Prepaid Meters in Electricity A Cost Benefit Analysis

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Prepaid Meters in Electricity A Cost Benefit Analysis Ariel A Casarin Luciana Nicollier Prepayment meters have been widely adopted by utilities in different countries Yet its practice they are still controversial This chapter uses social cost benefit analysis to assess the adoption of prepaid electricity meters within a local community

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Prepaid Meters in Electricity A Cost Benefit Analysis. Ariel A Casarin,Luciana Nicollier, Prepayment meters have been widely adopted by utilities in different countries Yet its practice they are still. controversial This chapter uses social cost benefit analysis to assess the adoption of prepaid electricity meters. within a local community The analysis highlights how the role of tariffs the cost of start up investment and the. socio economic characteristics of the population affect system performance Simulation exercises are used to. examine the sensitivity of results to change in some distinctive elements of policy implementation The chapter. also summarizes the results of a survey conducted among local electricity users Results indicate that prepaid. meters lead to an increase in welfare They also indicate that the advantages of the system are linked to a. reduction of arrears in accounts receivable and operational and financial costs on the part of the service. provider as well as to a better allocation of resources for the consumer However survey evidence suggests that. the main argument against prepayment relates to the possibility of self disconnection by low income consumers. Los sistemas de comercializaci n prepago de servicios p blicos constituyen una soluci n innovadora al. problema de facilitar las posibilidades de pago de los usuarios A pesar de su amplia difusi n el uso de estos. sistemas es a n controvertido Este trabajo contribuye a ese debate porque emplea un an lisis costo beneficio. para examinar la adopci n del sistema prepago de energ a en una comunidad Los resultados resaltan la. potencialidad del sistema prepago de energ a como herramienta tendiente a incrementar el bienestar social y. permite identificar sus consecuencias para cada uno de los grupos afectados Los resultados tambi n destacan el. papel de los descuentos en las tarifas el costo de la inversi n inicial y las caracter sticas socioecon micas de la. poblaci n por lo que contribuyen a la definici n de las pol ticas regulatorias que afectan la adopci n de. mecanismos de prepago, Keywords Cost benefit analysis prepayment meters regulation electricity. 1 Introduction, The concerns for universal service in utilities have motivated firms and regulators to identify. technological and regulatory options aimed at encouraging access and making it easier for. consumers to pay for their services In both cases Latin America has pioneered the adoption. of innovative mechanisms The improvement of access to infrastructure services has led to. industry restructuring private sector involvement and consequential regulatory reforms. Higher access rates have then been encouraged with the identification and imposition of. connection targets the creation of community involvement and micro credit programs as well. as the use of new technologies Following this higher levels of affordability have been sought. with the use of instruments that ease the burden of bills via cost and tariff cutbacks and the. introduction of alternative payment means, Indeed most efforts to secure higher levels of affordability have consisted of mechanisms. aimed at reducing the cost of services either affecting their quality or reducing their demand. Other efforts however have targeted the adoption of various subsidy schemes either directly. or through tariff structures G mez Lobo and Contreras 2004 In general experiences with. policies that adopt alternative payment methods for utilities have been scarce The simplest. alternative which is often suggested consists of increasing the frequency of billing to low. income users 1 However a disadvantage of this mechanism is that it would increase. administrative collection costs which would ultimately result in higher tariffs Estache et al. Over the last few years however prepayment meters either in electricity water or piped gas. have been proposed as an innovative solution aimed at facilitating affordability and. reducing the cost of utilities This mechanism essentially requires that users pay for the. delivery of goods or services before their consumption In this way consumers hold credit. and then use the service until the credit is exhausted Prepayment systems have been. introduced for the first time in South Africa but are now widely used in the UK Turkey and. India Tewari and Shah 2003 Yet their use is still controversial On the one hand those that. support the diffusion of prepaid meters claim that they benefit both consumers and utilities. because they help users to consume more efficiently and to improve the management of their. This system has been adopted for example in the concession of water services in La Paz El Alto In this case the utility opened. commercial offices in low income areas to facilitate payment of services so that users could cancel the cost of their consumption at least. once a week, budget while allowing firms to reduce financial costs as well as the costs of operation and.
