Prepay: power to the people?

By Noah Solomon, Senior Research Analyst –

To right the perceived wrongs of the universe, Avengers: Infinity War sees Thanos the Mad Titan seeking the Infinity Stones, the first being the Power Stone, in an attempt to gain control over his and others’ destiny. In the same fashion, utility customers seek greater control over their own utility bills and usage. One way customers find power in this regard is utility prepay programs.

Similar to prepaid cell phones, prepay programs allow customers to add funds to their balances, which then go toward electricity usage. When the balance gets low, the customer is alerted so they can add more funds and avoid an electricity shutoff. Prepay programs offer customers more control over their bills, choosing when and how much to add to their balance. This promotes greater understanding of power usage and its costs, and thus prepay participants often wind up using less power overall, as well as avoiding surprises on their bills.

On the utility side, prepay offers a new avenue for recouping outstanding balances from customers, applying a percentage of prepaid customer payments to any debt and the rest to the prepay account balance. From 2014-2016 through a prepay program, Georgia Power was able to recover $1.7 million in old debt (member login required). Utilities can also save on notification and billing costs, as information is no longer sent on a regular basis.

Not all effects of prepay are positive, however, and there are concerns. Depending on the rate structure a utility offers, its customers might wind up paying more on a prepay program. Additionally, Chartwell research finds prepay programs are most popular with low-income customers, a demographic most heavily impacted by electricity shutoffs, which can happen more easily as some prepay programs require waiving certain notification and/or disconnection notice requirements.

Ultimately, prepay programs are well-liked by customers enrolled in them, and Chartwell’s 2017 Residential Consumer Survey found 16% of utility customers are interested in prepay, while only 9% of customers are enrolled in a program, providing a clear opportunity for program expansion and creation. For more information on prepay programs, mark your calendars for Chartwell’s webinar on Prepay Opportunities and Strategies on Aug. 22 at 2 p.m. EST, and please reach out to Chartwell about our Billing and Payment Leadership Council.

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One Response to Prepay: power to the people?

  1. Ted Nolte says:

    Noah,

    Great piece on Pre-pay programs. I sincerely hope that the time is right for more utilities to embrace pre-paid.

    One thing that could benefit the adoption rate is putting a slightly different spin on pre-paid programs. After being involved with Power2Go at Direct Energy back in 2010/2011, there were other benefits that emerged that had far greater beneficial impact to the customer and the utility than just recovering bad debt. When examining customer consumption, we found that pre-paid customers consumed between 12% and 15% less energy than post-paid. Because prepaid customers had more frequent updates about consumption and cost, they made more immediate choices of thermostat settings and when to run energy intensive appliances. It turns out, Pre-paid programs offer far greater energy efficiency opportunities than any formal EE program! One other thing that customers benefited from was a relaxing of credit and disconnection action. We allowed pre-paid customers to run negative balances over weekends and during weather moratoriums. We did this because we knew that their balances would not be excessive and we’d be able to take action long before customers reached the point where they could not pay. That was routinely the problem in the post-paid world. Customers would build balances over time that they could never realistically pay off. That leads to customers playing the “name game” and other payment avoidance tactics that result in bad debt.

    All in all, the customer benefits were eye opening and became the selling point. Trying to tell regulators that the utility will save O&M and bad debt doesn’t win over the consumer advocates since, as you point out, the customers most in favor of pre-paid are the lower income. When put in terms of energy savings and affordability, that story plays much better.

    Thanks for sharing the blog. If you’re interested in discussing this perspective, feel free to reach out.

    Ted Nolte

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