Oklahoma Electric Cooperative (OEC) recognized many of the benefits it would receive by installing advanced metering infrastructure (AMI). It knew billing accuracy would improve and collection costs would decline. It also knew its member services representatives (MSRs) could better serve consumers by giving them access to daily and hourly meter readings.
Despite how much it knew, OEC never imagined how this technology would transform the business model it had been following for the last 70 years. The utility, based in Norman, Oklahoma, U.S., has leveraged its AMI system to offer prepaid electric service, providing affordable service during tough economic times.
Collection Process
The collection process is one of the most time-consuming and least gratifying aspects of the electric industry. It is resource intensive in terms of truck rolls and call center talk time. A small percentage of consumers dominated considerable time making payment arrangements and needing to get reconnected. OEC recognized the need to reduce bad debt and protect the general membership by passing these costs on to the consumers incurring them. Deposit requirements were raised, collection charges were increased and policies regarding payment arrangements were tightened.
Although these measures were successful in helping to keep write-offs in check and offset costs associated with collections, they did make it more difficult for cash-strapped consumers. In addition, these changes caused additional hardship for the consumers who had fallen into the delinquent/collection cycle. The traditional deferred payment plan was rarely successful in assisting consumers to break free from the cycle and become current. Late charges and disconnect fees, while necessary, only contribute to the difficulty in getting the account into good standing. OEC was eager to find an alternative that would assist these consumers while still protecting the rest of the membership.
Although OEC management entertained the idea of prepaid electric service before, the expense of such programs made it unjustifiable. While a few prepaid electric programs across the United States were popular with consumers, they all seemed burdensome to the utility. Most systems required in-home displays, special metering equipment at the residence or special payment terminals at public locations to replenish the consumer's account. In addition, the consumer was required to travel either to the utility office or a payment terminal to recharge the card.
In April 2006, Exceleron Software approached OEC with its Prepaid Account Management System (PAMS). With a background in prepaid telephone service, Exceleron developed a software-based product designed for the electric industry that overcame many of the hurdles that previously prevented entry into the prepaid market. In addition to leveraging the existing AMI system, it also took advantage of other technologies that the newer generation of electric consumers are using. OEC agreed to do a pilot program, and now, six years later, 12% of OEC's residential consumers prepay their electricity.
The System
The PAMS program is Internet-based, using the same AMI meters consumers have equipped with a disconnect collar OEC uses to disconnect postpaid consumers. Initially, the AMI data was gathered through web services to calculate the previous day's usage and subtract it from the credit balance. Today, OEC uses a meter data management system to gather and cleanse data before it is sent to the prepaid system. The utility's customer information system (CIS) is continuously polled for payments or changes in account balance.
The account continues to bill monthly in the CIS system, which makes the prepay system transparent to the utility's accounting department. This billing helps to reconcile the prepaid system and also is transparent to the end consumer, because no paper statement is processed. After the monthly bill occurs, the consumer's balance is adjusted in PAMS to correct for any minor discrepancies that can occur because of rounding or proration.
Prepaid service has helped OEC to decrease collection costs. As prepaid participation has grown, the utility's write-offs have dwindled. There have even been some months where its collection agency collected more than what was written off. The utility also has experienced other tangible benefits such as lower personnel costs. The need for field technicians and call center help has declined, allowing for staff reduction through attrition.
The utility also has experienced reduced transportation expense and saved on printing and postage for more than 5,800 bills. There have been other intangible benefits the utility did not anticipate. Employee morale has improved as MSRs and field technicians deal with fewer angry customers. They are now able to provide an alternative to customers faced with the stress of a disconnection.
Benefits
The unique thing about prepaid electric service is it benefits the end consumer as much as it benefits the cooperative. Prepaid consumers are empowered to manage their own account. No deposit is required, which makes the program attractive to new customers or those who currently have a deposit on file. Because they are paying ahead, they never pay any late fees and, if they do become disconnected, there are no reconnect fees. Postpaid disconnect fees are waived if the consumer converts to prepay. This program puts the consumer in control; it removes the negative stigma associated with disconnects.
With the prepaid service, consumers can pay as much as they want as often as they want, which better meets the diverse lifestyles of today's consumers. Many people find it difficult to budget when they only receive a bill once a month. The prepaid program also offers a debt-recovery module where a consumer who owes a balance can set that amount aside. As future payments are applied to the account, a portion goes toward the person's credit and a portion goes to pay down the old balance.
