Counting kilowatts
Give people choices, and by golly they’ll make them — and maybe make better ones than you’d expect.
That’s the implication behind this story on a novel approach to utility consumption and payment described in this story from The Wall Street Journal:
As we’ll see in just a moment, the
The program is part of a growing trend in which U.S. utilities are experimenting with pay-as-you-go service that is supposed to encourage energy conservation — but also has raised fears about abrupt service shut-offs.
‘Fears of shut-offs’? That’s worth examining, as it could happen for either of two reasons:
· The customer runs out of cash (to top up the card).
· The customer has no idea he’s running low.
Now, about that utility bill …
Mr. Price, a retired computer programmer, drops by the office of his local utility, the Sacramento Municipal Utility District, every six to eight weeks and pays enough to cover a month or two of service.
Prepayment involves cash management in a way that borrowing does not. That defect could be corrected if SMUD [Did the utility really want that as its acronym? -- Ed.] treated it as a deposit and paid interest on it — or, if not a true checking account, offered a bonus credit.
I guess they did …
My health club sells something it cutely calls ‘Club Cash,’ essentially a means of prepaying for court time, and gives me a little vigorish when I do. So the Careful Shopper calculates the implied interest rate, assessed against the risk that we will never use the court time, and acts accordingly. Decisions about prepaying almost always involve projections, explicit or implicit, of our future consumption.
The credit is loaded on a smart card that he uses to download information into his home electric meter. The couple keeps track of the credit balance with the help of a small electronic display, located in the kitchen, which talks to the meter.
For that matter, there’s no intrinsic reason why the utility couldn’t simply tap Mr. Price’s bank account, in an autopay approach similar to standard electronic bill-paying. Then it would be Mr. Price’s bank that could have a flexible overdraft policy … or not.
Here’s how we deal with your overdraft
In the early months of 1971, I was touring around
Feed me shillings, I will warm you
But that ancient pay-go gas fire lacked an important choice feature: consumption variability. That problem can be solved with smart cards:
On a recent June morning, Mr. Price pushed buttons to see what the display box could tell him about his energy use. It said his 1,650-square-foot stucco home was using nine cents of electricity an hour. The home, built in 1969, had used $1.02 of power so far that day, $2.61 a day earlier and $62.52 the prior month. Most importantly, it said he had enough credit remaining for about 28 days of use. “It tells you things you couldn’t have known before,” Mr. Price says of the box.
Knowledge is power, isn’t it?
Experimentation with prepaid-service meters is part of a broader trend that is changing the electric meter from a dumb recorder of kilowatt hours consumed into a conservation tool capable of helping people monitor their use and which will allow utilities to talk directly to customers.
Numerous experiments that confirmed that biofeedback works; show a person (say) his heartbeat and he can calm himself down.
Visualize lower utility bills … calmer now?
Utility electro-feedback is even more direct, because you can just turn the thermostat down or up, slide the window closed or open, or flip the light switch off. In short, by making the connection between use and cost manifest, you invite conservation.
Billions of dollars are being spent by utilities to install advanced meters that track the amount of energy consumed at different times of the day…
That knowledge is a two-edged sword, for it also empowers the providers, the utilities, to use variable pricing.
Run meter and pay 10 times amount shown
… a capability that is expected to lead to rate plans that include higher prices when wholesale energy costs are higher and cheaper prices at times of slack demand.
Load balancing and demand pricing is a coming thing. I type this here in an oversold aircraft, surrounded by people no two of whom probably paid the same ticket price I did, and not surrounded by a few other overbooked people who wanted the seat I now occupy but were persuaded to take a later flight because of their ‘flexible travel plans’ (as the gate agents chirp) plus the inducement of a ‘free round-trip anywhere we fly in the continental United States.’
How much electricity do you want, and when do you want it? That’ll determine what you pay.
Still, reducing consumption has its side benefits:
But it’s also possible that utilities trying to reduce carbon-dioxide emissions from power plants in response to looming global warming legislation could use the meters to encourage conservation.
Policymaker alert: rules invite subversion; incentives invite compliance.
We have no tee-shirts for you in our system
If more people paid for electricity in advance, like they do for gasoline, they might want to make it stretch further.
Salt River Project, a
12% savings would be worth something, wouldn’t it?
In the next few years, some experts expect prepaid electric service to become a standard feature of
We have to separate the two initiatives — prepaid credit from real-time consumption monitoring.
Just try prying apart the monitoring from the credit scoring
The fact is you can do either alone, and of the two, real-time monitoring is preferable. It adds benefit (creating an option) with no new risk (shutoff rules are the same as before).
