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Is it time for more U.S. utilities to embrace prepaid metering?

CRAIGBIALYThis author no longer works for DNV GL.

What comes to mind when you here the term “prepaid metering?” Let me guess… It’s a good way to:

    • Limit the bad debt caused by credit-challenged low-income customers
    • Limit the write-offs caused by energy theft
    • Limit utility employees’ exposure to the dangers of having to deal with customers in “bad” neighborhood

Right?

No wonder it’s a concept that is not wholeheartedly embraced by utilities in the United States. The negative stigma that has been attached to it has prevented numerous utilities, concerned with customer and regulator perceptions, from implementing such programs. No one can deny that utilities are not noted for being early adopters. Typically, their regulatory structures do not incent them to be proactive or innovative. Many have grown used to writing off the bad debt attributable to uncollectables and theft of energy through rate case filings.

Since their inception, utilities have operated under a one way transaction-based model, where they produce (or purchase through wholesale contracts) energy, add the appropriate margin, and sell to consumers. Like oranges, gasoline and cigarettes—the more you sell, the more profit you make. With their in-home displays, web portals, and smart phone apps, prepaid metering programs offer consumers the opportunity to interactively monitor and manage their energy consumption—which has proven to lead to reduced energy consumption. The new reality of the energy landscape necessitates that the utility model must migrate to an interactive and collaborative relationship with consumers (and prosumers). There is already more than enough discussion about this subject for me to have to dive into the topic. The energy conservation inherent to prepaid metering did not create the problem—it is simply another example of the need for utilities to adapt to the realities of the 21st century energy world… if they are to survive.

The April 2, 2014 Fierce Energy article, “The power of prepay,” points out that a significant portion of many utilities’ residential customers do not have bank accounts. Given the existing advanced metering infrastructure (AMI) infrastructure at many utilities—which allows more real-time connectivity with customers—how valuable are tailorable programs that would enable these utilities to better serve portions of their customer base who previously did not feel “connected” to their utility in a positive way (e.g., paying their bill by waiting on a line in a post office or utility office)?  The article states: “Other providers of services, such as banks, cell phones, cable television, Internet, have understood for a while that offering comprehensive services through communication and social media breeds loyalty. Customers expect nothing less from their utility.”

Salt River Project (SRP)—the third largest public power utility in the US and recipient of the highest numerical score among large utilities in the West region in the proprietary J.D. Power 2002-2013 Electric Residential Customer Satisfaction StudiesSM—has extensive experience with prepaid metering. As early as 2008, SRP reported that their “M-Power” prepaid metering program was a huge success. Introduced in 2000 (prior to AMI) as a voluntary program targeted at credit-challenged customers, the program proved wildly popular with all demographics of residential customers, who viewed it as an excellent budgeting tool that allowed them to become more involved with the energy management process.

Yes, prepaid metering helps reduce bad debt. Yes, it combats revenue losses caused by theft of service. Yes, it helps keep employees out of harm’s way. But it also fosters customer engagement, helps support AMI and Smart Grid business cases, provides customer convenience, and ultimately reduces costs and breeds customer loyalty.  What’s so negative about that?

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