As the name suggests, a prepaid electricity plan is a type of plan that allows you to pay for your electricity before you use it. Unlike traditional, post-paid plans, prepaid plans don’t require you to pay a deposit amount. Prepaid plans also don’t require a credit check and offer more flexibility to pay for power as needed rather than being stuck with a monthly energy bill.
What Is a Prepaid Electricity Plan?
Prepaid electricity plans are similar to prepaid mobile phone plans, where you purchase your product and then use it. Prepaid plans offer several benefits. First, your retail electric provider (REP) won’t require a security deposit with a prepaid plan since there is no question of unpaid monthly bills.
Second, since the provider doesn’t face the risk of pending electric bills, it does not conduct a credit check. Prepaid plans are also less susceptible to unexpected energy bill surprises since you generally only pay for the amount of energy you expect to use.
Why Choose Prepaid Electricity?
Prepaid electricity may suit you if you’re looking for a no-deposit electric plan. It can also be beneficial if you have a bad credit score and you want to avoid a credit check.
If you are worried about billing surprises, prepaid plans also offer low-balance alerts and electricity use information to help you manage your consumption and budget for your energy expenses. Some prepaid plans don’t require a contract, so they may suit your needs if you want electricity for a shorter term or you don’t want to sign a long-term agreement.
Available Markets and Providers
Prepaid electricity plans are available in all the deregulated states of the U.S., including Texas, New Hampshire, New York, Maine, Illinois, Ohio, Pennsylvania and more. In Texas, some of the providers offering prepaid electricity are Payless Power, Now Power, Direct Energy and Acacia Energy.
How Prepaid Electricity Plans Work
When you sign up for a prepaid plan, the provider asks you to make an initial payment in which you fund an account balance. Also known as a connection balance, this initial charge can be up to $75, not including your TDU (transmission and distribution utility) charges. Like a postpaid plan, you will still pay for your energy per kilowatt-hour (kWh) of use. However, you will prepay for your usage.
As your connection balance gets close to zero, the provider will alert you of a low balance, at which point you can purchase more energy. If you don’t pay for more electricity at this point, you will receive a disconnection notice up to a day before your balance zeroes out, after which the electricity company will disconnect power to your address.
Energy suppliers typically don’t send out paper bills with prepaid plans, but you can request a summary of usage and payment (SUP) from the provider.
Smart Meter Technology
You can only sign up for a prepaid plan if you have a smart meter installed. The provider needs real-time information on your energy usage to match it with your balance.
A smart meter measures the amount of energy flowing through it and communicates with the provider in real time over a wireless network. If you have a smart meter, your provider can quickly connect or disconnect power to your home or business.
Payment Options and Recharging Your Account
You can choose from several ways to pay your electricity provider to recharge your prepaid account. All providers accept payments via credit or debit cards through their online portal. Many providers also accept cash payments at designated payment locations.
Some providers may also accept payments via mail. If you don’t want to go through the payment process every month, you can also set up automatic payments from your bank account. With a prepaid plan, this will be an automatic payment that recharges your account for a preset dollar amount at a chosen time.
Benefits and Drawbacks of Prepaid Electricity
Prepaid electric plans offer multiple benefits, such as not needing credit checks, security deposits or late fees. However, they also have drawbacks, including higher pricing and limited plan features. Below is an overview of the pros and cons of prepaid electricity.
Benefits
- No credit check required: Prepaid plans do not require a credit check since providers do not face the risk of unpaid bills.
- No security deposit: As providers receive payments upfront, they do not require a security deposit to fall back on.
- Better usage monitoring: Most prepaid plans offer daily monitoring, which provides detailed information on energy consumption and the remaining balance in your account.
- No long-term contracts: Prepaid plans typically don’t require you to sign a long-term contract like a traditional, fixed-rate plan.
- No late fees: Prepaid plans do not have the risk of late fees, as you pay your bills before consuming your power.
Drawbacks
- Potentially higher rates: The electric rates on prepaid plans are usually higher than those on traditional postpaid plans.
- Risk of quick disconnection: Prepaid plans have a shorter disconnection notice if your balance runs out, and you face the risk of disconnection in just a day or more.
- Limited plan options: Not all providers offer prepaid plans, and those that offer them only have one or two options that you can choose from. For example, most prepaid plans don’t offer green energy.
- More frequent payments: Prepaid energy plans require constant account monitoring, and you may need to make payments frequently to avoid disconnection.
- May require special equipment: You need to have a smart meter to sign up for a prepaid plan, as you and your provider must constantly monitor your exact energy usage.