bad debts On the other hand those that are against prepaid meters argue that their adoption is. expensive for firms and risky for low income consumers as the insecurity and volatility of. their income may force them to make little use of the service or ultimately bring about. involuntary self disconnection, In spite of the rapid diffusion of prepayment systems the arguments in favor of or against. prepaid meters have not been comprehensively examined before and neither has their welfare. impact This study contributes to the literature of affordability in utility services because it. uses social cost benefit analysis to evaluate the adoption of electricity prepaid meters in the. first municipality to have adopted them in Argentina The fact that the district s utility has. offered prepaid meters to all users since 1996 creates a data rich experiment to apply cost. benefit techniques to evaluate the adoption of prepayment systems The chapter contributes to. the analysis of policies oriented to ease affordability for at least two reasons First because it. conducts a complete analysis that factors in the end results of prepaid meter implementation. in respect of users the utility and the government Second because it makes it possible to. identify the components of the results i e where gains and losses come from and through. this process to help establish regulatory definitions concerning prepaid meters which in. many cases have yet to be made Despite the fact that the cost benefit analysis is based on a. very particular experience that of a small local community its results provide useful. insights into the possible implications of prepaid meters from a social perspective The. empirical evaluation is also complemented with an examination of the results of a survey that. explores the perception of users about prepaid meters. The results indicate that prepaid meters bring about a favorable change in social welfare For. consumers the benefits of the system originate from a better allocation of resources while for. utilities the advantages derive from the reduction of arrears in accounts receivable and of. operational and financial costs The government however sustains a loss generated by lower. tax revenues related to changes in electricity consumption and tariffs Moreover the increase. in social welfare evolves across time in a way that is typical of investments with high sunk. costs which here relate to the investment in the new meters A simulation exercise confirmed. the system s potential as a mean to increase social welfare but highlights the role of tariff. discounts and the importance of defining whether new meters are paid for by consumers of. the firm In addition the results of a survey conducted in the district among residential users. suggest a generalized level of satisfaction among prepayment users and highlight the. importance of the variables linked to the cost of the service both directly through lower tariffs. and indirectly by way of the enhanced control of consumption as allowed by the prepayment. technology The survey also indicates that self disconnection does not seem to be a major. The chapter is organized as follows Section 2 describes the main features of prepayment. meters in electricity Section 3 presents the cost benefit model its implementation and the. data used in the analysis Section 4 presents and examines the main findings This section also. reports the results of several simulation exercises that explore the sensitivity of results to. changes in the implementation of prepaid meters Section 5 summarizes the main findings of a. survey carried out among the district s electricity users The last section concludes. 2 The technology and economics of prepaid electricity. Prepayment systems refer to the outlay made by a consumer for using goods or services. before consumption In the case of electricity the distinctive feature of the prepayment system. is the reversion of the conventional commercialization system whereas in the latter. consumers hold a consumption credit because they pay for their energy bills periodically and. after consumption in the prepayment system such credit is not available because the. purchase and payment of energy are made prior to consumption Thus prepaid systems allow. users to consume energy only when they have credit in an electricity account as supply is. discontinued when such credit is exhausted, The prepayment technology was initially developed in South Africa in the late 1980s with the. objective of supplying energy to a large number of low income and geographically dispersed. users The system was initially geared towards minimizing the difficulties arising from users. irregular incomes and to overcoming the limited development of the infrastructure required. for the dispatch and reception of credit slips By the late 1990s prepayment systems were. very popular in India and in some OECD countries Estache et al 2000 and had probably. reached their highest development in Great Britain Waddams et al 1997 In Argentina. prepayment meters were firstly introduced in 1993 when Energ a Mendoza Sociedad del. Estado EMSE placed a