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

2. 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. 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. 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. 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. 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. 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. 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?