Prepayment Metering 1 February 2005 Dubai, UAE

Prepayment Metering 1 February 2005 Dubai, UAE

Programme Overview of prepayment systems System components Tariff considerations Encryption and standardisation Implementing prepayment

What is prepayment? A revenue collection and management mechanism whereby credit information is transferred between a point of payment and a metering device. The metering device supplies the pre-paid amount of service to the customer and then disconnects the service.

Which utilities? Electricity Water Gas Telephone Cellular

Early Prepayment meters

Courtesy www.watthourmeters.com Fort Wayne K Series General Electric IP2

Credit (Traditional) Vs Prepayment Traditional Metering – – – – – – Use electricity Read meter Prepare bill Collect money Warn late payers Disconnect nonpayers Prepayment Metering – Collect money – Transfer credit to meter – Use electricity

Electricity becomes a consumer product

Why Use Prepayment? Revenue collection challenges Customer service tool

Utility Revenue Collection Challenges Expensive internal processes Difficulty in collecting payment from some or all customers using traditional billing High turnover customers Internal staff problems – e.g. Fraud

Customer Service Tool Customer is in control and can save money monitor and understand consumption Customer can purchase electricity at any time and in any quantity - (budget) No unexpected bills (month end surprises) Accuracy No disconnection/reconnection fee Privacy - no meter reading No deposit Prepayment can improve the relationship between the utility and the customer

Win-win Solutions Prepayment can offer win win opportunities to both the customer and supplier However, it is important to quantify, monitor and analyse the business case Models complex

Additional utility considerations Lower operational costs No meter readings No billing No mailing Improved revenue recovery No credit control No bad debts or arrears No disconnection/ reconnection processes Improved cash flow money up-front Improved relationship with the customer Possible reduction in revenue due to lower average consumption Up-front system cost Implication of substantial changes to certain utility processes Complexity of change management Management of the transition period during which two systems (prepayment and conventional) will be operated in parallel Customer reaction to the new system Reduced flexibility in regard to tariff structures

Prepayment around the World PP sites on all continents Largest installed base is in UK and in South Africa (approx 4 million pp meters each) Most other countries have installations ranging from 100 to 100 000 meters

System Overview Vending Tokens Support Equipment User Interface Control Unit Disconnection Device Meters Metering Element

Communication between Control Unit and User Interface Integrated Meter Split Meter – Wired interface – Power line carrier – Radio frequency

Meter features Emergency credit Friendly credit Lifeline credit Self-decommissioning Self billing Energy information Trip limits, power fail counters etc Advanced Tariff functions Water management functions

Prepayment & AMR Prepayment and AMR are complimentary Communicating with the meter presents opportunities – Token less vending – Tamper detection and management – Tariff configuration There are a number of systems on the market that combine these technologies Issue of cost vs benefit Remote disconnect vs prepayment?

Token Technology Tokens are used to transfer credit and other information between a vending station (POS) and meter One way and Two way Different types of tokens – Numeric (Keypad) – Smart Card/Token Contact vs Non-Contact Re-usable vs Disposable – Tokenless

Token information Different functional types – Credit transfer – Commissioning (e.g. key change) – Management (e.g. tamper reset) Credit Transfer Tokens include the following information – – – – Credit information (kWh/kl units, monetary units) Token identifier Checksums Control/Miscellaneous

Token technology Each type of token technology has advantages and disadvantages. These advantages and disadvantages are often influenced by the environment in which the meter is being used. Magnetic: Old technology Keypad: Flexibility vs No Feedback/Bandwidth Memory Device: Feedback/Bandwidth vs Cost/Flexibility

Vending and management systems Diverse implementations/topologies Influenced by token technology choice On-line vs Off-line Use of third-party infra-structure ASP model is a possibility Vending infra-structure design and management is the key to a good prepayment system

Simple Offline vending points based on PC PC based management station, with batch transfer of data

Utility Database Encryption Server Banking Systems Complex POS System Integration Web Vending Switching Services Provider Mobile Phone Vending ATM integration Unmanned Vending Point Custom Vending Equipment