small number of meters in small shops at the Mendoza Bus Central. Station 2 The experience was soon extended to other communities in the country. From a technological point of view the prepayment system consists of three well. differentiated components The first is a service meter installed at the unit where energy will. be consumed such as a household dwelling or a store In general these meters are of the. two gang type and consist of a user s interface unit and a current measuring set The. interface unit is a device installed inside the building which allows the user to interact with. the meter The metering unit on the other hand is the intelligent component that stores credit. and consumption information and makes up the element that either clears or switches off. electricity supply The second component of the system is the so called credit dispensing unit. which is the vending machine where consumers can purchase electricity credit In general. these sales outlets are located at the utility s commercial offices as well as in stores with long. opening hours The third component is the supporting device that links the various sales. outlets to the utility s management system, The way the system works for the user is simple The user purchases energy at the sales outlet. and as part of the operation receives a credit slip and a supporting device that identifies the. operation which may be a voucher with an identification code or another with magnetic. support The user then utilizes the device to add on her new consumption credit either by. entering a code or inserting the magnetic medium into the interface unit which in both cases. will be possible only if the device identification matches that of the meter 3 The measuring. unit then clears consumption of the amount of energy purchased and also displays in real. time the available credit remaining for consumption The meter switches off when credit is. exhausted and it switches on again only when the device corresponding to a new purchase is. From an economic perspective the reversion of the commercialization system as implied by. prepaid meters translates into changes in the cash flow of the utility and in consumers. behavior In the case of the firm prepayment systems may result in a decrease in metering. billing and disconnection and reconnection costs The fact that payment is made prior to. consumption implies both a significant improvement in the collection of revenues and a. reduction in working capital Moreover prepaid systems may constitute a way to provide. more flexible payment options to users with minimal or unreliable income streams without. EMSE was privatized in 1998 This first experience consisted of the installation of 100 meters to commercial users only. In this way theft or loss of bills already paid can be avoided. increasing transactional costs to the firm From the consumer s perspective prepayment. systems may result in a better understanding of how much energy is being consumed. inducing more control of energy use and budget management Tewari and Shah 2003. However these apparent improvements are not cost free as the change from conventional to. prepaid electricity implies a change in consumption habits which may reduce consumers. utility Prepaid electricity changes consumer s budget constraint and so modifies the. quantity of electricity he is willing to consume The change from conventional to prepaid. electricity implies that the cost of electricity faced by consumers includes not only the price of. electricity itself but also the opportunity cost of reload time and of advanced payment This. change in the price of electricity relative to other consumption goods may result in too little. electricity consumption or even to self disconnection among poorer groups Even more the. system may result in a socially inefficient distribution of risk between consumers and the. utility as the latter eliminates the uncertainty in the collection of revenues while the former. bear a higher risk of lack of energy and disconnection 4. 3 The model, We examine the adoption of prepaid electricity using social cost benefit analysis techniques. Jones et al 1990 set out the method we used below and Galal at al 1994 and Newbery and. Pollit 1997 apply it to examine privatization policies The method compares the. performance of the electricity distribution system in the local district after the adoption of. prepaid meters the factual scenario with what that performance would have been had. prepayment meters not been adopted the counterfactual scenario Thus we construct for the. utility a counterfactual scenario that serves as our control The welfare gains or losses that. we estimate below are then the difference between the level of welfare in factual and. counterfactual scenarios The basic notion behind this partial cost benefit analysis is simple. the adoption of prepayment meters should be encouraged if benefits exceed those of the best. available alternative which is represented by the counterfactual but not adopted in the. opposite case, The model is based on the assessment of social welfare for each scenario and its distribution.
