Utility Companies Use Prepaid Plans to Help Customers

by Ben Jackson 0

For many people, getting electric service canbe difficult because of a bad credit history or a requirement for ahigh-service deposit by utility companies. Across the United Statesmany utility companies have found a way to help customers over thishurdle by offering service on a prepaid basis. The Utilitiessegment is one that Mercator Advisory Group measures as part of itsannual benchmarks.

The Utilities segment comprises programs that allow customers ofpower companies and other public utilities to prepay for service ona metered basis. Loads may be done using cash payments at aprovider’s office, through buying prepaid cards, or by using acredit or debit card with a smart meter. Some service providerseven sell cards with scratch off codes, much like a prepaid phonecard, in card malls at stores.

Most of the providers that offer prepaid service are co-operatives.While Mercator has not identified any for-profit utilities thatoffer prepaid plans, we expect that this may be an option for manycompanies in the future. Companies have been investigating thebenefits of prepaid, and industry conversations have included suchtopics as how to make prepaid options appeal to more than justlow-income customers.

Mercator research reveals that the number of utilities that haveprepaid plans has increased since 2009. We have revised our numbersgoing back to 2009 because, based on our research, we have foundthat is when many of the programs were launched. We believe thatthis segment will be subject to further refinement as we gathermore data about the size and use of prepaid programs byutilities.Utilities Graph

Prepaid utilities have come under criticism by consumer groups whosay the costs are too high and that the terms and conditions mayput some customers at risk. Many states have laws regarding when acustomer’s power can be shut off, and there may be gray areas whenit comes to prepaid plans. In addition, concerns have been raisedthat low-income seniors or disabled people who may depend on powerto run devices like oxygen tanks and ventilators may be put at riskif their power is prepaid and they are slow to make a payment.Though utilities say they can put safeguards in place to preventit. Read the National Consumer Law Center Report here.

On the other side, utilities say this is a way to get power topeople who might otherwise not be able to afford service, and itsaves customers from repeatedly paying shut-off and reconnectionfees. In addition, prepaid power users tend to consumer lesselectricity, so their overall utility costs go down, utilitiessay.

The reduction in power use has led some to suggest that prepaidservice be sold to upper-income consumers as a ‘green’ option thatwill help them manage their budgets more effectively and helpconserve natural resources.

Mercator intends to continue monitoring this segment and track thedevelopment of this part of the industry.