Main Menu2/19/2002
[News item from Associated Press Newswire] PPL (NYSE: PPL), is testing equipment in the Lehigh Valley that sends a signal containing the reading over power lines back to the company's computers. The Allentown-based company will spend $160 million to replace old meters of 1.3 million customers in Pennsylvania, officials said. Company spokesman George Lewis said the new equipment is good news for customers, eliminating the need for estimated billing, a major source of complaints among power users. Estimated billing happens when a meter reading isn't made and the bill is based on what the weather has been like and on past use.
Analysis: This announcement by PPL signals a trend in the deregulated electric market of Pennsylvania. PPL is the third major utility in Pennsylvania to announce a large-scale automated metering deployment. I have covered the metering markets before and believe in segmenting the industry before dissecting the PPL news.
The metering market can be broken into five segments: manufacturing; reading; data management; value add; and customer services. Industry analysts Frost & Sullivan previously predicted an increase in activity for the manufacturing segment. This is definitely true especially where volatile energy prices are driving the need to have "real-time" metering data. This segment is dominated by a few large manufacturers globally (GE, Schlumberger, ABB, Siemens, and the like) but is also being challenged by smaller manufacturers introducing new technology to the space such as TransData.
The reading segment includes everything from manual meter reading to automated technologies, which is experiencing some growth. The costs and capabilities of communication technology will heavily influence this segment. While the manufacturers will make the meters, there has to be a way to communicate with them. I previously believed that the potential players in this segment would be AT&T/TCI, Comcast or any major player that has a link into the home. However, I have recognized an upsurge recently in the powerline carrier (PLC) market, where data is transmitted from the meter back through the distribution network to a substation. This would imply that the local utility (or wires company) could become the communication medium for meter reading. With the introduction of the Internet, IP-enabled meters also allow a meter to be accessed thereby allowing Internet Service Providers (ISPs)—America OnLine and the like—to creep into the space.
The data-management segment originally evolved when California mandated certified Meter Data Management Agents (MDMAs) be responsible for managing the meter data under deregulation. Many other deregulating states have developed other models for managing meter data and thus the market segment has not grown as originally expected. There is, however, a growing need in deregulated markets for a Validation, Estimation and Editing (VEE) routine to be performed on meter data. This role is being picked up by certified MDMAs.
The value-add segment is expected to see tremendous growth as those possessing detailed meter data attempt to enhance their business model with additional services. These will include energy management companies and potential meter data management agents looking to increase their earnings from a lackluster data-only business. This segment is highly fragmented with players from the high-end (Honeywell) all the way to new energy-related start-ups. It can be characterized as highly fragmented with a definite opportunity for consolidation.
The final segment of customer service includes phone centers and customer care (billing) centers. It should be noted that utilities are coming under increased pressure to unbundle and outsource their metering and billing-related functions to introduce competition and potentially lower the costs of these functions in the geographic areas that are deregulating.
Which brings me to another question. Why are the wires companies in Pennsylvania, a deregulated state by the way, resorting to automated meter reading? It is quite a costly venture to undertake. Meter readers are quite cheap when compared to implementing their automated counterparts.
PECO Energy (an Exelon company) began a 2.1-million meter change-out in April of 1999 and recently celebrated their half-way point with 1 million automated meters installed. They began this effort before the PLC trend and are therefore implementing a wireless communication method where the meter actually "talks" to "listening" devices placed throughout the distribution territory. The time for the data to be sent from the meter, through a validation process and into the company ready for billing takes approximately 90 seconds.
Pittsburgh-based Duquesne Light Company is also implementing automated meter reading (AMR). They seem to be stressing the distribution operations aspect of AMR. Duquesne is linking their AMR system to an outage notification system (ONS). According to an article in Energy-IT, the ONS delivers to distribution-system operators a concise list of outage problems, rather than raw outage data from customer calls. The list traces outage problems to a circuit or root device and indicates the number of customers affected. "Operators only need to manage the root problems, but have the ability to drill down to the customer level when needed,'' says Richard Day, process control team leader at Duquesne. Soon, instead of relying only on the 1,500 outage-detection locations monitored by its Scada system, Duquesne will be able to monitor well over a-half-million locations. The ONS gets inputs from both radio- and telephone-based AMR devices supplied by Itron. They include approximately 500,000 residential meters that deliver their data over a wireless network, 42,000 residential meters that phone their data in, and about 30,000 commercial and industrial meters that use both radio and telephone communications.
And now we have PPL implementing a PLC technology. Is this a Pennsylvania-fad? Not exactly. I would argue that deregulation is the catalyst that "pushed" the utilities into automating their meter-reading process. Yes, the automation does mean the elimination of the meter-reading workforce and estimated and incorrect bills (PECO's performance in issuing on-time and accurate bills has improved from 88.5 percent to 98.5 percent since April of 1999). But it also provides other benefits such as load monitoring which can lead to a more efficient distribution network design. Is a transformer overloaded? Can a substation handle more at certain times of the day? These are questions that can be answered in near real-time with AMR. They were originally not on the "radar screen" of the early adopters but are now beginning to show up. So we have in essence moved from the meter-reading segment into the value-add segment all because a technology allowed us to gather data that can be useful in more than one way.
And what about this PLC technology? I seem to recall an effort years ago to use the distribution network as a high-speed Internet medium. Utilities had visions of knocking off the ISPs and becoming the next AOL. The technology was too early for commercialization however, and PLC got a bad rap as a result. Instead, we are witnessing a "rebirth" of sorts of PLC, not to be the next Internet medium, but to simply read the meters. The next step may be to play as an Internet medium, but meter reading provides a nice niche as a starting point.
Recently, the Associated Press announced from Philadelphia that Current Communications Group had obtained $10 million in financing. Current develops high-speed data, voice, video, and other communications through PLC technology. EnerTech Capital and Liberty Associated Partners, a founding investor of Current Communications, led the investment. And not to forget the actual metering device, PPL is buying their meters from DSCI, Inc. of Missouri. The Two-Way Automatic Communication System meters can either transmit or receive signals using a waveform that travels along high-voltage power lines.
Metering has come a long way in a relatively short time. The manufacturers that dominate the globe are seeing some new technology entrants biting at their heels. The meter-reading segment is transforming for a variety of reasons, beginning with deregulation and ending with new applications (the value-add segment) that can make use of the data gathered (via the data-management segment).
SCIENTECH's IssueAlerts are compiled based on the independent analysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. SCIENTECH'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 2002. SCIENTECH, Inc. All rights reserved.