among groups The model requires an appreciation of the difference between two results the. This would be the case if consumers are risk averse their utility function exhibits diminishing marginal utility i e is concave and the. firm is risk neutral i e it optimizes according to expected values. social value of the system under the prepayment system and its social value if that innovation. had not been adopted The net effect on social welfare can thus be estimated by adding up the. net welfare changes of each group These changes can all be expressed as W c C. G G where W represents the total net social welfare change C the changes in. consumers welfare the changes in the firm s profits G the changes in the government. income and the weighing of each component on welfare 5 Thereby the cost benefit analysis. requires the construction of a simple model for each of the groups involved and the. calculation of the changes in each group s welfare The aggregated results for each group. leads to a final outcome for all groups,3 1 Changes in consumers welfare. Consumers switching from the conventional to the prepayment system face two types of. costs One refers to direct monetary cost while the other refers to differences in habits that. result from replacing a post consumption and single monthly payment with more frequent. payments which occur prior to consumption 6 The main direct monetary effect is the cost of. the new meter and its associated opportunity cost which we proxy using the interest rate for. savings accounts deposits Other direct monetary effects include possible changes in the cost. of electricity due to tariff differentials In this case consumers benefit from a 5 discount on. the final unit price of electricity consumed Finally users pay the opportunity cost arising. from advance payment of consumption which is estimated by relating consumers average. expenditure to a rate capturing the opportunity cost of money. Periodic purchases of electricity imply a change in consumer habits because they have to. incur the extra costs associated with the time spent on additional buys The extent of this cost. would vary with the periodicity of energy reloads it would be neutral if reloads occurred once. a month as this would demand an effort similar to that incurred when paying the conventional. monthly bill and it would be directly dependent on the user s salary it is possible to presume. that the higher an individual s salary the higher the opportunity cost of her time We therefore. estimate this cost by firstly computing an average hourly cost which we approximate using. census income data for the district and then multiplying that cost by both the estimated time. This formulation allows each group to carry a different weight which may stem either from efficiency or equity considerations thus the. existence of taxes or other distortions may imply that one additional dollar of government revenue may displace more than one consumption. The results of these changes could be examined with an econometric estimate of the users indirect utility function which in this case was. not possible because the number of observations was insufficient to obtain reliable results. incurred in each reload and the average number of yearly purchases made by each household. using the prepayment system 7,3 2 Changes in utility s profits. The effects of introducing the prepayment meters on the firm s profits were estimated as. R C rF F rV V where R sums up income changes C the change in operating. costs rF F the changes in the cost of fixed capital F at a rF rate and rV V those in net. working capital V invested in electricity distribution at a rate rV Economic profits differ from. accounting profits because rF includes not only depreciation and the cost of debt but also the. expected return of shareholders and it is also different from accounting profits because it. factors in the opportunity cost of net working capital rVV. Income changes Rt for each year t were obtained by breaking them down into price P and. quantity Q components for each user category i registering prepayment users using the. formula Rit Pi Qt 1 Qi Pt Then Rt i Rit Income changes were then computed. using tariff and demand data for each user category that come from the firm s annual reports. The prepayment system may impact the firm s operating cost associated with meter readings. dispatch of correspondence collection costs invoice claims and disconnecting service Cost. changes could be obtained through an econometric estimation of the firm s cost function. which in this case was not possible because of the limited number of observations Therefore. cost changes C were estimated by linking an estimation of the amount of inputs applied in. those activities to their cost which were estimated with data from the firm s financial. statements see