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Summary:

Less than 1 percent of U.S. households now use prepay electric meters. But SmartSynch and PayGo want to make them as common as prepaid mobile phones.

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Prepay electric meters are fairly common in the developing world, but in U.S. homes they’re about as rare as coin-operated public phones. But smart meter maker SmartSynch and prepaid electric service startup PayGo want to make them as common as prepaid mobile phones.

That’s the goal of the partnership launched Tuesday, in which Jackson, Miss.-based SmartSynch provides the smart meters linked via cellular networks, and Atlanta-based PayGo provides the prepay billing management and customer service technology. They’re hoping that the prepay model’s financial benefits for utilities — fewer debt headaches and service disconnections — will align with consumer interest in broadening their payment options and lowering their overall energy use.

Why Prepay?

Right now, prepay meters serve about 6 million power customers in some 40 countries, according to utility consultant KEMA. But fewer than 100,000 of those meters are in the U.S. — less than 1 percent of U.S. electric customers.

Still, PayGo partner Jeff Weiser says that surveys indicate more than a third of U.S. utilities would like to provide prepay meters to their customers. After all, customers who fail to pay their bills and have to be shut off cost utilities lots of money in hard-to-collect debt, disconnect and reconnect fees and customer hotline phone calls.

SmartSynch is targeting utilities already using its smart meters for residential customers, such as Texas New Mexico Power, with the potential to remotely upgrade meters in the field with PayGo’s prepay system. But it’s also making the prepay meters available as a stand-alone product line, which could come in handy for utilities in deregulated markets such as Texas, where different customer retail arrangements such as prepayment options are easier to implement.

But will U.S. utility customers warm up to the prepay concept? Prepay meters are often seen as an option for customers who otherwise can’t afford electric service or have had trouble in paying their power bills in the past — more of a captive market than a voluntary one. Meter vendors such as Landis+Gyr, Itron and Elster make simple prepay meters, which require customers to buy power credits at stores or kiosks and then punch in receipt codes to turn their power on. These kind of prepay meters are far more common in markets such as South America, South Africa and India.

More advanced prepay systems exist as well — 3 million customers in the United Kingdom use prepay meters. Arizona utility Salt River Project has been offering prepay options since 2006 via its M-Power program, now in use by more than 50,000 customers, that allows customers to swipe special prepay cards in home meter devices.

SRP says customers end up saving money, not only by avoiding late fees and disconnection fees, but by saving energy as a result of paying more attention to their daily and monthly usage — about 12 percent savings, on average. On the other hand, an analysis by the Arizona Republic newspaper found that M-Power customers who don’t reduce their usage can end up paying more than equivalent power users on regular plans.

PayGo’s Plan

Weiser said that PayGo’s system eliminates many of the problems of previous prepay technologies by providing more up-to-date and accurate calculations of remaining power, as well as daily or even hourly alerts options that can be sent via text message, email or phone. The startup, founded by former executives from utilities and retail power providers, has raised an undisclosed amount of private funding, he said.

PayGo’s hosted software also manages real-time billing settlement, interfacing with legacy utility billing systems in a way that doesn’t require reprogramming, Weiser said.  That could be very attractive to utilities that are trying to upgrade old, batch processing-style billing systems to meet the needs of their smart meter-connected future.

As for the attraction for customers, “People like the ability to determine how and when they’re going to pay to fit their lifestyle,” he said — a proposition he based on the growth of prepay plans in the mobile phone market. “Why shouldn’t this be an opportunity in the electric market?”

Whether or not prepaying electric bills catches on like prepaying for cellphone minutes remains to be seen. As KEMA noted in its recent survey of the potential market, concerns about fair rates and treatment for prepay customers could make broader adoption of the model a challenge for utilities and their state regulators.

On the other hand, prepayment programs could be made much more sophisticated and user-friendly, if they make clever use of the new capabilities of smart meters — and if the smart meters in place are advanced enough to support them.

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Image courtesy of Shanghai Daddy via Creative Commons license.

  1. What about the fees associated with this type of arrangement? Do the same risks of exorbitant – and hidden – fees exists as we find with prepaid credit cards?

    My concern is that when a prepay meter is put on a home, that energy consumer is effectively hit with a surcharge not applied to non-prepay metered homes. Low income energy consumer seem particularly vulnerable to this.

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  2. That’s right, Mike — that’s what the Arizona Republic wrote about, as I linked to in the story. These things roll out on a case-by-case basis. I think utilities will have a hard time with state regulators on consumer issues, and will want to avoid any kind of backlash by making prepay options as customer-friendly as possible. That probably means no shutoffs without plenty of warning, and maybe some emergency backup plan for when payments stop coming for one reason or another. With the costs utilities avoid by using these things, they may be able to offer some sweet incentives for would-be customers — particularly if they can use that entry into the home to set up load control or demand response options.

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