How do you justify an automated meter reading system?

Recently, a new newsletter subscriber emailed me and asked “We are searching for any information that would support (or not) investing in radio read meters. Our Board has already voiced the opinion they won’t pay for themselves. Can you offer any advice on various areas of savings/cost you have seen after purchasing and installing such a system?”


Having completed a business review and Return on Investment (ROI) analysis for a municipal water system, this reader’s question made me realize this is a great topic for a newsletter.

If you’ve already upgraded to an AMI or AMR system, please don’t stop reading. You can do me a favor as you’ll see below.

What is an ROI analysis?

An ROI analysis compares the expenses of implementing something new, in this case an automated meter reading system, to the increased revenue and cost savings achieved and derives a pay-back period for the system. Both one-time and recurring expenses and revenues are included in the analysis.

Costs of implementing an AMR/AMI system

The costs associated with implementing an automated meter reading system include:

Purchasing new radio read meters

The single largest cost associated with implementing a radio read metering system is, of course, the new radio read meters. Be sure to take a census of the meter sizes and types currently installed and insure that you are using the proper cost associated with each size or type of meter.

Purchasing new meter boxes or meter box lids, if required

When dealing with water meters, existing meter boxes may be too small or, in some cases, metal meter boxes or lids may interfere with the radio signal.

Labor cost to install the new meters

The second largest cost incurred with implementing radio read meters is the installation of the meters. Will you use an outside contractor or will your field service staff install them?

Purchasing the meter reading software

Don’t forget to include the cost of the new meter reading software. In addition, be sure to include the ongoing annual maintenance for the software as a recurring cost in your ROI analysis.

Upgrading your billing software upgrade, if necessary

Finally, if your billing software isn’t compatible with radio reading, or if you need to purchase an additional module, be sure to include that cost. As with the meter reading software, be sure to include any increase in annual maintenance as a recurring cost.

Increased revenues and cost savings

Increased revenues and cost savings associated with implementing an automated meter reading system include:

Sale of scrap meters

The only one-time revenue source from implementing a radio read system is the sale of the old meters (and meter boxes, if applicable) as scrap.

Revenue gain from new meters

The area most utilities rely on to cost justify a radio read meter system is the increased revenue from installing new meters. Especially with water meters, meters are known to register less usage as they get older. Remember, meters are like people – they slow down with age.

The revenue gain from new meters is also the area where your ROI analysis can be the most deceiving, if you assume revenue increases that don’t materialize. Two areas where your analysis can go wrong are:

  • unreasonable assumptions about how much your existing meters have slowed down
  • rate elasticity – as the price increases, usage decreases

One way to try to insure your assumptions about the inefficiency of your current meters is to conduct a pilot meter replacement policy. This would involve replacing a sampling of meters of different ages and sizes and observing the increase in usage over several billing periods.

If you’ve upgraded to an automated meter reading system and tracked the increased usage from new meters, please give me a call at 919-232-2320 or email me at gsanders@logicssolutions.com. I’d like to schedule a time to talk with you about your experience.

Staff time savings from no longer reading meters

The biggest cost savings associated with implementing a radio read meter system is the reduced time involved in reading meters each month. If you are moving to an AMI system, you will save 100% of the current time, vehicle use, and gas. If you are moving to an AMR system, you will still incur some time and expense for meter readers to drive the routes, but it will be much less than walking the same routes.

Reducing time for re-reads

In theory, a radio read system will provide accurate readings, without the element of human error which is present when using handhelds or reading on paper. In reality, there will always be some meters that aren’t transmitting properly, which will require follow-up from your field service staff. Hopefully, the time to check these non-transmitting meters should be less than what is currently being spent re-reading meters with questionable readings.

Savings from not offering of leak adjustments

If you’re implementing an AMI system and plan to do proactive leak detection, I recommend adopting a policy of not offering leak adjustments. In this case, you will save the lost revenue associated with leak adjustments.

Completing the ROI analysis

Once you’ve arrived at all of your one-time and recurring costs, increased revenues and cost savings, you are ready to complete the ROI analysis. This involves calculating the net up-front cost (one-time expense less one-time revenues) and dividing it by the annual increased revenue and cost savings. The final number will be the payback period in years.

Are you contemplating implementing an AMI system?

Are you wrestling with trying to decide if you can justify moving to an automated meter reading system? If so, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a customized ROI analysis or business review could help.

Click here to subscribe to my free, bi-weekly email newsletter...

© 2018 Gary Sanders

The case for proactive leak detection

I know of utilities with AMI (Automated Metering Infrastructure) systems who aren’t doing proactive leak detection. My question is why wouldn’t they?

Certainly, an AMI system is the most convenient way to read meters. Unlike using handhelds, or even an AMR system, AMI systems require no labor to collect meter readings for billing. But to view an AMI system as simply a labor-saving meter reading tool is a huge mistake.

Review of AMI technology

AMI systems are preprogrammed to read each meter at set intervals – sometimes only once each day, other times as frequently as several times per hour. These frequent meter readings calculate incremental usages, which can be compared to historic usage patterns for the account. When a large increase in usage is detected and does not return to normal, this generally indicates a leak or other situation requiring the customer’s attention, such as a hung toilet.

What is proactive leak detection?

Using proactive leak detection, a utility with an AMI system monitors the system outputs each day and immediately contacts the customer to alert them to the prolonged excessive usage. This places the responsibility for finding and fixing a leak on the customer. Logically, it only follows, if the utility has immediately notified the customer of a potential leak, the utility now shoulders no responsibility for providing leak adjustments of any sort.

Advantages of proactive leak detection

When potential leaks are being monitored on a daily basis, and the customer rectifies the problem promptly, water is conserved. This is especially important in times of drought or if your utility purchases water for resale from another utility.

Another advantage of proactive leak detection is not having to deal with leak adjustments. For many utilities, leak adjustments can be a time consuming process, involving contacting the customer to provide documentation the leak has been fixed, researching normal usage patterns, performing the calculation to determine the amount of the leak adjustment, and, finally, applying the leak adjustment to the customer’s account. Imagine never having to do another leak adjustment!

Is your leak adjustment policy up-to-date?

Have you implemented an AMI system but still offer leak adjustments? Or has it been a while since you’ve reviewed your leak adjustment policy? If your utility falls into either of these cases, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a business review could help.

Click here to subscribe to my free, bi-weekly email newsletter...

© 2018 Gary Sanders