Ofgem 1999 for a similar approach, Cost changes due to bad debts were estimated by collating for each year a rate for bad debts. for each scenario which was then multiplied by total sales For the factual scenario the bad. debts rate was obtained from the quotient between the costs of bad debts resulting from the. sum of all charges to profit and loss in concept of allowances for this concept plus court costs. and sales while in the case of the counterfactual scenario they were projected using average. rates over the years prior to the adoption of the prepaid system 1992 1996. Changes in working capital V were estimated for each scenario by applying an opportunity. cost rate rV to the difference between the product of each year s sales and the cash conversion. cycle In the factual scenario the latter was obtained by multiplying the sum of the inverse of. Unfortunately the unavailability of data at the household level prevented us from accounting for income differences across households to. estimate this cost, the rates of cash turnover accounts receivable and accounts payable times 365 8 The. counterfactual scenario was projected using average rates over the years prior to the adoption. of the prepaid system 1992 1996 Opportunity costs for both scenarios were approximated. by the average rate for current account advances to the private sector However if the cash. conversion cycle was positive the opportunity cost for each year was estimated by the. average rate for saving account deposits All series come from the Central Bank. Changes in fixed assets F are of two types The first consists of the cost of new prepayment. meters which in this case affects the firm only as regards depreciation charges as meter costs. are incurred by users although replacement costs at the end of their useful life are considered. as the utility s responsibility The second type of change is associated with the new equipment. needed to operate the system the equipment to issue vouchers for reloading at the sales. outlets and to link this information to the utility s operation systems These costs stem from. the incorporation of computer equipment and their magnitude was obtained during interviews. held with the firm s management Estimations assume the useful life of such assets to be 7. years which together with an opportunity cost rF equivalent to 14 results in an annual cost. for their use equivalent to 30 of their value,3 3 Changes in government revenue.
Changes in government revenue result from the effects that adoption of the prepayment. system cause on fiscal revenues at various levels of government Tax receipts are affected not. only because consumption of electricity is variously taxed but also because the sale of. prepayment meters implies an increase in the collection of value added and income taxes. Federal taxes on power consumption are the Value Added Tax VAT and the Santa Cruz. Provincial Fund Law 23681 tax The tax rate of the former is 21 while the latter aimed. at financing the works of interconnection to the national grid and to subsidize the cost of. electricity in Santa Cruz Province is 0 6 Provincial levies on the other hand are the. Special Fund for Major Provincial Power Projects Law 9038 the Province s Electrical. Power Development Fund Law 7290 the Law 9226 Fund and the Law 11969 Tax 9 The. former two are applicable to residential users only with rates of 5 5 and 10 whereas the. other two are applicable to all users except municipal distribution utilities and public. The cash flow was obtained for each year by dividing sales by average cash balance the accounts receivable turnover was calculated as the. quotient between sales and the average balance of such accounts and the accounts payable turnover was estimated dividing the cost of sales. and the running costs by the average balance of the accounts payable. Receipts of the Special Fund for Major Provincial Power Projects and the Province s Electrical Power Development Fund are intended to. expand the service and finance investment related to electricity generation while revenue from the other two taxes is assigned in the latter. case to the collecting municipality and in the former to the province s treasury department. lighting with rates of 6 and 0 6 respectively Electricity consumption is also taxable for. the Provincial Rate Equalization Fund which with a 5 rate seeks to balance final prices in. the Buenos Aires province by compensating cost differences among suppliers Changes in. government revenue were thus estimated by applying the aforementioned rates to the changes. in the utility s income as explained above Changes in receipts relating to the sale of. prepayment meters were estimated by applying respectively value added and income tax to. sales and the supplier s estimated profit, 4 The adoption of prepaid meters in a local district. 