Why Is Adoption of AMR and Modern CIS Going So Slowly?


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published May 14, 2003

The business case for AMR, automated meter reading is solid. Though expensive to install, AMR systems lower operational costs of utilities and the potential to lower prices for end customers. Although AMR has been around for a decade, only 14% of the meters in the US can be read automatically. The other 86% of the

meters are still read by meter readers with ongoing personnel and operational costs to match according to Garrett Johnston, Managing Editor of Chartwell.

Similarly, CIS systems have changed radically from the 1970’s version. Modern CIS systems are n-tier, web enabled, business rule object oriented, and relational database proven technologies. Rather than hard-coding business rules, modern systems allow for system configuration and “add-ins” to adjust the business rules without rewriting software. Yet, today, 70% to 75% of the CIS systems are 10 to 15 years old according to Guerry Waters, CTO of SPL WorldGroup.

Why is adoption of new technology so slow in the utilities sector? I had the opportunity to listen to both utilities and their suppliers on this issue at the Spintelligent Metering, Billing, CRM/CIS Americas conference held in Chicago, IL during May 2003 and sponsored by Elester, Excelergy, Itron, Kema, and Olameter.

Positive Signs

On the plus side, AMR vendors of Itron, TWACS, and Hunt report significant increases in sales of AMR systems. From mobile, telephone wire, dedicated wireless networks, open networks, and fixed radio approaches have all been tested in the market. Depending upon the density of customers and the customer types, different approaches have proven to be more cost effective. At times, multiple methods are required to manage the needs of the different customer types.

Also, the CIS vendors from SPL, Excelergy, Peace, Open-C and Indus each reported growing revenues. They had growing client lists, technology paths for future improvements, and improved partnerships for systems implementation and managerial consulting support.

Many vendors were satisfied with the current rate of adoption. The 12% to 25% market growth rates are manageable allowing the companies to add resources, train employees, and keep brand awareness at a high quality level. But after ten to fifteen years, is 14% and 25% market penetration acceptable for AMR and modern CIS respectively?

Expressed Conservativism to Technology Adoption

When pressed, utilities expressed extreme conservativism on the adoption of these technologies. For AMR, utilities wanted more test data to make business cases and demonstrate their value. Similarly, for CIS implementations utilities needed more time to make their business case for the investment. However, both of these technologies have been demonstrated in the market to provide value.

Clearly there is more going on than the need to make the business case. And there is.


The adoption of AMR requires the displacement of utility workers. For instance, when Peoples Energy adopted mobile AMR in the Chicago area a few years ago, the meter-reading workforce was reduced from over 140 to around 40. Labor contracts had to be renegotiated with the unions in order to allow Peoples Energy to utilize this cost cutting approach. Just as with the longshoremen of Oakland, unions and labor negotiations can slow changes. As such, the US ports are years behind those of Singapore and Hong Kong in efficiency and productivity. Yet unlike the longshoremen standstill that closed US ports for a few weeks, the union contracts with utility meter readers were successfully renegotiated. While union negotiations can be troublesome, this is most likely an insignificant barrier to adoption of AMR and modern CIS for utilities.

Lack of Competition

For all the press about deregulation, most utilities do not face a truly competitive market. Competition forces companies to take risks to lower costs or improve customer service. Most utilities do not face competition and are not accountable to the market; rather they are accountable to regulatory bodies. Until recently, many utilities were financially encouraged to increase costs by the regulatory bodies in incentive schemes that reduced profits to a cost-plus pricing mechanism. Under that set of rules, the best way to improve profits was to increase costs. Currently, most utilities face regulations that do provide financial incentives to lower costs while improving quality, but government regulatory bodies are not as powerful in providing incentives making changes as a competitive market. With regulatory bodies driving decision making, utilities face more downside for taking risks than potential reward. Adopting new technologies, even decade old but new to them technologies, is a risk taking endeavor. Without competition, risk taking through adopting AMR and modern CIS is not properly rewarded.

Regulatory Uncertainty

Throughout the 90’s, energy deregulation was the buzzword to drive change throughout the utilities industry. However, as Nick Fulford, Senior VP of Business Development at Direct Energy Marketing stated, “The SMD is DOA.” The standard market design (SMD), coming from Federal Energy Regulatory Commission (FERC), was to be the route for deregulation throughout the US. Through the political failures of the California deregulation, coupled with the collapse of Enron and the numerous allegations of price gouging, deregulation has stalled. Currently, policy makers are considering a new form of deregulation, the Wholesale Power Market Platform (WPMP), but that will take years to unfold. As such, utility companies face uncertainty about their future and the future of deregulation. The value of AMR and modern CIS systems must be offset with their upfront investment costs. Given that the future is uncertain, utilities are also uncertain as to if they can capture the value associated with costly investments in metering and billing.

Research from Thaler of the University of Chicago GSB and Tversky of Stanford has indicated that individuals facing uncertainty are more likely to avoid risks and postpone decisions than they are when the risks are removed. Utilities are subject to the same limitations to management decision-making as are other consumers. The uncertainty created by unclear future regulations raises the risk aversion within utility executives. A portion of their risk aversion and hesitancy to adopt AMR and modern CIS must be leveled against the failure of regulatory bodies to set clear ground rules.

Managerial Shortfalls

Like other corporate initiatives, businesses can fail to manage the change properly. If the system implementation and organization changes are not properly managed, the business will not capture the potential value of AMR or modern CIS systems. Many utilities, especially smaller ones, may be aware of managerial shortfalls and thus hesitant to embark upon such a large change. A portion of the slow pace of adoption for AMR and modern CIS is due to the fear executive possess that their management team cannot effectively manage the change.

Coupled, regulatory uncertainty, lack of competition, and managerial shortfalls within utilities are impeding these markets. For the companies that make AMR and modern CIS systems, they must manage these impediments to market penetration. As points of comparison, it took the US population 2 years to adopt the calculator but 12 for the refrigerator. Perhaps 20 to 30 years for the adoption of AMR and modern CIS is quick considering the barriers.

About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.