Utilities: The Pros and Cons of Pre and Post Paid Metering
November 3, 2015

Many are asking if it is advisable to convert from a credit meter (post-paid scenario) to pre-paid and what the financial impact and burden would be for either case. This is unfortunately not as simple as simply doing the math but the math is a good place to start regardless. I will be using the published rates of the City of Johannesburg as an example scenario and whilst the rates are different for different cities around South Africa and the world the principles remain the same.

The costs of Pre-Paid and Post-Paid metering

For a standard house with a single phase 60 Amp supply the rates are as follow:

In principle, this means that if you’re transacting directly with the municipality (ie. receiving your utility account direct from the municipality) it would be cheaper to be on pre-paid as long as you’re consuming less than 4067kWh per month. Let’s face it, this is an obscene amount of electricity for a standard domestic household, especially when on only a single phase 60 Amp supply.

If you are buying your energy via a reseller such as a managing agent or body corporate the same calculation applies BUT the point at where it becomes cheaper to be on conventional than pre-paid moves up to 4462kWh monthly because of a higher capacity charge.

So, financially the pre-paid meter wins out because it is substantially cheaper than conventional metering and post-paid power for the majority of households. As you can see local government is further clearly trying to encourage people (financially) towards being on Pre-Paid rather than conventional meter reading as it gives them the ability to reduce meter reading capacity etc. and there is seemingly a definite financial benefit being on pre-paid in a perfect world.


The pesky hidden charges of Pre-Paid metering

But… we don’t live in a perfect world, do we?? It is important to note that there are certain hidden charges that is not listed in the City’s rates policy. These include but are not limited to the vending fees charged by those dispensing tokens for you to re-charge your pre-paid electricity meter. The current rate for purchasing tokens is R 0.4045 per transaction and the minimum purchase value is R 15 at any given time. As you can see someone purchasing small denominations would quickly be adding quite a substantial amount to his/her account in transaction fees.

This disclosed fee however is for vending on the city’s own pre-paid system. Should you be buying pre-paid energy from a sub-vendor these vending charges quickly escalate to amounts as high as R 25 per vending transaction or even a fixed percentage of the purchase amount depending on who you’re buying from.

There are 2 types of pre-paid systems…

1. Where you are charged based on purchases (Buying an amount units [kWh])

This means the first 500kWh that you buy during the month is at the lowest rate, the next 500kWh that you buy during the same month slightly more, the next 1000kWh even more, etc. This means that you’ll be charged for what you buy instead of what you use. If you for instance say that you can’t be bothered remembering to buy power every week or month and wish to buy power upfront for the year… guess what – you’ll be charged through your nose!! Let’s say you are using on average 1500kWh per month and you buy 18000kWh upfront because you don’t want the hassle of recharging every month then you’ll be charged as if you are using 18000kWh all in one month meaning that for the portion (83%) above 3000kWh you will be charged the highest listed rate. Hardly seems fair, does it? Of course, the possibility exists to purchase before the annual increase goes through and get the power at the lower rate.

2. Where you are charged based on usage (Buying electricity credit in Currency [Rands])

The newer more commonly used meters have the rating engine installed on the meter and are updated generally via PLC (Power Line Communications) annually with the new rates. Unfortunately, this also means that when you buy R100 worth of electricity you don’t know how much power you’re actually getting for that R100 as it would differ just about every time. The meter knows how much you have used for the month and charges accordingly. Whilst you’ll be paying exactly what you need to it would probably be quite difficult keeping track of it since you’re buying a R100 but the actual units you’ll get varies based on the time of the month you actually end up using the “credits”.


Meter tampering is a reality

Generally, pre-paid meter manufacturers market their meters as tamper-proof or tamper-resistant which is only true if you can isolate the end-user from the supply entirely. This would ONLY be the case where the metering unit is installed in a properly locked and secured kiosk outside in the road whilst the CIU (Customer Interface Unit) is located inside the residence to allow the user to load credit/units onto their meter. Whilst this is the preferred installation for the city’s own pre-paid deployment it is not always practical. In some cases, the City is forced to install the metering unit on the premises where the user will have access to the unit.

Let’s for a moment consider the possibility that a tamper-proof/tamper-resistant meter is in fact installed… but this meter doesn’t have 2-way communications and can only receive new tariff information via PLC. It cannot however acknowledge such receipt and cannot communicate any information back on a regular basis. How would you presume the fact that the meter has been tampered with (and detected) would be communicated back to the meter owner (the landlord/utility)?? The answer is via an indicator on the screen which would only be noticed when someone is sent to inspect the metering unit. Some of these units prevent the loading of more credits when a tamper is detected and some just shut off the supply. Now, if my meter disconnected my supply I would simply bypass the meter immediately and tell the council to come and fix their meter. The meter would have the same indication on the screen whether it was the meter that triggered a tamper in error or whether there was in fact a real tamper due to the subsequent bypass so guess what… the City would not be able to hold me accountable for stealing electricity.

