Digital Metering Business Cases: More Than The Dollars

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Digital Metering Business Cases: More Than The Dollars

Digital metering business cases that focus solely on the financials are missing half the potential benefits.

MHC has been working with several water businesses in recent years to explore the benefits of digital water metering. When we talk about the benefits of this new technology with our clients the discussions tend to revolve around two types of benefits:

  1. Financial benefits: These are typically efficiency-related financial benefits to the water business with the main examples (amongst others) including reduced:
    • Non-revenue water and household leakage;
    • Capital expenditure associated with water infrastructure;
    • Manual meter reading costs; and
    • Customer service and credit management costs.
  1. Non-financial benefits: These largely arise outside the organisation and can often be more difficult to quantify. The main non-financial digital metering benefit areas are:
    • Customer experience;
    • Environmental;
    • Policy; and
    • Societal.

However, when it comes to developing a business case for digital metering the focus has almost exclusively been on the financial benefits, typically expressed as a Net Present Value (NPV) figure and generated via a detailed financial model.

The issue is that limiting the definition of “business case” to solely the financial benefits of a digital metering rollout only tells half the story. Such a narrow definition misses out on the significant non-financial benefits that digital metering can provide to customers and community – benefits that can’t necessarily be captured in a financial model, but are nonetheless real, valuable and important contributors to a positive digital metering business case.

We discuss the four main non-financial benefits below, with the most developed focus on customer experience benefits, given the emphasis currently being placed on this area by many water businesses and regulators. We acknowledge that some of the other benefit areas are currently being examined by various water utilities, but not in the context of supporting digital metering business cases.

Customer Experience Benefits

Water customers will be a key beneficiary of digital metering – as long as customer-facing functionality is a key element of any rollout program. This includes introducing customer features such as (but not limited to):

  • Real-time information: Web portals / apps that enable customers to monitor and understand their water usage on a real-time basis;
  • Proactive alerts: App push notifications or SMS services that provide customers with proactive and real-time outage information and high usage / leak alerts; and
  • Shorter billing cycles: Billing enhancements that allow customers to pay their bills more regularly (e.g. monthly) and hence in smaller amounts.

If customer-focussed functionality such as these are implemented correctly as part of a digital metering rollout, the improvements in customer experience and satisfaction will be significant. In relation to customer satisfaction, overseas utility experience has shown that that Net Promoter Score (NPS) amongst customers increases by as much as 40%[1] following the introduction of digital metering. Some utilities have even reported NPS scores as high as 42[2] amongst digital-metered customers, a high score for any business (let alone a utility).

 

Developing a better understanding of customers and their water consumption through digital metering will undoubtedly unlock future opportunities to better serve them, and offer additional products and services that ultimately generate additional revenue for the water utility – opportunities that today we cannot envisage. For example, we are seeing this in the energy industry where retailers are finally making use of the wealth of consumption data to target solar and energy storage offers to those customers for whom it makes the most financial sense.

 Environmental Benefits

MHC’s work in digital water metering going back to 2010[3] highlighted several environmental benefits from digital water metering. These benefits largely result from the more efficient usage of water under digital metering (e.g. through enhanced leak detection, lower household consumption, etc.). The main examples include:

  • Improved upstream water management and hydrology: More efficient downstream usage of water with digital metering will improve upstream water resources by enhancing environmental flows (thereby reducing levels of water pollution) as well as enhancing hydrology and water capture rates.
  • Reduced energy consumption and greenhouse gas emissions: Water businesses consume a significant amount of electricity in their operations, particularly for pumping and water treatment. While some are now exploring onsite renewable generation options, most of this electricity is still procured from Australia’s carbon-intensive grid. The more efficient usage of water with digital meters will reduce water and sewage pumping rates, and also reduce loads on water treatment plants. The significant increase in water flow information can also facilitate higher levels of water network modelling, which can be used to optimise energy use for network and treatment plant assets.
  • Enhanced urban landscape and biodiversity: Increased availability of water for private and public outdoor use (e.g. parks and gardens, sports grounds) improves the urban landscape and increases the biodiversity of plant and animal life.

 Policy Benefits

Digital metering can unlock policy opportunities that can benefit water businesses and customers alike. These arise mainly through the ability to measure consumption on a far more granular level than today’s quarterly (or longer) frequency. Examples of policy benefits include:

  • Improved support for hardship customers: More frequent billing allows water businesses to identify cases of hardship sooner and before debt levels become more significant. The ability to more closely monitor hardship customers’ usage also improves the ability of the water business to work closely with the customer to identify water leaks and reduce usage consumption.
  • Development of new tariff structures: More granular consumption measurement opens the possibility to introduce more sophisticated tariff structures (e.g. time of use) to encourage customer behavioural changes. For example, these may include lower tariffs during ‘off-peak’ times when water and sewage pumping loads are lower (in turn lowering pumping costs for water businesses). It is however important to learn lessons from the energy industry by ensuring any new tariff structures do not serve to confuse customers.
  • Enhanced policy development through deeper consumption insights: The rich consumption data from digital metering can be used by the water industry, government and academia to enhance our broader understanding of how people consume water, and subsequently better inform policy decisions. Examples may include deeper insights into consumption and price / income elasticity, willingness to pay and scarcity pricing.

Societal Benefits

Beyond the benefits to water customers described previously, digital metering can also create benefits to the wider community. Some examples of these societal benefits are:

  • Reduced use of water restrictions: Digital water metering can support the removal of water restrictions by providing a range of alternative mechanisms to stimulate consumption reduction, including alternative tariff structures for consumption beyond a predefined daily limit, improved / faster leak detection, direct communication with high usage customers and provision of real-time usage information.
  • Intergenerational equity: Digital water metering provides the infrastructure and the information required to influence long-term water policy and vision, and thereby support the sustainable supply of water resources for future generations.
  • Recreational benefits: Removing restrictions on the use of water for urban areas (e.g. parks and gardens, sports grounds) will improve these public spaces and allow communities to extract greater recreational and health benefits from them.

In Brief

The water industry needs to expand its definition of “business case” when considering digital metering in order to properly capture the full benefits of this transformational technology. If we keep limiting it to just the financial benefits we risk missing half the potential benefits and only telling half the story.

This does however create a question: How can we effectively “add” non-financial benefits to the financial benefits? In the next article we will explore some approaches that decision-makers can employ to address this question when assessing digital metering business cases.

References:

[1]British Gas Modernizes its Operations with Innovative Smart Metering Deployment.” Accessed online at: https://www.iotone.com/casestudy/british-gas-modernizes-its-operations-with-innovative-smart-metering-deployment/c668

[2] Leedham, S., Industry & Government Manager, EDF Energy Smart Metering, “Meeting the challenges of the smart meter revolution.” Accessed online at: https://conferences.theiet.org/power-unity/presentations/2013/day-two/index.cfm

[3] MHC, “DSE Smart Water Metering Cost Benefit Study.” Accessed online at: https://www.marchmenthill.com/wp-content/uploads/2016/07/Smart-Water-Metering-Cost-Benefit-Study.pdf