Prepayment energy service has not yet caught on in the United States. Why? Do US consumers dislike the same features that others in the world appreciate? Or is credit so essential to the US economy that consumers won’t operate without it?

The answers are No and No. In fact, prepayment service is a resounding success among the US consumers who have tried it, but institutional obstacles prevent utilities from providing it on a large scale.

Almost everyone in the US pays utility bills after receiving service. That is, every month (or every two or three months) the utility sends a bill for service delivered in the previous month (or two or three). In contrast, about 53,000 US consumers have prepayment service; they pay for their electricity before they use it. About 75% of them are served by one utility in Arizona, and the rest are spread around several states. 

Prepayment service will expand rapidly in the US when:

  • Legal protection for prepayment customers is at least as good as it is for credit customers; and
  • Consumer agencies and advocates can see that consumers want prepayment service and benefit from it.

CONSUMER RIGHTS & PROTECTION

Longstanding tradition in the US dictates that government should assist the most vulnerable citizens. This social safety net has many holes, but it firmly assures electricity service for low-income families. In most parts of the US, laws and regulations limit the right of utilities to disconnect those households that do not pay their bills. Typical rules require that electricity service continues during extreme weather, such as all winter (in the north). These rules generally cover credit service, and do not reflect the possibility that the consumer might choose to have a prepayment service that could self-disconnect.

The few utilities that have offered prepayment service have found that their customers are very pleased with it. But the financial, regulatory, legal and public relations risks have prevented a large number of utilities from doing so.

ISSUES

Mitigating or eliminating these risks is a significant challenge, which will require changes in the prepayment systems, the public benefits systems and the laws and regulations. The prepayment systems are within the control of the utilities and their suppliers, but the other changes are in the hands of many parties.

Public benefits – for example, assistance with heating costs – are typically provided on a monthly basis. This works well when supporting a consumer who incurs costs (such as heating) monthly. But a principal consumer benefit of prepayment service is that it is not monthly. The fact that the consumer can choose when to pay for energy is a key feature that helps some consumers manage their money effectively. Reorganizing public benefit programmes to allow constituents to choose when to

receive the benefits will involve disparate state and federal agencies as well as private organisations. The prepayment model is a good one, but it is currently incompatible with many social support programmes in the US because of this delivery-timing issue.

Another important issue is the legal question of what constitutes termination of service. US utility regulations and laws prohibit service termination under many circumstances for the protection of the consumer. The rules do not generally recognise that a consumer might prefer to have ‘service’ comprising a meter with electricity supply, an indoor display and a switch that can self-disconnect. This ‘service’ is still in place whether the switch is open or closed; that is, it is not ‘terminated’. The consumer retains sole control over when the switch closes. The various stakeholders in the US – utilities, regulators, consumer advocates, stockholders and so on – have not reached consensus on what the rules should say about this. Indeed, there has been serious public debate on the matter in only a few states.

THE RESOLUTION

Many of the problems can be resolved by establishing protections for prepayment customers that are equal to those for credit customers, and by adjusting public support programmes to be more flexible in timing the delivery of benefits. These major undertakings will not be completed quickly. Meanwhile, US markets operate in ways that may allow consumer demand for prepayment service to eclipse such organised efforts and spread prepayment service as the US utility market restructures.