The Oracle of AMR
In search of the top trends in utility automation.
Howard A. Scott, Ph.D., specializes in utility operations technology for Cognyst Consulting. His technical and business experiences include automatic meter reading, telecommunications, project and business management, market research, and software development. He has published numerous articles including an extensive market study of the automatic meter reading industry titled .
Fortnightly:Are utilities implementing AMR on their own initiative, or is this typically part of a regulatory agreement?
Howard Scott: The answer is yes to both of those. The larger utilities are the ones we read more about. They are more heavily regulated. The small utilities also may be regulated, but you'll find that they tend to have more freedom in the regulatory process because all of the attention is on the big guys. We are beginning to see some interest in AMR being driven by regulation, but most utilities are deploying it to address their own internal needs.
Fortnightly: But are they implementing because of demand-side management programs or is it having better operability information? What is the motivation behind AMR implementation?
Howard Scott: There are multiple reasons utilities are being motivated to implement AMR. First, many utilities are striving to become more efficient. Over the years some utilities have had problems getting their meter reading staffs to reach targeted efficiency levels. They have been under pressure to reduce costs and add efficiency to their procedures. AMR helps them operate more efficiently and helps give customers reliable meter reads, which they are always under pressure to do.
Fortnightly: Why has manual reading been a problem?
Howard Scott: Let me explain the problem when a utility goes out to manually read meters. Let's consider utilities that have an obligation to bill every month (if that's their cycle). What happens if they are unable to get to your meter? What if it snowed? Say something went wrong and they were unable to read everybody's meter. When that happens, the utility issues an estimated read. They look at the history of the customer and they calculate an expected average consumption that they bill. This is an accepted industry practice.
Now, what happens if this goes on for a few months? The customer is paying bills not on what they actually consumed, but based on their history. When the utility finally gets an actual meter reading, it's not surprising for a consumer to find themselves with a huge bill (electric, gas or water) even though the estimates were based on intelligent guesses. And it's not surprising that the customer gets upset with this huge bill. They call the utility. They may call the public utility commission. Then they call anyone who will listen and say, "Hey, this isn't fair. I paid my bills," which is true. This can become a huge public relations problem for the utilities. They would much rather charge the customer the correct amount the very first time. AMR is the only reliable solution to these problems.
Fortnightly: What other things are driving AMR implementation?
Howard Scott: Many utilities have difficulty maintaining a large enough meter reading workforce. Meter reading is often the entry level for many new employees with a utility. After a few months, many of these people are not happy with this entry-level job. As other jobs open up at a utility, the meter readers will try to transfer to them. Many utilities are constantly looking for meter readers because the meter reading position becomes the initial training path for finding candidates for other positions in their organization. So, the metering staffs are constantly under pressure to find people who can really do the job, are pleasant to customers, and can work quickly and accurately. This is a constant aggravation for the utility because meter reads produce most of a utility's revenue. So, you can imagine why a utility might want AMR. It is fundamentally important to the business, this is where most revenues come from, and is also an area that has on-going accuracy problems. AMR, in any of its different forms, solves these problems.
Fortnightly: What criteria should a utility use when attempting to select between fixed versus mobile AMR technologies?
Howard Scott: First, let's review these technologies. Mobile AMR can be done by a truck or van that has been specially fitted with some special antennas and other equipment. In other instances, it uses computer-like devices that sit on the passenger seat of a car or truck with a single antenna sticking out the window or attached to the roof. Mobile AMR could even be done by a person walking with a hand-held reader. "Fixed AMR" refers to several technologies. It could be any radio AMR that uses a fixed receiver. The most common radio systems have a large number of collectors in a neighborhood, though some newer systems can transmit over a greater distance. Fixed AMR also includes power line and telephone technologies. When the utility wants reads more frequently than monthly or quarterly, it usually wants fixed AMR. If it wants monthly or quarterly reads, it is more likely the utility will go with a mobile system. The more frequent the reads, the more likely fixed AMR technologies will be chosen.
Fortnightly: Do you find that to be the case in the real-world purchase data?
