Now prepay attracting opposition in U.S.


John Howat,
Senior Energy
Analyst, NCLC
Boston, MA, U.S.A. — (METERING.COM) — June 8, 2012 – The National Consumer Law Center, a non-profit focused on consumer justice and economic security for low income and other disadvantaged people in the U.S., has come out in opposition to prepaid utility service, but if a state’s regulatory agency allows a prepay program, urges that certain requirements should be incorporated to protect customers.

In a new report entitled Rethinking Prepaid Utility Service: Customers at Risk, the NCLC says that the rapid expansion of prepaid utility service programs – now in 19 states – throughout the nation is putting low and moderate income households’ health and safety at risk, and setting up an inequitable two-tiered customer delivery system.

Additionally, many companies add lucrative junk fees, such as initiation fees, equipment charges, transaction fees or frequent payment fees, to the prepaid customer plans.

The report argues that the movement to prepayment allows companies to sidestep critical consumer protections that have evolved over decades while altering the utility’s incentives to interact creatively and constructively with payment-troubled customers.

Further, experience in the U.S. as well as in the U.K. demonstrates that prepaid metering and billing is targeted toward and concentrated among low or moderate income consumers, particularly those facing unaffordable security deposit requirements or disconnection for non-payment under traditional service. Such a system, with households with the least means trapped under prepayment, often paying higher costs and transaction fees while experiencing more frequent, disruptive, and dangerous loss of service, creates a two-tiered system, favoring wealthier, credit-paying households.

“Because there is usually an immediate loss of electricity when an advance payment runs out, we urge regulatory agencies to carefully consider the potential tragic consequences of prepaid utility programs,” said NCLC senior energy analyst John Howat, who co-authored the report. “Utility services provide life necessities, including cooling, heat, lights, and refrigeration, and loss of service is a threat to a family’s health and safety.”

The report continues that rather than a service model that leads to the forfeiture of regulatory consumer protections, payment issues related to the inability of some households to afford a basic level of uninterrupted utility service should be addressed through delivery of comprehensive, effective low income energy efficiency programs, bill payment assistance and “arrearage management” programs, reductions of burdensome late payment fees and security deposits, and implementation of deferred payment agreements that are based on a household’s actual income and expense circumstances.

However, if a state’s regulatory agency allows a prepay program, a set of 11 requirements should be incorporated to protect customers:

  1. Regulatory consumer protections and programs should be maintained or enhanced
  2. Health and safety risks must be reduced
  3. Vulnerable populations must be protected
  4. Marketing of service should be voluntary
  5. Payment assistance and arrearage management programs must be adopted or maintained
  6. Rates for prepaid service should be lower than rates for comparable credit-based service
  7. Costs should be transparent
  8. Transaction and other junk fees should be eliminated
  9. Initiate “on demand” service
  10. Tracking and reporting should be monitored and disclosed
  11. States should proactively plan for customer protections in case of company default.