NEW YORK — Electric bills have long been take-it-or-leave-it affairs: Pay one rate for all the power you used the month before, no matter when you used it.
But some electric companies want to shake-up that rigid business model. They are increasingly offering plans that sound like come-ons from mobile phone companies: Free nights, free weekends and pre-paid plans.
“We are seeing a transformation in the way people buy and use electricity in the U.S.,” says Steven Murray, president of Direct Energy’s residential energy programs.
The more customized plans are made easier by the growing use of digital meters that wirelessly link electric companies and customers, allowing both to track usage in real time. Digital meters have not only spurred competition, they have also enabled traditional utilities to reduce their costs by encouraging customers to use electricity during off-peak hours, when it is cheaper.
This new breed of electric plans comes with risks.
Customers can end up paying a lot more for power than they expected. Some plans offer low introductory rates that can quickly skyrocket. Others have high early-termination fees. Some fixed-rate plans are a great deal if power prices rise, but they may seem awfully expensive if prices fall.
If customers are careful, though, they can pay less.
Dorothea Miller of Sinking Spring, Pa. signed up for a Direct Energy plan that gives her one day of free power every week. She picked Saturday, and now saves as much of her housework as she can until then.
“We pretty much run things the way we did before the plan, but now we set our dishwasher to go on after midnight (Friday) and do most of our laundry on Saturday,” she says.
Customized plans are most prevalent in the 13 states and Washington, D.C., where regulators have allowed companies to compete to sell electricity.Companies have different motivations for offering innovative plans. Traditional regulated utilities are trying to reduce stresses on their grid. Upstart power providers are trying to lure new customers. In both cases, they are trying to get customers to use less electricity when it costs more.
Power providers have only had success attracting customers in the past when electricity prices are falling because they can offer a quick savings compared with what the traditional utility offers. But now that 60 million customers have digital meters, they can offer plans that save money based on how and when they use power.
Direct Energy ran a simple, silly TV advertisement pitching its free power day that included a woman blow-drying her golden retriever <0x2014> why not, if the power is free? Oklahoma Gas & Electric offers a plan called “SmartHours” that offers lower rates to customers who cut back on power usage during hot summer afternoons, along with a thermostat that can adjust itself based on electricity prices.
“To differentiate yourself you have to craft a product that makes things easier,” says Bill Massey, a former federal energy regulator now at the Compete Coalition.
Companies are offering pre-paid electric plans that, like pre-paid mobile phone plans, can be cheap and include no sign-up fees or deposits. Customers get text and email alerts when they’ve used most of the electricity they’ve paid for. By paying attention to their use they use less, which lowers their bills further. Prepaid customers can have their power cut more quickly, though, if they have trouble paying for more electricity. In Texas, for example, if a prepaid balance falls below a certain level, power can be cut in as little as a day after the power provider issues a warning.
“Some (new plans) will be good for some people and some will be very very bad for other people,” cautions Janee Briesemeister, a senior legislative strategist who works on electricity issues for the AARP.
This week New York’s electricity regulator threatened to block a power provider called Buy Energy Direct from operating in the state over complaints that it signed up customers who never intended to sign up, a scheme called “slamming.”
“It’s even more confusing than shopping for a cellphone contract,” says Briesemeister.
Many in the industry think that companies will learn to offer ever more straightforward and useful plans in order to woo and keep customers, and customers will learn to shop for electricity the way they shop for phone or cable service.
“The industry is only at the beginning of learning to understand their customers and figuring out what people want to do,” says Brain Seal of the Electric Power Research Institute, an industry-funded technical group.