Prepayment metering and its impact during tough economic times


By Karen Blackmore and Barb Ryan

Prepayment metering for energy consumption has been extensively used in countries in Europe, and often includes vacation or second homes as well as customers who may be credit challenged or fuel poor. When prepayment metering was first introduced in the United States in the early 1980s, the utilities that set up such programmes often did so to force customers with bad debt history or debt accumulation to use those programmes to prepay their gas and electricity usage.

Utilities viewed prepayment metering as a way to lower bill collection costs, service costs for disconnect and reconnects, and customer care costs related to payment arrangements, while also often providing a way to recoup past due energy bill balances.

Because of the emphasis on credit challenged customers, backlash from public advocacy groups and public utility commissions ensued. These advocacy groups were concerned that low income customers on prepay were being charged more for their energy, were being given fewer choices in rates, and could be in danger if their service was automatically disconnected. At least one very successful prepayment pilot programme was denied full implementation by a PUC because of this potential for discrimination.

Today prepayment metering has moved to generally accepted usage as an additional customer payment option and as a way to give customers much more information about their energy usage, promoting energy conservation. This is due in part because utilities offer prepayment metering to many customers rather than segmenting out specific groups based on payment or collection history. In addition, better technology through smart metering now exists for prepayment programmes, in terms of more payment options or those payment options viewed by customers as more important, and in the meter units and in-home displays.

With the current economic conditions faced by individual customers and mounting concern by utilities to maximise capital outlays, prepayment metering can offer better ways for customers to manage individual budgets and can provide better revenue assurance to utilities than the traditional methods of credited energy usage and billing. Although this is not the only reason to implement a prepayment programme, as discussed later in this article, it is an important factor for a utility to consider in its smart metering business case and revenue assurance strategy.

Components prepayment

Components in a prepayment metering system

Most utilities have long used traditional billing arrangements in which customers use electricity, natural gas and water on credit and then receive a bill for that service, generally for one to three months of service. The customer is given some time period to make the entire payment due from that energy usage in order to continue receiving energy service in advance. Some jurisdictions allow customer deposits to offset any potential for bad debt, but not all do and those that do may not have the proper revenue assurance tools to assess a suitable deposit amount. With prepayment metering, customers pay for energy usage in advance. This payment may be through a token, transfer of credit using a swipe device such as a magnetic strip or smart card, number punched on a keypad, or a signal from the utility to the meter from an internet or kiosk payment. Utilities may also use some portion of a prepayment to pay down any applicable preexisting customer debt.

To prepay or get an energy credit with a card or token, customers typically take the card to a revaluing location that may be a kiosk, an ATM-like vending machine located in a utility business office or a third party payment location such as an allhours convenience store. The customer inserts the money and the card, and the credit is transferred to the card by the machine. At other locations, a retail store clerk or a utility customer care representative may handle the transaction and credit the card or give the customer a code to enter into their in-home display unit. Most of the systems today also work with internet payments where the energy payment is sent directly to the utility or through a third party provider. The utility or third party provider has software that works in conjunction with the smart meter to notify it that more energy is available for use.

The prepayment metering technology includes in-home displays that provide additional information to customers from the smart meter, or internet-based energy usage displays provided through a partner alliance with the smart metering vendor. The in-home display units are small devices that can be plugged into any electrical socket and provide information such as current and previous energy usage over some given time periods, remaining dollars available for energy use, average usage, and last purchase information. The units use various technologies to notify customers when their remaining credit is running low, normally based on dollars or days remaining at current usage. These technologies often display a different colour, or provide text messages, flashing signals or beeping sounds to alert the customer. Some can be set to different levels of escalation of notifications. Some utilities offer a small energy credit balance to provide a customer with continuous energy availability during after-hours, weekends, and holidays until the customer can revalue during regular business hours. Other utilities expect the customer to manage any temporary outage by paying online or through an all-hours facility.

With smart meters, the energy usage credit can be transmitted in real-time to the smart meter and a utility does not need special prepayment or additional meters to accomplish this. The in-home display units or web-based displays also work with the smart meter to provide real-time energy usage information. Any fixed administrative or service charges can be deducted from the full energy payment at an hourly or some other periodic interval. The smart meters can also be programmed to work with reconnect software, making service calls unnecessary.

