Main Menu4/29/2005
For the last two quarters (2004 Q4 and 2005 Q1), metering, automatic
meter reading (AMR), and AMR data management vendors have enjoyed a blizzard
of Requests for Proposals (RFPs) from large investor-owned and municipal utilities.
The level of activity is so high that some vendors have opted to not respond
to every RFP, and selected only those that offer the best opportunity. The AMR
market essentially drives the other two markets, metering and AMR data management.
If the RFPs result in actual contracts, all three markets will sizzle for the
next four to five years.
Market Opportunities
Where are the best opportunities? It may be a surprise to many, but the state
of California is not seen as the hottest market. It is likely that PG&E
in northern California will move forward with its plans to install advanced
metering infrastructure (AMI) for its 4.9 million customers and close to 9 million
electric and gas meters, but the vendors are so wary of the plans of SDG&E
and SCE that many vendors are willing to ignore those two utilities for now,
and look to greener pastures. Considering that SCE and SDG&E have 5.7 million
customers between them, the fact that many vendors are paying more attention
to other opportunities is an indication that the other pastures must be very
green indeed.
Ontario presents a large opportunity for all three AMR related markets and holds
more promise than the southern California region. All of the electric utilities
in Ontario are planning to install AMI for all of their 4.3 million customers
beginning next year. The intent of the Ontario Energy Minister is to offer rate
plans for retail customers choosing to remain with the default providers. These
rate plans will require detailed and dynamic energy use measurements based on
when the energy is used. Only AMI can provide that information, which will result
in the purchase of millions of new meters, significant orders for AMR data management,
as well as AMI for the 4.3 million customers.
Capital Investment Trends by Investor-Owned Utilities
In an interview with Michael Worms, managing director at Harris Nesbitt Gerard,
when asked his opinion of the investment plans of investor-owned utilities said:
"We believe that investor-owned utilities will increase spending on transmission, distribution and environmental over the next few years over and above the level of current spending. Although several utilities may accelerate dividend growth, we do not expect this to be the norm across the industry. There is not a lot of earnings growth coming from unregulated business, which would suggest that utilities will spend money where it will contribute to rate base growth. The regulators have been generally supportive of utilities investing in transmission, distribution and in environmental areas."
This is consistent with UtiliPoint's® view of the plans and actions of utilities with regard to future investment in metering, AMR and AMR data management. We have seen a tremendous amount of activity in these areas, and in other areas of distribution such as GIS, asset management, workforce management, and outage management applications.
Two years ago we would not have expected this level of interest in these three AMR related markets but there is now a greater level of acceptance and understanding of the operational and customer benefits that can be achieved with the installation of AMR by utilities and regulators. (Please see www.utilipoint.com/specialpages/AMR_Analysis_2004.asp)
Gauging Level of Interest of Utilities in AMR
One way to assess how serious the investor-owned utilities are in following through with a purchase is to look at their plans for distribution capital expenditures over the next three or four years. In Fig. 1. PG&E Potential Capital Expenditures 2005-2009, PG&E shows in light blue the planned capital investment for advanced metering should their business plan for AMI and their AMI strategy be accepted by the California Public Utilities Commission (CPUC). UtiliPoint suggests that of the three large investor-owned utilities in California, PG&E is the only filing that is likely to be seen by the CPUC as being filed in good faith.
The SCE capital expenditure plans provided by SCE in Fig. 2. SCE Capital Expenditures 2005-2009, are inconsistent with their plans for the development and deployment of their advanced integrated meter (AIM) as detailed in their AMI business case filed on March 30, 2005, with the CPUC. Under those plans, we would expect to see a significant increase in capital investment beginning in 2009 as the utility began its full deployment. This suggests that SCE is not at this time expecting to engage in a full deployment of AMI across its service territory.
Many Utilities Seriously Considering AMR and/or AMR data management
Utilities that have been seriously entertaining AMR and/or AMR data management, along with the necessary new meter purchases, are:
- City of Anaheim
- Avista
- Bangor Hydro
- Cinergy
- Commonwealth Edison
- Exelon
- Florida Power and Light
- Colorado Springs
- Province of Ontario utilities
- PG&E
- Portland General Electric
- PPL
- Progress Energy
- Sacramento Municipal Utility District
- Salt River
- SDG&E
- TXU
In addition, there are other large utilities that have dabbled in the AMR market for years that are thought to be ready to make an investment to achieve operational efficiencies. In comparison to the last five years where there were perhaps two or three large installations underway at any given time in North America, we could see six or seven large roll outs ongoing within a year or two. Not only would this be an amazing turn around for AMR vendors, but metering vendors would enjoy a sharp increase in sales to support these large installations.
AMR Data Management Market in Overtime
The AMR data management market is predicted to fare even better over the next five to ten years. A number of utilities that have already installed AMR are now looking to AMR data management vendors and system integrators for help in using the AMR data in business operations beyond billing and customer service. So while AMR data management vendors are responding to the current RFPs out for upcoming AMR business, they are also responding to RFPs for previous AMR projects. The AMR data management vendor offerings are now seen as essential for large AMR rollouts rather than as an afterthought.
AMR data management goes beyond providing a central storage site for the meter data. Utilities are keen on the features of deployment planning, management, and logistics; interfacing with the outage management system; automating connects and disconnects; maintenance of the AMR network and meters; aggregation of the data; and synchronization between the AMR network and other utility business systems.
UtiliPoint has prepared an estimate for the potential market size of the AMR data management business below in Fig. 3. AMR Data Management Market Size Forecast. UtiliPoint forecasts that this market should grow from the current level of $25 million per year to over $200 million within ten years.
Summary
The interest of utilities in improving the efficiency of operations is highlighted by the flurry of activity in the three related AMR markets. While we do not expect all of the utilities currently considering an investment in AMR to commit to a system-wide rollout, we do expect sales to increase significantly, and to maintain at the higher level for the next four to five years due to the number of large utilities seriously considering an investment, and due to the steady stream of orders from smaller utilities.
UtiliPoint's IssueAlerts are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2005. UtiliPoint International, Inc. All rights reserved.