Howard Scott: The deployment data shows that in 1999 fixed and mobile units were deployed at almost exactly the same rate; approximately 50 percent of the units were fixed and the other 50 percent were mobile. Since then, the mobile percentage rose and the fixed percentage dropped. The spread between them reached almost 30 percent. Intuitively, you'd think that there would have been more fixed going in because it was the newer technology and the interest in time-of-use information favored fixed technologies. However, the price of mobile systems became extremely cost competitive. Based on the business case, the mobile system was winning. For electric utilities, it has been almost 50:50 for the last four years, though mobile deployments have slowly crept higher in that market. Gas AMR has tended to be mostly mobile and water has been dominantly mobile.
Fortnightly: Many supporters of broadband over power line (BPL) implementation at utilities trumpet the efficiency benefits it will bring to a utility as it relates to bringing fixed AMR? Is power line a cost-effective alternative to other fixed or mobile technologies?
Howard Scott: BPL is still quite new and is much more expensive than anything else in the AMR market right now. From a business plan perspective, AMR is not going to be a driver for BPL for the next few years. If BPL is there, AMR could easily piggyback on it. BPL would definitely make it a lot easier for a utility to deploy time-of-use capabilities or expand demand-side programs or things like that. But AMR is not a big money driver for BPL. Utilities will have to rely on other business drivers to make most of their business cases for BPL, and AMR will be an added benefit.
Fortnightly: What do you think has materially changed in terms of AMR implementation in the last year?
Howard Scott: Mind you, we don't have the final numbers for 2004. It looks like overall the industry slowed up and possibly took a slight downturn. That was counterintuitive to what we were seeing in the marketplace. There was an astounding amount of activity, huge numbers of utilities coming to the table and applying AMR [technology], and then suddenly the numbers started going south. How can that be? It looks like activity is growing and the numbers are decreasing. So, prompted by three different AMR developers, we started looking more closely at what was happening.
Fortnightly: What did you find?
Howard Scott: These three vendors were saying that deployments were being skewed by the ending of some large projects that produced significant shipments over the past few years. We had done some preliminary slicing of the electric gas and water data and had looked at utilities with meter counts below 100,000, below 500,000, and below 700,000. I decided to look more closely at utilities with fewer than 500,000 customers and those that had more than 500,000 customers. We found that only 98 electric gas and water utilities were larger than 500,000 customers. Below 500,000 customers there were over 58,000 utilities, most of them water. So there are very few large utilities, and they tend to dominate our view. But if you look at how many AMR units can eventually be sold into the marketplaces, you find a fascinating lesson-both markets are probably the same size, 120 million AMR units could potentially be sold into each market. I am taking some license with the numbers when I say that. The potential number of AMR units in the over 500,000 market is almost exactly 120 million. The number of potential AMR units in the below 500,000 market is actually more like 160 million. But it includes many small utilities that are least likely to buy AMR.
Fortnightly: What is the eventual saturation level for AMR?
Howard Scott: Saturation is not going to be 100 percent. All the large utilities will probably buy this technology. Where you start reaching limitations is with the smaller utilities. I have said for years that we will probably see 70 to 80 percent overall saturation. That saturation level in utilities below 500,000 customers is in the 120 million range. Almost all of the saturation problems will occur at the lower end. That won't happen at the upper end because the larger utilities will have regulatory and community pressures that will drive them to offer the higher quality of service afforded by AMR. So, we are looking at two different markets that are about the same size.
Fortnightly:What has been sold into each market?
Howard Scott: Those numbers are also fascinating. The number that has been sold in the below-500,000 market is 29.7 million AMR units as of the first of last year. And the number in the upper end is 31.5 million AMR units as of the first of last year. Thus, not only are both markets about the same size, approximately the same amounts have been sold into each market.
Fortnightly: What do the growth expectations for the large end and small end look like?
Howard Scott: Looking over the history of the industry, the lower end is steadily climbing. When we project toward the future, we find a very healthy projection pattern. For the higher end of the market, the projection is almost flat. As in the past, large projects will occur sporadically, and when they occur, they will dominate the market. However, the bulk of the activity is in the market below 500.000, and that will continue to grow sharply for the next several years.
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