calculated.

This score, also known as a Bills Behind statistic,* is calculated by dividing the total residential monthly arrears not subject to payment agreements by the average residential monthly bill.

This score compares