Prepaid metering: A case of a noble idea with a flawed execution

The advent of prepaid metering at the start of the millennium was predicted to be a game-changer for the financial health and cash flow of municipalities.

Prepaid meters were preferred by both financial and technical managers alike. Financial managers liked the concept of “cash in the bank” even before the kWh energy is consumed, while technical and billing managers could do away with the cumbersome meter reading and estimation processes in addition to easing maintenance and reducing tampering.

Around a decade down the line, after various municipalities, especially the metropolitan municipalities, widely adopted prepaid meters, this could be an opportune moment to reflect on the efficacy of prepaid metering for municipalities.

In this intervening period, many municipalities ran prepaid conversion campaigns offering free conversions to prepaid meters.

On closer introspection, it has been revealed that the introduction of prepaid metering not only refrained from assisting the municipalities in improving their revenue status but also, more often than not, accelerated the revenue erosion prevalent in most municipalities. A surprising but true fact within many municipalities!

Why so? The answer to this lies in the loopholes within prepaid metering that have been unduly taken advantage of.

First, the widely known fact that organised rackets found ways to circumvent the system through illegal prepaid charging tokens. The municipalities get zero revenue out of these illegal tokens, thereby depriving them of their rightful share. Thereafter, illegal tampering became prevalent within pockets of the municipality’s area of supply.

This constituted both smart tampering run by localised gangs and visible physical tampering/damage to meters by unscrupulous elements. Smart tampering is where technicians collude with the customers to intelligently bypass certain high consumption loads such as geysers or heaters while visible physical tampering entails blatant damage to the meter or the installation.

Though many municipalities can detect those accounts without any purchases or too low purchases, there are unfortunately no systems to detect the smart tamperers who manage to show some purchases to stay out of the no/low consumption brackets and thus the municipal radar.

Furthermore, there is a lack of clear segmentation or trend analysis, thus not allowing the municipalities to have a focused approach to target the highest impact tampered accounts (by the 80/20 principle). This has resulted in worsening tampering trends across municipalities with customers not fearing any repercussions.

Even when municipalities detect illegal connections through physical audits, the evidence is not presented well or in full before the court of law thus rendering the entire physical audit process useless — a double whammy for the municipality which has incurred the cost of the audit process and legal recourse but not realised any penalties from those erring customers.

Nevertheless, the biggest disadvantage of prepaid metering is that unlike conventional metering wherein the estimation process allows the system to flag low consumption and potential loss of revenue; prepaid metering does not have any such estimations, and any consumption not accounted for translates to lost revenue immediately and cannot be recovered in future.

This loss of revenue has been aggravated in most municipalities due to the lack of a robust back end system with data analytics capability. This should have been in place before municipalities embarked on the prepaid journey. The back-end system needs to keep tabs on consumption before and after the conversion to prepaid meter, to determine whether the customer consumption stays within the acceptable levels of variances.

In other words, if a back-end system could flag the dropping consumption trends across the customer base with clear segmentation and segregations, those insights could be used to target illegal connections and buck the widespread and increasing trend in tampering.

This issue is further compounded by the advent of distributed generation across the municipal customer base. Without the lack of a proper back-end system, it is unlikely for the municipalities to determine if the low consumption is due to tampering or other reasons such as solar installations, vacant properties, or demolished/under construction properties which gives the false impression of tampering.

Despite the above, prepaid metering with a proper back end system as explained above can push towards the original intended goals of prepaid metering. Further, it is a great mode of metering for customers with historical debt and poor payment records, albeit with proper checks and monitoring in place.

Nevertheless, prepaid metering is a clear case of a noble idea with flawed execution. A straightforward course correction can result in the winning formula originally anticipated.

Mupeti is MD for revenue consulting at Ntiyiso