Summary Findings

Northwest Utility

Prepay Study

April 9th, 2014Presented by

DEFG

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Outline of Presentation

1. Project Overview

2. Overview of Conservation Impact Study

3. Summary of Results and Findings – Conservation Impact Study

4. Overview of Customer Survey

5. Summary of Results and Findings – Customer Survey

6. Future Research Areas

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1. Project Overview

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Background

DEFG was asked to conduct a data evaluation study to analyze the potential energy conservation impact that can result from prepayment of electricity service. The study was to focus on a group of utilities in the Northwest that had been offering prepaid electricity services to customers

The study involved two core components: A Conservation Impact Study evaluating the usage data from customers enrolled in prepay programs to identify potential energy savings impacts from participation; and a Customer Survey that surveyed customers who were participating in the prepay programs to better understand their perspective and behaviors related to the prepay service

The study included two cooperatives in the Northwest that have prepayment service programs in place, Glacier Electric Cooperative in Cut Bank, Montana and Peninsula Light Company in Gig Harbor, Washington

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Overview of Glacier Electric Cooperative’s Prepay Program

• Glacier Electric has approximately 1,250 customers enrolled in its prepay program. Glacier's program has been in existence since 2009. Prepay customer’s represent 25% of its 5,100 customer base. Glacier uses NISC as its prepayment vendor

• Eligible customers must have their post-pay account paid in full before converting to prepay or up to $300 of their balance can be converted into long-term debt on their prepay account

• The prepay program has the following features: Participants must have an In-Home Display. The In-Home Display acts as

communication channel for customers, and provides both usage and account balance information.

The IHD rental option requires a $50 deposit and an ongoing $5/month fee The IHD purchase option is a one-time fee of $100 Normal electricity rates and base charges—the same as post-pay customers—apply

to prepay accounts Disconnections for a zero balance may occur Monday through Thursday at 11:00

a.m. MST Customers who make a payments by 10:00 a.m. on Mon-Thu. can avoid

disconnection Payments can be made at kiosks, online, by mail or at Glacier's offices

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Overview of Peninsula Light Company’s Prepay Program

• Peninsula Light Company has approximately 170 customers enrolled in its prepay program. The prepay program started in February 2013 as a pilot program and was available only to a small percentage of its approximately 30,000 customers. Eligible customers for the pilot were those who were disconnected and were not able to pay a security deposit or pay the past-due balance in full to get reconnected. PenLight started to expand its prepay program to all customers in September 2013. PenLight uses SmartGrid CIS as a prepayment vendor.

• The prepay program has the following features: There is a one time $25 set up fee when a customer enrolls in prepay Initially when the program was started and a customer had an outstanding balance

when transitioning to the prepay program, 25% of the outstanding balance had to be paid prior to enrollment in addition to having 25% of future payments being applied to past due amounts. Now, customers no longer have to pay 25% of the outstanding balance prior to enrolling in the prepay program.

This is a web-based program; there is no in-home display The program uses text messaging, email, and robo phone calls as messaging

channels The program provides notifications of low balances and possible disconnection based

on usage patterns in a 7 day, 3 day, and 1 day sequence Disconnections for a zero balance occur Monday – Friday at 10am, with reconnections

occurring 24x76

Summary Results

Conservation Impact Study

Methodology – regression analysis that utilized customer billing data during post-pay and prepay periods to determine usage changes, while holding other non-weather dependent variables constant

For Glacier, enrollment in prepay results in an average savings of 14.0% 95% confidence interval goes from savings of 10.4% to 17.5%

For PenLight, the average savings from prepay is 5.5% 95% confidence interval goes from savings of 1.6% to 9.5%

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Summary Results

Consumer Survey

Developed telephone survey for both Glacier and PenLight members who were on prepay service; 112 responses in total, most from Glacier members.

Survey results indicated the following: There are high levels of satisfaction with prepay service

Three-out-of-four customers say they have changed usage behavior

92% of customers indicated they made a conscious effort to reduce electricity

Customers across all demographic categories allow their electricity to be shut off to manage electric costs

Awareness and information are driving behavioral changes as 90% of customers indicated they had made some type of behavioral change since switching to prepay service

Customers switch to prepay service for control, budgeting and cash allocation

Customers want choices as it relates to communication channels, payment options, and type of information received

The personalization of information to each customer and residence is important8

2. Overview of Conservation Impact Study

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Conservation Impact Study - Methodology

The methodology was presented in a white paper, A Method for Estimating the Conservation Effects of Energy Prepayment (DEFG 2011) http://defgllc.com/publication/method-for-estimating-the-conservation-effects-of-energy-prepayment/

Fundamental approach: utilized customer billing data during post-pay and prepay periods to determine usage changes

