A fresh perspective on water metering in the UK
An extract from an interview between Dr Anthony Capener, director of regulations, South Staffs Water, and Kevin Holland, UKAMRA committee member and marketing director of ATL Metering Ltd.
KH: To what extent can AMR assist utilities to meet the regulator’s requirements?
AC: The drive to increase the penetration of meters in the UK is one of the most basic issues today. Although the industry has moved away from a deliberate universal metering policy, we are working towards a penetration of something like 50% over the next few years.
This is particularly in water?
Yes. At the moment the meter reading function within water utilities is traditional – meters are read with the single purpose of getting a bill out. This generates cash collection whilst satisfying the regulatory requirement for a once per year meter read.
The problem with anticipated growth in metered customers is that the traditional approach will mean many more visits. Obviously this has enormous cost and logistical consequences – not only the provision of a person to read the meters, but also provision of all the facilities to keep that person on the road.
Clearly the industry has to find a more cost-effective way of reading meters. Depending on whom you talk to, it costs 5-10 times more to run a measured account than a traditional water account. This is not simply the cost of resources; it includes the fact that meters, by virtue of their newness, stimulate customers to question their bills. Frequently asked questions include the tariff; the meter; the timing; why their bill used to be estimated; why they never saw the meter reader. All this increases cost, particularly related to call centre activity. It is time for the industry to look at better ways of doing business.
What other issues does the utility face as a result of the regulator’s requirements?
The collection of information provides utilities with a whole set of data. This allows it to provide even better levels of service and improve its own efficiency – for example, to assist with maintaining water supply at even the driest times of the year. Much talk and thought has gone into the use of tariffs to manage peaks, but without something more sophisticated than the most simple meter, tariffs are not really viable or effective.
Will we see the introduction of tariffs within the water industry in the short term?
There has been a great deal of work done in terms of how tariffs can operate within the industry, but I believe the regulator is disappointed at the lack of a proactive response to new forms of tariffs. One of the few excellent examples has been at Anglian Water, where they have introduced the SOLOW and Social Plus 4 tariff. Generally, we in the UK appear to be fairly inactive in terms of producing new-look tariff policies, but there is a great deal of work being done worldwide which could be emulated here.
Is it fair to say that without a meter on the premises, applying these tariffs would be almost impossible?
There have been substantial experiments in applying tariffs without metering, but as far as I know none has been particularly successful. They may have changed the revenue profile but they have not necessarily influenced the amount of water consumed, particularly at peak times.
Customers are conditioned to paying for quantities consumed in virtually every other aspect of their lives. Meters provide a mechanism for appointing cost reflective charges, which is also a fundamental duty of the industry. So the simple answer to your question is that a meter is vital. Without it, tariffs will not work.
What benefit would there be in introducing a tariff system?
From the supplier’s point of view there is enormous cost in the development of new resources. A reservoir can take 20-30 years from drawing board to completion, with considerable cost and pressure from the environmental lobby.
Now AMR and metering itself become a better economic proposition. You spend additional capital on the metering technologies in a way that allows tariffs to be applied. This could mean deferring the vast capital and environmental expense of a new reservoir. If you can maintain supplies whilst new resources are developed, then the economics start to favour metering – sophisticated metering and data collection in particular.
And our customers will be able to influence the size of their bill. At the moment that isn’t really possible. Senior people in the government have been talking about a penal tariff of something like £25 per cubic meter, to try to force customers to use less water over the summer peak.
The current average bill in the UK is about £100-£120 per annum. A single block cubic meter cost of £25 would mean that the price of water becomes something that influences behaviour. The psychology of water use will come to the fore in terms of tariff design, and will link back to how the customer receives those price signals. Customers need access to the meter; they have to know what the readings are; and what time bands will be applied. This means that both metering and also the information that goes with the meter in terms of consumption and tariffs become prerequisites.
We read a lot about the regulator’s desire to improve competitiveness within the water industry. In what way can a utility be competitive?
The opportunities are somewhat limited, but a recent parliamentary bill contains aspects aimed at improving competitive factors. There are three areas in particular – common carriage, tariffs, and inset agreements. All of these require the transport of water, whether it’s between companies or within a company’s distribution networks.
