Please enjoy the following guest post.
The business and culture of pre-paid (“stored value”) debit or cash cards continues its rapid ascent to realms far beyond the original debit cards that were tied to bank checking accounts. But not without controversy. In October (2011), the BaltimoreSun reported that Marylanders were experiencing “anxiety and distrust over the coming of smart meters,” computerized monitoring of kilowatt usage in homes and businesses. Some electricity customers – those who initiate service with poor credit and no deposits – will need to pay for their electricity in advance, and when the account runs dry the shut-off could be immediate.
The analogy the electric company uses is that it is similar to pay-as-you-go cell phones. These are largely used by individuals who either do not wish to maintain long-term contracts – perhaps but not necessarily for nefarious reasons – or because their credit scores preclude having a multi-year relationship with the carrier.
The Sun writer cites others who say electricity and cell phones fall into different moral categories.
“Electricity isn’t a cell phone,” goes the argument. The article cites a Fort Worth, Texas power company that began offering this service this fall. While it does work similarly to cell phone pay-go systems, additional benefits are touted as well: advanced usage-monitoring technologies enable energy consumers more information on how to reduce their usage and, consequently, their costs. But the main attraction likely is that security deposits and minimum credit scores are not required.
The Sun writer notes, somewhat cynically, that the service is not unlike “the convenience and affordability of payday lenders,” providers of cash advances on paychecks. These are typically used by individuals who are caught short of money at moments when they absolutely need cash, such as for car repairs and medications not covered by insurance deductibles. The fast payday loan industry itself has grown with technology, as most are now offered online with a simple, five-minute application process.
The libertarian, free-market argument on each of these is simple: No consumer choices are being eliminated. Product offerings are simply being broadened. These new ways of paying for services – electricity, cell phones and short-term cash loans – effectively bring these things to individuals who might not otherwise be able to access them at all.
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I think there is a place for no contract cell phones and prepaid electricity, but in most cases you pay more. I am very much against paying more for things.
I do not like the idea of prepaid electricity. I don’t want my electricity to run out… What would be nice is to tell how much electricity you spent at anytime instead of waiting to find out after the month is over.
That’s a good idea, like a little gadget that tells how you how much money you currently owed on electricity
Sounds fair– except utility companies aren’t bastions of libertarian ideals 🙂 Most consumers have no say in who delivers their last mile electricity.
In my area, utility deposits lack transparency, and are burdensome even to financially healthy families (they can run $1K+ per utility). I worry about a slippery slope where most consumers are shifted from Net 60 payment terms to payment on delivery. The shift is essentially an unapproved rate increase for the electricity company.
I wish there were better no contract deals here in Canada for cell phones. Both the contract and no contract deals are so much more expensive than plans in other countries. It really ticks me off.
The bottom line is that people are going to have to pay much closer attention to their credit if they want to enjoy the benefits and conveniences of the developed world.
Wow, I had never heard of pre-paid electric before.
I think it’s a silly idea in the name of making more money- upfront. Cell phones are optional, electricity is not. The same goes for pay day loans.
I like the idea of not having contracts, but it always seems like it could potentially end up costing you more.