Tariff issues Flat rates (straight line) Periodic charges (fixed, service, min, variable) Block rates (single and multiple, increasing and decreasing) Power/Current limits Time of use

Credit transfer types Energy transfer – Transfer kWh from POS to meter – Tariff conversion at POS (periodic estimate) – Complexity at POS – Low cost meter, with simple tariff engine – Low meter maintenance & support requirements – Limited functionality of meter Currency transfer – Transfer monetary value from POS to meter – Tariff conversion at meter (allocation unknown) – Complexity at meter – Rich functionality at meter - clock, load profiles, TOU tariffs etc – Higher levels of meter maintenance & support

Tariff implications Flat rates – easy for both transfer types Periodic charges – energy transfer - deduct at POS – currency transfer - deduct pro-rata on hourly, daily and monthly basis at meter

Tariff implications Multiple block tariffs – conventional Pro-rate – energy transfer Average capping and forward allocation Complex algorithm, requiring corrections Good communications infra-structure required – currency transfer Tariff conversion in meter with clock Tariff update may require visit to meter

Tariff implications Power limits – must be supported by meter – either currency or energy transfer Time of use – can only be done with a currency transfer meter incorporating a clock

Tariff issues Tariffs are difficult to change Meter comparisons: Conventional Induction Static MF Prepayment Energy Transfer Currency Transfer Issues: Cost, Admin, Complexity, Flexibility, Arrears policy

Why token encryption ? Tokens rely on encryption for their security – token re-use – Illegal token generation/modification – Meter specific functionality

What is ‘encryption’ and what is an ‘encryption key’ ? Key Plain Text Algorith m or method Encryption e.g. at point of sale Key Ciphe r text Algorithm or method Decryption e.g. at meter Plain Text

Encryption and encryption keys Secret (Proprietary) vs Public systems (eg STS) Key management is an issue – Prevent generation of tokens by hit & miss attempts – Prevent generation of tokens from a stolen vending station – Prevent tampering to modify the value of legitimate tokens – To allow inter-operability of equipment from various approved manufacturers

Key management processes Generating Keys Transferring Keys Verifying Keys Using and storing Keys Compromised Keys Destroying Keys

Why standardise? Different systems not compatible Level of cryptographic security not consistent Different maintenance and installation procedures Multiple sourcing and increased competition Minimise switching costs

Standardization process Token transfer and encryption Meter functionality Vending and support equipment Key management Standard Transfer Specification (STS) IEC standard

Implementing Prepayment

Pilot projects Feasibility study Pilot project 500 - 10 000 – – – – – marketing campaign (internal & external) implement vending infra-structure training management processes install meters Evaluation (Financial Model) Go/No Go decision Large scale roll-out

Finance/operation Funding – Self funded, Loan, BOT, Donor Operation – Utility managed – Partially outsourced – Fully outsourced

Some other questions Free choice vs forced use Stigmatising prepayment - used as means of supplying electricity to customers nobody else wants Prepayment vs self-billing and pricing – do prepaid customers receive a benefit for paying early – do prepaid customers make a capital cost contribution Regulators?

Marketing Target groups – – – – Internal staff Political players Media Community representatives/organisations – Customers Customised plans are required

Prepayment Perception Mapping High (Champion) 5 Mindset Shift Effort 1 6 Support 2 Support Threshold 3 4 Influence Shift Effort (Subversive) Low Low High Influence

Management processes The system relies on strong management – – – – – – – Database management Audit procedures and reports Cash management Meter maintenance and inspection Arrears Revenue protection program Revenue Intelligence – eg RAAP

Conclusions The concept of prepayment is proven to benefit both customers and utilities, and customer acceptance is high Prepayment systems are mature Prepayment markets are growing internationally Innovation in prepayment is ongoing Important implementation factors remain: careful system design (especially in terms of vending) PR, marketing and customer service staff training ongoing, high quality management processes

Thank you Rudi Leitner [email protected]