Some want to cut costs, others to improve service.

Uncertain economic times have always moved companies to find ways to cut costs. Utilities and energy companies are no different. They have turned to automated meter reading (AMR) during the past years in increasing numbers.

But many technology experts disagree on strategy: should utilities go high-tech or low-tech on AMR?

According to a recent survey by the Edison Electric Institute (EEI), in which 48 investor-owned utilities participated, 79 percent responded that they were utilizing AMR. Of that group, 37 percent chose phone line systems, 33 percent chose mobile vehicle AMR, and 10 percent chose fixed network AMR. In addition, 24 percent had chosen some other type of technology, such as power-line carrier systems or walk-by meters.

Bill Mayer, EEI's manager of customer operations, says today's AMR is a very flexible technology. A low-tech application simply uses AMR to supplant its human counterpart in collecting monthly reads. AMR does this accurately and cost effectively while at the same time improving safety and customer satisfaction. A higher-tech application, with options like interval metering and two-way communications, opens the door to many additional opportunities in the areas of demand response, service reliability, and broadband services.

Most of these high-tech options have long been available to the large commercial and industrial accounts, whose service requirements or rate schedules call for more data to be collected more often. Utilities are now deciding which level of AMR technology to deploy for the residential and small commercial classes, and whether to apply AMR surgically or system wide.

Fred Dorow, principal consultant of PwC Consulting, believes that ultimately with the multi-state utility companies, there may not be just one type of technology that best fits. "You may end up with certain types of technologies for certain segments of your customer base and other technologies for other types. It may be based on geographic location or even the type of customers that you have," he says.

Dorow adds that the choice of technology really goes back to the utility's business case. He says utilities should ask themselves, "What is the driver to use AMR? Is it truly a cost-reduction issue, or is it a customer service perspective driving them? What is that price break? Do they really have to justify this from a cost perspective that they need payback in three to five years?"

Low-Tech AMR: Northeast Utilities Plays It Safe

David Scott, manager of meter engineering and systems at Northeast Utilities is concerned about spending money on technology that provides services his customers may never want. That is why Northeast Utilities has chosen an AMR technology that is low-tech and low-cost, but can be upgraded relatively cheaply to high-tech, real-time metering services. Furthermore, customers, rather than the utility, will pay for the upgrade. Scott says customers will pay the incremental price at the location.

"We expect to have about 1.35 million electric meters converted to AMR by the end of next year. All our gas customers [were] done back in the early nineties, and there is a hundred ninety thousand of those. We expect to have 1.6 million electric and gas meters. That will be 100 percent of all of our customers in Connecticut and Massachusetts," Scott says.

"We are using flexible technologies that allows us to use the drive-by technology. But the technology allows us to interchange the circuit board, [and] upgrade the meter to do more sophisticated communications. We [expect to be done] by the end of next year," he says.

Yet, while most residential customers will receive mobile vehicle AMR service, Northeast Utilities is providing daily interval metering to high-end commercial and industrial customers that are 350 kW and larger. Scott points out, "We also offer services for our customers where customers have choice of the meter that they want. If they are willing to pay a fee for a higher-level meter, they can also get this interval meter."

But, a May 23 study by ICF Consulting on demand response found that customers are reluctant to expend funds and effort to install interval meters, communications, and software.

"[M]onitoring prices and actively participating in demand response programs take time and effort, in addition to corporate commitment and oversight. For some organizations, this type of participation is quite daunting and there can be strong reluctance to move into unknown or uncertain business areas," says the ICF report.

Scott doesn't believe that anyone in the utility industry is really advocating interval meters for all customers across the board-but the New England ISO has been a big proponent for the establishment of demand-side programs.

"There is a cost associated with interval metering. It doesn't come for free. So, who [pays for it] and how is that extra cost paid for? Generally, a large customer [interval metering] is something you need anyway for their rates-and for our customers 350 kW and larger it's a natural part of their rates," he says.

"[Not to mention], if some technology was necessary for us to move to in 10 years-these meters are the types of meters where you can remove the lower tech AMR board and put in the higher tech AMR board that perhaps communicates via satellite."

But while Scott can foresee $20 million cost reductions in workforce associated with low-tech AMR, Northeast Utilities does not believe widespread implementation of high-tech interval metering is cost-effective.

