Yesterday I blogged about a Texas company offering prepaid electricity plans the way some companies sell prepaid phone plans. Payless Power will set you up with no deposit and no credit score as long as there is a positive balance on the account. And when the account is drained, they shut you off.
Maryland Public Service Commission spokeswoman Regina Davis responds:
I just wanted to respond to your post on smart meters. The PSC wants to reassure you and your readers that: (1) the company you referenced is not licensed in MD, (2) we have not authorized any company to offer prepaid electricity, and (3) no company could do so unless we gave approval.
It's hard to imagine Maryland would OK something like this. Meanwhile Paula Carmody, Maryland's People's Counsel representing consumers before the commission, says:
Prepaid options have been offered by a few companies for a number of years (e.g. Arizona’s Salt River Project), and Texas has been actively pushing this as an “option” for customers. There are a number of specific consumer concerns that have been flagged by utility consumer agencies, in addition to the general concern that prepay is not the way to go for essential electric and heating services. I’ve attached a NASUCA resolution on this issue, FYI.
The resolution by the National Association of State Utility Consumer Advocates expressing concerns about prepaid plans is below the fold.
NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES
URGING STATES TO REQUIRE CONSUMER PROTECTIONS
AS A CONDITION FOR APPROVAL OF
PREPAID RESIDENTIAL GAS AND ELECTRIC SERVICE
Whereas, the National Association of State Utility Consumer Advocates (“NASUCA”) 1 has a long-standing interest in issues and policies that affect the access of residential 2 consumers to essential gas and electric services; and 3
Whereas, some gas and electric utilities have sought to replace traditional credit-based 4 service to some residential customers with prepaid service delivered through prepayment 5 meters or digital meters with remote connection and disconnection capabilities; and 6
Whereas, prepaid gas and electric service requires customers to pay in advance for their 7 service, with prepaid account balances decreasing as service is delivered; and 8
Whereas, automated and remote disconnection of service can and does occur when 9 prepaid account balances are depleted; and 10
Whereas, experience in the United States and United Kingdom demonstrates that prepaid 11 metering and prepaid billing (1) is targeted toward and concentrated among customers 12 with low or moderate incomes that are facing service disconnections for nonpayment, (2) 13 results in more frequent service disconnections or interruptions, and (3) is delivered at a 14 higher rate than traditional credit-based service;1 and 15
Whereas, most of the current state consumer protection requirements regarding the 16 disconnection of service were not developed in anticipation of prepaid services, and such 17 protections may be bypassed or eliminated when services are provided on prepaid basis; 18 and 19
Whereas, proponents of prepaid service have sought legislation in at least one state 20 providing that automated, remote disconnection of service upon depletion of prepaid 21 account balances be considered a voluntary termination of service by the customer and 22 not a disconnection by the utility subject to consumer protection laws and regulations 23 regarding the disconnection of service;2 and 24
Whereas, the proliferation of digital meters with remote connection and disconnection 25 capabilities makes implementation of prepaid service more feasible economically for 26 utilities; and 27
Whereas, prepaid utility service reduces or eliminates utility incentives to negotiate 28 effective, reasonable payment agreements and to implement effective bill payment 29 assistance and arrearage management programs; and 30
Whereas, increased service disconnections of vital gas and electric service that come 31 with implementation of prepaid service and prepaid metering threaten the health and 32 safety of customers, particularly those who are most vulnerable to the effects of a loss of 33 service, including the elderly, disabled and low-income families, as detailed and 34 documented in a companion resolution encouraging state legislatures and state public 35 utility commissions to institute programs to reduce the incidence of disconnection of 36 residential gas and electric service based on nonpayment; and 37
Whereas, utilities offering prepaid service benefit financially from reduced cash working 38 capital requirements, uncollectibles amounts and credit and collections risk; and 39
Whereas, utilities in at least one state require customers to pay deposits for a customer 40 prepayment device or system;3 and 41
Whereas, providers of residential electric service in at least one state impose additional 42 fees on customers choosing to make payments more frequently than once every thirty 43 days and under other circumstances;4 and 44
Whereas, in at least one instance, a company has reportedly gone out of business after 45 receiving prepayment funds from customers, resulting in large unpaid fines and more 46 distressingly in an undetermined number of customers having lost their money;5 47
Now, therefore, be it resolved, that NASUCA continues its long tradition of support for 48 the universal provision of essential residential gas and electric service for all customers; 49
Be it further resolved, that proposals by utility companies that seek to replace traditional 50 credit-based service to some residential customers with prepaid service delivered through 51 prepayment meters or digital meters with remote connection and disconnection 52 capabilities should not be approved unless they guarantee that current consumer 53 protections are not bypassed or eliminated and that adequate and comparable consumer 54 protections are developed and in place. At a minimum, if prepaid services are offered, a 55 utility should be required to satisfy each of the following conditions: 56
