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Prepaid utility programs put consumers at risk, report finds

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As state regulators consider a proposal from San Diego Gas & Electric Co. for a program that would allow customers to prepay their utility bills, a new report suggests that prepaid utility service programs risk the health and safety of low- and moderate-income households.

Prepayment programs allow companies to sidestep critical consumer protections that have evolved over decades, according to the report by the National Consumer Law Center. Research of existing programs in other states and the United Kingdom indicates that prepayment is targeted at low- or moderate-income consumers and results in more frequent loss of service for nonpayment.

Regulatory agencies need to carefully consider the potential tragic consequences of prepaid utility programs, said John Howat, the center's senior energy analyst and co-author of the report published Thursday.

“Utility services provide life necessities, including cooling, heat, lights and refrigeration, and loss of service is a threat to a family’s health and safety,” Howat said.

San Diego Gas & Electric included the prepay proposal in its standard ratemaking application to the California Public Utilities Commission last year. The plan is still under review. It would be the first of its kind in California, experts said.

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San Diego Gas & Electric said it has addressed the issues raised in the report.

"People have to look at it to see if it’s a good fit for them," said Stephanie Donovan, a spokeswoman for the company. "It’s not an option that is suitable for everybody."

According to a company survey of 900 residential customers, 16 percent said they would use a prepaid option. The program would provide customers with greater flexibility and allow them to avoid the deposit requirement – often about $150, according to Stephanie Donovan, a spokeswoman for the company. It could also result in energy savings, according to testimony submitted to the commission by David Cheng, the team lead of customer operations for San Diego Gas & Electric.

The program would allow a customer to be disconnected four days after the prepayment is exhausted, which is much shorter than the legally required minimum notice period, the Division of Ratepayer Advocates said in testimony submitted to the California Public Utilities Commission.

Certain customers – such as people on life support and seniors – will not be eligible for the program.

Howat thinks the benefits touted in the company’s proposal – such as greater flexibility and payment plans for customers with bad debt – could be achieved without prepaid service. And while the company cites studies that suggest prepay programs may save energy, Howat notes that none of the studies has tried to delineate whether reduced consumption comes from positive changes in consumer behavior or depravation – cutting back to the point of compromising basic health and safety or a normal lifestyle.

The California Public Utilities Commission will hold three public hearings this month on the company’s application and hopes to finalize its decision in December.

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