Investor-owned utility prepay initiatives in the United States

Duke Energy seeks green light for prepay pilot

Duke Energy Carolinas has asked State regulators for permission to launch a year-long Pay As You Go trial in South Carolina. If the proposal is approved, the energy company would join a growing number of investor-owned utilities (IOUs) that are exploring using smart meters to give consumers a pay-as-you-go option for their electricity service.

The pilot, which Duke Energy wants to kick off in mid-June, would seek up to 1000 volunteers in parts of Spartanburg and Greenville counties, where there are already high concentrations of smart meters.

According to the utility, the Pay As You Go program would help give customers better control over their consumption and budgets, by raising people’s awareness of how they use electricity and allowing them to decide how much to pay and when in line with their lifestyles and incomes.

Those taking part in the pilot would be able to track their daily consumption and account balances by accessing a web portal from a PC or smartphone, and receive balance alerts by text message, email or automated outbound calls. Pay As You Go customers would be able to recharge their accounts by phone using a credit or debit card, online by electronic check or in person at designated payment locations.

Growing interest from investor-owned utilities

Although there are over 230 smart meter based prepayment programs operating in the US, it has been the electric co-operatives and municipalities rather than the IOUs that have set the early pace.

“Rural electric co-operatives were the early adopters of prepaid,” said Jeff Severs, COO of Exceleron Software, a provider of utility prepaid account management solutions. “But we are now seeing much larger utilities in the municipal and IOU spaces taking interest in deployments.” As well as supporting prepaid program launches for several large municipal utilities, Exceleron is currently working with IOU Westar Energy on its prepay program pilot. Westar is the largest electricity provider in Kansas, serving nearly 700,000 customers.

According to Severs, the IOUs are now looking to leverage the business benefits from their smart grid infrastructure investments and have taken note of the success of prepaid programs in the municipal and co-operative markets, where customer satisfaction scores and energy conservation have increased alongside reductions in bad debts and write-offs.

John Bastian, President of energy billing solutions provider SmartGridCIS, also sees interest from IOUs in prepayment slowly picking up. “Some of this is tied to smart meter deployment, as utilities realize they can enhance their investment by collecting on bad debt,” he explained. Such business benefits can be substantial. For example, Peninsula Light Company, which uses the SmartGridCIS prepaid solution, has recovered 78% of the outstanding debt from customers who enrolled on its prepay program in under two years.

Among the IOUs, SmartGridCIS is deploying its solution with Hawaiian Electric Company, which is carrying out a prepay pilot as part of its broader smart grid investigations. One example of the innovation SmartGridCIS has developed for the trial is the ability to remotely arm the meter before reconnection. “Customers who get reconnected have to arm the meter as a last step before it goes live,” explained Bastian. “As part of our implementation, this will be done via inbound SMS, IVR, mobile app or web portal, so the customer doesn’t physically have to go outside.”

Also trialling prepay with various vendors are Arizona Public Service, Consumers Energy, DTE, NV Energy and Westar Energy.

Investor-owned utility prepay initiatives in the United States
Selected US investor-owned utility prepay initiatives – Source: Prepaid Energy Hub

While the number of IOU prepay trials is steadily picking up, Georgia Power has already moved beyond the pilot stage and into full-scale implementation. The utility launched its prepaid program in October last year and is upbeat about its growth prospects, estimating that around 15% of its customers could shift to prepay within the next five years.

Signs of a substantial, and as yet largely untapped, appetite among Americans for a voluntary prepayment option are evident from the annual consumer surveys conducted by energy consultancy DEFG. The latest survey in 2014 found that 17% of respondents were either “extremely interested” or “very interested” in a prepaid electricity service, with younger people especially open to this payment method.

Regulatory challenges remain

But IOUs wanting to tap into this latent demand will have to convince State utility authorities that offering a prepayment choice is good for consumers as well as for their businesses. In the past, the utility companies have not always had an easy ride in this regard, and several proposed prepay pilots in California, Florida and North Carolina foundered at the request stage.

“Prepay is forcing us to update the rule book to reflect 21st century communications and ways of interacting,” said DEFG’s CEO Jamie Wimberly, explaining that the rules and practices were often promulgated decades ago. “Moreover, it is forcing a question about differentiated service levels for different segments of customers, which runs counter to the historical paradigm of serving everyone the same.” Resistance from consumer advocates voicing concerns that the consumer protection rules are being weakened can also be a real barrier, he added.

But there are some signs that regulators are becoming more open to prepayment. “Many State commissions are beginning to realise the many benefits associated with prepaid programs,” said Severs, “and particularly the benefits for the consumer, such as flexible payments options, no deposit required, 10-12% savings per month as a result of daily updates, and high levels of customer satisfaction.”