Complaints mount at Texas prepaid power firms

Texas Prepaid Electricity targets subprime, low-income customers under deregulation, with high rates, quick shutoffs, opaque billing, and limited consumer protection, as PUC oversight, complaints, and operator failures raise affordability and reliability concerns statewide.

Texas' utility commissioners say they don't know how many prepaid electric companies are in the state and refuse to disclose how many customers are served by the firms, which face rampant consumer complaints, according to a newspaper report.

The state Public Utility Commission said it doesn't know how many operate in Texas because it doesn't classify companies by business model. Unofficial estimates indicate the companies serve as many as 100,000 customers, The Dallas Morning News reported.

Consumer protection rules do not address the unconventional business model that prepaid electric companies use, but Texas utility commissioners — intent on spurring competition under the initial Price to Beat benchmark framework — still licensed them.

Complaints about the companies are rampant, including abuse concerns that poor, sick and disabled customers have found themselves without air conditioning. Some people said they were forced out of their homes or ended up skipping necessary medicine because of the bill.

The newspaper reported that some prepaid providers had inexperienced operators, convicted criminals and undercapitalized entrepreneurs. Some failed, leaving people in a lurch to find power.

The companies, which charge customers in advance based on estimated usage, are a type of subprime provider that popped up after Texas deregulated its electricity market in 1999 and allowed customers to start choosing their providers in 2002.

Some firms charge as much as 50 percent more than traditional companies in deregulated areas to people who lack credit or money for deposits. And quick cutoffs are a constant threat.

Prepaid operators say they offer power to people who might not be able to obtain it otherwise. Higher rates reflect the risk to the company that customers will use more electricity than they paid for, they say, with pricing plans that balance risks and rewards.

PUC Chairman Barry Smitherman said he was not aware of widespread problems with prepaid providers.

"The prepay space, in general, is a very, very small slice of the total market," he said.

The PUC director of consumer protection, however, said that he had often raised concerns that prepaid customers were being exploited but that his warnings were largely ignored.

"The trouble is these people are desperate," Mike Renfro said. "You and I would walk away from that deal, but they can't. They have no other place to go."

The PUC has not involuntarily revoked a single operating company's license even though consumer complaints against all types of electricity providers are on the rise. Staff recommendations for stiff penalties have been withdrawn. Instead, the PUC has backed negotiated settlements amid debates over monopoly-like control in the market.

Randy Chapman, executive director of the Texas Legal Services Center in Austin, said a prepaid customer can be snared in a cycle of rising charges with few options to switch providers for lower rates.

"For a life-essential product," he said, "I don't think there should be traps."

Though prepaid companies now target Texas' poorest residents, similar products could be offered to millions of consumers within a few years.

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