4 1 Carmen de Areco, Carmen de Areco is a small municipality in the Buenos Aires Province that was the first to. widely adopt electricity prepaid meters in Argentina Table A1 in the annex provides. comparative socio economic data of the district The district s power distribution company. CELCA10 made prepayment electricity optional to all consumers within its franchise area in. 1996 CELCA was created in 1945 and is one of almost 200 municipal electricity distribution. utilities operating in the Province of Buenos Aires These utilities most of which are. organized as cooperatives were traditionally allowed to set their own tariffs until 1996. when privatization of the then vertically integrated electricity operator of the provincial state. called ESEBA resulted in the creation of independent power producers three new regional. electricity distribution utilities in whose exclusive franchise areas municipal utilities operate. and a new provincial regulatory authority named Organismo de Control de Energ a. El ctrica de la Provincia de Buenos Aires OCEBA Following privatization local electricity. distributors purchase energy from one of the three regional utilities at OCEBA s regulated. tariffs 11 This agency also regulates the final tariffs local distributors charge to final. Table 1 summarizes some economic indicators for CELCA before and after the. implementation of prepaid meters By 1996 when the system became available the utility. had 4 888 users three quarters of which were residential Note that Table A1 in the annex. shows that access to electricity in the district is almost universal A total of 134 users. switched to prepayment during 1996 The series show that average demand has remained. CELCA stands for Cooperativa de Electricidad de Carmen de Areco. Alternatively local electricity distributors can purchase power from the Wholesale Electrical Market MEM in which case a. transportation cost should be added By 2003 about 20 of local distributors were members of MEM. roughly stable except for those using prepaid meters for which demand has increased since. 1996 Figure 1 shows that by 2003 the average demand of residential users for prepayment. converged with those of the conventional system It also illustrates that the number of. residential users of prepaid meters increased steadily reaching about 45 of total residential. users by 2003,Major Economic Indicators,CELCA Various years. Annual Annual,Average Average,1992 1996 2003,1992 1996 1996 2003. Conventional Users,Residential 3 197 3 563 2 360 2 7 5 7.
Industrial 50 110 84 21 8 3 8,Other 1 1 197 980 931 4 9 0 7. Prepayment Users,Residential 0 184 1 974 268 3 40 4. Industrial 0 3 11 31 6 20 4,Other 0 48 302 163 2 30 0. Total 4 444 4 888 5 662 2 4 2 1,Average Annual Consumption kW. Conventional Users,Residential 1 214 1 458 1 322 4 7 1 4.
Industrial 22 213 54 605 56 723 25 2 0 5,Other 5 374 5 040 4 887 1 6 0 4. Prepayment User,Residential 0 795 1 407 431 0 8 5,Industrial 0 25 343 62 595 1 161 7 13 8. Other 0 2 671 4 324 618 9 7 1,Average Tariff 0 10 0 14 0 13 8 2 0 8. Revenue 1 814 343 2 392 419 2 871 011 7 2 2 6,Assets 2 192 814 3 615 308 3 689 441 13 3 8 7. Cash and equivalents 29 987 21 580 85 662 7 4 21 8. Investments 20 123 14 040 118 712 8 6 35 7, Accounts Receivable 602 681 1 235 519 813 840 19 7 5 8.
Fixed Assets 1 183 528 2 034 615 2 201 509 14 5 1 1. Inventories 245 012 248 463 414 948 0 3 7 6,Other Assets 111 484 61 090 54 769 13 9 1 5. Equity 853 761 2 303 861 2 974 780 28 2 3 7, Source Own estimates based on CELCA s Annual Report and Balance Sheet. Note 1 Includes business and rural users the waterworks firm and other government agencies as well as non paying users. and the utility s own consumption, Table 1 also summarizes some performance indicators of the utility The data show that the. average tariff increased 40 between 1992 and 1996 since when it has reduced slightly. CELCA encouraged the prepayment system by granting those that switch a 5 discount on. unit charges despite that fact that switchers had to pay for the new meter and its installation. costs The data show that revenues assets and the firm s equity all increased much faster. between 1992 and 1996 than between 1997 and 2003 when prepaid meters were in use It is. interesting to contrast however the composition of the firm s asset structure before and after. the implementation of prepaid meters The data show that liquid assets and investments. increased markedly since the adoption of the prepayment reversing the deteriorating trend. that prevailed before Moreover the figures display that the upward trend of accounts. receivable was reversed to the extent of allowing the firm to significantly reduce the total. amount of unpaid bills, Residential Users of Energy and Mean Annual Consumption. CELCA By type of system 1996 2003,4 000 Users Average 2000.