The data set:• Monthly consumption data for a total of 1,394 households

• 1,204 from Glacier and 154 from PenLight• Average of 11 months under post-pay and 10 months under pre-pay Latest data October 2013

• Weather data (temperature) by zip code covering post-pay and prepay periods• Disconnection data for each customer under post-pay and prepay (count of

disconnects each month)

Development of the evaluation database required:• Change billing cycle dates to calendar dates• Cleaning the data to capture missing or erroneous information • Joining all the data elements into a single evaluation database

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Conservation Impact Study - Methodology

• A monthly fixed-effects panel model was used

• Model controlled for:• Difference in average usage across customers (fixed-effect)• Effects that vary over time but are constant across customers (time-effects)• Temperature and dew-point influences

• A log specification was used, so estimated savings would be as % of usage

• Separate models were estimated for each utility because of differences in number of customers and geography

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3. Summary of Results and Findings – Conservation Impact Study

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Key Results

Estimated Coefficients for Glacier (savings are negative):

Estimated Coefficients for PenLight (savings are negative):

Variable Coefficient t-value

Enrolled in Prepay -14.0% -7.54

Disconnects under Prepay 5.1% 3.88

Disconnects under Postpay -7.7% -2.35

Sample Size 20,289 obs (1,240 houses)

Variable Coefficient t-value

Enrolled in Prepay -5.5% -2.71

Disconnects under Prepay -3.8% -1.31

Disconnects under Postpay -2.3% -1.25

Sample Size 3,630 obs (154 houses)

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Interpretation of Results

For Glacier, enrollment in prepay results in an average savings of 14.0% 95% confidence interval goes from savings of 10.4% to 17.5% Disconnection under post-pay results in a decrease in energy use for

that month Under prepay, a disconnect is associated with an increased use of

electricity Possible reason is that under prepay, customers have knowledge of

their current bill, so if the bill is higher than expected, the customer will choose to disconnect to manage their bill

For PenLight, the average savings from prepay is 5.5% 95% confidence interval goes from savings of 1.6% to 9.5% The coefficients of both disconnect variables are statistically

insignificant, thus no definitive conclusions can be drawn on the size or magnitude of these terms

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Interpretation of Results

Difference in savings across the utilities could be due to: Differences in demographics and motivation to reduce energy bill

(Glacier customers fall into the lower income categories and responses in survey indicate a stronger motivation to reduce their energy bill)

Glacier’s program has been in place longer (since 2009) and has a larger observation group – PenLight just opened its program in fall 2013

Geography

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4. Overview of Customer Survey

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Customer Survey - Overview

DEFG surveyed prepay customers of both cooperatives who were enrolled in a prepay service and were part of the conservation impact study to explore the pros and cons of prepayment solutions, and shed light on why and how prepay customers reduce their energy usage

The survey asked questions related to potential behavioral changes and actions a customer may have taken since enrolling in a prepay service. The goal was to try and better understand the drivers, the behavioral aspects and specific steps that customers may take to reduce their energy usage as a result of being on prepay

Customers invited to participate in the survey were from the same households as those whose usage data was analyzed in the conservation impact study

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Customer Survey - Methodology

Utilities provided data, including telephone numbers, for 1172 prepay service accounts. Customers were provided with advance notification of the survey

There were 112 telephone interviews completed. Based on eligible customers the response rate was 13%

The overall margin of error of the study is +/- 9.2 percent. All references to statistically-significant differences are at the 95 percent confidence level. That is, in theory, had this same survey been conducted 100 times, the results would be within +/- 9.2 percent of the overall results reported here at least 95 times

The margin of error is greater for the utility sub-segments because there are fewer data points in each sub-segments. Glacier Electric Cooperative with 98 completed surveys the margin of error is +/-10 percent. Peninsula Light Company with 14 completed surveys the margin of error is +/- 15.5 percent

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5. Summary of Results and Findings – Consumer Survey

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Demographics

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Survey Participant Demographic Characteristics

Glacier customers represented 87.5% of the respondents

Glacier customers fall more into the lower income categories presented in the survey; PenLight customers fall into the moderate income categories or higher

Young adults represented a higher percentage of respondents for Glacier than other age groups

60% of respondents were female

Slightly higher % of respondents (30%) were young adults (18-34 years old) versus other age groups

55% of respondents were renters

Young adults answered the survey with their mobile phones at a higher percentage versus other age groups

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Satisfaction with Prepay Program and Perceptions Regarding

Behavioral Changes

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There Are High Levels of Satisfaction with Prepay Service

Customers Satisfaction with Prepay Service at Two Electric Cooperatives

Q1. How satisfied are you with your prepay service? (List of five choices.)

• Ninety-two percent of customers on prepay service are either “very satisfied” or “somewhat satisfied.” This follows the findings of DEFG’s national surveys on prepay.

