Adoption of AMR and modern CIS goes slowly


The business case for AMR (automated meter reading) is solid. Though expensive to install, AMR systems lower utilities’ operational costs and have the potential to lower prices for end customers. Although AMR has been around for a decade, only 14% of the meters in the US can be read automatically. The other 86% are still read by meter readers, with ongoing personnel and operational costs to match, according to Garrett Johnston, managing editor of Chartwell.

CIS systems have also changed radically from the 1970s version. Modern CIS systems produced by SPL, Open-C, Excelergy or Peace are n-tier, with enabled, business rule object oriented and relational database proven technologies. Rather than hard-coding business rules, modern systems allow for system configuration and ‘add-ins’ to adjust the business rules without rewriting software. Yet today 70% to 75% of the CIS systems are ten to 15 years old, according to Guerry Waters, CTO of SPL WorldGroup.

Why is adoption of new technology so slow in the utilities sector? I had the opportunity to listen to both utilities and their suppliers on this issue at the Metering/Billing/CRM/CIS conference held in Chicago, IL, in May this year.


On the plus side, most AMR vendors report significant increases in sales of AMR systems. Mobile, telephone wire, dedicated wireless networks, open networks and fixed radio approaches have all been tested in the market. Different approaches have proven to be more cost effective, depending upon the density of customers and the customer types. At times, multiple methods are required to manage the needs of the different customer types.

Also, the four CIS vendors I spoke with each reported growing revenues. They had growing client lists, technology paths for future improvements, and improved partnerships for systems implementation and managerial consulting support.

Many vendors were satisfied with the current rate of adoption. The 12% to 15% market growth rates are manageable, allowing the companies to add resources, train employees, and keep brand awareness at a high quality level. But after ten to 15 years, is 14% and 25% market penetration acceptable for AMR and modern CIS respectively?


When pressed, utilities expressed extreme conservatism on the adoption of these technologies. For AMR, utilities wanted more test data to make business cases and demonstrate its value. Similarly, for CIS implementations utilities needed more time to make their business case for the investment. However, both these technologies have been demonstrated in the market to provide value. Clearly there is more going on than the need to make the business case. And there is.


The adoption of AMR requires the displacement of utility workers. For instance, when Peoples Energy adopted mobile AMR in the Chicago area a few years ago, the meter-reading workforce was reduced from over 140 to around 40. Labour contracts had to be renegotiated with the unions in order to allow Peoples Energy to use this cost cutting approach.

Just as with the longshoremen of Oakland, unions and labour negotiations can slow changes. As such, the US ports are years behind those of Singapore and Hong Kong in efficiency and productivity. Yet unlike the longshoremen standstill that closed US ports for a few weeks, the union contracts with utility meter readers were successfully renegotiated. While union negotiations can be troublesome, this is most likely an insignificant barrier to adoption of AMR and modern CIS for utilities.


For all the press about deregulation, most utilities in the US do not face a truly competitive market. Competition forces companies to take risks to lower costs or improve customer service. Most utilities do not face competition and are not accountable to the market; rather they are accountable to regulatory bodies.

Until recently many utilities were financially encouraged to increase costs by the regulatory bodies in incentive schemes that reduced profits to a cost-plus pricing mechanism. Under that set of rules, the best way to improve profits was to increase costs. Currently most utilities face regulations that do provide financial incentives to lower costs while improving quality, but government regulatory bodies are not as powerful in providing incentives to making changes as a competitive market is. With regulatory bodies driving decision-making, utilities face more downside for taking risks than potential reward. Adopting new technologies, even decade-old but new to them technologies, is a risk-taking endeavour. Without competition, risk-taking through adopting AMR and modern CIS is not properly rewarded.


Throughout the 1990s, energy deregulation was the buzzword encouraging the drive to change throughout the utilities industry. However, as Nick Fulford, senior VP of business development at Direct Energy Marketing, stated, “The SMD is DOA.” The standard market design (SMD) coming from the Federal Energy Regulatory Commission (FERC) was to be the route for deregulation throughout the US.

But deregulation has stalled, as a result of the political failures of the California deregulation, coupled with the collapse of Enron and the numerous allegations of price gouging. Currently policymakers are considering a new form of deregulation, the Wholesale Power Market Platform (WPMP) but that will take years to unfold. As such, utility companies face uncertainty about their future and the future of deregulation. The value of AMR and modern CIS systems must be offset with their upfront investment costs. Given that the future is uncertain, utilities are also uncertain whether they can capture the value associated with costly investments in metering and billing.

Research from Thaler of the University of Chicago GSB and Tversky of Stanford has indicated that individuals facing uncertainty are more likely to avoid risks and postpone decisions than they are when the risks are removed. Utilities are subject to the same limitations to management decision-making as are other consumers. The uncertainty created by unclear future regulations raises risk aversion within utility executives. A portion of their risk aversion and hesitancy to adopt AMR and modern CIS must be levelled against the failure of regulatory bodies to set clear ground-rules.


Another impediment is that businesses can fail to manage change properly. If the system implementation and organisation changes are not properly managed, the business will not capture the potential value of AMR or modern CIS systems. Many utilities, especially smaller ones, may be aware of managerial shortfalls and thus hesitant to embark upon such a large change. A portion of the slow pace of adoption for AMR and modern CIS is due to the fear executives possess that their management team cannot effectively manage the change.

Together regulatory uncertainty, lack of competition and managerial shortfalls within utilities are impeding the adoption of AMR and modern CIS systems. The companies that make these systems must manage these impediments to market penetration. As points of comparison, it took the US population two years to adopt the calculator, but 12 for the refrigerator. Perhaps 20 to 30 years for the adoption of AMR and modern CIS is quick, considering the barriers.