Electricity Retail Choice: Pay-As-You-Go Service

Lynne Kiesling

Today’s Wall Street Journal has an excellent article from Rebecca Smith on pay-as-you-go electric service (subscription required).

Mr. Price, a retired computer programmer, drops by the office of his local utility, the Sacramento Municipal Utility District, every six to eight weeks and pays enough to cover a month or two of service. The credit is loaded on a smart card that he uses to download information into his home electric meter. The couple keeps track of the credit balance with the help of a small electronic display, located in the kitchen, which talks to the meter.

On a recent June morning, Mr. Price pushed buttons to see what the display box could tell him about his energy use. It said his 1,650-square-foot stucco home was using nine cents of electricity an hour. The home, built in 1969, had used $1.02 of power so far that day, $2.61 a day earlier and $62.52 the prior month. Most importantly, it said he had enough credit remaining for about 28 days of use. “It tells you things you couldn’t have known before,” Mr. Price says of the box.

A half-dozen utilities are trying prepaid programs now, but that could accelerate quickly if Texas utility regulators approve rules this summer allowing it. Experimentation with prepaid-service meters is part of a broader trend that is changing the electric meter from a dumb recorder of kilowatt hours consumed into a conservation tool capable of helping people monitor their use and which will allow utilities to talk directly to customers.

This service offering illustrates several important points. Notice how the technology makes information about his energy use transparent to him, and it does so in real time, not a month later when the bill arrives. Notice also the connection that Ms. Smith correctly draws between that transparency, individual monitoring of electricity use, and conservation. Having the information in a transparent, advance, easy-to-access form makes it easier for individual customers to control and manage their own electricity use, thus creating the possibility of conservation by making costs transparent and making it easy for people to change their behavior in the face of those costs.

Ms. Smith also accurately points out that one of the barriers to this kind of product differentiation is regulation that purportedly “protects consumers”:

So far, it’s mostly municipal utilities that are offering prepaid service, in part because they do not need approval from state utility commissions to bypass the usual rules governing disconnections.

The “usual rules governing disconnections” prohibit utilities from shutting off service for non-payment during extreme weather seasons. The thing about the prepaid meter service is that the customer voluntarily takes on the responsibility for making sure the account is current, and can receive a service s/he values in return. So how is this archaic regulatory provision protecting that customer? I hope that we are starting to see this “protection” change, albeit slowly.

I had a prepaid meter when I was living in England in 1990, on the bleeding edge of electricity privatization there. At the time I didn’t like it, because I was living in a pretty squalid flat with few creature comforts, and I was a graduate student, so I didn’t have much money anyway. But the nice thing about the prepaid meter was that I could take out the smart card when I was not home, so I knew I was spending the least possible amount on my electricity. That felt empowering, as noted in the WSJ article:

Now, some people are asking for prepaid meters because they can buy electricity in increments as small as $1 or $5 at some 62 kiosks in the Phoenix area. “We think this gives people their dignity back,” says Ms. King. “It gives them more control over their use and payment than they ever had before.”

4 thoughts on “Electricity Retail Choice: Pay-As-You-Go Service

  1. I guess that’s one way to address “energy vampires” like DVD players and recievers that draw significant wattage even when they’re supposedly off. Pull out the smart card when you leave the house, and the vampires are shut down.

    But you’d always be setting the time on all your devices, and god knows how much food you’d spoil in the fridge!

  2. I seem to recall that in several of these programs the rates (per kWh) for prepaid service were higher than the rates for traditional service. Doesn’t that result in people paying more for the right to have the ability shut them off more easily?

    While there are some intriguing aspects of this concept, poor rate design could easily lead to prepaid metering increasing the energy cost burden on low income households.

  3. You would think that pre-paid services would be less expensive, since the utility knows it will be paid. Eliminating the credit-risk should lower the price, since there will be no bad debts with these customers….

    How much are these meters?

  4. Rather than requiring a special meter, utilities are now moving to more advanced “smart” meters that have two-way communication and remote disconnect capability so any meter can function in a prepaid capacity. The meters also provide current use/balance information to the consumer via cell phone, web, etc.

    Our experience has been that prepayment customers purchase electricity 3 times a month on average. Customers then monitor their usage so that they make it until the next payday. It’s not intuitive, but customers end up loving it because it puts them in control (they never receive a bill).

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