How partnering with customers and enabling the use of new technology can help mitigate debt risk when planning a community heating scheme.

Partnering with residents to manage debt risk

Every community heating scheme needs to pass on all net costs to customers, so any debt risk is down to the delay or failure of residents to pay their bills. With schemes relying on far fewer customers than utilities, individuals that fail to pay can have a significant impact.

There is plenty that can be achieved to mitigate this risk in the design and build stage. That’s why partnering with customers, and the use of the latest technology, is so important.

PAYG

One option is to install pay-as-you-go (PAYG) systems, which, in their new smart format, are proving increasingly popular with customers. With PAYG, there is an In Home Display (IHD) to show residents how much they use and how much money is left in credit. This should be complemented by an annual statement summarising usage over the year. No other billing is involved, and payment can be made by phone as required.

Such meters representing a dramatic improvement on earlier prepayment systems, where customers might have to go to the shop to top up, or need access their meter to check how much credit they have. They give the customer full control over how much is used and paid for. Recent research shows that nearly half of consumers in Great Britain would opt for a prepaid gas and power smart meter, despite only 16% of the population currently having access to one.

Given the opportunity – and the funds – it may be best to install PAYG equipment at the start, because if late payment becomes a problem, talking retrospective action is inevitably more expensive and complicated.

Direct debit

In cases where PAYG is not an option, a direct debit budget scheme can be set up where the resident pays an agreed monthly amount throughout the year.

Normally the amount is reviewed annually, providing schemes with steady and secure income streams. It also ensures there are no sharp or unexpected changes to bills for the customer, which might increase the likelihood of payment problems and the build-up of debt.

There are options to manage district heating cost risks such as fuel price variation, which can help match costs to annual charges. Managing costs longer term also helps limit any upward movement in annual charges, reducing the risk of unexpected rises that customers may have difficulties with.

Smart meters can also operate in debit, as well as PAYG, mode.

Accuracy and control

In all cases, consumption needs to be accurately metered and the resident must be able to control usage and cut expense if required. Clear billing, metering and control avoids confusion over what is being paid for, and encourages careful use, which can be further enhanced by regular communications.

Some heat costs, however, are fixed and not related to the amount of heat used - including plant maintenance, administration and billing. These costs are often referred to as “availability charges” and must be covered by a fixed component of a customer’s bill, although in some cases, the scheme administrator may wish to include them as part of the basic rent, and only use the PAYG for variable charges.

Partnership and cooperation

When payment difficulties do arise, owners should work closely with residents to resolve the issue.

This includes restructuring their payments so that they are manageable and affordable, taking into account a customer's individual circumstances, ability to pay and vulnerability. A heat provider’s responsibilities include provision to vulnerable PAYG residents that might be unable to pay, although the same PAYG systems can help recover that debt over a period of time. There should also be a complaints procedure, and all customers should have access to ombudsman services.

Takeaways:

• Pay-as-you-go systems tackle debt risk head on
• Modern, smart PAYG systems are far more popular, easier to use, and make payments convenient
• Alternatively, direct debit payment schemes help establish long term secure payment
• Cost risks should be managed and absorbed by reviewing direct debit payments on an annual basis
• Accuracy and flexibility of use should be ensured to enable residents to control consumption and expense
• Owners need to work closely with residents to manage payment difficulties when they do arise

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