Navigant Research Blog

Research Shows Prepay Pays Off

Marianne Hedin — April 1, 2013

Although utility prepayment programs are not yet a major market in the United States, which lags behind many other countries that have offered such schemes for decades, Navigant Research has forecast that the North American electric prepaid metering market will grow rapidly over the next several years, expanding at a robust compound annual rate of about 23% from 2013 to 2018.

The Salt River Project (SRP) in Phoenix, Arizona, a prominent trailblazer of prepay, has operated prepaid electric services under the M-Power brand for 20 years. Today, about 126,800 residents are enrolled in SRP’s prepay plan, more than 12% of the residences that it serves.  M-Power customers have consistently demonstrated a high level of customer satisfaction in surveys by the utility, but most noteworthy has been their overall reduction in electricity use: around 12%.  Despite SRP’s results and similar finding by other utilities, establishing a reliable and statistically proven link between prepay and energy usage is still difficult.  However, a recent study led by consulting firm DEFG shows a strong positive correlation between prepayment of energy bills and conservation behavior.

Impressive Savings

Using consumer data from Oklahoma Electric Cooperative (OEC), which launched prepay services in 2006, to compare post-pay and pre-pay customers, the study concludes that participants in prepaid plans on the average reduce their energy usage by 11% (about 1,690 kilowatt-hours per year for an OEC customer) ‑ very similar to SRP’s findings. Compared to other energy efficiency measures ‑ and considering the relatively low cost of implementation, from a utility standpoint, and the ease of adoption for customers (there’s no need to purchase a special energy efficiency device, for instance) – this is an impressive figure.  Since the average monthly bill for OEC’s customers is $146, an 11% energy saving translates into a $192-per-year reduction on the customer’s utility bill.

The energy use reductions can be attributed to several factors, including increased awareness of when and how electricity is consumed.  The study also demonstrates that regular (even daily) communication from the utility to the customer that provides actionable information (usage tied to dollars and cents) changes consumption behavior.

This data provides strong evidence that electric prepayment is a winning proposition for both utilities and consumers, and it should convince more utilities to offer prepay options.  What’s more, according to a recent national survey of 1,000 individuals, 38% said that they were interested in prepaid electric services.  This shift is long overdue.

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