Howard A. Scott, PhD
Donald L. Schlenger, PhD
Although automatic meter reading (AMR) was invented about 100 years ago, AMR products have only been commercially available within the last 25 years, driven primarily by the utilities` need by to reliably read their customers` meters. Several of the early approaches to AMR were telephone-based, and market development was interrupted and redirected by telephone industry deregulation in the early 1980s. At that time, few people anticipated a similar redirection of AMR development from the deregulation of the electric industry.
In 1990, the Automatic Meter Reading Association reported that fewer than 500,000 AMR units were deployed by electric utilities, and many of these just installed a small number of units for trial purposes. A significant portion of the units reported was actually for load control, a parallel but distinct development that electric utilities could use to actively reduce peak loads on their generation and distribution systems.
Obtaining timely and accurate reads on a monthly basis (and the occasional off-cycle read) for all customers is widely considered an essential element of quality electric utility service. It is still a target for many utilities, particularly those that rely on manual meter reading. On this basis alone, however, AMR has been difficult to justify. Only a few utilities have tried to recoup their costs for full-scale AMR systems under rate of return regulation, and even fewer had meter reading problems severe enough to warrant a rate increase to cover the system cost.
Metering and deregulation
Electric deregulation is changing the needs of utilities for meter reading data. To succeed in the deregulated environment, utilities and energy retailers must perform several key functions that demand more information than monthly reads. “Reducing meter reading costs and improving revenue cycle services only scratches the surface,” said Randi Neilson. vice president for marketing at Itron. “To gain a true picture of the value of AMR technology in a competitive business environment, utilities must take a broader, more entrepreneurial view of the technology and the value of the information it delivers.”
Utilities (or the successors to their components): Producers, wholesalers, network managers, distributors, retailers, etc.) operating in a deregulated environment must carry out these tasks.
Projecting demands and loads: The utility or energy service provider (ESP) must be able to predict demands of classes of customers based on historical data. It can extrapolate this data from load profiles, as electric utilities have traditionally done for cost of service studies and rate setting; 15-minute demand recorders are placed on samples of meters for each class of customers, and data downloaded during a monthly visit (or sometimes more frequently by modem). In the deregulated environment, the energy retailer is contracting for purchased and delivered power in one-hour segments. As the marketplace becomes more precise, the ESP will need better, dynamically adjusted forecasts. It can enhance its forecasting by enlarging its load profiling samples. It can dramatically improve them by correlating 15-minute profile data with once-a-day measurements of kWh and kW demand for all of its customers, or by obtaining hourly readings from customers on a daily basis.
Settlement process: ESPs contract in advance for hourly segments of energy based on expectations of their customers` total loads. After the energy has been delivered to customers, the differences between contracted amounts and actual consumption must be determined, and monies exchanged. This settlement process allocates costs and system losses to utility distribution companies and energy retailers.
In addition to meter readings at transmission system take-off points, the settlement process requires meter data to determine the total consumption in each hour segment for all the ESP`s customers in each class. Right now, the settlement process must rely on load profile data. Although some participants can take advantage of the market inefficiencies from imprecise data, over time the market will drive everyone toward more accurate information. Hourly customer metering will improve the accuracy of the settlement process.
If an ESP`s customers are scattered, then hourly metering becomes even more critical, so that it can match prices to their consumption and their consumption to total costs.
Providing pricing signals to customers: Unless a customer can track its recent historic and current consumption during discrete intervals, it cannot respond to demand charges or varying prices. To the extent that an energy retailer or its customer sees benefit in having the latter adjust its consumption in response to changing prices (and in some situations, either one party or the other would prefer this not be the case), the retailer must provide corresponding pricing and consumption information to the customer. This requires frequent meter reading as well as a way to provide this information to the customer.
Competitive pricing and value-added services: Competing ESPs will need detailed consumption information to help them attract and retain customers with offers of competitive rates. Customers will use this information to make choices among providers with various rate plans.
As deregulated energy markets become more efficient, differences between kWh prices among competing retailers will become smaller. The retailers are likely to turn to other differentiators, including new services, many of which these will be based on detailed meter reading data. For example, some retailers are offering coincident demand metering and billing, so that a customer with multiple services (for example, the buildings on a college campus or industrial park) can have several services treated as a single point of demand. If one service has a peak demand at one time, and another service has its peak at different time, the total cost will be less than if the two demand charges were added. This requires coincidentally timed meter readings from all sites.
Operating cost data: Network operators and distribution companies want information for modeling, forecasting and near-real-time monitoring, to track costs, maintain system reliability, improve operational efficiency and meet regulatory performance criteria.
Retailers need metering information to track and allocate costs and revenues, understand their customer base, provide customer service, and plan power acquisition.
To facilitate these functions requires two dominant technological shifts in AMR from the traditional paradigm of reading all meters monthly:
Frequency of reading: Readings have to be collected much more often than monthly; probably hourly, or at least daily. A time must be associated with each reading in addition to the date.
Frequency of transmission: The collected readings must be compiled and transmitted when the AMR device is polled or calls in.
