Prehistoric prepay

Prepay options are old fashioned and limited. Adam Westbrooke wants to see smart meters deliver flexibility and better deals for users

Prepayment meters are nearly as old as the meter itself, first appearing at the end of the 19th century. Since then, the two commercial models for paying for energy have not fundamentally altered: either you pay upfront, feeding the meter with money or tokens; or you are trusted enough to have your consumption monitored, and you are billed at regular intervals for what you have used.

The smart meter programme is clear that both models must continue to be supported, but now on a single meter that should make it easier to switch between them. However, after more than 100 years, could a modern smart meter support more flexible models of paying for energy, and assist those who struggle to heat their homes? Here are some suggestions.

Limited credit. The biggest change that is possible is that suppliers could bill retrospectively on metered use, but limit the amount that can accrue. For example, if a prepay customer not deemed to be a credit risk uses roughly £100 a month on energy, their supplier could allow them, say, £120 of credit. This would continue unless they didn’t pay, in which case their supply could be switched off as prepayment accounts are now. Credit for higher risk customers could be more limited – say to £30, which in our example would require them to either maintain an energy “deposit” of about £90 paid at the start of supply or to clear the balance weekly.

One major advantage of limited-credit tariffs is the removal of the social distinction between prepayment and credit customers, because all tariffs could be charged in the same way, but with a credit allowance of anything from zero upwards. A secondary advantage would be the impossibility with such a tariff system of running up a huge and unexpected bill due to an administrative error. If all meters switched off at some point if no credit was applied, the issue would quickly get picked up and corrected.

Meter or utility payments. The prepayment model has always assumed that settlement of the fuel bill is done entirely on the meter, whereas monthly or quarterly customers just use the meter as the measuring device, and bills are settled on the utility accounts system (a distinction that creates numerous accounting anomalies for the supplier). In a truly smart metered world, it would be possible for all settlement to be done supplier side, simply issuing a remote disconnect instruction when credit runs out. In reality, it would be more practical for the smart meter network to authorise meters to supply a certain amount of energy (in monetary, kWh or “energy credit” terms – see below), and then stop. The retention of an ability to pay at the smart meter would really be more about keeping people comfortable with the technology.

This would also open the door for third parties to be able to charge meters remotely. The smart meter network is designed with a central clearing point (the Data Communications Company). If this were capable of handling meter control and applying credits from a utility, it could just as easily apply them from elsewhere. For example, for people who like to top up small amounts regularly in cash, credit could be added directly to the meter by companies such as Paypoint, Payzone or the Post Office. For the vulnerable or those on benefits, credit could be applied directly to the meter by the relevant government department or agency.

Winter fuel and cold weather payments. Smart metering could potentially make winter fuel and cold weather payments more effective. Once households have been identified as being at risk, both schemes can be operated as a direct credit to the meter. For the winter fuel payment, this could be applied directly to the meter over the winter period, and would ensure enough credit was available for a base level of heating.

The cold weather payment could be made very specific in terms of both days and locality. If the temperature dropped below the trigger level, credit could be immediately applied to meters in affected houses, allowing the occupants to maintain a safe temperature, and very likely save lives.

Electricity, gas or mixed fuel credits. For many households, energy arrives in two forms: electricity and gas, which are supplied and metered separately. Maintaining credit for the right fuel could be an issue. Smart meters are certainly capable of handling functions where pre-purchased energy credits can be moved from one meter to the other, or even more usefully, where both meters in a home share a central credit.

The future of energy supply is full of possibilities for new commercial and social models. To a large extent, everything discussed here would involve a software and configuration change to new smart meters, rather than different hardware. Whether these or other possibilities see the light of day will require stakeholders to see that the main benefit of smart meters is to enable change, and for them not to force the new infrastructure to be limited to century-old practices.

Adam Westbrooke is principal consultant at Scaled Insight, a strategic technology solutions company

Dialogue and choice

Prepayment tariffs have to date been utilities’ default offer to struggling customers, even though such tariffs are often more expensive than post-pay. But with many consumers willing to forego using heating to save money, static prepayment in isolation can lead to problems.

Smart metering should deliver more flexibility. Suppliers will be able to offer customers a choice of tariffs, instead of a flat rate prepayment tariff, which can be matched to customer preferences, such as time of use, flat rate bundles, or flexible increments. Smart metering should also give customers greater choice of payment mechanism, enabling them to switch between prepayment and post-payment or top-ups if their circumstances change.

Moreover, a smart solution opens the door to a real dialogue with struggling customers. The energy supplier (as well as the customer, through the in-home display), will be able to monitor consumption more closely and, with the consumer’s permission, make suggestions about reducing bills and better payment planning.

Jon Parr, managing director, Europe, Middle East, India and Africa at Trilliant

This article first appeared in Utility Week’s print edition of 25 May 2012.
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