The Automated Meter Reading (AMR) industry is big stuff. During the past decade, advances in radio frequency (RF) technology, software, and powerline signal transmission have enabled utilities to change business processes from reading meters manually to downloading meter reads automatically. The potential cost savings for utilities are enormous. Entire workforces that were once charged with the menial tasks of visiting residences; locating gas, electricity and water meters; reading dials and recording the readings in a log book; and finally keying the meter reads into the billing system, have been replaced with hardware and software that collects meter reads of entire cities with a single click of the button.
After a decade of AMR technology deployments, outsiders might assume that the industry is reaching maturity with only a few loose ends left unresolved. Far be it from true. At the AMRA 2003 International Symposium, the discordant voices of utility, technology, and industry spokespeople highlighted the murkiness of the future of this industry. With 86% of the utility meters left to be converted from manual meter reading to AMR technology and with a typical deployment for a single utility reaching $150 M in expenditures, there are big bucks on the table.
Challenging any AMR industry expert are the enormous changes taking place upstream, midstream, and downstream. AMR is a rapidly evolving technology meeting the requirements of monumentally shifting business needs in an environment of uncertain industry regulations. These three industry forces; technology, business requirements, and regulation; are testing the wits of all players.
The first significant injection of technology to the AMR industry was a drive-by system. Transmitters, mounted onto the meters themselves, send a signal to a meter reading device located in the back of a utility van. As the van drives through a neighborhood, the meter reads would be downloaded. This technology requires the orchestration of RF signal processors to transmit the data, database software to collect the meter reads, and interface software to validate data and hold it for billing purposes. Itron (www.itron.com) has become the clear champion for this technology pathway.
The state-of-the-art rarely stands still and AMR technology is no different. CellNet, now a division of Schlumberger (www.schlumbergersema.com), replaced the need for drivers to collect meter reads with wireless networks that span entire utility service areas. Through the CellNet system, meter reads are transmitted over a cellular network, validated by CellNet software, and made available to utility offices over a secure internet connection. This type of system provides further cost savings but requires a larger up-front investment and commitment.
Since then, two other technologies have demonstrated significant value. First, powerline technologies championed by Hunt (www.turtletech.com) and TWACS (www.twacs.com) enable electricity utilities to collect meter reads over their existing powerline transmission networks. These systems transmit data signals through electrical powerlines themselves and have the advantage of being deployable to every location that an electric utility serves. One can’t assume the same reach of powerline technology for gas and water utilities. Second, advances in two-way telemetry over public or private networks by firms such as SmartSynch (www.smartsynch.com) and more recently Tantalus (www.tantalus-systems.com) have enabled utilities to deploy a meter reading system that gathers meter data in real time.
Given the variety of the technologies, each with its own cost structure and value points, how should a utility select a standard to deploy throughout their service area? Eric Cody of Plexus Research provided an installation cost to performance roadmap for AMR. An adaptation of his roadmap is provided below.
However, conversations with others quickly highlighted the shifts within this paradigm. For instance, the Tantalus wireless system, which uses public spectrum over a private network for transmission of meter data, provides the performance of two-way telemetry but with a significantly lower cost structure. Elsewhere, MeterSmart (www.metersmart.com) has developed a means to provide some of the functionality of two-way telemetry while using the powerline communication system for transporting signals. To further complicate our temporary clarity, we should expect further industry evolution. With 86% of the market up for grabs, each technology provider has significant incentive to innovate and capture the future market.
Shifting Business Requirements
The original business premise supporting AMR adoption has been, and continues to be, the displacement of meter reading workers by the utilization of technology asset infrastructure. Within this premise however, there is no single technological solution that clearly provides the best value for all utilities, nor is there necessarily one solution that best fits the entire service area of a single utility. There is not even necessarily one technological solution best for all customers within a single service area of a single utility.
Current Business Challenges
Simply consider the case of electric utilities reading residential meters. Residential utility meters are usually read once a month. In dense residential areas, drive-by technological solutions have appeared to provide the greatest value in that a single pass down the neighborhood street will collect all the meter reads in that area. However, in rural areas, where the density of population is particularly low and the accompanying utility meters are few and far apart, the cruise down the neighborhood street becomes a hike down the highway, up a dirt driveway, and to the front of a secluded home in the woods. In these rural areas, many of the cost savings provided by drive-by AMR are lost due to the distance that the meter reading driver must traverse to collect the meter reads. In such cases, powerline systems overcome many of the business case obstacles and have been demonstrated to provide value to utilities.
Supporting this understanding of the business case, the investor owned utilities (IOU) that serve many of our metropolitan areas have been the biggest purchasers of drive-by AMR solutions while Co-ops serving rural areas have mostly purchased powerline AMR solutions. Municipal utilities, which are often smaller or water utilities, appear to be split on the issue.
The business value of AMR is not simply dependent upon the density of meters and service points, but is also dependent on the type of customer served. Serving residential, commercial, and industrial customers requires very distinct meter reading business practices. While residential meters are typically read once per month, commercial and industrial meters can be read as often as every 15 minutes. Some of the industrial customers may also participate in real-time pricing mechanism or, through distributed generation, may both draw power from the transmission grid and contribute power to the transmission grid. For these customers, where constant power metering, monitoring, and control are required, two-way telemetry solutions deliver the greatest value.
