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Regulators soften their stance on prepay billing as customer interest grows

Posted to Questline in the Customer Care Group
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Bethany Farchione's picture
Marketing Director Questline Inc.

Marketing Director at Questline - a digital agency that provides content marketing and program promotion solutions to energy utilities who want to build long-term relationships with their customers.

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  • Jan 10, 2022
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If there was a utility billing solution that promised to lower energy consumption, lessen consumer debt, improve overall customer satisfaction and appealed to younger generations, you’d jump on it, right?

Even though prepay billing offers all the above and has been around for more than 20 years, it has just 5 percent market penetration with energy utilities.

But that’s changing. New consumer research from DEFG shows that customer interest in a voluntary prepay energy option is rising dramatically, with 50 percent of survey respondents indicating interest.

“In just the last month we’ve had four new utilities join our Prepay Energy Working Group,” said Jamie Wimberly, CEO of DEFG, a research and advisory firm specializing in consumer-facing offerings in the utility sector. “Consumer and utility interest in prepay is at an all-time high.”

Prepay has long been a popular concept overseas, in areas such as United Kingdom and Africa where about 90 percent of energy consumers are on prepay. The prepay concept in the U.S. is evolving from what used to be seen as a payment offering reserved for energy consumers with debt or in need of payment assistance to a less negative and much broader definition.

“Usually someone calls about a late bill or debt, the customer service rep tells them about prepay programs,” explained Chris Germano, Sr. Product Manager of Utility Payment Management at Itron, a firm that enables utilities and cities to deliver critical infrastructure services safely and reliably to communities. “There’s not much of a push for people to get on prepay programs proactively in these situations.”

Co-ops and public power utilities have been offering prepay energy for years now, and today many the largest IOUs have a prepay energy pilot underway or planned, with a few in full deployment. Some are even skipping pilots altogether and launching full-fledged prepay programs, leveraging the proven success of other projects.

One of Arizona's largest utilities, Salt River Project, has been promoting prepay for nearly 10 years, reaching a 16% penetration with customers. Georgia Power also leads the pack with prepay offerings, reaching nearly 9% penetration in the last 5 years.

IOUs have been slow to offer prepay, facing hurdles from state public utility commissions (PUCs) and pushback from consumer advocate groups. While some skeptics feared that it could be an unfair way to handle energy access, with proper understanding of prepay offerings, these attitudes on prepay are changing.

“PUCs and consumer advocates used to see prepay as punishment to lower-income consumers,” elaborates Germano. “The idea of remotely disconnecting energy access was perceived to be problematic. But time has shown that a lot of people prefer remote shutoffs. They use the shutoff as a reminder to pay their bill, and once paid can regain access to electricity immediately without penalty or added fees.”

Now, regulatory positions are flipping as well. There are currently some PUCs prodding utilities to apply for prepay. “Commissions are looking at all the debt that needs to be paid off and they need solutions that don’t put a burden on the back of ratepayers,” explains Wimberly.

Attitudes shifted when debts skyrocketed with utility cut-off and disconnect moratoriums during the early months of the COVID-19 pandemic. “Without cutoffs and disconnects, much bigger debts built up,” explains Germano. “Now commissioners are asking utilities to look at prepay because it’s a better way to help consumers pay off debt without large deposits and extra fees.”

GEN Z APPROVED BUDGETING AND EFFECIENCY TOOL

Prepay has emerged as a powerful budgeting tool for Americans, offering increased transparency into their energy usage and account balance.

Most consumers are familiar with prepay arrangements for services like mobile phones, debit cards, toll booths and even Starbucks. The concept of loading an account with funds, and reloading when you run out, is a common practice outside of energy.

“Prepay is often seen as a service reserved for people who struggle to pay their bills,” explains Darren Thraen, VP of Sales & Business Development at Questline. “But it’s not about income level. Prepay should be seen as a choice for people who prefer to buy services that way. It’s actually a great solution that meets the demands of younger generations.”

