Just a few years ago, the idea of prepaid electricity service was a novelty amongst a handful of municipal and cooperative utilities in the U.S. While prepaid service is common in many other parts of the world, it just doesn’t click with American consumers, even though they prepay for plenty of other services.

Now, prepaid electricity is starting to pick up steam as big cellular companies try to grab a piece of the burgeoning market. For example, earlier this summer, AT&T announced it was the sole provider for PayGo’s utility payment solutions.

“Nearly 30 percent of people are on a prepay mobile plan in 2013,” said Ed Davalos, lead product marketing manager at AT&T, during a recent Greentech Media webinar. “That cannot be overlooked. The consumer has already changed.”

Contrast that with the less than 1 percent of the 30 million electric customers with smart meters that are on a prepay plan, according to a study by DEFG EcoAlign. Utilities and regulators are interested in the opportunity, according to Davalos.

In a study conducted by AT&T, one-third of utilities surveyed said they would be very likely to implement prepay if it could be done for no or low cost. Nearly another third said they were somewhat likely to do it for no or low cost.

For utilities, the drive is to decrease the amount of money that is lost to uncollectible bills. AT&T’s survey found that utilities send disconnect notices to nearly 10 percent of all residential customers each month, with about 3 percent to 5 percent of those actually being disconnected.

AT&T estimated that a utility with 250,000 customers and a 10 percent penetration rate of prepay would save between $5 million and $15 million per year. Another advantage is that customers on prepay use about 11 percent less electricity per month, a meaningful rate of savings for utilities looking to meet energy efficiency resource standards.

Like everything else with utilities, however, regulation is key. Many states require utilities to visit a home before shutting off service. But prepay would be an option that customers could choose, argued Davalos, and regulators are evaluating how utilities can use smart meter technology to offer more choice to customers.

“Now is the time to accelerate prepay solutions, because technology has enabled the consumer,” he argued. Davalos added that regulators could define situational parameters, such as certain high or low temperature thresholds, during which utilities could not remotely disconnect a customer's service. In Texas, for example, accounts cannot be shut off during natural disasters.

Another issue is latency and payment options. A successful prepay plan would offer customers near-real-time data on their usage, and utilities would also have to be able to turn service back on in near-real time. Like other prepay services, there would need to be options to allow customers to pay and enroll online, although there could be a need for payment kiosks as well.

Many utilities, which tend to be risk-averse by nature, are likely waiting for someone else to take the leap first. Salt River Project has had a successful prepay program for years, but many large investor-owned utilities are just starting to come around to the idea.

Consumers Energy in Michigan is already dipping its toe in the water with a plan for a 1,000-customer pilot to test prepay. Even if the state’s regulators approve it, however, it will not begin until fall 2014.  

Hear even more about what AT&T is up to in the utility sector at our second annual Soft Grid conference October 1-2.