Buying energy ahead of time is not a new concept. We buy gasoline for cars and batteries to power lights that way, for instance. But prepaying for electricity is not that common in many parts of the world, writes Neil Strother, principal research analyst at Navigant Research.
The overall trend of prepaying for electricity, though, is on the upswing, in part because of the latest smart meter technology and utility back-office processes that can remotely allow customers to pay for electricity beforehand if they prefer.
Customers who have switched to prepay programs say they have more control of their budgets as they get immediate feedback about their consumption and can adjust usage to fit their resources.
They also avoid end-of-month surprises after a period of beyond-the-norm consumption since they no longer receive a monthly bill. In addition, these customers avoid late fees or charges for disconnections. In fact, under some systems, prepay customers receive alerts via email or text when their remaining credit is low.
Prepaid metering and consumer behaviour
Another advantage of prepaid electricity is greater energy efficiency.
Prepay customers are inclined to be more mindful of their energy use, often lowering the number of kilowatts they used as postpay customers.
In addition, customers that switch to prepay who have built up debt can pay it off over time by making prepayments, with a portion of each new purchase going toward reducing the balance.
Utilities find a number of significant operational benefits with prepay systems, as well. Their exposure to bad debt is reduced when customers switch from traditional postpay to prepaid metering as customers can no longer fall behind on paying.
The utility’s cash flow improves since revenue is collected ahead of consumption, and there is a reduced emphasis on tracking deposits because new customers are able to sign up for service with a lower deposit, or in some cases, no deposit at all.
And, utilities see a reduction in theft of service, since under a prepay scheme, it is more difficult for customers to steal service because the meter can disconnect itself when money runs out. Paperwork for the utility is reduced, too. Unlike postpay customers, prepaid customers are not sent a regular paper bill, so the associated paperwork costs are eliminated.
In addition, a prepay system can increase customer satisfaction. Utilities with prepaid metering report a boost in customer satisfaction since prepay customers are no longer bothered by overdue notices or phone calls for collection of debt.
Moreover, postpay customers who switch to prepay tend to call their utility less often because they no longer need to negotiate paying overdue bills.
Barriers to prepaid metering systems
However, prepaid metering systems have significant barriers. Vocal consumer groups have taken a stand against prepaid metering because they claim low-income customers and vulnerable people, such as senior citizens or those with life threatening medical conditions, could have their service cut…