Whereas prepaid credit, as we’ve observed, is a blessing much more mixed, one that invites questioning the offeror’s motives:
Some customers, however, are wary that the prepaid service could leave them in a lurch if they are late on their bills. Steven Smalley, another participant in the
He’s good enough, he’s smart enough, and doggone it, he can manage his finances
“Now I worry about being shut off,” he says. “It was so much easier to just write a check once a month.”
Mr. Smalley says he doesn’t like going to the utility office to reload his smart card.
Soon neither he nor any other prepaid user will have to.
A utility manager said he agrees that broader deployment hinges on giving consumers a way to deposit money in their accounts via telephone or the Internet, options not currently available under the tiny pilot program.
Throughout these posts I highlight convergence — trends that are intersecting as the revolution in information technology makes so many more services omnipresent through cyberspace. Convergence is arriving in people’s homes: as the Web grows in bandwidth, ever more things can be done in the home, and probably more time will be spent in the home.
The maker of the meter used by the Sacramento Municipal Utility District, Ampy Technology Inc. of
In this little utility program, consumption and banking meet, in the unexpected venue of the home.
One reason prepaid service is gaining support among utilities is because it can help relieve an accounts-receivable problem when customers consume more energy than they can afford.
Those of you unfamiliar with affordable housing may not appreciate what’s hiding within that euphemism. If a property gets in trouble, many an owner or manager simply allows the payables to run up, and the decision as to which payables to pay, and which to ignore, depends largely on economic pragmatism — whose goodwill do I need more?
From the standpoint of rental owners and their cash management and shutoff risk, all utilities are not created equal. Electricity flows continuously over wires; natural gas hisses steadily through pipes. However, oil heat (an anachronism with a large installed base here in the Northeast) must be delivered in great big oil trucks.
You want my oversized load deliver, you gotta pay me to show up
It’s well-nigh impossible for a large public utility to cut off the gas or electric — someone has to physically order the shutoff, and whoever does is excoriated in the newspapers — but it’s very easy to shut off the oil; the man with the truck simply declines to fill it and drive to your property.
With prepaid service, the customer is in control and doesn’t face a monthly surprise when the bill arrives.
Information = choice.
If an account zeroes out, the flow of electricity stops. (Most utilities keep power flowing on nights and weekends, but people usually aren’t allowed to get more than a couple of days behind before service shuts off.)
So, as one expects, there is a grace period.
Experts say people quickly learn to ration their use, just as people learn to eliminate unnecessary car trips when gasoline is expensive.
Eco-feedback.
We’re so happy you’re willing to accept being cold.
Earlier I mentioned the costs of prepayment — you the poor person deposit money with me the rich utility, and I give you no interest for doing so. That reverses the normal flow of cash. But there’s some good news too:
Utilities typically eliminate an array of annoying fees. For those on prepaid service, there usually are no security deposits, late fees, disconnection fees or reconnection fees.
Once a therm is fired or a kilowatt lit, it is lost forever, so the credit provider (the utility) has no collateral to recover. Prepayment simplifies the credit decision, and that’s a big deal because prepayment enables a utility to extend credit without doing a complex credit check.
Salt River Project says it has 55,000 of its 920,000 metered customers on prepaid service. It initially offered the program to customers who were having trouble paying their bills. As an alternative to being shut off, customers were given the option of prepaid service, and the standard security deposit of $240 was waived.
That brings people in to the system, as saving precedes borrowing.
“We have some customers who owe us $1,000 or more,” says Hugh Fowler, a customer service manager at the
Another form of eco-feedback — a customer cannot get very far in debt without knowing it, and without some elements of auto-interrupt that discourage further borrowing.
Now, some people are asking for prepaid meters because they can buy electricity in increments as small as $1 or $5 at some 62 kiosks in the
More convergence;
Not only have I an energy aura, I’m also in the banking business
So far, it’s mostly municipal utilities that are offering prepaid service, in part because they do not need approval from state utility commissions to bypass the usual rules governing disconnections.
That’s the bad-debt collection euphemism returning.
Many states restrict shut-offs for nonpayment, for example, during periods of extreme heat or cold. Thus, utility regulators will need to decide whether prepaid customers should retain that protection.
Back in 1971, I was willing to shiver (and wear two sweaters to bed) because I was poor, and had to live cheap. Today,
Pick any two?
People can choose if they have information, understanding, and genuine freedom of options. If they have those three things, they will choose.
Children are told what to do and not to do. Adults, of whatever background, education, and income, should have the right to their own choices.
Give me a chance, and I will.
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