The only equitable mechanism to charge customers is by volume. Without a meter you are charging people by proxy. This may have worked in the past, but now customers must pay in proportion to the cost loading they are putting on the system if we want the charges to be cost reflective.
In terms of competition, we are likely to see the threshold reduce from 250mgl to 100mgl for large volume discount tariffs where the costs are reflective of the bulk volumes taken. This will bring a few thousand additional sites in the UK into direct discounted cost. These customers are likely to be able to gain even more benefits by having access to measured price signals. For example, leakage could result in extremely large bills, and therefore rapid response to unusual consumption signals is important. Regular data will allow the utility to build up a profile of the customer and compare consumption patterns for that customer with other users in the same industry. It will then be in a position to give the customer advice on optimising water usage and maximising the tariffs available.
Another area that is likely to change concerns volume discount on single sites. At present a large user can qualify for a large volume discount, but only for a single site. This may be extended so that organisations with sites throughout the UK qualify for a bundled volume discount. It will allow them to negotiate a sole supplier at a preferential rate. However, continuous data will be needed that allows the profile of all meters to be taken throughout the country at the same time, with consumption data fed back more quickly, the consumption analysed, and accurate bills produced.
Does that mean that the future utility horizons could be extended?
Certainly that is the desire of the regulator – to remove the boundaries, particularly for large users. At the moment there are physical constraints in supplying water in large quantities, such as pumping and quality costs, which have not promoted common carriage. I have no doubt that customers look forward to competition, and it would mean that an organisation such as ours would be in an excellent position regarding its quality and price mechanisms to supply multi-organisations anywhere in the UK.
Do you think utilities will be able to compete on price strategy alone?
Large utilities will consider de-averaging their prices to maintain their customer base, or offer short term price advantage to attract new customers, but this could be destructive for the industry. You must remember utilities have emerged from under the cloak of government controlled monopoly, where price tends to be the only tool needed to maintain growth. It may take a while to realise that price discounting is not a long term sustainable marketing strategy in a competitive market.
Certainly costs have to be covered, and a small element of subsidy could be carried – for example with large users – but ultimately with quality at all time highs, service provision will become the major differentiator. Recent research clearly illustrated the increasing demands from the British consumer for even higher levels of service, and the very low rating of the service levels from utilities.
What elements of customer service do you believe utilities have to provide beyond the basic prerequisite of providing potable water when the customer requires it?
The starting point is to provide a more comprehensive cover of whatever element of service you are offering more quickly. A lot of effort has been put into that by the industry over the last ten years. Examples are customer call centres, letters and phones answered more quickly and more comprehensive information contained in customers’ bills.
The industry has come a long way from its traditional position, which said: “We are a commodity provider and nobody can touch us.” Now we realise our customers are only on loan. Where we need to go from here, I think, is to provide timely and accurate information about consumption about which the customer can be confident. This information will allow customers, particularly large industrial customers, to influence the size of their bills.
To achieve this we need to provide complete solutions – not just get the bill through the door. Approximate bills simply cause the customer to phone up, creating knock-on costs. We need to move towards volumetric real time information for the customer, which does not cost a fortune. Remember, both the regulator and the customer expect that bills will fall.
Costs will spiral if the industry does not change. As we move from un-metered to metered accounts, reading and call centre costs will escalate. This will ultimately be funded by the customer. We must look at more effective solutions that give better information on customer consumption, and allow us, the water utilities, to make improved efficiencies.
It is difficult to square these two in one’s mind straight away. If one is going to install expensive equipment, then surely that means the customer will be stung for those costs! We need to think creatively, both about the funding of the investment and how it will satisfy regulatory requirements and help the utility achieve its objectives. At present the regulator lays down how frequently meters should be read. The industry needs to rise to the challenge, be pro-active and make sure the regulators are coming along with us. We must demonstrate the advantages of more accurate timely data on a measured basis. And we also need to determine how the customer will respond to that.
Do you believe that AMR will play a role in providing this level of customer service?
