Prepaid Service

Background

Prepaid service, sometimes known as a prepayment program, allows customers to pay in advance for electric, natural gas, or water service. Utilities offer different means for making payment, including credit cards, payment kiosks, and third-party payment agents. Often these means of payment charge consumers an additional fee. The balance in the account decreases with usage. Typically utilities provide electronic notification that billing credits are running low. When the credit balance is depleted, service is automatically terminated without written notice or a premise visit; it is restored once the account is replenished with additional payment. State rules and regulations that pertain to terminating electricity service often do not apply to customers using prepaid service. However, termination of service may be delayed if regulations require a grace period or prohibit termination during extreme weather events.

Supporters of prepaid service say it helps consumers on limited budgets control their usage and allows utilities to limit outstanding debt. Opponents charge that prepaid service is more expensive for consumers and forces them to “self-disconnect” when they run out of credit.

Prepaid Service: Policy

Consumer protection

In this policy: State

Policymakers should prohibit providers of residential utility services from implementing prepaid service.

If policymakers permit such programs, the following minimum consumer protections should be in place:

  • Prepaid service programs should not be mandatory.
  • Prepaid service programs should adopt an opt-in approach.
  • Prepaid service programs should not be targeted to customers with low incomes.
  • Prepaid rates should be no higher than the regulated or standard rate set by regulators, and fees associated with payments should be prohibited.
  • Marketing materials should include information on federal and state assistance programs.
  • Disconnection protections for customers with prepaid service should be equivalent to those for customers with standard billed service.