Beyond securing revenue, high performance utilities are beginning to realise other benefits that effective metering can bring to their business, such as tailored tariffs, asset management and improved control of demand. Interestingly, water companies may now be showing the way to apply metering to drive out these wider benefits.
GETTING METERING RIGHT
Utilities around the world, in markets mature and immature, competitive and uncompetitive, are facing challenges in basic metering. Notwithstanding the impact on customer service, at a minimum metering problems lead to inefficiency. But in many cases – especially in highly competitive supply markets – they can have far more impact.
Earlier this year UK energy watchdog energywatch called for an investigation into electricity suppliers’ handling of fuel bills. Most of the grievances were about the inaccuracy of bills because of a failure to read meters and an undue reliance on estimates (36% of all bills were based on estimates), as well as ignoring customers’ own meter readings.
Regulator Ofgem investigated energywatch’s complaint over billing and metering, and in July announced it was giving energy companies a year to get their house in order. energywatch CEO Allan Asher said, “Billing is the biggest single problem customers in the UK have with energy suppliers. Industry has consistently resisted any reform, which is why we hope Ofgem will force through a radical overhaul of the metering and billing process”.
METERING IN COMPETITIVE MARKETS
Metering problems are not confined to the UK. Liberalisation of energy markets across the world, has led to new organisational models affecting the relationships between the various parties involved in the energy value chain, with a significant impact on metering and data collection.
We have seen examples of metering and data issues impacting utilities operating in markets worldwide. For instance, many in the industry in Spain – perhaps looking to similar Australian experience – believe that in order for customers to enjoy true freedom of choice, smart meters which allow real-time metering, time-of-use tariffs and load profiling will be needed.
But before the deployment of new technology is seen as the only answer, it would be wise for utilities to review the effectiveness of their end-to-end processes.
TAKING A PROCESS VIEW: METER-TO-CASH-TO-SETTLEMENT
In competitive energy markets, the imbalance between customer billing and energy settlement is a key issue. It arises because of a difference between the measured total accounts receivable across a utility’s customer base over a period of time and the total cost of energy accounted through the industry settlement process. Differences between these lead to a cash imbalance which will ultimately impact the utility’s balance sheet.
For a monopoly supplier, the tariffs and corrections can be chosen to balance out across the overall customer base. Within a competitive supply market, this feedback mechanism does not exist in practice.
Many factors impact the billing and settlement issue. These include the effectiveness of portfolio management, availability of actual meter reads, and the settlement mechanisms. These factors can impact on loss of customer value when customers switch supplier, increased fixed costs, debt management, cost to serve, regulatory compliance and company image.
Utilities need to recognise that the process that most would describe as ‘meter-to-cash’ is in fact ‘meter-tosettlement’. And this process is as important for ‘nonswitched’ customers as it is for ‘switched’ customers.
As meters are replaced, data can become misaligned across market participants. The billing and settlement imbalance is a feature of competitive energy markets, and minimising the imbalance is accomplished both through recognising the end-to-end process of meter-to-cash-tosettlement and other practical solutions.
By moving away from estimated bills, employing a more rigorous approach to meter reading and minimising the billing and settlement imbalance, energy utilities can start to make their meters work more smartly as a revenue gathering tool. Implementing these solutions also addresses the factors that help improve cost to serve, customer experience, regulatory compliance and image.
Deployment of new technologies can form part of the solution. New technology is used typically to increase the frequency and complexity of metered information that is available.
The difficulty is identifying a sufficiently compelling business case for an investment that is often dominated by the cost of resources used to deploy the meters, in comparison with the costs of the meters themselves. These investments can be enormous: the roll-out of smart metering across Enel’s customer base in Italy is estimated to cost several billion euros.
In the US, industry rules and customer expectations for read frequency, together with dispersed and/or dangerous localities, can provide a sufficient business case for new technology. Elsewhere it is not so straightforward and requires alternative approaches to delivering business benefits. For instance, a portion of Enel’s business case is not related directly to revenue collection activities.
WATER – SHOWING THE WAY?
In most countries water has not been metered. Indeed, in many parts of the world it is regarded as a free good, a human right. But privatisation of water utilities has meant a new emphasis on revenue collection. What is more, with water increasingly becoming a scarce commodity, utilities need to do more to manage supply and demand. This has led to increased use of meters and, in some cases, interval metering.
Interval metered customers can be subjected to what is called ‘microcomponent analysis’ to allow water companies to see how much water is used by individual appliances such as washing machines. Dene Marshallsay of the Water Research Council (WRC) says that this type of analysis can show how water conservation initiatives are controlling or reducing demand at times of stress. “Together with climate data and socio-economic information, we can build up a better picture of how different groups of customers use water during different seasons and at different times of the day. Clear changes in customer behaviour in water use are already evident”.
A greater awareness of the need to save water, and a realisation that having a water-meter fitted does not automatically mean a higher bill, have led to meters being accepted by domestic customers. In addition, water companies are realising that better usage information across their supply base can help them to manage their infrastructure and optimise maintenance, repair and replacement activities, as well as supporting other initiatives such as pollution monitoring and control.
USING METERING TO ADD VALUE TO THE BUSINESS
So having become more effective at using metering to secure revenue, what is the potential for using metering in other ways, as the water industry has suggested? Using metering to support effective asset management and to influence customer behaviours and demand management is now widely accepted; it forms a core aspect of the European Directive on energy end-use efficiency.
Studies have shown that improved engagement with customers through metering initiatives can also improve their ‘sticky-ness’ and reduce customer churn. Many believe that the meter could also become a communications hub in the home or business, and thus become the window through which a wide range of additional services could be provided – for instance using the meter hub as a secure location to validate financial transactions.
MAKING IT HAPPEN
It is one thing to talk about the desirability of metering optimisation and using meters to create business intelligence; and another to actually implement smart metering.
A typical smart metering installation comprises a chain of physical components from measurement devices, through communication channels to information databases and finally the business applications that will use this information to deliver business intelligence: customer relationship management, asset management, demand management and so on.
Often a discussion of metering solutions focuses on just the physical components. There are, however, three additional, critical roles: meter asset manager, data services manager and business solution integrator. These roles need different capabilities and are often provided by different specialist organisations working in collaboration to deliver the overall business objective.
Utilities should not push the potential of meters too far. Having cleaned up their act in terms of getting billing right, and then deployed metering as a tool for demand and asset management, there will be those who may want to go further, benefiting from what the smartly-used meter can tell them about customer behaviour to diversify and sell other services. Given that a multi-utility retain strategy has not always led to the success that some utilities expected, caution should be applied in terms of the expectation of what smart metering can do.
Just as utilities must realise that they can use meters to add value beyond the pure revenue collection function, so they should also realise that taking meter derived data and using it as a tool for diversification could be a stretch too far. Better instead to use meters properly to add value to their core business. There is still much to accomplish.