Energy diversion is both a crime and a public safety issue that can lead to personal and property damage. And it cuts across classes, individuals, and businesses. Examples run the gamut from industrial or small commercial enterprises that tamper with a meter to cut costs and increase profit margins, to an individual tapping into the power line in reaction to rate hikes or reacting to getting disconnected for non-payment, or some individuals just trying to “game the system.” Though these situations may seem justified to the perpetrators, each is a crime that affects not only the utility but also its customers and shareholders. In the end, all stakeholders pay a price for energy diversion.

Progressive utilities are already tackling this problem head-on by developing the right policies and practices. Revenue protection and energy diversion programs are designed to help utilities recoup lost revenues, keep rates down for customers, and meet regulators’ new demands. Moreover, these programs are designed to strengthen customer-care programs for individuals, families, or businesses requiring special financial assistance.

Addressing the Challenge

More than 60 percent of U.S. energy companies have some type of revenue protection programs in place. Most programs typically respond to leads from customers, employees, and police. The more aggressive utilities employ customer analytics, technology applications, and awareness systems to predict, identify, and confirm instances of tampering.

Utilities can recover anywhere from $4 to $6 for every $1 they invest to recapture stolen or diverted energy – recouping up to an average of $10 to $20 per customer per year.

At the same time, 40 percent of utilities do not have energy diversion programs. Millions of dollars are at risk, and companies are leaving financial and customer benefits on the table. Why? Because the utility industry is conservative by nature and has concerns about the cost-effectiveness of a diversion program, particularly given the low level of write-offs. Moreover, theft is often treated the same way as distribution system losses – obscuring that these significant losses from diverted energy can be reduced.

Creating an Effective Energy Diversion Program

A successful approach to revenue protection is a combination of careful planning, customer policy development, effective processes, access to new tools and best practices, and the ability to put these all together in a holistic manner. In our work with utilities, we have found that the following three characteristics are particularly important to a successful energy diversion program:

• Customer policies are designed to help recover losses and change customer behavior toward meter tampering and energy diversion.
• Processes are in place to leverage internal and external resources effectively.
• The utility strives to build public awareness about the safety, ethical, and criminal aspects of energy theft.

Taking the following concepts into consideration will help further the success of your own energy diversion program to meet the needs of your company, customers, regulators and shareholders.

Key Dimensions of an Energy Diversion Program

Know Your Customers. Utilities have access to a wide set of tools and approaches to get to know their customers – though not all utilities are taking advantage of what’s available. When it comes to credit collection and energy diversion issues, for example, customer demographics, customer past payment history, and the use of customer analytics and sophisticated modeling can help predict potential situations or pinpoint actual cases of energy diversion. Keep in mind, however, that customer demographics alone will not answer all questions.

Educate Your Customers. Through customer newsletters, websites, and other customer outreach channels, you can make customers aware of the energy-diversion problem. Let your customers know about the programs you have in place to protect against it, and what benefits carry over to them when energy theft is kept to a minimum. In addition, let your customers know that you take energy diversion and theft seriously and will take corrective actions as warranted.

Have a process in place to help customers, employees and law enforcement officials alert your company about a suspected case of energy diversion. Such tools as a secure web portal or a confidential 1-800 number will help customers let you know about energy diversion instances they witness. In addition, the utility should have an effective filtration process in place to help protect against overly zealous customers (or ex-spouses) who may have their own issues with other customers or neighbors. So a utility may decide to put aside a tip about an otherwise good customer, but “flag” the account and put it on a “watch list” to see if a second or third call by different parties is received concerning the same energy diversion.

Influence Customer Behavior. Be clear about your company’s policies concerning the consequences of energy theft, such as punitive damage penalties in addition to the actual dollar value of the diverted energy. In addition, let your customers know that stealing energy may result in criminal prosecution, just like shoplifting, car theft, and credit card fraud. Knowing that they will have to pay back more than what they divert (and possibly incur a criminal record) will make some potentially errant companies and individuals seriously consider whether they want to go forward with their actions.

Aid Your Customers. Specially designed energy assistance programs can help eliminate the need for certain customers or individuals to divert energy from your sources. For example, care-share programs designed for lower-income families have proven highly successful in creating a way for these families to meet their payment commitments and reduce the risk of a power cut-off or the safety risks associated with diverting energy. Some companies are developing policies that use punitive damage awards from energy diversion cases to help fund these energy assistance programs.

Consider a Pilot Program. Keep in mind the old saying: “walk before you run.” Before implementing a broad-based energy protection program, consider the value of a pilot program to refine the processes and practices. Define the customer population you want to reach, develop a program specifically to that group, implement the pilot program, measure the results, and identify what areas to improve.

Progress Ahead

As energy prices increase, energy costs are becoming a larger part of a customer’s expense. Consequently, the rate of energy diversion seems to be on the rise. However, regulators, customers, and shareholders will not tolerate this activity any more. Utilities are starting to take this very seriously because their ability to thwart energy diversion can bring in lost revenues and help keep energy costs down for everyone. Given the progress now being made, the adage “out of sight, out of mind” will no longer apply to energy diversion in a few years.

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Copyright 2005 CyberTech, Inc.