Financing Cost - Ways to reduce the cost of financing energy delivered to customers
Utilities are in a business where traditionally utility purchases the energy and then supplies it to the customer. Customer energy consumption is measured and at the end of the billing period, a bill is generated and sent to the customer. This means that the utility provides energy to the customer on credit basis and the credit is settled once the payment is received from customer. So the Utility finances the purchase of energy till payment is received. The goes through a cycle of financing peaks on a periodic basis and during cold winters or hot summers the financing peak increases due to increase in energy consumption.
There are multiple ways Utility can try to control the financing peaks, and here are some of them.
1. Billing Sooner - Reducing the time between billing end date and the time bill is generated and sent to the customer.
2. Billing more frequently - Some utilities bill their customers monthly, bi-monthly, quarterly or even half-yearly and yearly. With increasing in number of days in a billing period, the financing cost increases. So billing more frequently would reduce the billing days and thus decrease the financing cost. But there has to be a balance between the reduction in financing cost with the increase in cost due to
a) additional meter reading required to bill
b) sending out additional invoice to customer (material cost and delivery cost)
c) acceptance or opposition from customer to pay frequently
3. Pre-paid billing - This is the best option for utilities. There is absolutely zero financing from the Utility for the energy used. But on the other hand it is customer who is financing the energy for themself.
In this case utility has an option to pass on the benefit to the customer through better rate.
4. Reducing payment time - Trying to get payment as soon as possible.
a) Reduce the payment due date
b) Provide incentives to make payment earlier
c) Provide multiple channels (more online channels) to make payment
d) Take payment in advance, typically implemented for large commercial customers and settlement is done every billing cycle before the new bill is sent out to the customer.