Texas ROSE Report: "Prepaid Service is High Risk with Little Protection for Consumers"

"We have found no evidence to suggest that prepaid electricity is in the best interests of residential consumers, especially low-income consumers," Texas Ratepayers’ Organization to Save Energy (ROSE) said in a new report concerning prepaid service offered by retail electric providers.

Link to Texas ROSE report

"Based on the findings of this report we encourage consumers to consider post-paid instead of prepaid electric plans whenever possible. The data indicate there is no pre-paid price advantage. In comparison to standard post-paid electricity service there is little or no protection against disconnection," Texas ROSE said.

Texas ROSE's report was based on September 20, 2013 Power to Choose postings for the Oncor service area. At that time, there were seven REPs posting a total of ten prepaid electricity plans in the Oncor service area

Texas ROSE said that the prepaid prices per kilowatt-hour (kWh) posted on Power to Choose ranged from 9.3¢ to 12.0¢.

The vast majority of prepaid products listed were variable and indexed priced products, which Texas ROSE said, "provide no guarantee that prices will remain the same from day to day."

"A customer who pays $50.00 into a prepaid electric account has no guarantee of purchasing a specific number of kilowatt hours (kWh). This is like buying a telephone card without knowing how many minutes you get for your $50.00," Texas ROSE said.

"Prices per kWh range from 9.3¢ ... all the way up to 21.8¢ [the highest possible residential POLR rate posted for the Oncor service area, the cap on prepaid rates]," Texas ROSE said. "At these two extremes a customer would be able to purchase from 530 to 229 kWh per month if the price did not change over the course of the month. The more times the price changes, the harder it is to track how much you need to pay."

"Because the actual price paid varies all the time it is difficult to compare the plans pricewise. The prices posted are not lower than prices for post-paid plans," Texas ROSE said.

Texas ROSE also made note of various fees applicable to prepaid service, such as daily fees, disconnect/reconnect fees, payment processing fees, fees for statement of usage, fees for insufficient funds, and other miscellaneous fees.

"[U]nattractive attributes [of prepaid service] include constantly changing rates, the need to monitor the account to know how long you will have electricity, the fees described in this report, having to pay by some means other than personal check, and short disconnection timelines. Standard post-paid service is a better product even though it requires a good credit rating or a security deposit to take the service. Many rates posted on Power to Choose for fixed and variable priced plans are lower than the rates for prepaid service. When the customer pays a standard electricity bill they know they will have electricity for 30 days or more. When a customer does not pay it takes two to three times longer to carry out a disconnection of service for a post-paid versus a pre-paid customer. Prepaid electricity plans take advantage of and profit from the poor by charging high electricity prices for low quality service. The PUC should demand more from companies selling essential electricity," Texas ROSE said.

Among other things, Texas ROSE said that the commission should take the following steps to reform prepaid service:

• The customer should know the cost of providing electricity over the course of a month without being disconnected. Consumers should have price stability.

• Apply the disconnection timelines for post-paid residential consumers to prepaid consumers.

• Require all prepaid REPs to provide at least one payment alternative that is free to the customer (i.e., payment can be made with no payment processing charge) even for a customer paying in cash or by check.

• Eliminate REP fees for discretionary services performed by the regulated utility

• Require prepaid REPs to report all electricity price changes to the PUC where they are accessible to the public.

• Require REPs to report disconnection and reconnection data to the PUC on a monthly basis.

• Have the PUC issue an annual report on prepaid prices, fees and disconnections and reconnection.

Texas ROSE referenced its study in comments on a PUCT rulemaking concerning re-adoption of Chapter 25 of the Substantive Rules (Project 41937).

Given that several REPs, or their parents, have recently described (click here) electric service as an "essential part of life," and that Texans "deserve electric service 100% of the time," and that the loss of electricity can lead to "public health dangers," we find it hard for REPs' to now legitimately oppose some of ROSE's proposals.