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Statistical relationship between electricity prepayment and conservation

DEFG’s “Prepay Energy Working Group” has been studying the potential for energy conservation as a result of prepayment. Using billing data from Oklahoma Electric Cooperative, an economist hired by DEFG applied econometric techniques (statistics) to estimate the effect of prepayment on electricity usage. Cindy O’Dwyer, DEFG’s lead for the Prepay Energy Working Group announced, “The major finding is that participation in prepaid electricity service results in an average reduction in energy usage of 11%.”

This is huge! A white paper released on March 20, 2013 explains that the cost savings are due to reductions in energy use, and not disconnection (“service disruption”). For more information on prepaid electricity, click here.

This finding implies that better informed consumers make better decisions. Customers at the Oklahoma Electric Cooperative can check their usage daily and adjust usage accordingly by paying closer attention to energy waste. The daily feedback is thirty times more information than we normally receive from a monthly utility bill, and it is more timely.

This writer receives prepaid electricity at his home in Houston (since May 2012). Each day I receive a text on my phone indicating the daily usage, daily cost, account balance, estimated days remaining, cost per kWh, etc. That’s a lot of information packed into a simple text. I ignore it or review it daily depending on my need. I learn what it costs to power my major appliances.  I note the savings when I am out of the house for a day, and learn the value of adjusting my thermostat.

Energy Conservation and Energy Prepayment

We have issued the seventh “Series of Regulatory Choices” white paper at no charge to the public. Michael Ozog, a respected economist, sets forth a methodology to measure the impact of energy prepayment (prepaid electricity) on energy consumption. (Download the paper.)  The simple truth is that when you pay in advance, you give more attention to how you spend your money! Prepayment removes the utility or competitive energy supplier from the role of money lender. It places the consumer into the role of energy manager which is compatible with the role each of us plays as home budget manager for everything we buy.

How much does this matter? Previous studies show about 10% savings simply because consumers pay more attention to how they are using the electricity. I expect this to grow over time as consumers seek new channels of information, new technologies and new services to reduce energy use through increased investments in efficiency. A portion of the energy savings will go to consumers who make these choices. And a portion of the savings will go to the businesses that come up with products and services that allow the consumer to be more efficient.

The 7 billion bodies question

A lot of people are worrying about the world population this week as we approach 7 billion. (US and World population clock.) I am an optimist; I believe we can find new resources, develop new technologies and use the existing resources and technologies more appropriately. That is, we can be much, much more efficient. We can reduce the impact of the industrial revolution on the planet, even as we approach 10 billion people in the coming decades.

The blunt, inefficient tools of the industrial age create pollution and waste. We can use information technologies to put an end to this. The old tools were great in their day — in the 18th, 19th and 20th centuries. It is time to move on to the information age.

Aren’t we there? No, we are not out of the industrial age. It is premature to declare that we have entered the information age. Smart phones, mass communications and the Internet are just the tip of the iceberg of necessary advances. We must educate and inform ourselves. We must make a transition to much greater efficiency to lessen our waste of resources.

Freedom, education and wealth are excellent ways to promote the stabilization of the population. Population grows more slowly in places with freedom, education and wealth. Education and awareness lead to changes in the patterns of our behavior. We freedom, education and wealth we develop new technologies and tools that can lessen the impact of humans on the planet.

A lot of Americans are ready to criticize other countries for their population growth. Let’s stop finger pointing. It’s easy to talk about what other people should do. Find a mirror and take a look. Education and self dicipline are great tools for each of us to apply to get our literal and figurative houses in order. Nearly every major issue facing the US today would be resolved if we were more efficient and less wasteful.

Energy efficient lights and appliances

In March 2010, our EcoPinion survey report focused on the Energy Star program for consumer appliances. One recommendation related to a need for different levels of efficiency, so that consumer could select exceptionally efficient appliances if they suited their needs. In October 2010, the the Environmental Protection Agency (EPA) released a proposal to pilot a new Energy Star program to identify and advance highly-efficient products. This “top tier” approach would accelerate adoption of advanced products in the marketplace. In a May 5, 2011 letter, EPA explained the pilot program and changes as a result of extensive stakeholder comments on the draft criteria.

EPA’s pilot program is completely consistent with the EcoPinion recommendations with respect to evolution of the Energy Star brand. Consumer Reports explains the changes in a May 19, 2011 article “Energy Star shines a light on its ‘most efficient’ superstars.

It is certainly a good thing if a consumer–armed with better information and a rating system–makes a choice to purchase a more efficient device today in order to lower energy costs tomorrow. It is always a good thing when a consumer exercises informed choices. But are we moving fast enough?

