Paying it Forward

Future Ready Magazine October, 2015

In a recent National Geographic article,1 two utility customers described their experiences with their prepay electric service plans.

For one customer of Polk-Burnett Cooperative in Wisconsin, the plan turned out to be an effective tool for controlling her energy usage. Another customer in suburban Dallas was not so fortunate. In fact, he was greeted by an unpleasant surprise when his prepay account balance ran low; his power had been unexpectedly cut off on a particularly sweltering summer day.

These examples demonstrate the double edged sword of prepay and its effect on utilities and their customers.

The State of Prepay

Considering the prepaid card market continues to grow—with more players entering every year—the prepay concept appears popular and well understood by most consumers. It follows that it would be a viable payment option to the traditional monthly electric bill. Yet, the U.S. is far behind the rest of the world when it comes to adoption. In fact, fewer than 300 utilities (out of a total of 3,269 providers2) offer prepay. And, of those that do offer, participation generally tracks at less than 10 percent of the population. “One reason is that prepay in the U.S. has not been part of our landscape from day one,” says Brent Welch, Product Manager of Prepaid Solutions at Landis+Gyr. “In the U.K., it’s 15 percent. That’s because in the U.K. they’ve had prepay for electric since the beginning.”

In the U.S. today, utilities that offer prepay as an option to their customers are mostly municipals and cooperatives. According to the Prepaid Energy Hub, the active prepay programs in 34 states (see map) include programs at 170 cooperatives.

Welch predicts prepay adoption rates in the U.S. could reach as high as 10 percent, but it will take more than 10 years and require adoption by some of the larger investor-owned utilities. Why so long? “It all comes down to politics, regulations and consumer advocates,” says Welch.

For example, regulators in New York and Iowa have disallowed prepay programs. In many states, the most vocal opponents of prepay are consumer advocates who consider the programs to be punitive measures. The National Consumer Law Center, a nonprofit that advocates for low-income and disadvantaged consumers, contends that prepay programs are the cause of more frequent service disconnections or interruptions and prepay customers pay higher rates than they would with traditional credit-based service.3 Other groups, such as Sierra Club and the Texas Ratepayers’ Organization to Save Energy, consider prepay to be an issue of economic justice, creating a class of citizens forced to choose between prepaid electricity and no electricity.

Consumer Benefits

Why would a utility customer choose to go the prepay route? “Prepay customers tend to be self-service customers,” Welch says. It’s all part of a trend toward automated self service solutions that enable consumers to answer questions and solve problems on their own. They take ownership of their account, so they’re less likely to contact the utility. “When the lights go out, they take responsibility and they know what to do,” says Welch.

The prepay option offers an attractive solution for consumers in a wide range of circumstances. For some, it lowers the barrier to entry by offering a way to set up utility service without the need to pay a hefty security deposit. For others who have racked up significant energy debt, prepay offers a way to pay it off over time. At Salt River Project (SRP) in Arizona, for example, customers with accounts in arrears can set their former debt aside and allocate a percentage of each payment toward paying down their debt. “Even after their arrears have been paid off, they tend to stay on the prepay program,” says Welch.

Seeing a more direct connection between energy costs and usage, prepay customers also are more engaged with their energy use on a daily basis. As a result, they tend to be more energy efficient than those paying bills after the energy is consumed. It is not uncommon for prepay customers to use 10-15 percent less energy than before they enrolled in a prepay program, showing that awareness does make a difference.

Utility Benefits

It’s not just consumers who benefit from prepay programs. Utilities realize benefits that can improve revenue and cash flow. With the upfront payment and immediate receipt of funds, utilities improve cash flow and are better positioned to manage service costs and make new investments. And, if and when customers leave without notice, the utility is not left with days or weeks of usage they may need to write off.

In addition, when prepay customers are empowered to control their energy usage— and, as a result, their energy costs—customer satisfaction improves. Then, utility staff spends less time dealing with customer service issues. Even with all the benefits prepay offers, most utilities are still not actively promoting these programs, hiding related information in hard-to-find sections on their websites. “Yet, what we see in the industry is, those utilities actively promoting a prepay program have a much higher adoption rate,” says Welch.

Promoting Prepay

So, what can utilities do to promote their prepay programs? As with any other proposition, market segmentation is a critical tool. Millennials, for example, are apt to be much more receptive to the prepay option. A recent survey conducted by TD Bank found that one-third of Americans ages 18-34 have used a reloadable prepaid debit card, compared to one-quarter of Americans overall.4

Older customers, on the other hand, may need more targeted marketing efforts. It’s not just customers dealing with debt who are good prospects. Frequent movers, like college students who move in and out of student housing, are prime candidates because many prepay programs offer lower deposits for new move-ins.

