Prepayment around the world

In this article we asked Phillip Kettless of PRI Ltd in the UK to trace the early development of prepayment meters. Stephen Hadden of Plexus Research in the USA looked at the changing attitudes towards prepayment in North America, and Graham Hodge of Orion New Zealand gave an overview of prepayment there. Finally Ricardo Brugger of ARO SA describes the actual installation of prepayment meters in Argentina. We are grateful to them all for their input.

METERS IN THE EARLY DAYS

Prepayment metering has been in use in the United Kingdom for well over 70 years, and with over 3.5 million electricity consumers on prepayment metering alone, the country is seen as the world focus for prepayment development. This is further borne out by the types of token-based prepayment systems that have been introduced and developed over the last few years for the UK, which are now being marketed world-wide (magnetic cards, key-based, smart cards and so on).

It is interesting, however, to look back at the roots of prepayment systems, both from an engineering and a social point of view. Mention prepayment metering to most utility staff and it will immediately conjure up images of consumers with bad debts. But if we examine literature from the early 1900s, we find statements like:

"The use of prepayment meters also simplifies accounts considerably, more particularly in those cases where the tenants are constantly changing; for possibly two or three accounts might have to be sent out per quarter, to say nothing about the difficulty on occasions of finding the ‘leaving’ consumer. The scope of the prepayment meter is, however, not confined to the poor man’s dwelling. Its use in flats is gradually becoming more extended, and in furnished apartments, where the consumers are chiefly nomadic, it relieves the proprietor of all responsibility as regards the consumption, over which he has practically no control." - J L Ferns, 1938.

Prepayment was also often associated with assisted wiring or hire purchase schemes, whereby consumers paid a weekly fixed amount towards the cost of having electricity installed in their premises, as well as for consumption.

Electromechanical prepayment meters in general consisted of two parts – the integrating (kWh) meter was usually a standard meter made by the manufacturer to operate on the type of circuit concerned, whilst the prepayment mechanism was subject to considerable variation.

FIXED CHARGE COLLECTOR - HAND-RESET TYPE

This was the simplest form of prepayment metering, consisting of the meter and a switch. At each visit the meter reader removed the coins and tripped the meter’s switch. The consumer re-closed the switch by inserting the requisite number of coins.

FIXED CHARGE COLLECTOR - TIME SWITCH TYPE

In this type of meter the tripping of the switch was performed by an electrically driven clock mechanism. The consumer benefited because it allowed more frequent operations than the hand-operated type, and thus needed fewer coins each time to close the switch.

FLAT RATE TARIFF METER

In one form or another this type of meter comprised the majority of the electricity prepayment population, and it remained in service right up until its replacement by its electronic token counterpart in the 1980s. Even today they are used by landlords as secondary metering.

Turning the coin knob in this type of meter after the insertion of a coin in the slot advanced a mechanical credit register the appropriate amount, and also closed the switch if it was not already closed. The coin was also registered on a counter, which indicated the total number of coins inserted since the meter’s installation. As the meter registered energy consumption a linked gearing arrangement caused the credit register to progress towards zero. When zero was reached a tripping device operated and caused the switch to break the supply.

A differential device prevented interference between the coin mechanism and the metering register. The coin register drove the credit counter upwards when coins were inserted, but with no effect on the meter register, while the meter register drove the credit counter downwards with no effect on the coin mechanism. The force required to open and close the switch was provided by a strong spring, which was charged by the consumer turning the coin knob and discharged by a trip mechanism on the credit register when it reached zero.

Meter manufacturers adopted one of two ways of allowing for unit price changes. In one design the gearing between the coin knob and the credit counter could be altered; in the other it was the gearing between the meter register and the credit counter. Either way allowed the number of units per coin to be adjusted to suit the tariff.

TWO-PART TARIFF - FIXED RATE TYPE

The next major development in pre-payment metering, this meter also incorporated a continuously running, constant speed motor. The motor was attached to the credit register via a differential gearing arrangement with a meter register. The mechanism used to reduce credit was the sum of the speeds of both the motor and the meter register through the differential gearing.

The motor itself comprised the fixed charge collector. Running continuously through the differential gearing, it reduced the available credit in the meter even when energy was not being consumed. Because the motor ran at a constant speed, credit in the meter was reduced at a fixed rate per hour in addition to the number of units consumed, with a range of gears allowing for different fixed prices to be set.

Now it became necessary for prepayment meters to have credit registers which could record negative credit, for even if the meter’s load switch had opened the fixed charge motor would continue to run, driving the credit register beyond its zero point. Consumers had to insert sufficient coins to clear any accrued arrears before the switch would close.

