Lights out in a hurry


Prepaid utility plans leave some customers in the dark with little warning

WACO — Losing power had become a frightening routine for Shane Lyons. The 36-year-old father of three knew what to expect in the desperate hours to come: Rushing to the store for ice to save food in the fridge. Trying to explain the disruption to his 8-, 11- and 13-year-old kids. And, most important, calling relatives to find a safe place for his family to sleep.

“They cut you off quick, in no time at all,” he said.

Shane Lyons, a father of three in Waco, is one of tens of thousands of Texans who signed up for prepaid electricity plans in recent years, believing it would make budgeting easier and save them money. Instead, an untold number are experiencing repeated blackouts in increasingly brutal summers. Jay Janner | American-Statesman

Lyons is one of tens of thousands of Texans who signed up for prepaid electricity plans in recent years, believing it would make budgeting easier and save them money. Instead, an untold number are experiencing blackout after blackout in the middle of Texas’ increasingly brutal summers.

Prepaid electricity plans have taken root in Texas more than perhaps any other state. The Texas Public Utility Commission, which oversees electricity providers, said it does not track prepaid customers, but analysts say Texas accounts for about 20% of the estimated 1 million prepaid accounts in the country.

Critics suspect the plans are a key factor in Texas’ skyrocketing summertime electricity disconnections, which have jumped more than 100% over the past decade.

While some states have been reluctant to adopt prepaid plans, worried that the programs prey on low-income residents and leave them vulnerable to outages, Texas regulators have allowed them to flourish.

Electricity providers who offer the plans contend that prepaid service gives customers more control of their utility bills and makes electricity affordable for those unable to pay deposits or pass credit checks. They also point to surveys showing high consumer satisfaction with the plans.

Critics and consumer advocates, however, argue that prepaid plans can leave customers in a cycle of disconnections.

Even as the programs have grown in popularity, critics charge that regulators have done little to ensure that vulnerable Texans aren’t taken advantage of.
“For a cash-strapped household, it’s a short-term fix,” said John Howat of the National Consumer Law Center.

Advocates’ warnings not heeded

Lyons, who oversees the Caritas of Waco food bank, signed up for a prepaid plan several years ago, hoping it would prevent big summertime bills that had landed him in trouble before.

Instead, he found himself without electricity and fretting over his son, who suffers from asthma and uses a vaporizer machine at night to help him breathe.

“Thank the Lord, (the shutoffs) usually happened during the daytime when they were at school,” he said.

Widely used in sub-Saharan Africa, as well as countries including England and New Zealand, prepaid plans emerged as a way to provide electricity to those like Lyons who struggled to pay their bills.

Instead of paying a deposit and receiving a bill after they use electricity, customers pay in advance for their power. When their balance falls below a prescribed point, the power is cut off quickly — in Texas, in as little as one day, compared with the traditional 10-day disconnection notice on a monthly billed plan.

The system is aided by electronic “smart meters” that allow remote disconnections and reconnections without the need to send in a crew.

In Texas, electricity companies initially sold prepaid plans to the Public Utility Commission in 2007 as a way to give customers almost complete control over whether they were disconnected.

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With daily updates on how much they use, customers could quickly learn the energy savings associated with turning up the thermostat or turning off unused lights, the companies said. And by paying in advance, they could avoid surprise bills.

That ability to control consumption meant the plans did not need the traditional disconnection protections that come with regular service plans, some power companies insisted. An industry representative told commissioners that “the prohibition on disconnections for ill and disabled customers and during extreme weather have no place in this rule.”

Consumer advocates in Texas predicted the plans would result in a sharp increase in disconnections, an argument the commission rejected.

AARP argued, “Sudden loss of electric service and cooling appliances can pose a very real threat to health and safety in Texas.”

State regulators concluded that general use of the plans wouldn’t cause a spike in shutoffs.

“With the appropriate rules in place, customers will be able to follow the appropriate procedures, as well as take the steps necessary to avoid service interruption,” regulators wrote in 2007.

Three years later, after complaints from customers, regulators updated rules for prepaid programs. Among other things, the update required better disclosures to customers about the possibility of quick disconnections and prohibited the plans for critical and chronic care customers.

Texas ROSE, a ratepayer organization, decried the rules as ineffective, arguing that they created an “unequal customer protection standard.”

Since regulators approved updated rules for the plans in 2011, more than two dozen companies have applied to offer prepaid plans in the two-thirds of the state receiving power from private companies, including in Dallas, Houston, McAllen, Abilene, Round Rock, Temple, Seguin, Cedar Park, Killeen and Alice.

