To Pay, or Not to Pay (in Advance)
By Alanna Kinnebrew
Picture source: by Morning Brew on Unsplash
Prepaid metering has been around for a few decades now, but it comes in various forms depending on the location. The concept is similar to purchasing prepaid minutes for a cell phone or even fueling or charging a car. Customers pay for an allotted amount of a service in advance, depending on what they can afford or what they believe would supply them with enough service. Once paid, customers will immediately have access to said service. Utilities such as electric, gas, and water have begun incorporating the use of prepaid systems. In the United States, prepaid systems provide customers with an alternative payment option, with the overall intents of bolstering utility finances and empowering customers with greater insight into their own usage.
Prepaid metering technology is also seen in other countries, and is particularly common in many African countries. Many municipalities within Africa have adopted this method specifically for water metering because it is seen as a way to provide access to clean water to those who live in low-income urban settlements, or to those who may not have piping connections in their homes. Instead, customers can utilize prepaid standpipes as opposed to going to a local river or untreated water source to collect water that has not been made suitable for drinking. Many consumer advocate organizations, however, do not see prepaid metering systems as the best option for dealing with accessibility issues since this service is viewed as targeting vulnerable populations. So, that leaves one to question, can utilizing prepaid systems be an instrument to improve access and quality of water services to low-income communities, or does prepayment worsen access to water for low-income people? Can this be seen as an alternative to water shutoffs?
What Exactly is Prepaid Water Metering?
Prepaid water metering is a technology that allows consumers to pay for their water usage in advance. Payment methods vary depending upon the utility, but typically customers are able to call, go online, use a smartphone application, or even load their credit in person at a designated kiosk or payment center. Depending on the technology being used by the utility, customers will be given almost immediate access to their water service via a token, a confirmation code which is input into the keypad meter, or the utility electronically notifies the customer’s meter that credit has now been made available and services will resume. Once the customer’s credit has been used up, then services will stop until an additional payment has been made to again resume services. Customers who are utilizing the prepayment option do not receive a typical bill at the end of the month because this option serves as a “pay-as-you-go” type of service, leaving no option for a bill to be in arrears.
This blog post is not intended to support or oppose prepaid utility metering. The goal is simply to look into alternative solutions to avoid complete water shutoffs. Examples of other alternatives, such as restrictor plates and additional ways to keep the water on were covered in some of our previous posts.
Utility Benefits
Although this list is not exhaustive, this section points out a few financial benefits to a utility that provides this service to its customers. A major financial benefit is that payments are received on average 45 days earlier than with a conventional billing system. When utilities bill customers after consumption, if that customer cannot afford to pay for their bill, they will continue to rack up debt due to past due balances, taxes, and fees. In an effort to reduce their write-off balance, utilities using prepaid systems have customers pay in advance which will help reduce or even avoid this cost.
Another benefit to the utility would be reducing administrative costs. Apart from the initial set-up costs, by providing prepayment options, less paper bills will be mailed out and customers can usually call and renew their balance through an Interactive Voice Response (IVR) instead of speaking to a live customer service agent.
Lastly, the technology associated with prepayment systems allows utility service providers the ability to see the benefits of smart metering or Advanced Metering Infrastructure (AMI). Because these meters are electronic, all of the typical actions that need to take place in order to gather a consumption reading or even shutting off water supply can be done on the utility’s main database helping to reduce the amount of staff needed to complete these tasks and resulting in a cost savings. There would still be a need for this staff to complete routine maintenance work and check for tampering, etc. but if something goes wrong with a meter and service is interrupted, customers will typically report an issue right away considering they’ve already paid and would want their service to resume immediately.
Customer Benefits
For the consumer, prepayment of water services is touted to provide better control over water usage, reduced consumption, bill savings, and increased customer satisfaction. Customers are able to avoid service connection/disconnection fees and late fees and are subject to improved customer service by placing more control in the customers own hands. The related AMI technology also gives customer service representatives immediate access to a customer’s consumption information, enhancing the service experience upon contact. Customers are also provided with a greater ability to monitor their water consumption which can be very advantageous to low-income customers. Consumers will know exactly how much they are spending from their prepaid balance and can adjust their usage based on their budget. They are more conscious because of the activity alerts and can find ways to live within their means which, unlike typical utility billing at the end of the month, helps reduce the risk of running into debt due to unexpectedly high bills.
Yes, there are Some Benefits, but What’s Missing?
Worldwide, although considerable advancement has been made towards increasing access to clean drinking water and sanitation to meet goal 6 of the United Nations’ Sustainable Development Goals, billions of people—mostly in rural areas—still lack these basic services. In the United States, the criticism has been mainly around affordability of water service. The claim is that water is inaccessible if it is unaffordable. Families are forced to decrease their consumption of water or make difficult trade-offs between food, medicine, other household bills, or water. So how do we find the balance between providing everyone access to clean water and keeping utilities in business so that they can afford to continue to provide this service to the people?
Prepayment options for water services are not currently widely used in the United States, but more and more utilities are asking about it. In a webinar hosted by Sensus: a Xylem brand, the speaker shared some items to bear in mind when it comes to prepaid metering. Utilities that are considering prepayment need to ensure there is a viable application associated with it, so that consumers can monitor their accounts and be able to pay remotely. This also needs to be tied together on the back-end with the utility’s software so that customer payments are automatically registered immediately in order to prevent disconnection of service, or even resuming service when necessary. Additionally, rules and policies surrounding the time frames for opening the valve to resume service etc. will need to be pre-established and built into the application.
In the Western world, where it has been implemented, prepaid service is concentrated among lower-income households. Consumer advocate groups question the value of prepayment and why these benefits are not incorporated into traditional payment options rendered by the utility. They claim that it can shroud the need for utilities and regulators to implement policies that allow for customer assistance programs (such as bill payment assistance, temporary assistance, and even payment arrangements). In turn, consumption is reduced because consumers are still unable to afford payments on their account so they live without running water for a period of time until they can pay to resume service. The implications on overall public health are immense, especially during a pandemic, and that alone is cause for concern.
Conclusion
The water sector could take advantage of the lessons learned from prepaid electricity, since that sector uses this payment option more widely within the United States. Both sectors would depend upon AMI to provide a strong foundation for the utilities to offer a smart meter-based prepayment service, but water utilities would also need to make strong advances towards overcoming any regulatory hurdles that may be faced before widespread launch of this payment option. Utilities in both industries need to look into the reasons why consumer advocate groups are often strongly opposed to the idea of prepaid utility service, especially since existing consumer protections for utility service must be waived to accommodate the technological advances that AMI-based prepayment leverages, such as the remote disconnection of the customer’s power supply without a traditional ‘last-knock’ visit. Prepaid systems are not a quick fix, and require effective policy, regulatory, and other transformative measures to ensure things are handled properly, including quick response times when these policies fail. But from what prepaid electricity has shown, this method can be seen as targeting low-income consumers. Hence, additional measures need to be taken to guarantee access to improved water supply is achieved and these consumers are not feeling forced into prepayment programs simply because they may not have the resources to meet traditional utility payment requirements.
This is part of a blog post series funded by the Georgia Environmental Finance Authority (GEFA).
Disclaimer: The opinions of the writers should not be considered legal advice or endorsement by GEFA.