Consumption,3 000 1500,2 000 1000,1996 1997 1998 1999 2000 2001 2002 2003. Users of Conventional System Users of Prepaid System Conventional Consumption Prepaid Consumption. Source Own estimates based on CELCA s Annual Reports. 5 2 Results, Table 2 summarizes the results in 1996 constant pesos of the cost benefit analysis of the. adoption of prepaid meters and the distribution of net welfare changes across consumers the. firm and the government The rows in the table distinguish each element that was considered. to compute net welfare changes The series also displays the distribution of these results over. time and distinguishes those of the 1996 2003 period from those projected for future periods. which consist of adding the results projected for each year between 2004 and 2008 to those. projected for the years following 2008 which in turn were obtained by calculating the present. value of a perpetuity that assumes 2008 values will remain constant 12. Distribution of Profit and Loss in the Prepayment Electricity System. 1996 2003 2004 2008 Perpetuity Projection Present,Concept Subtotal Value. A B C D B C,Prepayment Users,Tariffs 123 681 130 234 644 564 774 798 898 479. Taxes 53 471 57 623 286 107 343 731 397 202, Reloading time 19 471 16 699 64 036 80 735 100 206.
Advance payment 9 488 9 393 46 534 55 926 65 415,Meters 531 463 100 878 372 619 473 497 1 004 960. Subtotal 383 270 60 887 447 483 508 370 125 100,Revenue 123 681 130 234 644 564 774 798 898 479. Running costs 131 369 109 464 413 619 523 083 654 452. Working capital 106 322 47 037 230 763 277 801 384 122. Bad debts 77 227 94 880 465 481 560 361 483 134, Bad debt taxation 37 610 46 207 226 689 272 896 235 286. Fixed assets 81 771 70 010 267 453 337 462 419 233. Subtotal 82 598 97 345 424 535 521 880 439 282,Government. Fiscal revenue 21 309 54 360 274 513 328 873 350 182. Subtotal 21 309 54 360 274 513 328 873 350 182, System Total 487 177 103 872 597 505 701 377 214 200.
Results suggest that the policy leads to an increase in overall welfare equivalent to a. 214 200 or a 38 per user 13 Results differ across groups as users and the firm both benefit. from implementation of the system whereas the government does not Data in the first. column show that until 2003 the policy did not result in improvements for any group A. Present values were computed using a 6 discount rate The computations assume that all s equal 1. a refer to Argentinean pesos, breakdown of results indicates that users bore the largest losses as the benefits of those using. prepaid meters originated from tariff discounts and tax savings were not sufficient to make up. for the meters costs The following columns however show that this result is overturned. when one takes into account the projections In the case of users projections indicate that the. benefits from lower prices and associated taxes exceed the costs associated with the advanced. payment of electricity the time incurred in recharging the meter and the meter cost 14 Thus. the last column shows that adoption of the system results in a total benefit to consumers of a. 125 000 or a 55 per user In the case of the utility projections indicate that losses of tariffs. discounts are overturned by the benefits incurred in the reduction of operating and financial. costs The net benefit for the firm is a 439 000 or a 78 per user The last column indicates. that the utility benefits the most Finally the table shows that the government loses in all. Figure 2 breaks down the net benefits for each group across years In the case of users the. figure shows that investment in meters generated losses in the first years that gradually. decreased until 2001 but for 2002 when they picked up again and remarkably when that. year s crisis seemed to have prompted many users to opt for the prepayment The series. indicate that as from 2004 users obtained benefits from using prepayment Estimates also. show that the evolution of the firm s net benefit is similar as original losses linked to. investment in assets and tariff discounts are followed by benefits arising from the decrease in. bad debts and from lower running and finance costs which originate from improvements in. working capital,Evolution of Costs and Benefits Prepayment System. Period 1996 2003 and projections, 20 000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008. Customers CELCA Government,Note present values at 1996 projected values. Projections consider that the proportion of users in the prepaid system will remain constant at 2003 values.

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