Hence, a rural Co-op, within their service area, may overlay a powerline technology solution for their residential customers with a public-network two-way telemetry solution for their commercial and industrial customers. Meanwhile, a metropolitan IOU with a dense mixture of residential, commercial, and industrial customers may reap the greatest benefits in using a private network cellular solution that provides both monthly reads for residential customers and two-way communication for commercial and industrial customers.
For instance, Kansas City Power and Light (KCPL, www.kcpl.com) has adopted a mixture of AMR solutions. According to Karen Sweat, Manager of Customer Revenue Management at KCPL, their major service area relies upon the Schlumberger CellNet solution for the collection of meter data. However, the CellNet network doesn’t reach two of KCPL’s noncontiguous service areas. For these areas, KCPL uses a mixture of Itron solutions, manual meter reading, and other methods to get the meter data. KCPL has accepted that there is no one-size-fits-all solution.
New Business Challenges
Complicating the above mentioned business premise, the business value of meter reading is changing. Despite the potential cost savings to utilities through reassigning workforces from reading meters to other, more value added tasks, AMR deployment has not been associated with industry wide price declines. In fact, some utilities seek rate hikes in relation to an AMR deployment, though regulatory bodies and municipal governments usually deny the request. However new unanticipated benefits have been created by the AMR industry related to both customer management and load management. (Load is the amount of power being drawn from the electric grid.)
Large commercial and industrial customers derive value from their meter data. Through real-time monitoring and pricing, or near-real-time, large commercial and industrial customers will shed loads during periods of high-demand when the prices are higher, and consume greater power during times of low-demand when the prices are lower, thereby incurring sizable cost savings in their electric bill. To reap these benefits, large commercial and industrial customers need access to their meter data, and some have expressed the willingness-to-pay for it.
These large commercial and industrial customers are also the most valuable market segment for a power utility. While commercial and industrial customers may only comprise 5% of the customer base for a utility, they will often provide more than 15% of the revenue. Due to deregulation, these commercial and industrial customers are able to switch electric providers. In some markets, the switching rates for industrial customers have reached 70%. Providing timely meter data has been demonstrated to yield a competitive edge to utilities in capturing these highly-valuable customers.
In load management, timely meter data provides grid operators information required for the efficient deployment of assets and capacity. Kim Huxford of Steele-Waseca Coop (www.swce.coop) reported the anticipated savings of $240,000 per year simply by avoiding line-losses through right-sizing transformers within the distribution grid. These savings would not have been possible without the constant monitoring of meter data. Perhaps the boldest statement made at the 2003 AMRA Symposium was by Dick Preston of Comverge (www.comverge.com). In response to the power outage that affected 50 million Americans in the summer of 2003, Mr. Preston stated “If all the utilities had embedded AMR … we might not have had the problems associated with August 14th.”
Uncertain Regulatory Environment
The changes in technology solutions and business requirements however are minor compared to the uncertainty surrounding energy deregulation. Large businesses are accustomed to making decisions while uncertainty remains in both the business costs and potential value. Real-option analysis and decision trees are able to reduce many of these difficult decisions to technical challenges. However, when the uncertainty includes a fickle sovereign government or regulatory body that threatens to destroy all future value of an investment, business investment usually dries up.
At the AMRA conference, professionals within the utilities spoke hesitantly about their concerns with changing industry regulation. If industry deregulation separates the investment that a utility makes in AMR from their generation and distribution business, they may never see the future value of their AMR investment. Meanwhile regulators, cognizant of the requirements of utilities to recoup “stranded-costs”, fear increases in utility AMR deployments as a potential future “stranded-cost”. (Stranded-costs are the unavoidable costs of existing assets and long- lived commitments that would be recoverable under continued regulation but not in competitive markets.) Alternatively, as meter reading becomes a competitive edge, regulators fear the use of AMR as a means for the utilities to excerpt new monopoly power in a deregulated industry.
Despite the clear current and future value of AMR to both utilities and customers, the uncertain future of industry deregulation is dampening the demand for this technology.
The future of the industry lies in uncharted waters. There is no single course that each utility or AMR vendor should follow. Powerline, drive-by, two-way telemetry over either private or public networks, each has its value points. Moreover, a simple ROI calculation based upon displaced workers, the immediately anticipated source of value, can lead utilities down a strategic dead end while stranded with a technology whose useful lifetime reaches 15 or more years. The only thing that is clear is that not making a choice leaves all players dead in the water.
For utilities, collecting meter reads is equivalent to collecting sales data at the cash register. The utilities industry shift from manual meter reads to AMR is equivalent to that made by retailers in creating point-of-sale (POS) systems. The challenges and benefits in retail to POS systems were far greater than creating faster cashiers. POS led to better inventory management, demand management, pricing, shelf-placement, and numerous other sources of value. As the AMR industry evolves, we should anticipate similar monumental shifts far greater than the displacement of meter readers. Courage captains as you sail these waters.
For more AMR industry analysis, see “Why Is Adoption of AMR and Modern CIS Going So Slowly?“