Online Survey: Prepaid Energy Services

Prepaid service seems poised for growth in the retail energy sector. A few utilities offer prepaid service as an optional service. Now there are five competitive energy suppliers offering prepaid service in the restructured Texas electricity market. Utilities across the nation are considering prepaid service as a new consumer choice through smart meters.

Prepaid phone/wireless services are common. Prepaid smartphone options and unlimited data plans have broadened the customer base and reduced some of the stigma associated with “low-income prepay consumers.” Sprint Wireless – a leader in prepaid wireless – is pursuing multi-brand strategies with efforts targeted specifically towards customer groups within the prepaid market, including voice intensive vs. data intensive and budget-conscious, low-usage consumers.

Prepaid financial products and prepaid vendor cards are also common. The transaction chain can be quite complex, involving the linkage of issuers, processors, program managers, back-office systems, and the marketers/distributors of prepaid cards. These cards are popular and convenient in certain instances and seem to address consumer needs.

Why the interest in prepaid services? The early adopters of prepaid cards and services were “under-banked” consumers and transitory segments of the population (e.g., students). Prepaid service is becoming widely accepted by mainstream consumers for a variety of reasons. What about the consumer protections? Does prepay apply to energy utility services which are considered essential — more essential than wireless communications?

DEFG is currently examining the potential for prepaid energy utility offerings. Utilities already offer prepay service, so the issue is whether it could become more widespread. We are gauging the level of awareness and interest in prepay from a diverse array of perspectives within the industry. (An online survey closed 12/3/2010. We are reached out to a database of industry experts.) DEFG will prepare a report by mid-January 2011. The report will be distributed to everyone who took the survey. (You may request a copy.)

Here is how a typical prepaid energy offering could work: The consumer would sign up (on a voluntary basis) to pay for energy in advance – before it is consumed. Payment is either through a card or an account that can be reloaded as needed. The energy provider communicates information – amount of energy consumed, amount of credits remaining, management options, etc. – to the consumer on a regular basis via in-home device, smart phone, the Web or other means chosen by the customer. A prepaid offering would be enhanced by the smart grid, but does not necessarily require an advanced meter.

What about traditional consumer protections? Will consumers lose essential consumer protections such as no disconnections during extreme weather? How will existing protections for the disabled, the elderly and low-income consumers be preserved? Will certain consumer segments be subjected to low-value, high-priced products? State regulatory agencies and community service groups are carefully assessing these consumer protections to determine who will bear what costs and responsibilities.

DEFG views prepaid service as one of many new consumer choices in the rapidly evolving retail energy industries. Prepay service may make inroad into both the traditional, regulated utility sector, as well as the restructured, competitive energy supplier sector. Some consumers will select prepaid service to get a price discount, while others may prefer to pay up front so they do not have to think about it. Some consumers prefer to avoid a deposit payment. It is anyone’s guess how prepaid service will evolve, and whether other pricing options – such as fixed/guaranteed pricing, green pricing, etc. – will become incorporated into a new set of pricing and product alternatives. The smart grid is a collection of enabling technologies, and no one knows how the use of these technologies will evolve.

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