Prepaid utility services pros cons

Does prepaid metering benefit the utility or the consumer? A new US report addresses concerns about the impact of prepayment billing on low-income families.

Prepaid Utility Service
The US Department of Energy's new report on Prepaid Utility Service addresses concerns about lower-income customers not benefiting from prepaid metering

Prepay programs show promise in giving consumers more control and in providing another payment option that can help support household budgeting and decision making.

However, consumer advocates express concerns over prepay regarding the potential for loss of services and programmes that may target low income customers, and they continue to highlight underlying issues, such as affordability, that prepay alone may not be able to address.

These are two findings from a new report, 'Bridging the Gaps on Prepaid Utility Service' released by the US Department of Energy (DoE) in September 2015.

Customer advocates concerns

The report, based on interviews carried out by the DoE with utilities, consumer advocates and industry stakeholders, highlights possible solutions that can be implemented to address the concerns raised and improve prepayment programs for broader adoption.

Besides benefits of the service, such as consumers' empowerment to manage budgets and prioritise spending, the report states advocates see customer protection and utility service delivery diminished by the services’ automatic disconnection of power when a customer's balance reaches zero.

The advocates point out that prepayment bypasses traditional notification requirements regarding termination of services, which allows consumers a lag of time before final termination to pay the bills.

Thereby prepaid utility services should be tweaked to cease termination of power during extreme weather and holidays, including the setting up of alternative payment arrangements to coordinate with public assistance programs.

Positive benefits of prepay service

However, the research findings indicate the majority of utilities with prepayment services report positive benefits for their operations and their consumers including improved relationships with consumers, debt recovery and reduced write offs and bad debt risk.

For example, the US Tri-State Electric Membership Corporation, serving over 18,000 customers in a multi-state region including Fannin, Georgia, Polk, Tennessee, and Cherokee Counties, reduced effective residential bad debt from US$44,259 in 2011 to US$1,135 in 2013 by adopting to prepayment.

Kris Sieber, director of member services at Rappahannock Electric Cooperative, commented: "We want a system that not only supports members who need a different method to pay their bill and stay on track, but we also want to reduce debt associated with the cooperative, because then we can do a better job of keeping our expenses down, which benefits all members."

The report reiterates that utilities demonstrate the value and accessibility of technology solutions used to communicate with consumers as well as explore whether prepayment has a broader appeal, to better assess prepaid utility service challenges and benefits.

Some of the measures the report suggests can address the industry's potential weaknesses include using prepayment plans as a learning laboratory and addressing affordability as a key challenge in providing utility services.

Prepaid in US

The majority of utilities in the US adopted prepaid utility services as a result of the American Recovery and Re-Investment Act of 2009, which has helped to catalyse the transition to a modern grid by providing the DoE with US$4.5 billion to advance the deployment of smart grid technologies.