As a landlord or property owner pre-paid as a concept has a completely new set of issues. Firstly, if you’re a property owner trying to install pre-paid for your tenants you almost certainly would not normally have access to some outside kiosk and would need to install the metering unit inside the property being measured. If your tenant has access to this unit it is completely possible for a said tenant to bridge out his unit completely or to split his supply.

With a split supply, it is technically possible to run the geyser, aircon, stove and pool pump off the incoming supply whilst only the plugs and lights are going through the meter to provide a lower total metered consumption month-to-month. It is important to note that one doesn’t need to open or even touch the meter in order to tamper with it. It can be bridged if you can touch the incoming wiring… FACT: If the actual metering unit (not the CIU) is INSIDE the property or can be accessed by the tenant you will ALWAYS be at risk. As you can imagine this causes a problem where the owner will have a shortfall on the electricity bill he receives from the body corporate every month as what is being charged via the pre-paid meter would be less than what he/she is charged by the utility provider. As a professional property investor, this is one of the reasons I choose to not use pre-paid electricity in my rental units.

The same happens, just on a grander scale, with the city because the city doesn’t have sufficient sub-meters to keep track of this and as a result, a large portion is disappearing as unaccounted for electricity (they call it technical and non-technical losses). Whilst this may not seem like a big deal I can assure you the City is not making a loss… which means this power that “disappears” month-to-month is paid for as a premium on the accounts of everybody who are still paying for their utilities making the burden on the honest even higher.

Any meter that doesn’t support 2-way communications is unfortunately exposed to this flaw (especially the older STS type Pre-Paid meters). Since they have no way of communicating actual consumption back to the City’s Utility provider there is now also no way for the City to determine actual losses between point A and point B as point B is not measured accurately and the only cumulative total that can be obtained for network management purposes is the total denoted by the number of purchases that have been made. Since all power is not sold at a flat rate even this “estimate” AND users may buy power outside of the month they intend to use it, such a figure would be substantially wrong, at least to such a level that no real inferences could be made in the short term.

The City of Johannesburg (and most others for that matter) at this stage only utilises a ZERO balance review to determine who is stealing electricity. This essentially means that they will only investigate meters where no purchases have been made during the month resulting in the “clever thieves” getting away with it. Meters are bridged out partially and even removed entirely and tokens are bought and never loaded just to keep the City away. Using R 1500 and buying R 100 pm seems like a good deal to me…


Where the benefits of Pre-Paid metering fall away

When deploying pre-paid meters as a managing agent, body corporate, or building manager (whilst the complex is still being measured on a credit meter by the council) the financial benefit derived from pre-paid meters in terms of the lower bases charges (discussed at the beginning of this article) falls away. If the pre-paid meters were billing at the same rate as the pre-paid deployed by the city there would be an under-recovery on the services due to the lower pre-paid than post-paid rate UNLESS the building/complex as a whole uses more than the break-even point for that installation which would in all probability be a 3 phase installation. It also becomes extremely difficult to reconcile the 2 due to the fact that occupants may purchase more than they need with the remainder being available in the following month or until they run out. The 2 amounts (what is being collected vs. what is being spent) will never again match. This is not too big an issue for an experienced financial manager though.

Finally, when pre-paid meters are deployed it would become completely illegal for a body corporate to restrict or apply for disconnection of utilities at the courts where massive arrears levies are concerned. The lack of utilities or inconvenience of a tripping breaker could not be used to convince delinquent owners to settle their arrears accounts legally. This in itself in today’s day and age with a culture of non-payment is probably the biggest deterring factor for Body Corporates and Commercial Complexes.

Smart meters

I hear someone ask… “What about smart meters?”. Whilst these smart meters can communicate both ways ie. receive new billing tariffs and send back metering information for network management and fraud detection it is only as good as those people using them. These meters can operate in both credit and pre-paid modes but seeing that the City of Johannesburg purchased a massive amount of these meters without communications functionality recently and had to retrospectively fit modems to these meters I have very little hope for these projects. The meter whilst capable of picking up a tamper and reporting it back to the utility is still vulnerable in the same way the pre-paid meters have been in that should the customer have access to the supply side the meter could be by-passed without the meter being any the wiser (no pun intended). This means that if properly tampered substandard billing will continue unabated and the end customer would be getting a huge portion for “free”… It does allow for better monitoring though if you have employees committed to the success of such a rollout.

Bridged out meters

In a recent visit to Soweto as a surprise inspection, 5 of the first 10 meters visited as part of the exercise was found to be bridged out… In short, replacing a conventional meter with a pre-paid or smart device in order to simply NOT visit the meter regularly is downright stupid. These technologies may resolve reading mistakes but will not prevent the theft of utilities and if implemented properly will not negate the need to visit the meter on a regular basis. There is false security that comes with these new technologies especially on the African continent where electricity in relation to average earnings is very expensive. Conventional meters still have the added advantage of being physically visited once a month (if the utility does what they are supposed to do) allowing for tampers to be spotted quicker.

If you find the content shared here valuable please LIKE our Facebook page on the following link to be kept up to date when new content is published: https://www.facebook.com/AltitudeInvestments