• Given the large percentage of respondents with income levels less than $25K or in $25K-$50K range, the high levels of satisfaction may help address the perception of the appropriateness of voluntary prepay service for lower income consumers.

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One Half of Prepay Service Customers Now Think More Often About Budgeting

Frequency of Thinking About Budgeting for Electric Service

Q3. Since you switched to prepay service, would you say you think about budgeting for electricity costs more often? About the same? Or less often?

• 51% of respondents indicated that they think more often about budgeting for electricity since they switched to prepay service

• 25% indicated they thought less often about budgeting

• Responses are consistent across categories

• Do regular updates reduce the level of worrying about the electric bill and reduce the thought about budgeting?

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Three-Out-of-Four Customers Say They Have Changed Usage Behavior

Perception of Behavior Change With Prepay Service

Q4. Since you switched to prepay service, do you feel you have changed your behavior around how you use electricity in order to reduce your electricity usage and lower your electricity bill?

• 78% indicated that they have changed their behavior since switching to prepay service

• Responses are consistent across categories

• There is a strong indication of the value of timely information around energy usage that is driving both awareness and behavioral changes as it relates to proactively managing energy costs

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Actions to Conserve Energy and Self-Identified Behavioral Changes

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Intentional Actions Taken to Conserve Energy – Summary List

Actions Taken to Use Less Electricity Since Switching to Prepay Service

Q5. Please indicate whether you have taken this action since switching to prepay service: (summary list of items A through K)

Rank Action Type Action “Yes”1 Behavior Made sure the lights are off in unused rooms 97%

2 Behavior Intentionally made an effort to use less electricity 92%

3 Behavior Adjusted the thermostat a few degrees to use less electricity when the residence was empty 84%

4 Behavior Adjusted the thermostat a few degrees to use less electricity when you or others are in the residence 80%

5 Investment Replaced light bulbs with energy-efficient light bulbs 74%

6 Investment Applied weather stripping to windows and doors or added insulation to the attic or around the water heater 52%

7 Behavior Changed the time of day or how often you use your appliances 48%

8 Investment Made a major investment in the home heating system, in new insulated windows or in new energy-efficient appliances 43%

9 Behavior Lowered the temperature setting on the water heater to use less electricity 40%

10 Investment Upgraded or replaced the thermostat 37%

11 Other Allowed my electricity to be shut off as a way to use less electricity 36%

• 92% said made a conscious effort to reduce electricity, yet previously (Q3) while only 51% indicated they think more often about budgeting for electricity. One potential answer may be that people may make an effort to reduce waste, but not spend time thinking about budgeting

• Top 4 are purely behavior with no cash outlay; another behavioral change (water heater temperature setting) is being missed by many consumers, suggesting that the information and effort are not without cost

• Even with moderate incomes, a fairly high percentage of customer made expenditures to invest in energy efficiency

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Disconnection appears to be a choice utilized by customers

Customers across all demographic categories allow their electricity to be shut off to manage electric costs In response to the question above, 36% of customers indicated they

allowed for their electricity to be shut off as a way to use less. The responses included customers across all demographic categories.

Nearly one half (48%) of customers in the lower income category ($0-$25K) claim to use this strategy, as compared to one quarter of customers in the $25K-$50K income range, or those with $50K or more in income (22%).

This strategy also appears more prevalent for renters (39%) versus (33%) for homeowners in the survey.

Additional information is required in this area to better understand the time of year the disconnects are occurring (summer vs. winter) and the rationale behind taking this action versus trying to manage usage more closely through other actions. The response rate does potentially indicate the perceived ease/low cost of the disconnect/reconnect process under prepay vs. post-pay, increasing the value of this action to customers. 28

Most Important Change?: Customers Turn Off , Unplug and Check Usage

Most Important Change You’ve Made

Q6. What would you say is the most important change you've made since going on to prepay service? (Open ended)

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Behavioral Changes Made After Switching to Prepay Service – Summary List

Most Important Change Customer Has Made Since Switching to Prepay Service

Q6. What would you say is the most important change you've made since going on to prepay service? (Open ended) (Responses were categorized; multiple responses; percents exceed 100%.)

Rank Type of Change Initial Classification Total1 Conservation Turning off things when not in use/turning off lights 35%2 Monitoring/ Budgeting Knowing how much we use/more control over usage 24%3 Conservation Saving energy/aware of how to save/conserving/using less 18%4 Conservation Unplugging things from outlets 13%4 Conservation Turning thermostat down/controlling temperature 13%6 Monitoring/ Budgeting Payment/how I pay 8%7 Monitoring/ Budgeting Better budgeting 7%8 Other Haven't made any changes 5%9 Other Cheaper/more affordable 4%

10 Other Don't Know 2%11 Other Other 2%12 Other Too big of a hassle 1%

• Responses from 112 customers resulted in nearly 150 open-ended responses which were initially classified into twelve groups; these where then grouped into two types of change and miscellaneous comments (other)

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Reasons for Prepay Service Today;Ways to Make it Better Tomorrow

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Customers Switch to Prepay Service for Control, Budgeting and Cash Allocation

Reasons Why the Customer Uses Prepay Service

Q7. Please indicate why you and your family use prepay electricity service. I will read five possible reasons, please choose the ONE that best fits why you use prepay service.

