Power Play

I got a letter today from my power company with a new offer. They computed my total consumption of electricity last year and divided it by 11 and they said that this was going to be my monthly payment if I signed up for this new free service. Of course on the 12th month they said we will settle things up if I paid too much, I get a refund or if I paid too little I have to pay up the excess. How is this good for a customer? Of course at best this is a breakeven move for the company or a profit enhancing one, it's never in any company's interest to give away money for nothing. Suppose there is only one customer, and 3 periods. The consumer's total consumption for three periods let's say is $300, the power company's offer is pay $150 each in the first 2 periods and settle whatever's left in the 3rd period. Company just increased its cash flow in the earlier period from an average of $100 to $150 and of course they can put this money to profitable use. In fact if interest rate was 5% (per period), the present value of the company's revenue from the offer is $292, while if you refuse the offer the present value of the company's revenue from you is $285.7

A simple graph and thought experiment would also show that producer/sellers are better off when prices are stable, on the other side of the coin, consumers/buyers are ahead when prices fluctuates. The power company's offer looks similar to what the first President Bush offered to tax payers, no monthly tax deductions but as tax month comes you still need to come up with the money for Uncle Sam. They thought this way people would be encouraged to spend more money and stimulate the economy. They guessed wrong. I wonder how many people would sign the power company's offer and get fooled into using more electricity.