If the frequency of transmission is any less than the frequency of reading, the meter reading device must have as clock and memory registers to time-stamp and store readings. If an AMR unit is configured to store readings, additional memory registers are virtually costless; storing hourly or 15-minute readings is not a stretch. The alternative is to transmit the readings as they are collected; at this point the AMR system is more like a supervisory control and data acquisition (SCADA) system. Any such system would rely on memory back-up of multiple readings in case transmissions were blocked or interrupted. The system`s ability to handle voluminous information from thousands of devices becomes the bottleneck.
An adjunct technology shift entails the capability to provide the metering information directly to customers, so they can adjust their consumption (perhaps automatically through smart appliances). This takes AMR into the realm of real-time, two-way communication systems. Alternatively, several utilities and vendors are exploring providing this capability directly from the meter, or over the Internet.
The line between those AMR technologies that can support electric deregulation and those that cannot is fuzzy, and is a function of practicality. A mobile radio system in which somebody must drive near the meter may not be cost effective for more than monthly reads. Even if not originally intended, this system might be migratable to fixed radio if the cost of data collectors isn`t too high. An inbound-telephone system intended to call in once a month could be reprogrammed to call in once a day, but might not have been designed to store multiple reads.
As of 1999, some 35 vendors have provided AMR equipment to North American electric utilities, and there are at least 20 active manufacturers. Presuming the criteria for a “deregulation-capable” system is its ability to collect meter readings several times a day and transfer the data at least once a day, all but two provide usable or somewhat usable products. Of the approximately 8 million AMR units installed among North American electric utilities, about 37 percent are designed for this level of activity, about 21 percent could be adapted for this purpose, and about 42 percent are probably not practical for the purpose. The number of “deregulation-capable” units deployed varies among vendors from a few hundred to more than 2 million units.
At this point, deregulation has not cracked open the AMR market. Conversely, the absence of economical hourly metering constrains deregulation. “AMR is not the initial driver of deregulation,” said Bill Vogel, vice president of marketing at CellNet. “Once deregulation is in place, it becomes a catalyst for measuring time-based consumption practically. Thus, it is in the secondary cycle as utilities move from the old to new ways of operation. It facilitates the transition.”
To what extent can utilities operate with only profile data? Industry experts have not reached a consensus answer to this question. While hourly meter data is collected for most large commercial and industrial customers, the vast majority of electric customers are managed using load profiles. Some insiders argue that utilities can operate successfully in a deregulated market with only load profile data. A few suggest that with load profiles it may even be more profitable to forego the expense of metering individual customers entirely. However, most industry experts believe that as deregulation takes hold, the demand for more discrete and immediate metering data will increase. In fact, Vogel suggested some distribution companies assume they will lose their commercial and industrial customer, so the need for AMR-generated information to efficiently operate for the rest of customers becomes more acute.
Deregulation implies more competition, and therefore more risk. “If the utility or supplier has more opportunity or risk, it is more inclined to try AMR to reduce that risk,” Vogel said. “When market decisions spread the risk across multiple participants, then any one participant has less inclination to change the process and implement AMR. If the overall market is inefficient, this favors AMR.”
The lack of metering technology in the deregulated electric market may create opportunities for some players, since there will be inefficiencies and distortions. Most entities will maximize their profit by adapting to the prevailing rules. However, some utilities see opportunities in the anticipated growth in demand for metering information as market players move beyond the pressures of creating the deregulated market and focus more on how to operate it efficiently. According to Ed Finamore, general manager of business development and metering technology at Duquesne Light Co.-which has a system combining telephone, fixed network and mobile radio technologies-“Duquesne is able to provide forecasting, balancing, and reconcilement information to third-party energy service providers, who are, in effect, new customers for Duquesne`s data in Pennsylvania`s deregulated marketplace.”
Itron`s Neilson added: “It`s really a question of whether the utility has the competitive strategy and business plan in place to put that information to work and realize its full value potential.”
More manufacturers are taking an interest in “deregulation-capable” AMR systems. Larger AMR vendors such as Itron and CellNet, as well as some smaller vendors such as Whisper Communications, Nexus and Innovatec, are attemp- ting to address the needs of deregulated electric markets. Some large meter companies such as ABB and Schlumberger are actively involved, as are some companies which have heretofore provided “niche” products, like American Innovations, Cannon, Comverge, DCSI, Hunt, MainStreet Networks, Nertec and Teldata.
As utilities come to better understand how to operate in deregulated markets, and their options and decisions become clearer, they will increasingly demand the kind of detailed consumption information that “deregulation-capable” AMR systems can produce. This will spur demand for these systems, and the relationship between AMR and deregulation will shift to a situation in which each reinforces the other.
Howard Scott is managing partner of Cognyst Consulting LLC in Pequannock, N.J., and authors market studies on the AMR industry, including “The Scott Report on AMR Deployments.”
Don Schlenger is also a managing partner with Cognyst in Cedar Grove, N.J., and was founder and first president of the Automatic Meter Reading Association.