By Tim Becker, Accenture
The utility industry has not been known for rapid technological innovation, particularly on the distribution side of the business. Several technologies have offered the prospect of industry transformation, but, to date, have not met expectations. For example, broadband powerline communications, although showing recent promise, has been tainted by over-hype and splashy failures. Likewise, distributed generation and home gateways are technologies that have been on the cusp of commercialization for decades.
Similarly, automated meter reading (AMR) has been around for almost 20 years, but has achieved only moderate adoption. Unlike with some other technologies, utilities always have had a predisposition toward AMR, but have held back, primarily because of anemic business cases. Technology risk and lack of a strategic imperative also have hindered AMR uptake. However, AMR now appears to be at an inflection point, with utilities shifting from tactical, surgical AMR deployments to strategic, larger AMR implementations.
In many ways, AMR is following typical technology adoption curves. Normally, technology penetration follows an s-curve. Initially, technologies are implemented on a limited scale by early adopters, who are less risk-averse and/or more technologically savvy. Once technologies pass 10 percent penetration, an inflection point (the “knee” of the s-curve) is generally reached, where technologies experience steady, rapid adoption for several years. Such a scenario reflects AMR’s current situation. AMR cleared the 10 percent penetration threshold around 2000, and penetration is increasing 20 percent to 30 percent annually—in a down economy. This trend is driven by several forces, including improved economics, reduced risk and increased strategic value.
The business case for AMR has improved on both the cost and benefit side of the equation. AMR costs have been steadily declining over time. Most of the up-front AMR investment is equipment costs, which have been declining by 9 percent annually over the past decade. This decrease has been driven by several forces:
- Communications costs, which are the largest overall AMR expenditure, have been declining as a result of increasing use of public networks, the emergence of some new private network technologies (peer-to-peer technologies where meters act as repeaters and communicate with multiple meters), and increasing use of powerline communication (PLC) technologies
- Component costs have been declining because of experience effects. These include scale economies, but also improvements (e.g., miniaturization) to technologies, better manufacturing processes, and a better understanding of implementation issues.
- O&M costs are declining because of more reliable technologies and increased solution outsourcing.
Additionally, increased competition is driving down costs across the value chain.
As costs have declined, benefits have increased. AMR technologies, especially advanced, two-way solutions, are providing many benefits beyond simply displacing meter readers. Following are some other key benefits that are being achieved. This discussion assumes implementation of advanced two-way technologies and full implementation of the functionality associated with these technologies. Also, most of this functionality does come at an additional cost, so it is important to net additional benefits against additional costs.
Customer Service Benefits
Besides displacing meter readers, utilities are using AMR data to reduce labor in the call center, billing and collections, and field service visits.
Call center labor reductions are the result of both reduction in calls and faster processing of calls. The volume of calls is reduced by eliminating some key drivers of calls. This includes a reduction in inaccurate reads, missed reads, and associated estimated reads. Implementation of outage detection functionality will reduce outage calls. Calls are also more efficiently processed when AMR data is made available to customer service representatives (CSR). For example, billing complaint calls are more easily resolved when a CSR is able to take an immediate meter read. Savings of 25 cents to $2.50 per customer per year have been achieved from call center improvements related to AMR implementation.
Billing and collections represents another area of labor savings, primarily resulting from less exceptions processing. Some utilities have reported savings up to $1.50 per customer per year from less bill recalculation, rebilling and associated customer contact.
Field service labor can also be reduced through AMR. The primary driver of such savings results from implementation of remote connect/disconnect functionality. Segmentation to identify the appropriate subset of target meters for remote connect/disconnect functionality is critical. Additional savings are often achieved through reduction of calls associated with power problems and meter services.
Additionally, utilities are using AMR to reduce other non-labor costs or to increase revenue collection.
- Safety and liability costs are reduced. Meter readers tend to have the highest injury rate of any employee group. Accordingly, insurance and medical costs are reduced with AMR. Liability costs associated with damage to customer property and other intrusions is also reduced. Utilities have estimated cost reductions of 10 cents to 85 cents per customer per year.
- Energy theft can be reduced through implementation of tamper detection and monitoring of power abnormalities. Some utilities have eliminated up to 50 percent of theft.
- Meter accuracy is improved. AMR implementation allows an opportunity to recalibrate and replace meters. This results in improved meter accuracy. Because electromechanical meters generally slow down over time, this improvement results in collection of higher revenues. Revenue increases of up to 0.5 percent per meter have been experienced.
- New meter purchases in the years after implementation will be dramatically reduced because of meter refurbishment and replacement during implementation. This is primarily a large capital cost offset associated with AMR that should be factored into any business case. However, scale efficiencies (i.e., lower labor costs per meter) relative to smaller change-outs and refurbishments are also significant and should be considered.
- Using AMR, final reads and disconnects can be accomplished real-time, eliminating time delays and unauthorized or inadvertent power usage. Estimated benefits (per customer per year): 25 cents to 60 cents.
- Billing inaccuracies, mostly resulting from estimated reads, are reduced, thereby decreasing accounts receivable.
- Tightening of the billing and collection process has improved cash flow. The billing cycle is reduced by decreasing the meter-to-bill time, thereby reducing accounts receivable days.
