Prepayment Metering

1. Prepayment Metering 1 February 2005 Dubai, UAE

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

3. 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.

4. Which utilities? • Electricity • Water • Gas • Telephone • Cellular

5. Early Prepayment meters

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

7. Traditional Metering Use electricity Read meter Prepare bill Collect money Warn late payers Disconnect non-payers Prepayment Metering Collect money Transfer credit to meter Use electricity Credit (Traditional) Vs Prepayment

8. Electricity becomes a consumer product

9. Why Use Prepayment? • Revenue collection challenges • Customer service tool

10. 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

11. 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

12. 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

13. 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 Additional utility considerations

14. Prepayment aroundthe 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

15. UserInterface ControlUnit MeteringElement DisconnectionDevice System Overview Vending Tokens Meters SupportEquipment

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

17. 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

18. 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?

19. 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

20. 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

21. 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

22. 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

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

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

25. 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

26. 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 Credit transfer types

27. 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

28. 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

29. 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

30. Tariff issues • Tariffs are difficult to change • Meter comparisons: ConventionalPrepaymentInduction Energy Transfer Static MF Currency Transfer • Issues: Cost, Admin, Complexity, Flexibility, Arrears policy

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

32. What is ‘encryption’ and what is an ‘encryption key’ ? Key Key Cipher text Algorithmormethod Algorithm ormethod Plain Text Plain Text Encryption e.g. at point of sale Decryptione.g. at meter

33. 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

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

35. 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

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

37. Implementing Prepayment

38. 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

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

40. 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?

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

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

43. 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

44. 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

45. Thank you Rudi Leitner rudi@spintelligent.com