"Three or four years ago restructuring discussions drove the interval metering discussion. It was concluded after a lot of work that you just couldn't afford to have an interval meter on every customer. We are going through that exercise again, driven by energy shortages rather than deregulation. I think it is going to end up in the same way," Scott says.

Furthermore, Scott points out that the majority of utilities seem to prefer the low-tech solution (AMR via mobile vehicles) over high-tech (two-way communication). "The story that is not being told is that there is a lot of low-tech AMR being built."

For example, ongoing costs for mobile vehicle AMR are 10 cents a month, while two-way communication, high-tech interval metering costs are on the order of four to eight dollars per month to retrieve the metering data, he says.

Scott insists that a vast majority of residential customers will not respond to real-time pricing-but there will always be a segment that will. How large is that segment? He believes it is within the one to 10 percent range, with one percent being most likely. Furthermore, he says, in demand-side management you don't really need that many customers to make an impact.

About one or two percent of a utility's total customers, or three to five percent of commercial and industrial customers, could represent 40 percent of load. "For very few numbers you can have a huge impact to measure hourly loads," he says.

ISO New England has two different programs for demand response, requiring two different types of meters, according to Scott.

"One is a real-time meter that provides info on loads in real-time, which is really every five minutes. That is an extreme solution to get close to real-time," he adds.

Scott says the service cost of having the meter read once a day is a one-time fee of between $100-$200. A move to real-time metering jumps the price to $1,000-$2,000. "Then you have more ongoing fees such as having the communication conduit to that meter at all times. So, you are either paying a public provider time on the airwaves, or you are building your own system that you have to maintain."

High-Tech AMR: The Future Is Now For Progress Energy

Progress Energy doesn't see eye-to-eye with Northeast Utilities on automated meter reading technology and what customers want. Julie Broadway, supervisor of special projects in energy information at Progress Energy, says that her company wants to install AMR technology that allows the utility to raise the level of customer service. In the long run, she believes high-tech AMR will cut costs by automating several utility processes simultaneously.

Broadway explains that while the company has had AMR for commercial and industrial customers, Progress Energy is now focusing on so-called mass market AMR, which focuses on residential customers and some small businesses that are under 30 kW. The company already has developed specifications for an AMR system and has issued requests for proposals. At press time, the company had not selected an AMR technology provider.

"We are interested in a solution that can do automated meter reading, meaning scheduled meter reading [and] a system that can do on-demand meter reading. So, if a customer service rep gets a call from a customer and the customers says, 'Hey I have a question,' they can say, 'Well, hold on. Let me tell you what your meter reading is right now.'" The idea, she says, is to allow for a productive discussion about the question or concern the customer has, whatever it may be.

The utility also wants an AMR system that has tamper detection. "If the meter is being tampered in any way we'll give them an alarm. That helps us with revenue recovery," she says.

Furthermore, the AMR system would provide outage detection and notification. "One of the biggest challenges that any major utility has is that when you have a big storm come through-we are relying on customers to call us and tell us that they are out. This type of system would be able to basically tell us every home that is out when it goes out, so we could do a better job of trending and looking for patterns for outages, and for better dispatch of the right crews," she says.

For example, she says that if the company knows only one home is out, it will send a serviceman. But if every home in a particular neighborhood is out, the company might send a different type of crew. In addition, Progress would like to be able to tell the customer that the utility is aware of the outage and has an estimated response time, before the customer ever picks up the phone.

Another functionality that has intrigued Progress Energy is the ability to use AMR to connect and disconnect remotely, much the same as the telephone company does. "That is something that we have always wanted to be able to do as a customer service, but we haven't had that capability."

Broadway believes that many of these services will drive costs out of the system, by: 1) being able to resolve a customer bill question on the first call; 2) being able to connect and disconnect instantly for nonpayment; 3) responding to outages more efficiently; and 4) reducing revenue loss from meter tampering.

Furthermore, a high-tech AMR system would allow Progress Energy to offer new services down the road, such as smart thermostats in customers' homes to help with energy management.

Eric Miller, vice-president of product strategy at Silicon Energy, says radio-controlled thermostats are gaining in popularity where they are tried.

