Why do customers want to prepay for electric power service?

Michael Giberson

Why would a customer want to prepay for his or her electric power service? A summary by Oracle, from a white paper describing how smart meters can enable prepaid power plans, says:

Prepayment is especially popular with customers who:

  • Have difficulty coming up with money for all the deposits typically required to rent a new apartment.
  • Room with others and want to ensure that no one moves out without paying a fair share of the utility bill.
  • Are on their own for the first time and who have no idea how much utilities will cost.
  • Need to win the cooperation of children in reducing energy budgets. Children may be far more responsive to an in-home display showing little television time remaining than they are to parental admonitions to turn off unneeded lights.
  • Need to ensure that they do not inadvertently exceed tightly budgeted amounts for utilities.
  • Work in the cash economy.
  • Do not have bank accounts.
  • Own rental vacation property. Prepayment ensures that each renter pays an appropriate price for energy.
  • Want to reduce energy use for either financial or environmental reasons. Prepayment provides a discipline that many customers find helpful.
  • Pay clients’ utility bills. A charitable organization can credit money directly to a client account or provide clients with non-redeemable payment tokens. In either case, the organization’s donors are assured that the money is neither diverted to other purposes nor used for reconnect charges.

From an Oracle White Paper, “Serve Prepaid Customers Without Prepayment Meters” (2009).

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2 thoughts on “Why do customers want to prepay for electric power service?

  1. It would be interesting to explore the links between these programs and some of the pre-paid PPAs that have been rolled out of late; changes in 2005 utility law made them possible, and so far there have only been a handful of them done, but in all cases serve to effectively give generators what looks & feels like bond financing (e.g., a prepayment of future revenues) but swapping a senior secured debt note for a senior secured PPA. I wonder whether utilities that enter into such agreements might not have a greater incentive to roll out these prepayment programs at the customer side to smooth cash flows.

  2. Sean, I’m pretty sure no such link so, at least so far. Prepayment plans are practically non-existent in the U.S. but for the Salt River Project’s long-lived M-power plan, a handful of competing offers in the competitive retail market in Texas, and then a smattering of small offerings elsewhere in the states. (Internationally, prepayment is common in some countries.)

    I don’t think anyone is linking prepayment for power at wholesale with prepaid customers at retail. Maybe there is some clever risk-reducing, cost-reducing arrangement, but the differences in time-scale are a problem. Prepaid PPA’s are likely for a few (to many) years of service, while retail prepaid customers typically pay up for a few days to a few weeks at a time.

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