Prepaid Utilities Service

Background

Prepaid utilities service allows customers to pay in advance for electric, natural gas, or water services. This is sometimes known as a prepayment program. Utilities offer different means for making payments, including credit cards, payment kiosks, and third-party payment agents. Consumers are often charged an additional fee for using these means of payment. The balance in the customer’s account decreases with usage and utilities typically provide electronic notification that billing credits are running low. When the prepaid balance is depleted, service automatically terminates. Customers typically receive electronic notification, but not a written notice or a visit from a utility company representative. Service is restored once the account is replenished with additional payment. Loss of service may be delayed if regulations require a grace period. Some states may prohibit termination during extreme weather events.

Supporters of prepaid service say it helps consumers on limited budgets control their usage. And it allows utilities to limit outstanding debt. But prepaid service is sometimes more expensive for consumers. And it disconnects them from an essential service when they run out of credit, potentially affecting their health and safety.

PREPAID UTILITIES SERVICE: Policy

Consumer Protection

In this policy: State

Policymakers should prohibit providers of residential utility services from implementing prepaid service. If prepaid services are permitted, it should not be mandatory; consumers should be required to opt into it. In addition, consumer protections should be required, such as:

  • a prohibition on unfair pricing, surcharges, and extra fees;
  • limitations on disconnection that are equivalent to those for customers with standard billed service, including winter and summer moratoria;
  • a ban on marketing to customers with low incomes or who are in arrears;
  • a requirement that any marketing materials should include information on federal and state assistance programs; and
  • a condition that prepaid rates be no higher than the regulated or standard rate set by regulators, and a ban on any fees associated with payments.