Sunday, October 2, 2011

Post # 81 - Can Prepaid Services Foster Smart Grid Acceptance by Low Income Consumers?

Unlike most transactions, public utility services are usually paid for only after consumption, measurement, and billing. While prepaid meters long have been available in the United States, they are seen in just a handful of jurisdictions. But as smart meters are deployed across the country, prepayment has been added to the growing list of potential smart meter applications. But, according to the Distributed Energy Financial Group (DEFG), a management consulting firm in the energy sector, that doesn’t necessarily make it an idea whose time has come.

A new DEFG white paper “Low Income Consumer Issues and Voluntary Prepaid Energy Offerings: Perspectives from Three Industry Thought Leaders.”, identifies a number of "core questions":

Is providing a prepayment “option” to payment‐challenged customers contrary to the spirit (and perhaps the letter) of laws prohibiting discrimination in provision of utility services? Do potential negative consequences for some customers appear to outweigh the benefits of prepayment programs? Most consumer advocates answer “yes” to these questions and believe that the introduction of prepayment programs would create more problems than it solves.

At the same time, DEFG states that extensive research in 2010 and 2011 reveals that prepaid energy could be transformational as it is the first customer-facing application of the smart grid. DEFG launched the 2011 Utility Prepay Working Group to further explore leading regulatory and consumer opportunities and challenges presented by prepaid energy. Regulatory issues include disconnect and reconnect policies, weather moratoriums, forms of account notification, cost and benefit allocation, fees and rates.

The white paper addresses two key questions. First, how can a balance be struck between allowing consumers to exercise their preferences and ensuring that adequate consumer protections are in place? Second, how can regulatory rules and practices, including for low income consumers, be revised or updated to allow for innovation and new offerings such as prepaid energy or other new services enabled by smart grid yet maintain the intent of the original regulatory rationale?

The study authors assert that while these issues need to be addressed to implement a prepaid offering for all customers, they present greater concerns when dealing with low-income customers. Consumer advocates argue that prepaid energy invites low-income customers to make tough choices, potentially opting to disconnect electric service to keep money available for other necessities such as food, clothes and gasoline. Yet, existing prepaid customers provide positive feedback, primarily the convenience, flexibility and control that goes with paying any amount at any time. Consumers find that prepayment allows them to budget in a manner most compatible with their lifestyle and income (e.g., make payments weekly or every other week). The authors recognize that there is a tension between the possibilities enabled by new technologies and consumer protections.

The DFEG paper finds certain “broad areas of consensus,” including:

• Prepay offerings should be voluntary and not directed specifically to low income customers but offered to all customers served by utilities.

• Consumer protections do and will exist for a prepaid service offering as they have been in place for post-paid consumers for decades.

• Prepaid service touches the body of bill pay and consumer protection rules and highlights the need to update the regulatory rulebook.

• There is a need to analyze regulatory principles as distinct and separate from the rules and practices that implement those principles, for example, limiting the form of communication for disconnect notifications to letters and/ or a knock on the door may not only be impractical but counterproductive when considering consumer credit issues.


The paper concludes that "a lack of trust among stakeholders has been palpable during the course of DEFG’s research and conference calls around the potential of utility prepaid offerings." While some stakeholders consider prepaid service a positive innovation for consumers, others view it as potentially predatory or discriminatory against low‐income consumers. A particular consumer concern, in this regard, is the possibility using smart meters to facilitate automatic service shut-offs. The paper finds that stakeholders, including utilities, recognize the importance of ensuring that low‐income consumers pay fair rates for electricity and are supported safely during dangerous weather periods. "[T]he biggest barrier to policy solutions. . .[is] trust among [utilities] and consumers."

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