By Kathleen Davis, Associate Editor
Let's get one thing straight right off the bat: Prepaid billing—also known as prepaid metering—is not exploding. It's not off the charts. It's not through the roof.
Prepaid billing is, however, establishing a small enclave of happy customers, and that's a start for utilities using the systems, like Salt River Project. They are seeing certain demographics—who are traditionally unhappy with utilities in general—sing Salt River's praises, and the praises of prepaid billing as a whole.
"Customers love the program," said John Soethe, manager of revenue cycle services with Salt River Project. "A lot of times customers are on prepay because they have had problems managing their past bills; so, having them be happy with the program and keeping up with their usage is great for us."
The Leading Example
Salt River Project's (SRP) prepaid metering project, known as M-Power, currently has 31,000 enrolled customers and uses Motorola technology with a smart meter on the side of the home. There is also an in-home display unit, the UDT (user display terminal). The Motorola technology utilizes powerline carrier technology to allow the UDT to communicate with the meter, a system that Soethe labels "top of the line."
The customer is given a smart card when they enroll in the program, and they use the card to make "purchases" at any one of Salt River's pay centers. There are approximately 43 of those pay centers located around the Phoenix metropolitan area where customers can purchase power in any amount from $1 to $500.
The credit is moved onto the card to be used in the UDT and loaded onto the meter. Credit can be loaded even if there is a surplus already attached to the meter.
"It's just like putting gas in your car," Soethe said. "When your gas gauge gets low, you stop and fill your tank back up."
SRP's program does contain a service charge (approximately $5 a month) to help the utility recover a bit of the program's higher equipment costs, but Soethe stated that the reduction of consumption by consumers on the program more than offsets the costs. The UDT gives customers a very tangible look at how much electricity they are using on a daily basis. They can move around by day, week, or month in that data, or even switch to real-time consumption, which can give them a better understanding of how much it costs to run various home appliances.
"I think this is one of the big benefits of the program for the customers," Soethe said. "It allows them to take control of their electric usage, which, before, had been pretty much a mystery to them."
He added, "Once customers understand how they are using electricity, they become better consumers. They make better choices, and their overall consumption actually drops—on average—about 10 percent."
The only glitch in SRP's prepaid future at this point is that "top of the line" technology. Motorola is pulling out of the prepaid metering business.
"They made a business decision to exit, but SRP is committed to prepay," Soethe stated. "We are actively evaluating all options at this time, but we are in the early stages of that process."
Of History and Technology
Motorola's exit made quite a ripple on the horizon of prepay. They were the leading vendor in the arena, and some see the company's exit as a sign of decline in this AMR niche. And, it is true that prepaid billing/metering is not a booming growth industry—not according to the latest Chartwell report on the subject.
Chartwell's "Prepaid Metering Report 2003" states that technology costs and regulatory red tape continue to prevent many U.S. utilities from implementing prepay programs.
"What has been the largest stumbling block on the regulatory side is how public utility commissions view prepaid billing and metering," said Garrett Johnston, research analyst and managing editor with Chartwell. "Accurate or not, PUCs and public officials still believe that prepaid programs can too easily cut off lower income or struggling customers. And they aren't happy about that.
"Now there has been more education in that arena, but, unfortunately, that stigma still exists."
And, of course, that cost of $350 to $400 per "point of contact" (usually one residential household) is also a large factor in keeping prepaid quiet.
According to Chartwell's report, similar to residential time-of-use rates, prepaid metering is something many utility officials think about, but few utilities are actually offering. Only 2 percent of utilities in their survey of 115 have prepaid programs, although 25 percent of utilities are considering them. (See figure.)
Chartwell's report pointed to this lack of penetration as a possible cause for Motorola's exit.
"The market is not a high-growth market," Johnston stated. "It's a hard market to make a lot of profit in, and you're going to have to bide your time.
"If the market ever hits big, however, Motorola might return," he added. "You never know."
But there are still prepaid metering vendors with more than a just toe in the pool. One, CIC Global, has even worked with Salt River Project in the past. The company has been in the prepaid business in the U.S., New Zealand and Australia since 1986, and they have no plans on pulling out—even if the current niche is a small one.
"Customers are asking for these systems," stated Jon Thomas, president of CIC Global. "People brag about it. And, enough word of mouth, enough phone calls to utilities asking about the service, and the market moves forward significantly.
"It can be popular when it's actually provided, and that's the bottom line," Thomas added.
Thomas admitted that the cost of prepaid metering is a significant capital investment for utilities (due to extra equipment, mostly) but he pointed out a number of underlying factors not covered in general surveys—among those, that customers might be willing to pay a bit more to prepay, the way some are willing to pay more for green power. This, along with the fact that consumers often reduce energy consumption and that these meters are equipped with smart technology that may enable more enhancements in the future (and quicker and easier enhancements), could, in the end, make prepaid metering cost-effective down the line, if utilities are willing to look that way. And, of course, at the basic level, prepaid billing helps utilities serve an oft-problematic customer base.
Thomas believes that running those numbers alone could even out the 3-to-1 cost of prepaid meters.
"Prepayment metering—whether a customer favorite or not—is a revenue protection system for the utility," Thomas said. "So, utilities can look at this very narrowly as well: That this system is a way for us to reduce our bad debt and problems associated with people who aren't paying bills, disconnects, reconnects. There is a cost savings right there."
"In the end, the benefits of prepay are still unfolding," SRP's Soethe said. "They will be fully realized in the years to come."