Regulators urged to scrutinize prepaid utility service programs

According to the National Consumer Law Center (NCLC), as prepaid utility service programs and proposals expand rapidly nationwide, they set up an inequitable two-tiered customer delivery system, putting lower income households at risk.

As a result of their research, the NCLC is encouraging regulators to closely scrutinize prepay utility programs, including junk fees, such as initiation fees, equipment charges, transaction fees or frequent payment fees.

"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," said NCLC Senior Energy Analyst and report co-author John Howat. "Prepaid utility customers are often those with the least ability to pay and utility companies have been shown to steer low- and moderate-income families toward prepaid programs, allowing the companies to sidestep critical consumer protection laws."  

The report claims it is misleading to label involuntary reduction in consumption as conservation, citing the largest U.S. prepaid electric program, Arizona's Salt River Project (SRP) M-Power, as an example. Over time, the median income of M-Power prepaid customers has declined considerably and the percentage of Hispanics enrolled in the program is increasing; the program entails a number of equipment deposit and transaction fees, and program participants pay higher summer rates than post-paying customers, the report contends.

However, SRP is not the only one offering these programs; currently, 19 states have prepaid utility programs. Further, 38 percent of electric utilities are considering prepaid service and 11 percent are likely to implement a prepayment program in the near future.

If a state's regulatory agency allows a prepayment program, NCLC is recommending a set of 11 customer protection requirements.

For more:
- see the report

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