The primary difference between prepaid electrical service and postpaid electrical service is in when the electricity you use is paid for. Knowing how these plans differ is critical when you’re shopping for an electricity plan. Service providers and brokers make comparing electricity rates relatively easy. However, individual homeowners or business owners always know their usage best. With a little knowledge of your needs and the types of plans out there, it’s possible to choose a plan that is advantageous to you.
Postpaid Electrical Service
How it Works
Post payment is the most common electrical service payment scheme. You use the electricity first, and are billed for what you’ve used in scheduled intervals (monthly, quarterly, etc.) Once billed, you have a set time, such as fifteen days, to pay the amount due. Failure to pay often incurs late fees or other penalties. Continued failure to pay can result in disconnection and collection action.
Establishing and Monitoring Service
In order to establish that you can pay, many postpaid utilities require some sort of proof of ability to pay up front before they will establish service. Such proof may include a social security number, a credit check, or deposit. The deposit amount may depend on your credit score. Many postpaid services offer automatic bill payment, and also allow you to check your usage so you don’t get surprised by a large bill.
Rate Variation
Because they have fixed time intervals, some postpaid utilities offer plans that control the rate paid per kilowatt-hour over the course of the plan:
- Fixed Rate
This type of plan locks in the price for the entire term of the plan. While this protects you from surprises, it also prevents you from benefiting when prices drop, and attempting to break out of such a plan often incurs penalties. - Variable Rate
With this type of plan, you are exposed to variations in the price of electricity over the term of the plan. Depending on how rates vary, you can come out better or worse than a fixed rate plan, but it can be possible to prepare for this. For example, prices tend to rise in the southern United States during the summer, when more people run their air conditioners. - Indexed Rate
This type of plan ties your rate to a public commodity index, usually one that tracks a set of energy-related stocks. If you expect to come ahead on a plan like this, you should thoroughly research the industry so you have some idea of how the index is going to behave.
Another type of indexed plan offers free or reduced-rate service during specified times, like nights or weekends. Know when you use the most electricity, and this can help you get ahead.
Who is it Best For?
The biggest advantage of a postpaid electricity plan is its stability. It is best suited for people with a steady income or just prefer set costs and regular schedules.
Prepaid Electrical Service
How it Works
Prepaid service is lesser known but widely available. With this type of service, you have a “credit” balance that you’ve already paid for, and this balance is reduced as you use electricity. There are no deadlines or monthly bills. Under this system you can pay what you want, when you want, provided you maintain a balance. The burden is on you to keep up the balance.
Establishing and Maintaining Service
Under these plans, no credit check or deposit is required to establish service. Be advised that many services will not offer prepaid service if you or anyone in your household has a “Critical Care” or “Chronic Care” condition. That is, if someone risks illness or a life-threatening condition if service is interrupted.
Many prepaid services have requirements around maintaining the balance. For example, some services require you to maintain a specified minimum balance to maintain service and avoid disconnection. However, some even allow you to “go negative,” but this may only be allowed under conditions of hardship, incur penalties, or require a deferred payment plan in order to continue service.
Many prepaid utilities give customers regular updates on their balance, or give them a way to check on their balance. You can also pre-arrange to be notified if your balance drops below a specified amount, or even arrange to have your credit card or bank account billed automatically when your balance drops below a specified amount.
Because of the additional monitoring required, many utility services only provide prepaid electrical service to customers with smart meters, because these plans require the more detailed monitoring these internet-of-things-enabled devices provide.
Who is it Best For?
The biggest advantage of a prepaid electricity plan is its flexibility. Such a plan benefits people who are often away from home or have irregular income, may not be able to afford a large up-front deposit, or want more flexibility to switch to another plan later.
A prepaid plan can encourage conservation. According to a study by the Distributed Energy Financial Group, a consulting firm in the energy industry, prepaying customers used less energy because frequently checking their balances made them more aware of their own electrical service usage habits.
Shop Smart
When shopping for an electricity plan, keep two things in mind:
- Know your needs, and always read the fine print.
A little knowledge goes a long way, so don’t be afraid to dig into the details:
- Know your financial situation. If you own your own business and expect irregular income, a prepaid plan allows you to pay for a large portion of service ahead of time to prepare for the lean times.
- Know your schedule. An index plan with free weekends will help you out if you’re often away during the week.
- Know what specific conditions mean to you personally. A minimum usage fee won’t matter to you if you know you will always use more power than that fee specifies.
- Know how much risk you can tolerate, and what kind. Maybe you’re okay with a variable rate plan if you know you can switch later.
With electrical service, as with any contract, the more you know, the more you can help yourself.
Author Bio: David Olson is a writer, content strategist, and eBook author. He specializes in the latest developments in technology and how they help companies communicate with evolving consumer bases worldwide.