- Variable rates: Most prepaid energy plans are variable-rate plans, which means the pricing per kilowatt-hour changes monthly. Additionally, Many are month-to-month plans, while a small handful of providers offer prepaid plans with longer contract terms. Payless Power is the exception to this rule and offers price-protected fixed rates.
Understanding Smart Meters and Usage Monitoring
Smart meters measure electricity usage and send near-constant measurement updates to your utility company. They are sometimes also known as AMS (advanced metering system). Typically, smart meters measure energy flow in 15-minute intervals.
Smart meters have built-in wireless functionality that allows the provider to communicate with the device in what amounts to real-time increments. This helps the provider measure electricity consumption constantly and update your account balance accordingly.
That’s not all; smart meters also allow you to track your energy usage in real time.
Real-Time Usage Data
If you are a Texas consumer, you can register your smart meter for free on Smart Meter Texas — a platform endorsed by the Public Utilities Commission of Texas (PUCT). You can also set up daily notifications over text or email about parameters such as energy consumption, account balance and energy rates.
Managing Your Prepaid Electricity Account
A key benefit of choosing a prepaid energy plan is that you can constantly monitor and manage your account. If you notice that your prepaid balance is running out faster than expected, you can modify your consumption to slow your daily energy usage and expenses.
Monitoring your balance also helps you recharge your account on time and avoid the risk of disconnection.
Avoiding Disconnection
In the case of prepaid plans, there is no security deposit to act as a reserve balance when your account balance draws nears zero. This is why providers generally disconnect your electricity service immediately after your balance is empty. Although all providers send a notice before disconnecting your power supply, the notice is usually short, and it is better to recharge your account in advance.
You can also set up online reminders or low-balance alerts to help you recharge your account without waiting for a disconnection notice. To avoid the risk of disconnection, you can also choose to set up auto payments. However, that removes some of the flexibility that a prepaid plan originally offers.
Energy-Saving Tips for Prepaid Customers
Most prepaid plans have a higher energy rate than a comparable fixed-rate plan, making it important to focus more on energy usage and cost savings as a prepaid customer. To reduce your consumption and thus your electricity costs, you can use energy-efficient appliances and adjust your thermostat to reduce energy use.
Other ways to save energy include weatherizing your home, using cold water for washers and dishwashers and unplugging devices when not in use or when away.
Choosing a Prepaid Electricity Provider
Based on our research, Payless Power is the best energy provider for prepaid energy plans. Payless offers price protection through fixed rates, and its contracts include six and 12-month terms, so it can meet both short and long-term needs.
However, choosing your prepaid electricity provider is as important as picking the right plan itself. When choosing a provider, do your research. We recommend looking at the provider’s customer ratings and reviews. A provider with poor reviews and a high number of complaints is more likely to cause issues such as billing errors. On the other hand, reliable energy providers will have strong ratings and provide seamless service. You should also read the electric facts label (EFL) document of a plan before signing up.
Questions To Ask Potential Providers
An advertised prepaid plan may not display all the important information you need to make a decision. Here are a few questions to ask potential providers before signing up with one:
- What is the plan’s effective rate?
- How often does the rate change?
- Are there any additional fees associated with the plan?
- Does the plan include any renewable energy?
- When will you receive a disconnection notice?
Frequently Asked Questions About Prepaid Electricity
How does prepaid electricity work?
In a prepaid electricity plan, you pay for the energy before you start using it. When you sign up for a prepaid plan, you need to charge your account with a starting balance and then recharge it before the balance reaches $0 to avoid disconnection.
What are the disadvantages of prepaid electricity?
Prepaid electricity plans are generally more expensive than traditional, fixed-rate plans. They often have variable pricing, which may also create unexpectedly high rates during short supply or high demand. Prepaid plans also have a shorter disconnection notice period and require a smart meter for you to be eligible.
Is prepaid electricity cheaper than traditional plans?
No, prepaid electricity is slightly more expensive than comparable traditional plans. Additionally, many prepaid energy plans have daily charges, which often add up to more than the standard base charge for a traditional postpaid energy plan. However, prepaid plans generally don’t require a deposit or credit check, which makes them suitable for some customers.
What happens when prepaid electricity runs out?
When your prepaid electric plan’s balance runs low, your provider will send you a disconnection notice. If you do not recharge your account before your balance runs out entirely, the provider will usually disconnect your service within a day. On top of having to recharge your prepaid account, you may also have to pay a disconnection fee before getting your lights turned back on.