• Convenience and control are a driver for customers

• Prepay service provides an option for customers who are payment- and credit-challenged; prepay is a useful tool for them to make payments and use their available income more efficiently

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Demographics Drive Payment Option Preferences

Most Important Payment Options Whether or Not They Are Available Today (Pick Two)

Q8. When you think about the different payment options available to you, of the following what are the TWO most important options you would like to use when paying for electricity under your prepay service, whether they are available to you today or not. (Pick two. Total exceeds 100%.)

• Income difference between Glacier and Peninsula is evident in regard to cash-paying customers versus online and automatic payment customers

• Trend towards web, mobile, and automatic payment based on certain balance thresholds (convenience)

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Preferences Vary and Prepay Service Needs to Offer Information Choices

Most Important Types of Information You Could Receive (Pick Two)

Q9. When you think about the different types of information you could receive with your prepay service, of the following what are the TWO most important items that you would like to receive, whether they are available to you today or not? (Pick two. Total exceeds 100%.)

• Survey responses indicate that prepay service customers want actionable alerts and information rather than just a daily usage or daily account balance reminder. The personalization of information to each customer and residence is important. Customers are saying “tell me when to add to my account,” “tell me when my usage is unusual,” “tell me if there is an action that will give a discount.”

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Consumers Prefer a Variety of Electronic Communications Channels

Customer Preferences for Notification of Prepay Service Account Balance and Alerts

Q10. How do you prefer to be notified of your prepay service account balance, alerts on your prepay service, or other information associated with your prepay service? Would you prefer notification by (list)? (Multiple responses; percents exceed 100%.)

• Glacier consumers use the required in-home display; then they prefer text, phone and email in roughly the same proportions

• Peninsular consumers prefer text and email

• Younger consumers prefer text, while older consumers prefer the phone

• Consumers with incomes in the $25K-$50K range also prefer a phone call to a greater degree than other income levels

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Open-Ended Response: Even today a meaningful number of customers don’t know what to ask for

Types of Information You’d Like Utility to Provide to Lower the Electricity Bill

Q11. What type of information would you like your utility to provide to help you lower your electricity bill? (Open ended)

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Prepay Service Customers Want Daily Usage, Conservation Methods and Tips and Notifications About Their Balance

Types of Information Preferred to Lower the Electricity Bill

Q11. What type of information would you like your utility to provide to help you lower your electricity bill? (Open ended)

Rank Total1 Daily usage/what was used one day to the next 13%1 Energy saving methods/conservation 13%3 Weatherizing tips/how to insulate your windows /doors 10%4 Box showing remaining days of service/alerts when balance is low/meter notification 9%5 Any information/how to save/ anything that is available (General) 8%6 Newsletters/pamphlets 6%7 Discounts/offer discounts 4%8 Rebates 2%8 Lower rates (Non Specific) 2%8 Other 2%

None/nothing/what I get is enough 18%Don't Know 21%

• This question by far had the highest percentage of nothing/no response - 40%; customers don't want to be inundated, they don't know what else to ask for

• The other 60% of answers were either focused on information about usage, tips to save energy, discount/rebate offerings

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Incorporating Consumer Survey and Usage Data Linked the 112 survey responses (98 from Glacier; 14 from PenLight) with usage

data

Utilized same regression equation (linear form) on this group of customers, interacting prepay variable with action taken

Due to the smaller number of observations, there were very few results from this analysis that were statistically significant  

The one area that did show a definitive relationship was related to the question where customers were given a list of actions and asked if they had taken this action since enrolling in prepay. The following two actions were statistically-significant in terms of energy savings:

Other actions listed as part of question were not statistically significant

Action Undertaken Coefficient t-value

Upgraded/changed thermostat

-140.7 -2.58

Shut-off electricity -117.6 -2.34

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6. Future Research Areas

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More data brings more questions

What specific behavioral actions are customers taking and which represent the largest savings to customers?

What specific technologies or end-uses are driving the savings? What characteristics of a prepay program are causing/impacting

behavioral changes on the part of the customer? (e.g. creating awareness, method of communication, frequency of communication, program features)

What, if any, are the linkages between customer demographics and energy savings for those customers on a prepay program?

How and when do customers utilize the disconnect option to reduce their energy bill?

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© 2013 Distributed Energy Financial Group LLC

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Contact

Darren Brady, EVP, DEFGOffice: 425-890-5152dbrady@defgllc.com