HomeESGDispelling prepayment myths

Dispelling prepayment myths

Prepayment technologies on trial in Kuwait

The advent of electronics in electricity and gas metering has seen a number of innovative products unleashed onto the market over the last ten to fifteen years. However, despite the ability of these products to reduce operating costs, many suppliers use them in a similar manner to the electromechanical or mechanical products they replaced, and thus gain little or no benefit from their installation. Time and time again I hear the phrase “We do it this way because that’s the way we have always done it”.

One product close to my heart is prepayment metering. I have detailed below some of the myths that are usually associated with this type of meter, along with a reality check for those with a more open mind.

Myth 1: Prepayment is for poor payers and debtors


While there is a section of the general public who fit into the ‘can’t pay, won’t pay’ category (larger groups in some countries than others) for which prepayment is ideal, there is an even larger group who fall into the pay-as-you-go category. A good example of this in the UK is the mobile phone market, where the sale of pay-as-you-go products has far outstripped the traditional monthly-billed products, despite the cost per call unit being much higher. Why? Because the people who buy them want to control their costs and not find themselves faced with a bill they cannot afford to pay.

Think of the massive improvement to a utility’s cash flow if all its customers were pay-as-you-go, paying for their electricity and gas in advance.

Myth 2: You still need to send customers bills

No, you don’t.

We all hate receiving bills. Most people probably spend ten times more money on food, clothing and household items than they do on energy. Do the shops send them a bill, reconciling what they’ve consumed with what they’ve purchased? No, they don’t – so why do energy suppliers insist on doing it? Think of the money that could be saved by not billing prepayment customers. The cost of meter reads – once, twice or even four times a year. The costs associated with processing the data, printing the bill and posting it. And finally, the costs of the call centre and billing staff who have to deal with the billing queries and account reconciliations.

Myth 3: Prepayment systems are more expensive than traditional billing systems

No, they’re not.

They have only been more expensive to operate, because of the way they have been implemented. In addition to insisting on reading customers’ meters and billing them, utilities often send out transaction statements detailing payments made to date, which invariably do not agree with customers’ own records or even information held on the meter! These lead to further queries and reconciliations involving call centre operatives and dedicated prepayment advisors, all adding to the cost of administering the prepayment system.

Furthermore, many suppliers have employed either very simple token-based prepayment systems with little or no security (requiring the administration of complex and costly auditing and security processes to track their issue and use) or they have employed expensive ‘smart’ tokens which, though offering higher security and functionality, require more complex and costly systems to provide these benefits.

Myth 4: You still need meter readings


See Myth 2 above. If customers are paying for their electricity and gas before they use it and don’t require bills, why do you need to read the meter? Popular arguments put forward by suppliers are that you need to read the meters in order to carry out a reconciliation of electricity or gas purchased against that sold by suppliers to customers, and to ensure that customers are not involved in fraud or meter tampering.

Looking at electricity, and taking the first point first, how can electricity suppliers reconcile purchased energy against supplied energy unless they are carrying out full energy audits of their supply systems? To reconcile purchased and supplied energy, suppliers must know the values of their technical and non-technical losses.

Technical losses are those losses on the supply system which are either avoidable (better cable and transformer design etc) or unavoidable (heating in conductors, transformer copper and iron losses etc.). Non-technical losses are caused by un-metered supplies, illegal connections, meter errors, fraud and tamper (physical – meter connections, and non-physical – data fraud).

There is no supply company in the world that can declare it knows accurately the value of its technical and non-technical losses. Energy sold is compared to energy purchased and the difference is put down to system losses and fraud. Ask any supply company what value they attach to fraud, and they will either mumble an astronomically high figure or change the subject. The truth is nobody knows, and no one will ever know, unless all unmetered supplies (street lights, road signs etc.) are metered and an accurate study is made of all the supply plant. A similar argument can no doubt be made for gas. So I ask the question again: what is the real value of meter readings for a pay-as-you-go supply business?

A further issue with meter readings is that in many countries it is the norm to use estimated data or customer-derived readings if the supplier cannot obtain a firm meter reading. Having had many estimated bills myself, I can verify that their accuracy leaves a lot to be desired. Once again we have to ask ourselves how accurate the reconciliation process is and what real benefit it provides suppliers. Add to this the further inaccuracies which can be introduced by customers providing inaccurate or fraudulent data, even if only for a short period of time until supplier reads are obtained, and the settlements process begins to look even more absurd.

If settlement data really is required by the supplier, it can more readily be provided with a degree of accuracy at least as good as the meters themselves by converting the prepayment vend amounts into kWh’s or litres of gas supplied. Even multi-rate data could be provided in this manner – and all without meter readings. However, the value of the data to suppliers is still minimal if the values of technical and non-technical losses remain unknown.

Even the argument against readings being required for fraud detection can be dispelled. Fraud can more easily be detected by well-designed meters (with the customer prevented from further vending on detection of tamper) and exception reporting is possible in a well-implemented prepayment vending system.

Myth 5: You need Smart Tokens to deliver flexible prepayment functionality

No, you don’t.

You might be surprised to learn that you can do everything a smart token prepayment system can do with a keypad prepayment system, and you can do it more cost effectively because you don’t need the smart tokens. “But,” the sceptics will say, “you can’t bring back meter readings with a keypad system.” The short answer is yes, you can. Using data authentication, suppliers can be provided with meter reading data by customers in a secure manner either through a postal, IVR or Internet system at a fraction of the cost of a smart token system.

I have already argued the case against meter readings, but it is interesting to explore this myth of needing a smart token to bring back meter readings in more depth.

Nearly every supplier using a smart token prepayment system insists on capturing a meter reading every time a token interfaces with a meter. If we exclude programming, changes in tariff and unit prices, and if we assume that prepayment customers vend to their meters on average once per week, this means that suppliers are processing 52 000 sets of meter readings per 1 000 prepayment customers every year! If the customers are billed quarterly (assuming that suppliers still want to provide bills) only 4 000 of those readings (7½%) are required – the other 48 000 are superfluous. That is a massive waste of data processing power and data storage.

Finally, let’s take a closer look at another aspect of using smart prepayment tokens. It must be remembered that they require additional hardware to read and write to the token, both at the point of sale and within the meter. This makes the prepayment process and hardware more complex, with consequent reduction in reliability, thus further increasing costs. More important, physical smart tokens ‘fix’ the method of vending. Customers with smart tokens must go to vending outlets to charge them, whereas customers using tokenless virtual systems can vend from physical outlets, via telephones, IVR systems and the Internet. Furthermore, customers using tokenless systems can continue to vend to their meters even if tokens are lost, unlike physical token systems where the token must be replaced in the event of loss or failure.

So let’s start making better use of electronic metering technology. Let’s step outside the box and examine how we are using it. History shows that it is not technology itself that creates change, but the way in which it is applied. Our industry is full of good technology; all that is needed now is some vision on its application. If we do not learn from our previous mistakes, then history will show that the only real benefit derived from the application of electronic prepayment meters is a reduction in monetary theft and the abolition of the need to collect, transport and bank large sums of coins. That will be a real shame.