By Tammy Zucco, Tantalus
People around the world routinely pay for goods and services in advance. From credit cards to phones to public transit, "prepay" is a part of many people's lives. As utilities and customers in more than 40 countries experience prepay's advantages, the concept has started to blossom in North America. Since utility prepay requires advanced metering infrastructure (AMI), some observers predict that prepaid functionality, which offers clear benefits to utility customers and managers, could be the "killer app" that launches AMI to ubiquity.
Prepaid electricity plans result in satisfied customers and reduced electrical loads. Consumers utilizing prepay use up to 20 percent less energy than those on traditional "postpay" billing cycles, and utilities using prepay consistently report customer satisfaction ratings above 85 percent. According to a recent Chartwell report on prepaid metering, prepay minimizes the adversarial nature of customers' relationships with the utility.
PayGo, a provider of real-time, prepaid electric systems, can spell out prepay's benefits. (This author's company, Tantalus, partners with PayGo to provide prepaid functionality to its customers.) Based on PayGo's real-world experience, prepaid service is popular because it makes utility financial managers happy. Prepay increases revenue and cash flow, eliminates bad debt and pays for itself quickly with a typical one-year payback timeline. Prepaid services also reduce truck rolls, high call-center volumes, problems with customer property access and customer service representative stress. Additionally, prepaid service enables 24-hour automated payments, quick access to current readings and mediated, remote disconnect—all applications that increase a utility's business efficiency. All of these benefits lead to the high customer satisfaction ratings cited above, and few customers return to "postpay" after utilizing prepay.
The best prepay systems are built for flexibility. Once enrolled in prepay, a customer can log into and manage his account through a website, which can increase customer engagement in efficiency and other programs. In addition, customers can pay in more than a dozen ways, including in-person kiosks at popular retail locations or via cell phone text messaging. Remote disconnect capability allows service to be stopped quickly, yet easily resumed within 60 seconds of payment. Utilities do not take disconnection lightly. The best prepay systems, therefore, offer a variety of choices to prevent disconnection if the utility deems disconnection inappropriate.
Utilities moving to prepay face a few notable challenges. First among them is converting existing "postpay" customers to a prepay relationship. Oklahoma Electric Coop. (OEC), which serves more than 49,000 customers, is in its fifth year of offering customers prepaid electricity. Its experience provides valuable takeaways about prepay rollouts. A prepay program can take time to gain momentum, but once a tipping point is reached, customer acceptance can skyrocket. After two years of beign offered prepay, less than 1,000 OEC customers had signed up for the program. After three years of word-of-mouth marketing, however, OEC now boasts 5,000 participants and growing.
Studies show that prepay adoption rates rise quickly once a community accepts it; this threshold can range from 10 to 20 percent penetration. Prepay's adoption curve also can influence AMI adoption. As prepay comes into its own, we might be witnessing the birth of a smart grid "killer app."
Tammy Zucco is Tantalus' chief marketing officer.