Thraen points out that more than 60 million Americans use prepaid cellular plans. Not because they have to, but because they want to and understand that it can save them money. “The opportunity to pay as you go gives you control over what you’re doing and how you spend.”

Prepay arrangements are very popular with Millennials and Gen Z who want to understand how they use energy. They desire having control over how they’re spending, are socially conscious, digitally savvy and comfortable with payment apps.  

While Thraen isn’t currently set up on prepay, he says he would be if his utility offered it. “I want to be able to see where and how I am using my energy and have the ability to control it,” he explains. “If I can see on my phone that my money is continuing to be spent as I leave the room with a light on, I am very likely to change my behavior.

Once consumers begin using prepay energy, they tend to drop their energy consumption significantly. “For utilities that are trying to reduce overall consumption, prepay is a huge opportunity,” says Germano. “The average consumer reduces energy use by 8% when they switch to prepay.”

Even with growing interest and obvious benefits, prepay often isn’t a highly marketed offering. If available, it sits quietly in customer service departments and plays second fiddle to payment arrangements.

“Traditionally, utilities set up customers with unpaid bills on payment arrangements that consist of their normal bill plus an added fee,” elaborates Germano. “Yet payment arrangements fail 60% of the time and utilities are still stuck with debt.”

“Prepay energy gives customers a sense of control and convenience,” adds Wimberly. “It provides them with the ability to better budget.”

“You won’t get an unexpectedly big bill at the end of the month,” said Germano “Instead, you can pay, for example, $25 weekly and get notifications when you’re about to run out.”

Notifications are now advanced enough to talk beyond kWh. Systems alert customers based off how they traditionally pay for electricity: in dollars and cents.

For example, $20 left on one account could last a consumer a week and another consumer just two days. Alerts are sent based on typical behaviors and allow consumers to either reload or curb their energy use and make their money last longer.

“Itron is now putting intelligence in the meter – enhancing the prepay experience with more real-time information about what’s happening with customer accounts and consumption,” elaborated Germano. “Consumers can get alerts on their phone and look at thresholds that they personally set themselves and get real-time updates.”

Consumer sophistication has grown, and utilities must respond to customer demands for more options and overall price and energy transparency. Without, utilities risk losing customers and causing frustration.

“There has to be more outreach to the consumer to get their confidence up,” said Germano. “Offering optional billing methods is a great way to increase satisfaction. Utilities must appreciate that prepay is not just a way to recoup money, it is also a customer satisfaction tool.”

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Mark Wilkinson's picture
Mark Wilkinson on Jan 12, 2022

Great article.  I think the industry viewed prepay in a very different light 10-15 years ago, and it carried a stigma similar to prepaid cellular plans.  But, the reality is that prepay fits a much wider range of customer personas and situations than anyone initially planned.  A new generation of customers see prepay as a way to budget and plan instead of waiting for surprises in the mailbox.  These Millennial and GenZ consumers will become the largest customer cohort just as younger Boomers and GenX shifts to retirement and adjust to a fixed income.  Those demographic forces also favor wider adoption of prepay programs.  

 

Finally, as COVID relief programs wane and customers have to manage delinquent accounts, payment plans and prepay programs create a useful tool for Utilities to help customers adjust.  

 

Thanks for the article.  Lots of great facts and insights.  I'm sharing it with my team.

Bethany Farchione's picture
Bethany Farchione on Jan 12, 2022

You make a great point. As older generations move to fixed incomes, the budgeting benefits of prepay billing could become appealing. That would be a great way to segment and market. 

Brian Lindamood's picture
Brian Lindamood on Jan 12, 2022

Great insights! Growing interest in prepay is part of the broader digital relationship that utilities are developing with customers -- and which is now a basic customer expectation. It's not a surprise that young adults who prefer to use payment apps on their smartphones would want to pay their energy bill the same way. 

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