Once customers opt in, utilities can help them benefit from the prepay plans with the many information channels available today. Using data from smart metering, utilities can develop multichannel communication strategies that leverage text messaging, smartphone apps and web portals to provide information that empowers customers to manage their energy consumption.

What’s ahead?

Whether prepay will take off is still an open question. Consumers say they want it. According to a survey of 1,000 consumers by Distributed Energy Financial Group, a management consulting firm specializing in energy, about 17 percent of respondents indicated a high level of interest in prepay options as an “alternative to high security deposits and cumbersome payment arrangements.”5

Yet, consumer advocacy groups continue to represent the biggest hurdle for prepay programs. “It’s going to take education,” says Welch. “Consumer advocacy often fights advanced metering infrastructure because they see it as giving utilities the ability to shut off a customer’s power at any point. They may not be focusing on the control it gives the consumer as well.” Cooperatives remain the likeliest growth segment for prepay, as they encounter fewer regulatory hurdles and respond quickly to trends that can benefit their members. “I think we’ll see the majority of that growth in states where there is not a large barrier to entry,” says Welch.

One thing that would truly move the needle is if the major IOUs entered the market. “The public utility segments and IOUs are watching the situation very carefully right now and are starting to make movements that indicate they are very interested,” says Welch. “Georgia Power just came on. And PG&E is considering prepay. That would be huge.”

According to Welch, much of the new interest in prepay is being driven by the success of the M-Power program at SRP. Landis+Gyr provides SRP with in-home displays that provide real-time data about account balances for its prepay customers, helping them make decisions about their power usage.

As a member of the Prepaid Energy Working Group, Landis+Gyr also works with industry partners to understand the marketplace and help utilities implement strategies for improving acceptance of prepay and streamlining prepay operations.

That’s according to the most recent Consumer Pulse research conducted by the Smart Grid Consumer Collaborative (SGCC). An organization dedicated to, among other things, tracking and advancing awareness of smart grid, SGCC is also taking steps to improve the situation. Its most recent effort is “Next Innovation,” an infographic that illustrates smart grid and smart meters as the next innovation for homes and society. The infographic is designed to be used by utilities as a creative and educational tool for bringing the smart grid story to their customers.2

The SGCC continues to refine a consumer value proposition focusing on the economic, environmental and reliability benefits consumers receive from intelligent grid infrastructure. The goal is to provide utilities with effective messages that answer the “what’s in it for me?” question from the average consumer.

According to SGCC Executive Director Patty Durand, the infographic is just one example of the SGCC’s efforts to educate consumers on the direct benefits of smart grid. Once they understand what smart grid is all about, she contends, they’ll gain interest to engage and take advantage of new technologies to lower energy costs and contribute to a cleaner environment.

Focus on Education

Despite low awareness of “smart grid,” the number of consumers realizing its benefits grows every day. At the same time, utilities acknowledge the need to move away from their traditional, one-way customer relationships and leverage digital media platforms to build closer, two-way relationships that are critical in today’s competitive marketplace.

When it comes to educating consumers about smart grid, a number of organizations are taking action. For example, the consumer website managed by SGCC whatissmartgrid.org is filled with information, including learning tools for children, parents and teachers, videos, white papers and many other resources designed to communicate how consumers can participate in the benefits of smart grid.

The Smart Grid Customer Education Symposium is an annual event that brings together industry leaders to share best practices in smart grid customer education. The Trustworthy Cyber Infrastructure for the Power Grid (TGICP), a program at the University of Illinois, is dedicated to smart grid education and engagement. These are just a few of the initiatives moving the needle in raising smart grid awareness. Landis+Gyr understands the importance of providing utilities with tools for increasing consumer engagement and awareness.

The commitment is ongoing to further automate and fine-tune the processes and decision-making required for utilities to deliver the best customer service.

Footnotes

1 “Prepay plans for electricity offer alternative to the usual monthly power bill,” National Geographic, June 6, 2014. Find at: http://news.nationalgeographic.com/news/energy/2014/06/140604-pre-paidelectricity-billing-plans-help-or-hurt-consumers/

2 U.S. electric utility industry statistics, American Public Power Association. https://www.publicpower.org/files/PDFs/NumberofElectricProvidersCustomers.pdf

3 “Rethinking prepaid utility service,” National Consumer Law Center,
2012.

4 “Millennials give prepaid debit cards a boost,” CNBC, April 6, 2015. Find
at: http://www.cnbc.com/2015/04/06/prepaid-debit-cards-on-rise-thanksto-millennials.html

5 “Survey: Customers want prepaid utility options,” Utility Dive, April 6,
2015. Find at: http://www.utilitydive.com/news/survey-customers-wantprepaid-utility-options/383216/