AARP Hearing Center
Background
Prepaid utility service requires a customer to pay in advance for electric, natural gas, or water services. The amount of energy used is monitored through a smart meter. When the prepaid balance is depleted, service automatically terminates. Service is restored if the customer buys more usage with additional payment.
Supporters of prepaid service say it helps consumers on limited budgets control their usage and spread out payments, promotes energy efficiency, and enables the utility to limit outstanding debt. However, prepaid service brings several consumer challenges (see also Consumer Protections, Service Quality, and Reliability). These include:
- Higher consumer cost: Prepaid service often is more expensive than traditional service. This is due to higher rates or added fees to purchase credits. It also limits access to programs that help consumers with low incomes afford their utilities, such as bill-payment and arrearage assistance programs).
- Automatic disconnection: Prepaid service providers do not have to comply with traditional consumer protections limiting the ability to disconnect service. These include the ability to enroll in payment plans, remain connected during a medical emergency, and file a dispute with regulators. Instead, in many cases, consumers are automatically disconnected when they run out of credit. This can harm the health and safety of older adults using prepaid service.
- Lack of other consumer protections: Prepaid service does not offer other consumer protections regarding billing, payment, and payment plans.
PREPAID SERVICE: Policy
PREPAID SERVICE: Policy
Consumer protection
Policymakers should prohibit providers of residential utility services from implementing prepaid service programs.
If prepayment-of-service programs are permitted, they should not be mandatory. Consumers should be required to opt into them. 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 a grace period to cure the default and winter and summer moratoria;
- a ban on marketing this service as an option to avoid disconnection of service to customers with low incomes or who are in arrears;
- a requirement that any marketing materials 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.