Asset Health and Wealth

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. ?