TWO-PART TARIFF - VARIABLE RATE TYPE

This meter replaced the fixed charge motor with a second gearing system connected to the coin mechanism. Insertion of coins diverted a proportion of the money to the credit register and the rest to a fixed charge register, reducing the pre-set sum of money owed. When the fixed charge register reached zero the associated gearing was disengaged from the coin mechanism, so that all future coins inserted were used only for consumption.

The disadvantage with this type of meter was that it made electricity seem very expensive during the period that the fixed charge was being repaid.

DOUBLE TARIFF, CURRENT CHANGEOVER TYPE

This was an innovative meter produced by several manufacturers at the request of electricity suppliers who wanted to implement a sliding scale tariff. Here the load current passed through a relay in addition to the load switch and current coil. The relay was designed to change the gearing between the meter register and the credit register, depending upon its position. The solenoid remained in the off position when load currents were low (e.g. lighting only) and the customer paid a rate of about 4d per unit. When the load current increased to a certain level the solenoid operated, causing the gearing between the meter register and the credit register to change, reducing the consumer’s charge to 1d per unit.

This allowed consumers to use heavy loads, such as irons, radiators and water heaters, at a reasonable cost, yet enabled the suppliers to obtain a fair price per unit when only lighting was being used. In those times generation costs were exceedingly cheap, and high loads in domestic premises did not normally exceed 400 watts. Of course, it would have benefited consumers to waste energy merely to stay on the lower tariff, but when this type of meter was in use most consumers lacked the knowledge to do this.

DOUBLE TARIFF, TIME CHANGE-OVER TYPE

Similar in operation to the current changeover meter, this meter employed a clock mechanism to change the gearing between the meter register and the credit register at certain fixed times of the day or night. Suppliers could thus offer their consumers low rates per unit at night and other off-peak periods. Consumers thus benefited from lower unit prices for their consumption, whilst suppliers benefited from improved load factors.

It is worth mentioning in conclusion the electrolytic prepayment meter, because of its innovative design for its time. It consisted of a glass cell or jar containing a quantity of copper nitrate solution and a fixed plate of copper acting as a cathode. The anode was provided by a strip of copper wound round a bobbin, which was fed a short length at a time into the electrolyte by the insertion of coins. The whole of the consumer’s load (up to 4 amperes) passed through the cathode, anode and electrolyte, resulting in the anode being dissolved and the copper being deposited on the cathode. Eventually the anode would dissolve sufficiently to break the circuit at the surface of the liquid and was only remade by the consumer inserting more coins, causing more copper strip to be immersed into the solution.

This meter suffered from a number of disadvantages. If overloaded, the copper deposited on the cathode had a tendency to become uneven and ‘trees’ often formed which eventually resulted in the electrolyte being short-circuited. The copper strip had to be replaced when used up and every two years or so the cathode had to be replaced and the electrolyte filtered and topped up.

It is interesting to see how prepayment has developed over the last 70 years from these types of meter to the token-based systems we take for granted now. I wonder what will happen in the next 70 years ...

THE USA EXPERIENCE

There are approximately 3000 electricity utilities in the United States. Prepayment electricity service has been offered in recent years by a small number of municipal and co-operative utilities. These utilities are controlled directly by consumers through local voting processes. They normally serve small or rural communities. Because the energy consumers control the companies through voting, minimal regulation is required.

The majority of US electricity customers, about 70%, are served by a different kind of electric company – the investor-owned utilities. These are typically much larger than municipal or co-operative utilities, and their customers tend to live in more urban settings. Investor-owned electric companies are monopolies, governed by public regulatory agencies, and the regulatory process protects consumer interests.

Prepayment metering obviously causes the consumer to pay for electricity before it is consumed. This means that the utility has the use of the consumer’s money in advance of consumption, not 30 to 60 days later. The utility is also relieved of the billing and remittance processing, collection effort (when necessary) and the meter reading costs that are customary with traditional metering. Taken together, these savings may be enough to justify the higher cost of the meter, or may even justify offering prepaid service to consumers at a lower cost than traditional pay-after-use practice.

PREPAYMENT AND US REGULATION

Automatic service interruption has always been an integral part of prepay electric service. Until recently this was a major obstacle to acceptance by utility regulators in the US. During the formative years of the electric industry in the US, ‘big industry’ was seen as exploiting individual citizens.

As a result, public policy established regulators as protectors of the individual customers of investor-owned utilities. Electric service came to be regarded as a right more than a privilege.