(1) All regulatory consumer protections and programs regarding disconnection 57 limitations or prohibitions, advance notice of disconnection, premise visits, availability of 58 payment plans or deferred payment agreements, availability of bill payment assistance or 59 arrearage forgiveness, and billing disputes are maintained or enhanced; 60
(2) In the event that the billing credits of a customer receiving prepaid residential 61 electric or natural gas service are exhausted, the customer shall be given a reasonable 62 disconnection grace period, after which the customer shall revert to traditional, credit-63 based service, subject to all rules and customer protections applicable to such service; 64
(3) Prepayment households include no one who is 65
(a) income-eligible to participate in the federal Low Income Home Energy 66 Assistance Program (LIHEAP); or 67
(b) protected under state law from disconnection for health or safety reasons; 68
(4) Prepaid service is only marketed as a purely voluntary service and is not marketed 69 to customers facing imminent disconnection for non-payment; 70
(5) Utilities offering prepaid service also offer effective bill payment assistance and 71 arrearage management programs for all customers, including customers with arrearages 72 who choose prepayment service; 73
(6) Rates for prepaid service are lower than rates for comparable credit-based service, 74 reflecting the lower costs associated with reduced cash working capital requirements, 75 uncollectibles amounts and shareholder risk affecting a utility’s return on equity; 76
(7) Utilities demonstrate the cost effectiveness of any proposed prepaid service 77 offerings through a cost versus benefit analysis and reveal how costs will be allocated 78 among various classes of customers; 79
(8) Prepayment customers are not subjected to any security deposits or to additional 80 fees of any kind, including but not limited to initiation fees or extra fees assessed at any 81 time customers purchase credits; 82
(9) Utilities ensure there are readily available means for prepayment customers to 83 purchase service credits on a 24-hour a day, seven-day a week basis; 84
(10) Prepayment customers can return to credit-based service at no higher cost than the 85 cost at which new customers can obtain service; 86
(11) Payments to prepaid accounts are promptly posted to a customer’s account so as 87 to prevent disconnection or other action adverse to the customer under circumstances in 88 which the customer has in fact made payment; and 89
(12) Adequate financial mechanisms are developed and in place within the state to 90 guarantee that funds prepaid by customers are returned to the customers who prepaid 91 them if and when a company becomes insolvent, goes out of business or is otherwise 92 unable to provide the services for which the funds were prepaid; 93
Be if further resolved, that the implementation of prepaid service programs should be 94 monitored to ensure that it does not in practice result in an increased rate of service 95 disconnections for non-payment; 96
Be it further resolved, that utilities implementing prepaid service programs should track 97 and report to the state regulatory commission separately for credit-based and prepayment 98 customers each of the data points delineated in the companion resolution urging the states 99
to gather uniform statistical data on billings, arrearages and disconnections of residential 100 gas and electric service; 101
Be it further resolved, that NASUCA authorizes its Executive Committee to develop 102 specific positions and take appropriate actions consistent with the terms of this resolution. 103 The Executive Committee shall advise the membership of any proposed action prior to 104 taking action if possible. In any event the Executive Committee shall notify the 105 membership of any action pursuant to this resolution. 106
Submitted by Consumer Protection Committee
Approved June 28, 2011
San Antonio, Texas
1“SRP’s prepaid electricity plan found to have higher rates,” The Arizona Republic,(July 11 2010), www.azcentral.com/private/cleanprint/?1299004402750; Electric Power Research Institute, “Paying Upfront: A Review of Salt River Project’s M-Power Prepaid Program, (October 2010); Talbot, “Prepayment meters: A scourge penalising the poor” (June 2009), http://www.energychoices.co.uk/prepayment-meters-a-scourge-penalising-the-poor.html; Centre for Sustainable Energy and National Right to Fuel Campaign, “Counting the Hidden Disconnected,” (1998).
2See 2011 Iowa Proposed Legislation, House Study Bill158, http://coolice.legis.state.ia.us/Cool-ICE/default.asp?Category=billinfo&Service=Billbook&menu=false&hbill=hsb158.
3“Paying Upfront” A Review of Salt River Project’s M-Power Prepaid Program,” EPRI, Palo Alto, CA: (2010), http://www.srpnet.com/environment/earthwise/pdfx/spp/EPRIMPower.pdf.
4Biedrzycki, “New Fees On Residential Electric Bills Complicate Cost Comparisons For Consumers Shopping For A Better Deal And Penalize Those Who Save Electricity And Those Struggling To Pay Their Bill” (February 2011), http://www.scribd.com/doc/49467979/Fees-Report-FINAL-2232011.
5Texas Public Utility Commission, News Release, “PUC orders $3.7 million in penalties: two former retail electric providers fined millions (Jan. 14, 2010), http://www.puc.state.tx.us/nrelease/2010/011410.pdf; “Consumer group: Electricity companies have big fees hidden in small print,” KHOU11 Houston (April 30, 2011) , http://www.khou.com/news/local/Consumer-group-Electricity-companies-have-big-fees-hidden-in-small-print--121014164html.