SDG&E’s Prepaid Plan Stirs Emotions

By Published On: October 12, 2012

San Diego Gas & Electric’s plan to offer customers prepaid energy service pits worries over disconnections against what the utility says is an easier way to establish and pay for service on low credit. The issue is at the fore as California Public Utilities Commission regulators begin evidentiary hearings this week on the investor-owned utility’s rate redesign. SDG&E hopes to begin offering a pilot prepaid service on an opt-in basis in 2014. “If this doesn’t prove to be a positive offering we would reconsider it,” said Stephanie Donovan, SDG&E spokesperson. Donovan said the optional prepaid service may attract many low-income customers and those without credit history who now have to pay upfront security deposits, which typically cost $150-$160 to establish service. Consumer groups oppose the plan. Low-income customers now have a variety of protections when they can’t pay their bills, and this would short-circuit the safeguards, they say. CPUC data show that up to a third of the customers eligible for low-income assistance--about 28 percent of the utility’s customers--are frequently delinquent on home energy bills. This means that at any time SDG&E could have more than 100,000 low-income customers in arrears. Yet, a variety of protections for low-income customers--particularly policies requiring utilities to negotiate bill payment plans--result in few disconnections. Consumer advocates worry that would change with prepaid service. “States have recognized utility service is an absolute necessity of life,” said John Howat National Consumer Law Center senior policy analyst, because it promotes health and welfare. Consequently, he said, states have adopted policies to “shield people from the effects of disconnection.” Prepaid service allows utilities to “side step” these protections, he said. If approved, SDG&E would become the first California energy utility to offer prepaid energy service to customers, making it the state leader of a national trend. Utilities and energy service providers offer prepaid service in Arizona, Delaware, Florida, Louisiana, North Carolina, Oklahoma, and Texas. Salt River Project, Arizona Public Service, DTE Energy, Georgia Power, Oklahoma Gas & Electric, Progress Energy, and others offer, or plan to offer, prepaid options, in which customers pay up front and top off their credit balance when it runs low, similar to prepaid cell phone plans. Prepaid service is used extensively abroad, including in the United Kingdom, New Zealand, and Latin America, according to the commission. It estimates 20 million energy utility customers worldwide have prepaid plans. Under those plans--which typically attract low-income customers--utilities quickly shut off service to customers who don’t top off their credit balances, something particularly easy with installation of remotely-controlled “smart” meters. Speedy shutoff for prepaid customers allows utilities to avoid a drawn out procedure for shutting off those on postpaid plans who don’t pay their bills. No surprise that studies show disconnection rates are higher among prepaid service customers in the United Kingdom--at 9 percent versus 0.1 percent for others--according to Howat. SDG&E, however, notes that its prepaid plan would offer some advantages. Utility customer operations leader David Cheng emphasizes low-income customers who sign up for it not only would avoid paying a two-month security deposit, but would no longer have to pay restoration charges in the event the utility turns off service for non-payment. Reconnection charges run between $30 and $40. Meanwhile, he notes, subsidized energy rates for low-income customers would remain unchanged. Under the plan, the utility would notify prepaid customers by e-mail, text message, or automated phone message when their credit balance runs low. It would wait to shut off service after the balance hits zero for at least four days or until the balance becomes minus $20, whichever is first. SDG&E would refrain from shutting off power if freezing temperatures were forecast within 24 hours. Customers with medical needs would be ineligible for prepaid service. The plan outlines a variety of payment options. Customers could prepay for energy using the company’s Bill Matrix service, subject to a $1.50 fee/payment. They also could pay by cash or check at a utility office or transfer the money from their bank account using online banking or telephone transfer options. Cheng notes the utility wants to offer the plan based on a customer survey showing it would be popular and after what he called the success of the prepaid service offered by the Salt River Project in Arizona. The survey showed 16 percent of the utility’s customers likely would enroll in prepaid service plans, said Donovan. The San Diego utility hopes to enroll up to 1 percent of its customers in 2014, 2 percent in 2015, and 3 percent in 2016, and then to review the program before offering it on an expanded basis. Other utilities offering prepaid energy plans, according to SDG&E, have shown that budget-conscious customers who enroll cut their energy use by as much as 13 percent in order to stretch their dollars. Consumer advocates point to a litany of shortcomings in the plans. “Most, if not all, low-income bill assistance programs were designed to operate in a postpaid billing environment,” according to Stephanie Chen, Greenlining Institute senior legal counsel. Greenlining Institute advocates that prepaid service--if authorized by regulators--should not diminish assistance that low-income customers now enjoy under postpaid service. Aside from making it quicker and easier for utilities to shut off customers, Howat points out that the low-income customers in prepaid plans tend to top off their credit balances numerous times a month. In Salt River Project territory, for instance, the average prepay customer tops off their account seven times a month in the summer, according to Howat, each time generally paying a transaction fee to their bank or credit card company, which place such levies on low-income customers. People pay frequently in small amounts due to their limited cash flow, Howat noted. Consumer advocates also point out that low-income households often don’t have internet service--one way SDG&E plans to notify customers of impending shutoff--and when pressed for money often lose cell phone service. That prevents them from getting text or voice mail messages warning of impending energy service shutoff. In addition, consumer advocates say the rapidity of shutoff would not give customers time to line up federal low-income home energy assistance program payments, which can provide stopgap energy service for people who can’t pay their bills.

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