- Write-offs of customer debt have been improved because of more vigilant monitoring, enabled by the ability to frequently and accurately monitor consumption.
- Database clean-up provides tangible benefits to many parts of the utility. A thorough review of existing data during conversion results in more accurate, complete, and consistent customer information.
Tangible benefits are possible in areas beyond metering and customer service, particularly in the areas of distribution and load and supply management.
Utilities can drive down both T&D capital and O&M costs with AMR.
Currently, distribution design and planning is ultraconservative. Because of the lack of good load data (i.e., sufficiently granular measurements taken at frequent intervals), a large contingency factor is applied to system design. The result is often overcapacity and premature (or sometimes unnecessary) expenditure of capital to upgrade systems. AMR provides meter information that can be tied to specific equipment, allowing better selection and timing of distribution system investments. One utility found that once better information was gathered, a “post-mortem” review of approved projects indicated that 70 percent of projects should have been rejected, deferred, or modified to use a lower investment approach.
Similarly impressive benefits are possible in expense management because of AMR’s granular and real-time nature. First, AMR allows utilities to better and more quickly identify and diagnose maintenance problems. Second, AMR allows better handling of outages, which are more quickly identified and prioritized. The result is that power is restored to more customers in less time. Also, AMR enables utilities to better communicate with customers during an outage. For example, better restoration estimates are possible and customer notification is improved.
Utilities are starting to tap into AMR data to better balance supply with demand.
- Improved Power Purchase/Sales. The data provided by AMR is being leveraged to improve long-term forecasting, resulting in fewer purchases of power in the spot market, and thereby reducing procurement risk. However, AMR data can also be leveraged to provide better short-term usage estimates, facilitating better balancing of needs and opportunities in short-term (day-ahead, hour-ahead) markets. One benefit is avoidance of imbalance penalties. Lastly, improved load data can be used to manage risk—e.g., buying financial hedges, identifying arbitrage opportunities.
- Demand Response. AMR technology and associated data can enable demand response programs, including automatic load management, information provision and innovative pricing (e.g., real-time and time-of-use pricing), and demand bidding.
- Load Research. AMR information can be used to develop customer load profiles and perform other load/supply analyses.
The risks associated with AMR have decreased over the last several years. Accordingly, the financial risk associated with implementations has decreased. Risk adjustments to the weighted average cost of capital are generally moderate. Financing options, including complete outsourcing, can mitigate remaining financial risk.
- Regulatory Risk. Meter unbundling and competition was sometimes a feature of deregulation when it was in full swing. Accordingly, utilities were disincented to implement AMR because of stranded investment risks. However, meter unbundling and competition in states where deregulation has been implemented or is being implemented, has not materialized—even in states where metering credits were set high to encourage competition. Quite simply, meter competition, except for the largest, of customers, has proven to be a non-issue.
- Technology (and Vendor) Risk. While technology risk is still a concern, particularly with newer, advanced technologies, several solutions are available that have proven themselves in dozens of implementations. Similarly, among vendors, smaller start-up operations obviously present more risk; however, several established players also exist.
- Implementation and Operations Risk. Larger AMR implementations require more resources and investment. Additionally, implementation of advanced functionality involves more applications and associated systems integration, increasing project complexity. These factors have increased implementation and operations risk. However, this increase in risk has been offset by experience with AMR. Best practices, reference-able case studies, interest and users’ groups, experienced consultants, and
AMR research and publications are readily available. Additionally, risk mitigation strategies have been developed by both vendors and utilities that circumscribe implementation and operations risk, including outsourcing some or all of the implementation and operations and maintenance activities.
Increased Strategic Value
Lastly, AMR provides strategic value to utilities. These are benefits that are not as easily quantified, but are nevertheless important in AMR decision-making.
AMR improves customer service along a number of dimensions. First, AMR enables reliability improvement that creates significant customer goodwill. This results from fewer and shorter duration outages resulting from improved operations, maintenance and system design. It also results from better monitoring of power quality. Second, AMR enhances a utility relationship with its customers. Communications are improved through provision of more detailed information, timely and accurate bills, quicker problem resolution, and better outage information. Customer convenience is also improved through reduced intrusion of meter readers, summary billing, customer-selected billing dates and instantaneous final reads. Lastly, AMR data can provide useful customer insights that can be used to perform customer rate and profitability analysis or even to target customers for new products and services.
As well, revenue opportunities are becoming important in many AMR business cases. First, utilities can offer excess communications capacity to other service providers. Second, a utility can offer additional services to customers and other utilities via its AMR platform. These include other commodity (i.e., gas and water) metering, innovative rates, gateway services (e.g., home automation, security monitoring), or other services such as streetlight and traffic signal control. Third, AMR provides data that can be sold to customers along with analysis tools.
Finally, AMR can support various regulatory regimes. This includes providing data for cost-of-service analyses or to support performance-based ratemaking. Under deregulated regimes, AMR supports provision of services to other industry participants, including load research, profiling and forecasting; energy scheduling and billing: load and financial settlements; settlement verification; and calculation of energy imbalance penalties. AMR also can help meet environmental stewardship obligations and commitments through reduced vehicle usage, optimized power supply and delivery, and promotion of customer conservation (e.g., demand response).
Tim Becker is a partner in Accenture’s utilities group. He focuses on technology strategy and corporate venturing.