Asset Health and Wealth by Chris Trayhorn, Publisher of mThink Blue Book, April 1, 2003 Recent events in the energy marketplace and the failure of unregulated businesses have put greater emphasis on regulated businesses. Given this backdrop, a proactive, holistic approach to asset management is needed. For example, regulators are implementing performance-based rate-making/regulation, with the initial focus on cost-cutting measures. Research conducted by the META Group indicates that 75 percent of states are developing such regulatory approaches. As utilities separate their business units (e.g., generation, transmission, distribution, retail), no longer are the energy delivery costs and profits overshadowed by those factors. The groundwork has also been laid for regulatory agencies to focus on evaluating customer service and service reliability, which is consistent with the customer’s heightened interest in these areas. With these considerations, asset-intensive, energy delivery companies must embrace a comprehensive approach to asset management. This is the only way in which the balance of cost control, performance requirements, and an appropriate return on investment can be mutually achieved, not only in the short term, but also for the long run. This article explores the basic framework for developing a comprehensive asset management approach to establishing and measuring the health and wealth of utility assets. In this context, health is typically described as the traditional maintenance management, performance monitoring, replacement, and investment planning based upon asset operating performance and maintenance cost. Wealth takes into consideration the revenue associated with a group of assets along with the cost associated with maintaining their health, and is used in making enterprise investment decisions. Top-Down Approach Asset-intensive companies need to approach asset management with a multifaceted framework. To be successful, this process must start from the top down. Specifically, asset strategy, at a minimum, must address the following: • Making intelligent decisions regarding the capabilities of the organization and the roles in which the utility intends to play versus outsource. • The asset management lifecycle, from concept through retirement and renewal. • Meeting or exceeding established thresholds for asset and network reliability. • Meeting or exceeding the increasing demand to provide excellent customer service. • Strengthening the link between the asset financial decisions and the asset physical performance, while running the company as a competitive business. • Proactively meeting customer and load growth. While in today’s environment the primary driver for utilities to refocus on asset management has been cost pressure from limited capital and operations and maintenance funds, the desired cost cuts may be achieved without achieving the real goal of excelling at asset management. Utilities should look at this renewed focus on asset management as an opportunity to be proactive in shaping the regulatory regime instead of maintaining a reactive environment. Roles and Relationships Asset management roles and relationships for transmission and distribution companies are evolving. Utilities are taking a hard internal look to determine what they do well at a competitive cost; what key expertise they need to maintain; and making the decision to outsource non-competitive, non-key expertise roles. Figure 2 shows what roles lead to asset effectiveness versus cost efficiency. Depending on the utility’s primary drivers for refocusing on asset management, this should have a significant influence on which roles the utility wants to maintain and how it will structure relationships with companies to which they have outsourced specific roles. Figure 3 provides additional definition of responsibilities and potential gains associated with each asset role. Whatever the decision is regarding roles, a key requirement for successful asset management is that timely communication of the appropriate asset data and information occur between all involved parties. Thus, as part of the evaluation process in developing the asset management framework, which party will be responsible for each role and the implications with regard to systems implementation, integration and capture/transmittal of asset data must be defined. Asset Management Lifecycle In continuing from the top down through the pyramid of Figure 1, understanding the asset management processes is critical in determining how either legacy or new enabling technology solutions must be integrated to provide seamless data upon which to make informed asset management decisions. Utilities must take a different approach to considering these processes. Historically, utilities have operated in functional silos, with decisions about engineering, operations, maintenance, and the like often made independent of fulfilling the actual business need. For asset management, the utility needs to consider the asset management lifecycle. (See Larger Image) Figure 1: Overall View to Eveloving an Asset Management Framework Each of the functional areas must determine how they can work together for each phase of the asset management lifecycle to develop a cohesive solution. It’s not uncommon for five to 10 years to pass from the time a concept is proposed to when the actual procurement takes place. For example, a utility may determine, based on present distribution feeder voltage fluctuations and projected load growth, that ultimately a new substation is required. However, based on the expected costs and anticipated load growth projections, the utility may initially install additional capacitor banks as an alternative. In making these new asset decisions, operations should be involved in decisions regarding the success of installing additional capacitor banks. Marketing/sales/retail should be involved in confirming when the expected load growth will occur. Maintenance should be involved in the ability to maintain these new assets. And engineering should be evaluating the vendor product history and determining the procurement, retirement, and renewal options. Thus, the processes must cut across organizational boundaries. Asset and Network Reliability Both customers and regulators heavily influence established thresholds for asset and network reliability. As stated earlier, regulators are moving to performance-based rate-making. Customers are concerned because the company they buy their energy from and the company that distributes that energy may likely be different, with the emphasis on and ownership of providing reliable service becoming lost in the mix. Traditionally, four