Another reason for the program's success is it uses modern technologies to monitor and manage each individual account. Prepaid consumers can monitor their balance through text messaging and e-mail. They also can receive a call from an interactive voice-response system. They can choose the time of day the phone call is sent and provide an alternate phone number if the first call is not successful. They also can access their account through a web portal called MyUsage.com.
The web portal breaks out their charges, lists payments and provides a graphical representation of their daily use compared to the high and low weather temperatures. They can choose from several alert types and several communication channels. The typical notifications are low balance notifications and disconnect notifications; however, they also can receive daily balance information and a notification when payment has been received. Each member determines at what balance to start receiving notifications.
Unlike the old swipe-card systems, prepaid customers can use all of the cooperative's current payment methods. Since many prepaid customers make smaller, more frequent payments, consumers look for the most convenient way to pay. The two most popular payment methods for prepaid customers are payment kiosks and payments by phone. OEC uses US Payments (a third-party pay agent) to handle both types of transactions.
The payment kiosks handle multiple billers and are located in grocery and convenience stores in many areas of OEC's service territory. OEC has a kiosk on-site accessible 24 hours a day and does not require a convenience fee. Although they can take Automated Clearing House, credit and debit cards, the kiosks are most popular with cash-paying consumers. Other popular payment types are consumer walk-up payments and payments through the consumer's bank. Payment files are posted every few minutes, which results in speedy reconnection if the member's account has been disconnected.
Objections and Results
Some critics of the prepaid electric concept say utilities want prepaid because it makes it easier to cut people off. They also argue there is no safety net for the sick or elderly. OEC's experience has been that 41% of prepaid consumers have never experienced a disconnection and another 34% went off three or fewer times during the past year. The average daily disconnect total is less than 1% and the utility does not disconnect on weekends or holidays. In fact, prepaid removes the negative stigma of disconnection and makes it easier and less expensive to get reconnected. More than 90% of prepaid accounts that do get disconnected are able to reconnect the same day.
OEC recognizes prepaid service is not for those who rely on life-sustaining equipment, so the program remains voluntary. OEC also has built in additional safeguards such as a one-day grace period after an account becomes negative. One should not jump to the conclusion that prepaid service is for the poor. It is merely a budgeting tool that fits the needs of some consumers.
One of the most fascinating results of OEC's prepaid program has been in consumer awareness regarding daily activities and electric use. Consumers who pay weekly or biweekly report they are much more conscientious about their habits in regard to electricity. In fact, in two separate surveys, more than 85% of prepaid consumers indicated they feel they are more aware and more conservative with their electric use compared with times when they had traditional postpaid electric service.
Win-Win
Initially, OEC developed the program around a cost-recovery model that passed the associated costs along to the prepaid consumer through the service availability charge. It also required a one-time US$70 fee to help cover the cost of the disconnect collar. In addition, it did not offer a blocked rate in the winter, thinking it would be too confusing for prepaid consumers to understand. As the program gained momentum, management began to shift its philosophy away from the cost-recovery model to one that removed most of the barriers that would deter someone from choosing prepaid service.
One year into the program, the utility eliminated the $70 fee. Two years later, the service availability charge was lowered to match the postpaid residential rate. Finally, in 2011, the prepaid rate was changed to mirror the regular residential rate, which included both a declining block in the winter and a time-of-use rate during the summer. The early concerns about the rate being too complex dissipated as consumers adapted without problem. Even under the non-cost-recovery model, the utility sees a positive return on investment, making prepaid more attractive for all consumers.
OEC is proud to be a pioneer in bringing this type of technology to its members. It celebrates that the smart meter provides win-win opportunity to provide a tangible benefit to both the consumer and the utility.
Jonna Buck ([email protected]), manager of information technology services, has worked for Oklahoma Electric Cooperative for more than 21 years. She has a master's degree in management from Southern Nazarene University, a bachelor's degree from the University of Oklahoma and previously served as a supervisor in customer service and billing.
Companies mentioned:
Exceleron Software | www.exceleron.com
Oklahoma Electric Cooperative | www.okcoop.org
US Payments | www.uspayments.com
