Charging ahead: Prepaid metering, electricity use and utility revenue⇤

The standard approach to recovering the cost of electricity provision is to bill customers monthly for past consumption. If unable to pay, customers face disconnection, the utility loses revenue, and the service provision model is undermined. A possible solution to this problem is prepaid metering, in which customers buy electricity upfront and use it until the prepaid amount is consumed. We use data from Cape Town, South Africa to examine the effects of prepaid electricity metering on residential consumption and electric utility revenue and costs. Over 4,000 customers on monthly billing were involuntarily assigned to receive a prepaid electricity meter, with exogenous variation in the timing of the meter replacement. Electricity use falls by about 13 percent as a result of the change in meter type, a decrease that persists for the following year. The decrease in revenue to the municipal electric utility is more than offset by lower revenue recovery costs, on average, though results vary by customer type. Poorer customers and those with a history of delinquent payment behavior offer the greatest net revenue gains when switched to a prepaid meter. These findings point to an important role for metering technologies in expanding energy access for the poor. ⇤We thank the City of Cape Town, and the Electricity Department in particular, for their cooperation and collaboration on this project. Kathryn McDermott provided outstanding research assistance with all aspects of the project. We also thank Guthrie Gray-Lobe, Grant Bridgman and Edward Olivares III for their assistance with the data, and Adaiah Lilenstein, Anna Shickele, and the staff of J-PAL Africa for project implementation. The International Growth Centre and J-PAL’s Urban Services Initiative provided financial support. Audiences at Brown University, Harvard University, Tufts University, University of Michigan, and UC Berkeley’s Energy Institute provided helpful comments. The study is registered on the AEA RCT Registry with ID AEARCTR-0000582. †Department of Economics, Tufts University ‡Department of Economics, University of Cape Town