Regulatory rules evolved to protect customers of investor-owned utilities from service interruption. Before terminating service to a customer whose payment is seriously past due, the utility must pursue an array of measures to secure payment. Varying from state to state, these measures can include

  • Arrange a deferred or low interest payment schedule
  • Co-operate with public financial assistance agencies that will pay the bill for the customer
  • Provide service through the winter months, even with no firm commitment that any payment will eventually be received
  • Continue electric service throughout a lengthy sequence of legal appeals.

Prepayment electric service with automatic disconnection when the prepayment runs out is incompatible with these protective measures, and so has not been seriously considered by regulators or the investor-owned utilities serving the large majority of the US population.

REGULATORY CHANGES

Upcoming restructuring of the US utility industries generally aims to allow every energy consumer to choose his or her energy supplier from competing suppliers, and to make a private contract for the energy. This is in contrast to present regulation, which limits energy customers to a single supplier and a few predefined energy purchase structures.

As energy suppliers seek ways to give customers attractive choices, prepay services may become popular in some segments of the customer population.

Only a few thousand customers have been served by prepay metering in the US, according to Dennis Landsberg of Landsberg Engineering, whose consulting company has investigated the technical issues, regulatory implications and viability of prepayment metering. However, the method is popular with those customers, who like being able to pay for power when it suits them, as opposed to when the bill comes. They are also able to see the amount of power they are using, and adjust their habits to save if necessary.

One of the major obstacles to prepay service in the US has been the cost of the customer-site equipment. The installed cost of the meter plus customer display has been more than 20 times the cost of a conventional watt-hour meter. However, recent economic analyses by Plexus and Landsberg show that utilities may be able to serve some customers with prepay service at considerable savings compared to conventional, pay-after-use service.

Prepayment is not for everyone in North America – but for many consumers and suppliers it may become a preferred way of doing business.

PREPAYMENT IN NEW ZEALAND

In New Zealand there are some 1.4 million residential customers in total, and there has been very little prepayment. The first major focus began in 1992, when a large utility was able to introduce prepayment to around 10% of its 120 000 residential customers. This was done by marketing it as a value-adding service, rather than forcing customers to use it.

It transpired that these customers were ‘weekly’ customers who found it difficult to cope with monthly or bi-monthly utility billing arrangements, instead of being ‘bad payers’. More important, the service could be rented to customers, forming a self-sustaining business which was the key to its success.

Fewer than 50 000 prepayment meters have been installed, and there are no regulatory issues in New Zealand regarding prepayment. The government is taking a hands-off approach, and those introducing the systems have been doing so responsibly. The key is this: if the systems are imposed (hence attracting possible regulatory attention) then they are not economic to offer as a service – hence the problem is self-solving! The government is unlikely to become involved directly, but will watch proceedings carefully.

ARGENTINEAN CASE STUDY

In 1989 Argentina began an intensive privatisation programme. Before then transportation, energy and communication companies were in the hand of national or provincial governments and, of course, highly inefficient. Only the small and remote cities and towns had a private distribution of electricity, as they were forced to create co-operatives in order to be self sufficient.

The generation, transportation and distribution of electricity is almost completely in private hands. Co-operatives are thus forced to improve their efficiency if they wish to survive.

Almost 90% of the people of Argentina have access to electricity. In order to introduce prepayment systems, therefore, it was necessary to develop different software invoicing programmes, reports and special applications as part of a meter replacement or meter retrofit strategy. It was also necessary to demonstrate to distributors that replacing conventional meters with prepayment meters – ten times more expensive – was technically and financially beneficial.

One co-operative that has adopted the scheme wholeheartedly is the Co-operative Electrica Limitada Carmen de Areco (CELCA). It has over 5 000 users in the city of Carmen de Areco, 140 km west of Buenos Aires. Prepayment meters were introduced about two years ago, mainly to combat poor payment, which averaged 26% of the total monthly turnover.

User response was positive from the start. Users appreciated the ability to control consumption by setting the amount and time of purchase and deciding when and how to consume power. They also liked being able to buy power as many times as they wanted, 24 hours a day. The traditional invoice, with its expiry date as well as uncertainties regarding meter reading and actual consumption, was eliminated.

Tokens can be obtained from CELCA’s offices or a point of sale in a convenience store, open 24 hours a day all year round. About 80% of electricity sales take place at these convenience stores.

The meters are installed in the same place as the conventional meter had been. The internal distribution circuits of the user therefore remain unmodified, which means that CELCA will not have additional legal responsibilities at the customer’s premises.

Prepayment has been implemented as an alternative, and users can choose whether or not to adopt it. In practice, however, applications are surpassing CELCA’s installation capacity, and there are six-month waiting lists. Non-payment has already fallen from 26% to 16%, and continues to fall as more and more meters are installed.