IDC Energy Insights has announced a new report, Business Strategy: Prepayment for Customer Choice and Financial Security (Doc #EI241376), that explores the options for configuration, benefits of undertaking, and potential challenges for utilities and retail energy providers offering customers prepayment programs. Prepayment solutions help utilities and energy retailers overcome bad debt and enhance customer satisfaction by adding choice in billing options.
Key findings from the new report include:
- Clear communication of prepayment program design and management is critical to overcome opposition from regulators and/or consumer advocates. Providers must be explicit about the payment process, alerts for nearing end of budgeted consumption, warning of shut off, and process of restoration.
- Prepayment programs can benefit customers by expanding billing choice and enhancing awareness of the impact of household behaviors on energy consumption. These programs have proven to help customers more effectively budget electricity costs and generate substantial energy efficiency improvements.
- Smart grid investments such as advanced metering infrastructure, smart meters (specifically RCDC-capable meters), and updated customer information systems facilitate deployment of prepayment programs through the utility rather than a third-party partner.
- Utilities do have the option to deploy prepayment with alternative configuration if smart grid investments have not matured to provide the complete infrastructure for enablement or there is a desire to utilize third-party partners as external service providers.
"Prepayment solutions benefit electric utilities and energy retailers as a vehicle to overcome bad debt, enhance customer satisfaction through expanded billing choice, and enhancing the benefits of smart meter deployment," said Casey Talon, Senior Research Analyst at IDC Energy Insights. "Prepayment solutions can be effectively managed in terms of communication for shut-off and restoration of power to prove the customer value of this billing option and respond to opposition from consumer advocates."
Overcoming Bad Debt & Ensuring Customer Satisfaction
Unpaid electricity bills represent a significant ongoing financial burden for electricity providers. Regulatory limits, costs, and public advocacy pressures associated with shutting off residential electricity hinder providers' capacity to overcome this bad debt. Providers must find new ways to reduce the revenue losses from non-payment while complying with regulations and demands around customer service. Prepayment solutions are gaining momentum as a billing solution to this problem.
In addition, for both regulated utilities and retail energy providers, the business focus is increasingly centered on customer satisfaction. For utilities developing smart grid initiatives, regulators center much of rate case debates for the cost recovery of technology deployments on how these investments impact customers. In the retail markets, competition for customer loyalty is paramount to ongoing business viability. Prepay solutions have been gaining momentum with regulated utilities as well as some retailers due to the fact that billing flexibility can be an effective tool to enhance customer satisfaction while providing a mechanism to overcome bad debt.
Higher adoption rate of prepayment have centered around particular customer segments including territories with high churn due to transient populations, notably centered around colleges and universities, lower income segments looking for budget-focused cost management options, and younger, mobile-device centric populations familiar with prepayment as an option in other avenues of their finances.
Overcoming a significant portion of bad debt from unpaid bills is the fundamental goal of a successful prepay solution deployment. Providers can justify the cost of devices, infrastructure, and management of service if they see reduction in bad debt and can effectively communicate the customer benefits of prepay.
However, the issue of bad debt is complicated for energy providers. Universal service access rules expose regulated utilities to higher risk of non-payment. Retail energy providers in competitive markets, on the other hand, can and do deny service based on risk. There are limitations, however, such as PUCs requiring retailers to service a percentage of high-risk customers such as the rules in Texas. On the customer side, prepayment programs have demonstrated that increased awareness of energy use through the regular updates embedded in this platform change household behaviors to generate energy efficiency improvements of around 10%.
Actions to Consider
Utilities and electric retailers have to consider both the configuration design of prepay as well as alternative approaches to overcoming bad debt such as deposit and budget billing programs. This new IDC Energy Insights report highlights the process of prepay and the options to consider in each element of the solution design. In addition, successful prepayment programs rely on a network of information and communication technology and devices for monitoring consumption and managing disruption and return to service. The new report illustrates the critical technologies that enable prepayment solution deployment and management.