In the years since prepaid plans were approved, summertime electricity disconnections in Texas have ballooned, with a 117% increase in the past decade. Prepaid disconnections are contributing to the surge, but it’s impossible to know to what extent.

The utility commission, in response to a GateHouse Media public information request, said that prepaid disconnections are filed “confidentially” by electricity companies and that the agency has not compiled them.

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Quick disconnections

In the years Lyons used a prepaid plan, service interruptions became a regular, and scary, part of life.

“I know a lot of people who use prepaid because no there’s no credit check and it’s easy to get it,” he said. “It sounds good at the beginning.”

Quick disconnections are at the heart of the prepaid model, which companies favor because it nearly eliminates the risk of unpaid bills. A 2009 position paper by computer technology firm Oracle concluded that prepaid plans help “utilities avoid bad debt” and provide “favorable utility cash flow.”

AT&T has estimated that prepaid plans could save utility companies $5 million to $15 million a year.

Nat Treadway, managing partner with Houston-based DEFG LLC, which advocates for prepaid energy service nationally, said shutoffs under prepaid plans are typically shorter than those with traditional plans.

“If you had to choose between one disconnection this summer that lasted one week versus 10 disconnections, each lasting about one hour, which would you prefer?” he asked.

Treadway said the traditional utility model might be more harmful to low-income customers since it often results in huge bills they can’t pay.

“They are extending credit to people who can’t get credit in any other part of their lives,” he said.

But critics say prepaid plans expose low-income customers to frequent and potentially dangerous disconnections, providing them little time to challenge billing errors.

“We often charge prepaid is a second class of service for low-income customers,” said Howat of the National Consumer Law Center, which has opposed the plans before regulatory agencies across the country.

In a 2014 complaint to the utility commission, Texas ROSE accused Houston-based Direct Energy of luring low-income customers to prepaid plans with promises of no deposits or credit checks.

According to one former Direct Energy employee, the company refused to work with consumers facing imminent disconnections, even during extreme weather.

“When I once questioned a supervisor about this process, I was told that turning out the lights gets the money a lot faster than a letter in the mail,” David Korn wrote in a 2014 affidavit. “On days when below-freezing overnight temperatures were forecasted, I regularly handled calls from panicked mothers who had lost power … and who were concerned about the health and safety of their infant children.

Regulators did not address Direct Energy’s marketing practices but fined the company $220,000 for ordering disconnections during cold weather advisories in violation of state law. The company said it has since made changes to its system to prevent improper disconnection orders.

Utility assistance workers say some companies that offer prepaid plans also won’t work with assistance agencies before shutting off the power. Margaret Gomez, community service supervisor for Rolling Plains Management Corp., said one company refused to honor her agency’s pledge for federal utility assistance before disconnecting a client.

“She had to pay $45 to get it started again, and there’s a possibility she could get disconnected again,” she said. “Prepaid — I wish they would go away.”

While prepaid plans have been lauded for reducing energy consumption, studies have found that might be the result of customers not using enough energy to stay safe.

New Zealand researcher Kimberley O’Sullivan found that half of those on prepaid plans in that country said they cut back on heating and that 67.5% reported shivering inside their homes on at least one occasion.

In an interview, O’Sullivan said she found one-third of customers experienced disconnections of more than 12 hours under prepay.

“Prepay is not necessarily a bad thing and could encourage a lot of people to conserve energy,” she said. “But, at the moment, we are shifting the wrong people onto prepay.”

Several states have rejected prepaid models or modified them to provide better protections for low-income residents.

Such protections don’t exist in the Lone Star State’s deregulated market, where customers have filed complaints with the Public Utility Commission reporting that they were switched to prepaid plans without their authorization, faced weeks-long disconnections during the summer, were provided misleading “variable rate plans” that spiked unexpectedly and, most commonly, were given little or no warning before a disconnection.

In June 2017, one customer told the agency that her power was disconnected an hour before she received an emailed disconnection warning.

“My service has been disconnected on several occasions without any warnings,” the customer wrote. “I explained (to a company representative) that the temperature will be over 90 degrees and I have children at home and a son (with a medical condition) without electricity.”

Lyons recently ditched prepaid and got back on a traditional monthly plan, which means he doesn’t have to worry so much about the power going out, leaving his asthmatic son without access to his nebulizer in the middle of the night.

“It was a big relief when you get off and onto a regular plan,” he said. “You can unbutton your buttons and give a big sigh.”

Dan Keemahill contributed data analysis to this story