In March 2011, EcoPinion No. 10 focused on consumer attitudes regarding efficient lights. Consumers are more ready that we expected to adopt new LED lights in their homes. They also want government leadership. Consumers want good information from a trusted source.

Last September, I asked whether the flows of energy in the US economy told even one-half the picture. Discouraging as they seem, I stated that the diagrams were overly optimistic in their portrayal of energy waste.

Our utilization of the energy commodity is tremendously inefficient.  For example, when you buy one unit — a kilowatt-hour – of so-called ”usable electricity,” it may power a light bulb which converts only 20% of the electrical energy into visible light! (I assume a new, efficient light.) The other 80% of the energy labeled as “usable electricity” becomes heat.  Did you intend to “use” 80% of the electric commodity as heat? (Do you intentionally heat your home with lights?) Or is that a measure of waste not shown in the diagrams above?  It sure is.

If people better understood how inefficient they are, they might demand better information and leadership from a trusted source. Until then, anyone can claim “efficiency,” “protecting the environment,” or “green.” These terms are overused. Without a tiered Energy Star program, consumers cannot easily compare claims and then act as they prefer. Today, very reasonable people make inefficient purchases because the market does not make good information available at a reasonable cost.

Prepay for Energy and Utility Service

I pay for gasoline before I drive. Shouldn’t I pay for electricity before I use an appliance?

Some electric industry observers argue that “prepay” could be one of the first real fruits of the smart grid. The value of investments in advanced meters and smart grid is not readily apparent to us. A twenty-first century grid will allow the transmission and distribution utility to monitor bottlenecks, anticipate problems, and resolve outages more quickly. But that value may be hard to see — or at least it will not be visible until the next major storm. But we pay a power bill every month, so a change in that transaction is readily visible.

Today, there is no timely linkage between consumption and the size of the bill. We hear about the electric rate, but our understanding of the drivers of consumption is limited. Prepaying for energy — much like filling the gas tank — allows us to directly associate cost with usage. As we monitor usage, we can consider energy management (is it time for a tune up?) or investments (should my next car get more miles per gallon?). Prepayment of electricity or natural gas should leverage the real-time information coming from advanced meters, and that information should allow consumers to change consumption patterns to fit within a monthly budget. 

Last month, DEFG released the results of an online survey of industry professionals. The respondents considered questions on the application of prepay to the energy industry. Read the press release.

Now the results of an EcoPinion survey are available. We surveyed 1,000 Americans nationwide in mid-November 2010. The report examines customer perceptions and expectations regarding a prepay transaction offered voluntarily to consumers by the local utility. The report is available on our website.

Stories about the EcoPinion survey report:

What are your experiences with prepay?

Electric Vehicles to Connect Texas Cities

It was over thirty years ago that a sketch on a napkin led to the creation of new airline — the “national airline of Texas.”  Southwest Airlines was conceived as a means of speeding up business travel among the major Texas cities. Dallas, Houston and San Antonio are separated by three to five hours of drive time. Today, SWA offers 25 flights each day, each way, between Dallas and Houston.

Before and since the famous napkin drawing, the proponents of high-speed rail have envisioned a more energy-efficient means of travel in Texas. They have probably sketched similar maps in an effort to promote ideas for cleaner alternatives to air travel.  If Texas is known for its limited intra-city light rail, it may be even better know for its lack of an inter-city rail system. Jet fuel, not electricity, moves the business traveler within Texas.

This may change. There is now a move toward electric vehicles to help improve air quality in Texas. Most city commuting involves less than 40 miles per day, well within the range of existing battery technology. Recharging EVs is cheap. The intra-state electric grid has become more competitive during the past fifteen years as a result of electric industry restructuring. Electricity prices may continue to remain low, reflecting the benefits of a competitive bulk power market, the value of new natural gas finds, and the value of Texas wind power.

But what about getting from city to city?  Recent announcements for electric vehicle charging stations in major cities may make it practical for electric vehicles to travel among the cities shown above on the “Southwest napkin.” We may soon use electricity between Dallas and Houston and back again.

The electric industry structure may have something to do with innovation and risk taking. The electrification of Texas fifty years ago had a lot to do with the economic and population growth of Texas. Air conditioned buildings are a necessity in the hot and muggy months of June, July, August and September. Now, the maturation of the electric industry may lead to the electrification of the transportation sector as well, or at least portions of it.

As the Texas electricity market matures, its value to society may extend to new end-use applications that we did not anticipate even a decade ago. The process of reform began in the 1970s with the creation of a state regulatory agency, and continued in the 1980s with the growth of cogenerated power. In the 1990s we opened the transmission network to merchant power plants, and in the 2000s we showed the nation how to add renewable resource capacity. Will the 2010s be the decade of the electric vehicle in Texas?