In fact, Long Island Power Authority (LIPA) and San Diego Gas & Electric have teamed up with Silicon Energy as part of a program that allows the utility to change the thermostat for a few hours during peak time. The customer can get on the Internet and change the temperature as well. "People mostly like the thermostats. They like the Internet and they like the control. The dollars and cents have not been the major factor-and the program has been extremely popular."

Meanwhile, Progress Energy's AMR implementation will probably be a combination of technologies, Broadway says. "Our territory is a good combination of what I call metropolitan (very urban areas) and rural areas. A fixed network may do well in densely populated areas, but you may have to go to a different kind of solution for rural areas. We are not sure yet-we are still going through all the data."

Broadway says that improving customer service drives the implementation as well as operational efficiencies, and is well aware that there will be some extra costs involved initially in adopting high-tech AMR. When considering AMR solutions, Broadway cautions that utilities should look at the entire cost, including the vendor quotes, system integration, and communication system costs.

Integration: The Key to the AMR Cost-Cutting Game

Whether utilities select high-tech or low-tech AMR, failing to integrate successfully with other systems will cause costs to jump, not fall. This is the belief of PwC's Dorow.

Because AMR implementation begins at the business or business manager level, sometimes the chief information officer (CIO) is not involved until very late in the game, he says. In fact, much of Dorow's work at utilities has been discussing how to integrate meters with customer information systems and other systems that may be related.

"[AMR implementation] has been business-driven rather than technology-driven. The CIOs are then out there trying to find out how to make it happen. The earlier that the business gets the technology and the CIOs involved in doing the business case and looking at the system integration pieces, I think that gives the business a better picture of what the cost is to implement and maintain an AMR."

For example, utilities must address either integration of their AMR system with their mobile workforce management system, or make sure the radio fixed network has the collection capability of sending that information to a customer information system.

"[In addition], it becomes more of a challenge with some of the old CIS systems out there," says Dorow. "Some utility CIS systems are 10, 15, and even 20 years old, and to try to integrate it with different systems are very expensive and very risky, and can ultimately make or break an AMR implementation."

Meanwhile, executives such as Roland Schoettle, CEO at Optimal Technologies International, do not believe demand-side programs can be successful without two-way communication between customer and utility.

He believes the problem of looking at the markets for large commercial and industrial customers is that 35 percent of the market already has been covered. But the rest of the market has not been covered by any kind of decent metering initiative, he says.

The residential markets still take roughly 36 percent of the power used and have very heavy swings, while small commercial customers have been missed, he says.

In fact, ICF Consulting in a May report estimates that approximately $4 billion of savings in electric system operation costs could be achieved annually if 50 percent of customers were given price signals in peak periods.

"You have a meter that gives you information-but who is going to want that information? Not many people. At that point, the metering initiatives mostly become advanced billing systems, helping to reduce utility costs but not really helping the responsiveness in the market place that needs to be there. These demand-side initiatives are going to fail unless you can create some kind of automatic response system based off the information coming from those meters," according to Schoettle.

Of course, a major impediment to the development of price-responsiveness in demand is the existence of rate caps and fixed default service rates. In its May report, ICF Consulting suggests public utility commissions should explore how all, or only targeted, customers can be transitioned into dynamic pricing, without violating rate caps or significantly affecting utility distribution company revenues.

"The positive experience of Puget Sound Energy with the installation of 320,000 advanced meters and the implementation of time-of-use should provide an indication that customers are not against dynamic pricing," the ICF report says.

Schoettle, on a cynical note, suspects that some utilities that are happy with mobile AMR are really just trying to put in the dumbest thing they can get away with simply to reduce billing costs. "That approach is a great approach if you are still running in a fully regulated environment. If that is the mindset that they are taking-that is fine. But that does not really help the bulk of the system. It doesn't help reduce utilities' long-term risk, or their long-term exposure to price spikes, and it doesn't help their customers," Schoettle says.

But if you are discussing keeping customers happy while reducing the cost base, Schoettle says utilities must recognize that to reduce its peakers or power imports, they will need to ask the end user to become part of the solution. "You now have to look at the efficiency of the end user in addition to the efficiency of the system."

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