Pre-Paid Electricity: An Overview

Over the last couple of years, there’s been a lot of different news items talking about Smart Meters, and all of the possible benefits they could have to customers in the deregulated Texas electricity market. Unfortunately for Texas, the PUC, and ERCOT, almost as soon as the first large groups of Smart Meters were installed around Texas, the focus turned away from all of the cool things they could do for customers and instead focused on a controversy about how all the new smart meters were allegedly jacking up people’s electricity bills. When all of that happened, Smart Meters lost any potential momentum they may have gained as a new technology to benefit customers, and instead got labeled with the stigma of being another tool that “electricity companies” were using to extort more money from customers. And I put electricity companies in quotations because electricity companies had nothing to do with Smart Meters. It was all the PUC, ERCOT, and the TDSPs. But right now, a few electricity providers are trying to do some new things with Smart Meters, and more might be on the way. Because of that, I’m going to take a look at what Smart Meters might be able to do for the historically crooked area of Pre-Paid Electricity.

What is Pre-paid Electricity?

Pre-paid electricity is exactly what it says…paid in advance. Like pre-paid cell phones, or any other pay as you go product, it works by having customers pay an amount of money to their provider in advance, and they will keep the electricity on in a household until that money runs out. On the surface, it’s an intriguing concept, but it’s always been extremely difficult to execute in practice because any kind of measurement of how much electricity had been used and how much money remained in the customer’s balance sheet was guesswork at best. And on top of that, sending out the notices to customers in a timely fashion before they ran out of money was difficult to execute. And it didn’t help that one of the main players that attempted to run a pre-paid electricity service early on in the days of deregulated electricity was a criminal with a fraudulent past who promptly went out of business and left all of his customers in a difficult situation. So Pre-Paid has a past full of warts, and was never really practical.

What has Changed with Smart Meters?

Well, Smart Meters could make things much more interesting in regards to pre-paid electricity. For starters, the new technology allows energy consumption in almost real-time, down to the 15 minute Trailing intervals. So instead of guessing how much electricity a customer is using, and estimating how much money they have left, now electricity companies and customers (if they monitor their smart meter regularly) will know exactly what the state of their account is and how much longer they have before they’ll run out of money. And this kind of calculation can be done down to the quarter hour. In the past, all of this was guesswork, and then after their money ran out, customers would get a notice from the pre-paid provider saying they owed them hundreds of dollars. It was a nightmare. But now that tracking is better, why would a customer care about doing a plan like this?

What are the advantages of current pre-paid electricity?

Here’s where things start to get interesting. We’ve explained before how the previous incarnations of pre-praid electricity were an impossible to track nightmare, often run by a bunch of felons. But with this new system, utilizing Smart Meters, what has changed? Well, as we mentioned before, the tracking. Electricity can now be tracked effectively through smart meters to make pre-pay feasible. That’s great. But what else does this mean?

Credit and Deposits – Well, one thing that is important to consider is the nature of pre-pay itself. Since you’re paying in advance for electricity, it takes a customer’s credit out of the equation. Currently, customers with a bad credit history or even some customers with a good credit history, will have to pay a deposit that is estimated at 2 months worth of electricity to sign up with a new provider. That could be anywhere from 200 to 800 dollars, depending on the estimated usage. High deposits shut down a lot of customers before they start. But with pre-paid electricity, no more deposits would be required. This could be a huge deal for lower income families. What was formerly a deposit is now your first month’s electricity bill, in advance.

Rates – Currently customers with bad credit history also have to go to providers of last resort, or providers that are willing to take on customers that are considered high risk. Not only does this require a high deposit, but typically the customers also have to pay a much higher rate for electricity as providers attempt to build in the risk for customers that won’t pay. Sometimes this means rates as much as 5 cents higher than competitive with the rest of the market. But with smart meters and pre-paid electricity, customers that might have before been relegated to extremely high rates before could now be able to qualify for much lower rates which are currently available for customers with a good credit history. Since you’re paying in advance, there’s no risk necessary for a provider. When you run out, they’ll either shut off service, or the customer will put more money into the account. So now, for many people that might have had bill problems in the past, the electricity itself will actually be cheaper. That’s a double benefit in one move for customers living on a tight budget.

Consumption and Conservation – One of the old, original hallmarks of what the Smart Meter were capable of for customers was the ability to see their electricity usage in real time. This way, customers could actively work harder to conserve electricity. Well, this hasn’t changed. Customers will still be able to monitor their usage as it happens. This will help environmentally conscious customers to cut back on usage and lower their bill if they are so inclined. As far as things go, this is a pretty good way to help customers conserve money. Particularly if they look at their electricity usage similarly to another budgeted monthly item, like food. You can put a certain amount of money in the account, and know that you only have that much to get you through the month. So sometimes it forces people to tighten their belt when they might otherwise not even be paying attention to electricity consumption.

What concerns still exist?

Well, just because Smart Meters drastically improve how pre-paid might be able to function, doesn’t mean there aren’t still some drawbacks. For starters, customers will have to waive their right that prevents an electricity provider from cutting off your service in case of medical assistance. This is for people who require medical equipment to live their day to day life, and therefore cutting electricity in that manner becomes a life and death situation. But there is really only a small percentage of people to which this applies, so for most people waiving this right probably won’t matter. However, another thing to consider is that this plan forces consumers to be really active and pro-active in regards to their electricity. The best way to utilize this plan is to have constant internet access and monitor your electricity consumption on a daily basis, or perpetually through phone applications or things of that nature. It really requires a customer to be engaged about their usage to prevent any situation where the electricity gets shut off. Even with the electricity provider required to give 3-7 day notice in advance when funds are running low, that’s the kind of thing that a customer might miss or ignore or forget about. So people who want to use a pre-paid plan have to be really engaged to make this work, and that simply isn’t everyone in society. Lots of people just don’t like to think about their electricity on a daily basis. Another thing to consider is that for low income people, to which this plan might be the most beneficial, the tools such as ready internet access to monitor their usage, computers, or smart phones, might just not be readily available to always stay on top of their usage and how much money they have in their account. So there is the potential that the people these programs might benefit the most still might not have all the technological resources to really take advantage of the possible benefits.

Conclusion

Right now there are only a few companies out there that are trying to experiment with new pre-paid plans in conjunction with Smart Meters. But the good news is that these handful of companies are big name providers, not the small fly by night operations of the past that were so shady. They’re backed by big name providers, which means they’re not in danger of going out of business and running away with people’s money. But there’s still not that many experimenting with this plan. And furthermore, even if a customer were really interested in this idea, they are still limited in the regard that they have to have a smart meter installed in their home. At least they do to make it work in the manner I’ve described in this article. So right now, we’re only talking about chunks of Corpus Christi, and even smaller areas of Dallas and Houston. But just because it isn’t available now doesn’t mean that will be the case forever. Within the next 5 years both Houston and Dallas should have sizeable areas with fully integrated Smart Meters. And when that happens, there’s a great chance that pre-paid plans such as these have all the kinks worked out and could be legitimate electricity choice for customers in the Texas market.