The common components in a prepayment metering system are shown in the figure.

Utilities that already have prepayment programmes in place often have customers who fit one or more of these profiles:

  • Customers who frequently travel out of country and want the convenience of paying in advance
  • Customers who are quarterly or monthly payment challenged and prefer weekly, semi-monthly or other periodic purchases of energy
  • Customers who want to avoid putting down a large deposit to initiate service
  • Customers who have second homes that they frequently rent out for short periods of time or that they reside in only occasionally
  • Customers who want to easily reduce an accumulated energy usage debt, maybe without being charged interest
  • Customers who want to know what they are using for energy and want to better reduce their overall usage
  • Customers who want to easily pay for energy usage of children away at college.

Utilities often benefit from prepayment programmes by noticing a reduction in energy usage by the prepayment population, enabling them to reduce or defer the need to build additional power generation or pipeline capacity. Some of these customers are interested in decreasing their overall carbon footprint and use energy conservation as a way of doing so. These customers respond positively to the information available through the inhome display device. Other customers use less energy in order to defer payments or meet their own budget requirements. Other ways that utilities increase customer satisfaction is as a result of the discrete way disconnects can be handled, how reconnects can be easily done without having to send a service truck, and through additional payment options for customers. Utilities can also benefit by reductions in fewer long handle time calls about payment arrangements and bill collection efforts.

Energy Insights surveyed 392 members of the Energy Insights National Residential Online Panel in April 2008 and found that sixteen percent of customers indicated a high interest in participating in prepayment billing. When those not interested were asked open ended questions about the barriers to participate, two responses mentioned having to learn about the programme itself and worry about disconnection or disruption of electric service. The features deemed highly necessary by the largest proportion of respondents were no late fees, the in-home display information and the ability to revalue their prepayment account online. The preference for revaluing online might be higher with this sample of customers than for the general population because the survey used an online panel. Becoming more conscious of wasting energy, having the ability to better manage energy use and cost, and helping the environment as benefits of prepayment metering were cited as highly important by more than two-thirds of respondents. When asked to name the most important benefit, no single benefit stood out, but the two highest rated by customers were becoming more conscious of wasting energy, followed closely by the ability to better manage energy use and cost.

Prepayment metering is a billing option that is attractive to customers, particularly those who have trouble paying their monthly bills. But there is also a growing portion of the population that is interested in having a better understanding of and more control over their household’s energy use. The need to eliminate waste and use energy intelligently can drive programme interest beyond concerns about budgets and payment challenges. Prepayment metering can be an important component of a utility’s energy conservation goals in conjunction with energy efficiency programs and smart metering programmes.

With the uncertain economic times, prepayment metering programmes should continue to expand in popularity with both customers and utilities. Customers will be able to budget for and pay for energy usage at the schedule that makes the most sense for them. Utilities will benefit from this revenue assurance feature as well, and can even take advantage of the cash flow. Smart metering programmes make prepayment simpler for the utility to implement. This should improve customer satisfaction and most likely result in higher energy conservation, based on most utilities’ results with these programs.

Utilities considering prepayment metering should include the following in their business case and plan:

  • Provide as many payment options as possible, preferably through online options as well as telephone, mail, or in person
  • Provide in-home display technology that gives customers information they value, particularly one that can even provide peer information on energy usage
  • Provide additional energy efficiency ideas and scorecards to help customers further reduce their energy usage and understand how to take advantage of any combination prepayment and time-of-use rates
  • Provide educational information about Energy Star appliances and thermostats and each appliance’s energy requirements, as well as the prepayment programme itself
  • Emphasise convenience features such as budgeting and paying at customer’s choice of intervals
  • Evaluate the revenue assurance features of the prepayment programme, such as reduced customer care costs or using them as offsets to increased energy efficiency programmes and customer care about energy conservation
  • Include prepayment in the smart metering disconnects and reconnects plan
  • Link energy usage through smart metering back into the customer information system for future use in evaluating new interval or real-time rates and to help build energy efficiency programmes
  • Work closely with media and community advocacy groups to make sure that they understand the programme and can evangelise its benefits, as appropriate.

Prepayment metering is another tool for utilities to consider in building revenue assurance and customer satisfaction. This can make it a winning proposition for the utility and the customer.