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Consumer Advocates Scrutinize Prepaid Electricity Plans

Consumer advocates fear prepaid electricity plans could leave low-income Texans vulnerable to hidden fees and sudden electricity shutoffs. But companies that offer the plans say there is great consumer demand for them.

Direct Energy, one of Texas’ largest power providers, says it offers customers an “easier way to pay for electricity.”

In 2012, the company launched a prepaid plan called “Power-To-Go” — turning upside-down the traditional model of paying monthly bills for electricity that consumers have already used.

“It is like filling your car with gas — when your tank is near empty, you refuel,” one advertisement for the program says. “Direct Energy Power-To-Go works the same way. When the amount of electricity you purchased runs low, you simply buy more. Plus, there's no deposit, no credit check, no contract term and no cancellation fee.”

But consumer advocates are raising concerns that enrolling in prepaid electricity plans could leave low-income Texans vulnerable to hidden fees and sudden electricity shutoffs — and without access to public assistance that agencies may offer to a customer who falls behind on traditional payments. It's the latest debate about whether consumers have enough information and protections in a deregulated power market that allows most Texans to choose their provider.

In a petition filed last month, the Texas Ratepayers’ Organization to Save Energy (Texas ROSE), an advocacy group, asked the Public Utility Commission of Texas to examine whether Power-To-Go “violates certain PUC customer protection rules, uses deceptive marketing and discriminates against customers on the basis of income.”

“The commission needs to follow through with an investigation, levy fines where there are violations of the law and stop any business practices that are not in the best interests of low-income consumers,” said state Rep. Sylvester Turner, D-Houston, who is backing the petition along with three other consumer groups.

It is not clear when — or whether — the commissioners will take up the issue. The agency’s staffers are still reviewing the petition and have yet to pass it on to the commissioners, Terry Hadley, the agency’s spokesman, said Wednesday.

In a statement to The Texas Tribune, Direct Energy said that while it “takes these allegations very seriously, it is important to note that we have more than 50,000 Texans on our prepaid Power-To-Go plan with more customers signing up daily.”

“Direct Energy looks forward to working with the Public Utility Commission on this issue and to ensure that the competitive market in Texas remains distinct and robust,” the statement said.

Though the petition focuses on Direct Energy's program, advocates say ratepayers should cast wary eyes on any prepaid electricity plan. “This system is almost dysfunctional,” said Carol Biedrzycki, executive director of Texas ROSE.

The group criticized Texas prepaid plans in a December 2013 study, noting that there are no limits on how many times a customer might be disconnected during a month, and that plans often include fees for making payments, receiving usage statements or for reconnections. 

A 2012 National Consumer Law Center examination of plans in the U.S. said prepayment “allows companies to sidestep critical consumer protections that have evolved over decades.”

In Texas, companies offer prepaid plans throughout the deregulated electricity market. For instance, people living in the 91-county Oncor service area — which includes swaths of North and West Texas — can currently choose from 17 prepaid plans offered by 12 companies, according to PowerToChoose.org, the PUC website allowing Texans to compare companies’ prices and complaint history.  

Such plans rely on high-tech meters that closely track energy use within a home. People enrolled in such plans typically receive daily text messages or emails alerting them to how much money they have in their account and how much more power they have left. (A growing number of traditional plans also involve such technology.)

A Direct Energy representative called the Power-To-Go program — one of several prepaid plans it offers — “empowering for customers” and an “effective tool for managing a budget.” Prepaying, the representative said, makes customers more conscience of how much energy they are using, and it prevents them from going into debt with the power company.

“We have consumers realizing the price of power during the day,” the representative said. “You’re only going to put money in your account as you choose to do it.”

The company said its plans have helped customers cut energy use by 11 percent.

But here are a few facts that Power-To-Go ads do not mention: Once a customer’s balance hits zero, the company can automatically disconnect service. That’s different than what happens under traditional plans. In those cases, state regulators require companies to give 10 days notice. Also, the company’s billing is based on estimated — not actual — usage over a 24-hour period. A lag in transmitting data could leave customers who are living dollar-to-dollar struggling to figure out just how much they need to pay to keep the lights on for the next day, critics say. 

What’s more, prepaid customers who fall behind on their electricity bills are not typically eligible for financial assistance that public agencies can offer to customers who use the traditional payment method. That’s because most agencies’ bylaws say they can only dole out help to indebted customers, said Mary Lou Almendarez, assistant director of Tarrant County’s Department of Human Services. 

Almendarez said her department answers as many as 6,500 calls per month, including many from people who are struggling with their electricity bills. About a third of those calls, she said, involve prepaid plans, and the number is growing.

“The hard part is that there is nobody else we can refer them to,” she said. “We try to tell them that they need to switch plans.”

Between January 2013 and February 2014, the Public Utility Commission received 102 complaints from customers who mentioned prepaid plans, according to data provided by the agency. That included complaints about disconnections, rates, billing and customer service. Twenty-eight of the complaints involved Direct Energy plans.

In its call for an investigation, Texas ROSE says it suspects that Direct Energy’s marketing materials misrepresent how Power-To-Go works, and that the company specifically targets low-income Texans. Advocates also suspect that the companies do little to ensure that its messages get delivered to customers before a disconnection.

The group bases those allegations, in part, on a sworn affidavit by David Korn, 27, who says he worked from December 2013 to January 2014 in an Arizona call center that handled Direct Energy’s calls.

“During the course of my employment I handled numerous calls from frustrated or enraged customers who had lost power without receiving any warning messages, despite assurances given during enrollment that this would not happen,” the affidavit said.

Korn, who now lives in McLean, Va., said he sought out Texas ROSE after he quit a job that left him disillusioned.

“I was in contact with a lot of people who were in a lot of distress,” he told the Tribune. “I knew that what was going on wasn’t right.”

The company denies that it targets specific demographics and that its main goal is to retain customers — which involves keeping them happy and up to date on their payments. Jessica Michan, a company spokeswoman, said a vendor sends out daily text messages to Power-To-Go customers and notes which numbers are disconnected. That prompts the company to send out letters that notify customers of the problem.

Michael Patterson, a spokesman for TXU Energy, which offers a prepaid option of its own, said it is important to note that not all such plans are the same. But he defended the basic concept. 

“It’s about customer choice. There is a demand for pay-as-you-go plans,” he said. “People have different relationships with electricity.” 

This article originally appeared in The Texas Tribune at http://www.texastribune.org/2014/06/05/consumer-advocates-scrutinize-prepaid-plans/.

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