We believe there is going to be a fantastic increase in the use of meters, and AMR provides a whole raft of benefits and solutions when used in tandem with them. First it improves the efficiency and accuracy of reading meters. Second, we can provide our customers with timely and accurate information. It is pointless having a meter supplying a property if the customer is not able to use that information to help plan future demand for water and thus influence the cost.
Will AMR contribute towards eliminating leakage?
Leakage falls very clearly in two camps. First there is the environmental aspect. Every drop of water that escapes unused is lost as treated water, even though it returns through the water cycle. That means there is a cost involved. The quicker we can be aware of and therefore tackle leakage, the sooner we can minimise damage to the water supply and treatment cycle.
Secondly, if the customer is paying for water by volume, then water that is being lost through a leaking pipe is being funded by him. AMR will identify leaks almost as they occur, allowing the utility to advise the customer even before he is aware of a problem. This contact between the supplier and the customer will go a long way in developing good.
From what you are saying you are advocating fixed network on AMR, because a handheld or a drive-by wouldn’t pick this up.
We are in the early stage of how to use AMR in the UK. Drive-by devices sound attractive, but simply mean that meters can be read with far less manual resource than is used at the moment. They do not provide real time information which I believe is absolutely fundamental with AMR.
It isn’t the fact that AMR reads the meter – rather that it shifts the balance. If you want continuous monitoring and continuous trend analysis, which as I said earlier is the key to offering even the most basic metered customer service, then the case for fixed networks as opposed to drive-by is supported. I believe the cost justification for using fixed networks will become much clearer as companies like yourselves develop the concept within the UK
Would it be fair to say that one of the reasons your pilot study at South Staffs got off the ground so quickly was the fact that the people dealing with it weren’t actually in the meter reading department?
There were a number of factors that made the trial relatively painless. The first is that we planned for a large increase in the number of meters over the next five years – and I could not believe that doing more of the same (having lots of meter readers out there) was the answer. If AMR is evaluated by someone only involved in meter reading, he may fail to see its strategic future, and then AMR becomes difficult to cost-justify.
Sending people out to do traditional meter reads in order to create a bill is cheap and it works. What it doesn’t do is open up the potential for the utility to have fast access to data that can be put to a whole myriad of uses. We viewed AMR as a bundling of management information systems and telecommunications. Merge these two and you have a very different way of looking at AMR.
We also looked at merging the acquisition of data from both a single and a multi-utility perspective. It does not make economic sense to have three separate companies visiting the same house to get three sets of information, when the whole thing could be combined and achieve significant cost advantages.
So the advice I would give to anyone thinking about AMR is: do not involve only your meter people. What we are talking about is data acquisition and not just meter reading. A board member who can take the holistic view and look at the strategic advantages of data collection is best suited to lead the evaluation of AMR.
Could you tell us a bit more about the trial?
The trial at South Staffs is relatively small. We did this deliberately, so that more time would be spent evaluating data than installing many thousands of meters. The metered properties are all commercial, and located in a large shopping complex some distance away from our headquarters. We wanted to test the technology, and it was quickly apparent that it works extraordinarily well. Within a matter of days the equipment was fitted and information was relayed back continuously to our central computer.
The number of meter reads was staggering – 27,000 in a matter of days. The equipment picks up all the transmission without interference, either on a pre-program basis or on interrogation from the central computer.
Does South Staffs intend to extend this trial, and what sort of benefits will you look for?
I think we see two areas of expansion. One is to increase the trial numbers to something much larger, and we will need to determine what market segments to choose. For example one idea is to fit AMR technology to all our monthly billed large customers, so we can demonstrate to both them and ourselves the benefits of frequent accurate collection and interpretation of data.
The second point is to continue our dialogue with other utilities – notably the electricity and gas industries – to investigate joint trials where the AMR equipment will collect not only water but also other utility information. We can thus provide customers with one set of equipment generating two or more sets of information, giving them a greatly improved service and allowing utilities to share costs. In fact, a win-win situation all round
Note for our readers: Until recently water consumption in the UK was not metered – users paid an annual charge based on the rateable value of their properties. Privatisation legislation in 1989 stipulated that reference to rateable values could not be used to set charges after March 2000, but because no generally acceptable unmetered alternative charging system has found, and because only some 18% of properties presently make use of meters, this has since been repealed.