Prepay Plans for Electricity Offer Alternative to the Usual Monthly Power Bill

Proponents see opportunity for conservation, but critics warn of risks for consumers.

During the summer, temperatures in the Dallas suburb of Seagoville often approach triple digits. “If you add 15 degrees to the Dallas high, that’s how hot it is,” says Cameron Donaldson, a Seagoville resident.

Donaldson is among a growing number of electricity users around the country who are buying power for their homes up front, as they would buy minutes on a phone card, rather than paying monthly for power after they use it.

With electricity prices steadily rising in the United States and utilities adopting new pricing models to take advantage of smart grid technology and faster communications, prepay is one billing option that is gaining ground. Proponents of the new prepay models say they can give customers like Donaldson more control over their energy usage and costs while encouraging conservation.

That’s how prepayment has worked out for Chloe Raynes, who runs a pet services business in Tennessee. Last year, she was living in Osceola, Wisconsin, near the St. Croix river, and paying for electricity up front through the Polk-Burnett Electric Cooperative.

“It did make me turn off the lights more. You become much more aware of how much you are consuming when you prepay and your electricity is turned off when you owe 50 cents,” she said. “When you budget, say, $50 a week to electricity, you want to stay within that.”

But Donaldson found that consequences can be swift when that budgeted amount runs out. He recalls coming home from his job at a flower nursery one sweltering summer day to find the power turned off. “All the food in the fridge is ruined, water [is] all over the floor from the freezer ice melting. Then I get an email saying my balance is low,” he said.

Deprivation, or Conservation?

The Distributed Energy Financial Group, a consulting firm, found in a recent study of about 1,400 customers enrolled in prepay electric service in the U.S. Northwest that their energy use dropped by between 5.5 percent and 14 percent. In Arizona, one of the nation’s oldest and largest prepay programs, called M-Power, reports energy savings in the high end of that range.

Over the past decade, M-Power customers have reduced energy use on average by 12 percent, according to Michael Mendonca, senior director of revenue cycle services for Salt River Project (SRP), the public utility that runs M-Power. SRP “absolutely” sees the prepay model as an effective way to promote energy conservation, Mendonca said.

“Those on prepay are simply more cognizant of their energy use,” Mendonca said. In-home displays show M-Power customers energy use data, such as the sharp uptick that would result from an air conditioner kicking on, in close to real time. SRP reports some 80 percent of customers end up using less electricity on M-Power, and about two-thirds report having more discussions as a family about energy use.

Nearly 20 years after M-Power got its start, proposals for prepaid service in the United States are now on the rise. Yet critics of prepay worry that if these models reduce electricity use, it’s for the wrong reasons. …

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