primary metrics have been used as a measure of asset/network reliability and availability. • SAIDI (System Average Interruption Duration Index) — This is the average number of minutes in a year that the typical customer is interrupted. It is the ratio of total service interruption minutes (excluding certain outages) to the average number of customers. • SAIFI (System Average Interruption Frequency Index) — This is the average number of times per year that the typical customer is interrupted. It is the ratio of total customers interrupted to the average number of customers. • CAIDI (Customer Average Interruption Duration Index) — This is the average duration of a customer interruption. It is the ratio of total service interruption minutes (excluding certain outages) to the total number of customers interrupted. • ASAI (Average System Availability Index) — This is the ratio of the number of SAIDI minutes to the total number of minutes in a year, subtracted from 100 percent. Figure 2: Major Asset Management Roles and Relationships Focus on Reliability Of these metrics, only one, SAIFI, provides an indication of reliability. The other metrics are heavily influenced by the utility’s ability to minimize the duration of the interruption through prompt identification and repair of the fault. The emphasis to return or focus on reliability is in part evidenced by regulators requiring the utilities to report on their 10 worst circuits. Other metrics often make use of the number of span miles as the denominator of the metric. At first glance, this may seem reasonable, but one should expect that both the number of interruptions and outages, as well as the costs associated with the assets, would be very strongly correlated to the number of span miles considered in the metric. Additional thought should be given as to when span miles should be used in a metric, and to interpretation of the results. All that being said, there still is a lack of focus on how a customer versus a utility measures reliability. Figure 3: Asset Role Responsibilites Definitions and Potential Gains Customer Service Customer surveys are typically used to measure the extent to which customers are satisfied with the service provided by the utility. Customer satisfaction is not necessarily tied to the level of network reliability, and, in fact, it can be more matched to the investments made in service delivery. A survey conducted by EPRI subsidiary Primen found that by investing an average of $1.64 per customer in service delivery, a utility company can achieve an 8 percent increase in customer satisfaction, while investing $180 per customer in improving distribution infrastructure only improves customer satisfaction by 5 percent. This statistic, however, is not to advocate that a utility should focus its spending on service delivery versus improving distribution infrastructure, but to understand and strike a balance in making these investment decisions. An overlapping relationship exists between the customers’ needs, maintaining the required levels of physical asset reliability and availability, and the impact that the asset lifecycle process has in each of these areas. The utility must understand what brings value to the customers and then provide seamless, consistent, predictable value faster and better than its competition to earn the customers’ business in the future. Energy price and value, quality and reliability, and customer service are major components of customer value and are heavily influenced by the utility’s approach to asset management. Figure 4: Asset Management Lifecycle Strengthening the Link Asset wealth takes into consideration combining the revenue associated with a group of assets along with the cost associated with maintaining their health and is used in making enterprise investment decisions. Historically, utilities have had a wealth of information available regarding an asset’s health. The use of this information, however, has generally been in a silo approach versus an overall adoption of the asset management lifecycle. The difficulty that exists in today’s environment is how to determine at what level wealth should be attributed to assets. Several approaches exist, including attributing wealth at the asset class level, by operating district or division, by customer segmentation, and geographic location. Each of these approaches has limitations. For example, for a selected portion of the network’s assets, they will likely cross operating districts, regions, and tax districts, making the wealth determination more difficult and the ability to manage the assets from a lifecycle approach more complex. Although there is no clear asset selection approach free from limitations, asset segmentation based on the asset’s physical connectivity rather than its geographical location is very promising. These segments represent planning areas for the purpose of managing assets from a lifecycle approach, specifically in the development of area investment plans. Asset segments can also be aggregated to provide a broader picture. Tools such as geographical information systems, commonly in place at utilities today, can readily facilitate this asset segmentation by the assets’ physical connectivity. To overcome some of the same limitations as described above in the various approaches to grouping assets, a distribution feeder, for example, which crosses many boundaries, would be mapped to only one asset segment, with the owner of that segment responsible for the asset’s lifecycle management. Asset segmentation allows the utility to measure the performance of each of these segments in terms of profitability, reliability, and customer satisfaction. The utility can also appropriate other statistics, such as load growth potential and importance to the utility through an established priority to these segments as well, to support decision-making involving asset investment. Additionally, this approach eliminates some of the influence of using performance measures that involve span miles with regard to cost and reliability. Summary Today’s utilities have much of the needed data available from legacy systems to make these decisions. To be successful, they must fully define how they want to manage assets, they must understand the roles and responsibilities they want to outsource versus perform in house, and they must develop and follow processes that embed the asset management lifecycle. Following this approach, the data requirements, the systems architecture, and the necessary systems to successfully manage the assets can be methodically defined. ? Filed under: White Papers Tagged under: Utilities About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.