Unfortunately, behavioral researchers may now have discovered a factor that counters such energy consciousness — namely, automatic bill payment programs. According to a new study just out in The Review of Economics and Statistics, customers signed up for these programs use more energy, and accordingly pay more money on their bills, than those that aren’t. And this seems to occur, writes economist Steven Sexton of Duke University’s Sanford School of Public Policy, because people pay less attention to what they’re paying each month — and thus, what they’re using.
“Automatic bill payment programs free customers from having to regularly review their bills in order to transmit timely payments,” Sexton explains. “And without that incentive, rational customers might stop looking at them, because attention itself is a scarce resource.”
Automatic bill payment is something that we’re all now familiar with in our daily lives. Companies across industries now use these programs — which, of course, are voluntary — to debit the accounts of their customers on a monthly basis. The amounts paid through automatic bill payments are now estimated to be in the trillions of dollars in the U.S., Sexton writes — and no wonder. The programs are highly convenient to the companies and customers alike.
But there may be an energy downside. To study how this affected people’s energy use and bills, Sexton examined electricity accounts received through a request for public records to Santee Cooper, a South Carolina electric utility, from 1994 up to 2010. He had access to 14.4 million monthly bills for 684,000 individual accounts (names and addresses were not included, of course), and a large number of accounts for businesses as well. Most important, 13 percent of accounts were enrolled in automatic billing.
Analyzing the data, Sexton found that “enrollment induces a 4.0 % increase in electricity consumption on average among all residential customers” — and among those enrolled since 2000, a 6 percent increase.
“The larger magnitude of the salience effect on recent accounts suggests that inattention to electricity bills is greater among new account holders, who tend to be younger,” Sexton writes.
For businesses, meanwhile, he found that energy use increased by as much as 8.1 percent — even higher.
After performing this data analysis, Sexton analyzed just how much aggregate impact automatic billing might be having. He estimates that within the service area of the utility, the result is probably equal to the “annual consumption of 14,800 typical homes,” and an added $ 1.59 million in bills annually.
Scaling up nationally, meanwhile, Sexton finds that in 2010, automatic bill pay probably led to an estimated $ 1.82 billion in bills and 8.6 million metric tons of carbon dioxide emitted into the atmosphere — equivalent to the “annual consumption of 1.5 million typical American homes.” In other words, this is a pretty big amount. Indeed, the study notes, it is bigger than the estimated 1 percent additional energy consumption caused by daylight savings time.
What’s most striking about the whole analysis is how automatic bill payment seems to run contrary to myriad efforts, often fostered by power companies themselves, to make electricity prices more salient — through, for instance, installing smart meters and online portals that let utility customers see their energy use on an hour by hour basis. People are striving every day to put electricity costs at the front of our minds, so that we respond accordingly — but at the critical moment when we actually pay our bills, we may be simply out of it.
Automatic billing programs thus “interfere with efforts by regulated utilities and policymakers to boost energy price salience and reduce energy demand amid concern about anthropogenic climate change and the health and environmental damages caused by energy production and consumption,” the paper states.
So what can we do about it?
Sexton doesn’t think it’s reasonable to stop using automatic bill payments as a whole. “There are huge benefits to both the firm and to the customer, who don’t want to undo all of the benefits associated with automatic bill payment,” he says. “But maybe if customers were required to implement a one click method to retrieve or look at the bill, you could retrieve the price salience.”
An e-mail, a text message — something to make people realize how much using energy actually costs them, before it fades into the background of all the other expenditures in their lives.