In praise of intelligent meters
During the 1870s, the town of Malvern in Worcestershire became the first place in the UK to have a fully metered water supply, for which the motivation was water conservation. Did it work?
At present, 25% of households in England and Wales pay by meter. The process started back in the early 1980s but it was not until 1989, following the abolition of the domestic rating system, that the installed base of meters accelerated. At that point, new homes had to have a water meter fitted. In 1996 with the introduction of a free metered option for existing houses, the rate accelerated even further.
The Environment Agency's (EA) advice to ministers on maintaining water supply, July 2004, was that three quarters of households are expected to be metered by 2030. In itself, this increase in metered households is assumed to deliver lower demand for water, but another important reference in the EA's message was the part that tariff structures can play in suppressing demand.
There is nothing new about time-of-use tariffs, the electricity industry has been using them for a long time. The relevance for the water industry is in the ability to tackle high summer demands on water from outdoor use.
A clearer picture
Normal meters are good at providing total use over a period but not at identifying levels of use within that period. If the water industry decides to apply peak prices in the summer, it must address the data recovery issue. Frequent communication with the meter or embedding memory is necessary for the successful use of time-of-use tariffs.
Some in the industry favour rising block tariffs which could be applied using the dumb meters. In such an instance, the first 20m3 could be at a low rate, the next 20m3 at a higher rate, and so on. However, under this scheme, high levels of consumption due to large family size rather than garden watering, would mean a large family with no excessive outdoor consumption in summer would be penalised.
A more intelligent metering system could be established to alleviate the concerns associated with dumb metering. Standardisation will help keep costs down, so agreement on data requirements is a good starting point.
Some water companies have already made clear their data requirement specification for intelligent metering. A seminar is planned this year to secure stakeholder support for the development of a common specification and cement an action plan.
A similar plan of action is being applied to the electricity industry in Ontario, Canada. The state government has published a time-of-use tariff and a specification for the metering equipment that supply companies will install to apply the tariff.
Meter manufacturers have been playing their part by developing technology that is more accurate and requires lower maintenance. There have also been developments in communications giving utilities the opportunity to collect vast amounts of consumption profile data.
The water industry may not have progressed as far with a standard specification as the electricity industry, however this may be an opportunistic time to review the position. In 2009, UK water companies will be agreeing their investment plans with their regulators for the next price review.
Currently, Ofwat establishes an allowed cost for metering; companies can of course incur extra costs for metering but these costs are not covered by the price determination. There are two issues that water companies are likely to want to discuss with Ofwat with respect to any change to intelligent metering: the justification for including any extra costs of intelligent metering in the price determination and the transition path.
Intelligent metering could allow companies to apply tariffs which are more cost-reflective, so the household with low average use but very high summer use will start to pay more. This redistribution of the charging burden may have a benefit to the water company through reducing some bad debts but there is also a social benefit which the companies may feel Ofwat should allow to be covered in the price of water.
The transition to intelligent metering is difficult. Not all meters could be exchanged simultaneously. If households with intelligent meters are put on a new tariff, Ofwat may be concerned about price discrimination. If new meters are installed but their functionality is not utilised immediately then companies could see it as a wasted investment. So the regulator has a critical role to play in any adoption of this technology.
If no action is taken to assess the case for intelligent metering by the next periodic review, the water industry may find itself heading towards 100% metering with the current range of tariff options. Studies now underway may help to identify the part average price tariffs can play in controlling peak summer demands on water use. If these studies show current flat-rate tariffs have no impact on summer demand, pressure for better targeted tariffs will increase. However, the water industry will have lost time in establishing the metering infrastructure to help balance supply and demand.
Upgrading meter technology to allow frequent communication with meters is widespread in the US where meter reading and billing frequencies justify the business case for the technology. In the UK savings in meter reading costs have so far been insufficient to convince the utilities to adopt the technology.
For intelligent metering to fill the gap left by expensive automatic meter reading technology, it has to be available at a modest extra cost. That is only achievable with volume production and that needs the manufacturing community to be given confidence in the size of the market.
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