Giving AMR the Nod:Analyzing the Costs and Benefits
By Jim Jennings, CellNet Data Systems
Better customer information can serve as a springboard for a host of strategic initiatives–creating new customer services, reducing costs and managing demand. With competition on the horizon, it`s easy to understand why automated meter reading (AMR) has become a hot topic.
But how do you justify the cost of an AMR program? After working with hundreds of utility executives, CellNet Data Systems has devised a simple cost/benefit analysis model for determining a utility`s break-even point for an AMR program.
Today`s advanced metering solutions enable utilities to offer enhanced services such as time-of-use pricing, and demand and load profiles that are available with the most advanced systems.
We often refer to these advanced systems as “automated metering” or “utility automation” to differentiate them from older systems that simply give meter readers hand-held or drive-by devices without providing any incremental functions or information.
Determining the Benefits of AMR
The costs and potential savings of an automated system include everything from the specific, direct savings associated with not having meter readers walking or driving around, to other equally important but less obvious savings you may not have thought of–fewer calls to customer service operators, lower legal and workers` compensation charges and shorter outage times due to immediate and precise notification. In addition, there are important savings from reducing the opportunity for energy theft and the improved cash flow derived from getting bills out more quickly.
Direct costs are the easiest to calculate. First, find, calculate or estimate the direct meter costs. Industry estimates listed below may be helpful in those cases where ready access to the necessary data is not available:
Manual and appointment meter reads. Direct meter reader expenses include G&A and benefits. They also
include the cost to maintain a fleet of vehicles. All of these costs are eliminated with an automated system.
Connects/disconnects. National averages show that connects and disconnects affect 30 percent of customers annually. In college towns, it can be even higher. The average cost per physical disconnect is about $7.80. By setting threshold alarms for unauthorized usage, an automated system can eliminate at least 75 percent of these visits.
Medical insurance and workers compensation costs. Meter readers are typically the most costly employees to insure, incurring about half of all injury claims. These costs are eliminated.
Meter lock rings. Meter lock rings are expensive; a system that automatically alerts you to tampering may eliminate this need.
Indirect, Important Savings
Meter-related customer calls. A recent study by a major northeastern utility found that customer calls dropped 42 percent with AMR. In addition, since customer phone reps will have up-to-the-minute data on their screen, they can resolve questions without dispatching field personnel.
Energy theft. Edison Electric Institute estimates that energy theft runs about 1 percent at most utilities. Automatic notification of tampering can cut that number significantly; the industry estimates an average savings of $0.25 per meter per month.
Accounting savings. With increased accuracy and efficiency of an AMR system comes lower accounting costs. For example, fewer customer complaints along with fewer misreads and missed reads means less special processing.
In addition, an automated system can read meters on the “correct” day, whether it`s a Sunday, a holiday or during a blizzard.
Finally, improved monitoring of customer usage, meter tampering or usage on inactive accounts reduces your exposure to bad debt or uncollectibles. Industry studies have put these combined accounting savings at $0.54/month.
Total estimated benefits (cost of traditional meter reading minus cost of an advanced AMR system) vary between $1.00-$1.50 per meter per month. Specific cost/benefit will vary depending on local costs. However, the annual savings for a 500,000 meter utility can add up to $7.5 million per year–with better customer service–due to AMR.
What to Look For
There are several AMR systems on the market. To get all the financial benefits, focus on those that charge only a monthly service charge (typically under $1.00 per meter) without up-front capital expense or risk.
In addition, make sure the new automated metering system provides all the capabilities of a fixed network. Some AMR system provide just a once-a-month number. The true benefits of AMR come in advanced services such as on-demand reads, reduced theft and tampering, automatic connects or disconnects, immediate alarms for outages or tampering, and access to additional capabilities such as managing remote terminal units from the same system.
Calculated with each company`s numbers and based on industry estimates, the saving is at least $1.01 per meter/month. Multiply by the number of meters in the company`s territory to calculate the average monthly savings. Add non-quantified benefits such as better customer relations, fewer labor issues and more information to manage the business and one can see that AMR may be an important and easily justified decision.