How Hydro Owners Do More With Less

By Kerry J. LaLiberte, Navigant Consulting Inc.

Analysis of 10 years of data collected from owners and operators of hydroelectric facilities reveals several trends. The common theme seems to be the need to do more with less regarding staffing, maintenance, support and more.

Owning and operating hydroelectric generation assets in North America has become increasingly complex. Scarce resources are being stretched to deal with a myriad of issues:

  • Aging assets demand refurbishment to maintain acceptable levels of reliability;
  • Competition is increasing for operations and maintenance (O&M) dollars among types of generation assets within an organization;
  • Heightened regulatory requirements related to station security and cybersecurity are prompting changes that increase operational costs; and
  • An aging work force threatens to undo decades of accumulated knowledge as valuable employees retire.

These issues and others have created challenges as owners and operators of hydro facilities struggle to maintain their operations with less.

During the past decade, Navigant Consulting Inc. has been observing these emerging issues and advising owners and operators how to respond. Successful hydro generation companies of the future must change how they structure and manage their operating organizations. Navigant provides Generation Knowledge Service (GKS) benchmarking for fossil, hydro and wind generation facilities. The source of the information for this article is Navigant’s GKS Hydro benchmarking service.

Rethinking Hydro Organization Management Structure

Ten or 15 years ago, it was common to find traditional O&M management organizations at most hydro generation facilities. These organizations most often were functionally based and had multiple layers of middle managers who reported to plant managers (see Figure 1). Today, only the largest hydro generation facilities use this structure. The medium and small stations largely have abandoned, regionalized or chipped away at this traditional structure to reduce personnel and minimize management costs. Management cost reduction has been accomplished primarily in two ways: regionalization and flattening.

Regionalization is where a traditional organization for a hydro station is stretched or expanded to cover more than one facility. This makes a lot of sense, especially for small and medium stations. Rather than having individual organizations, one management structure is created for a group of stations in a particular region to share management staff over multiple facilities (i.e., a group of stations on a river system or some other combination). Depending on the level of regionalization, this consolidation can affect the bottom line significantly.

Flattening the management structure involves eliminating layers, then transferring those responsibilities to the next level or down to the subordinate position. Usually this approach is accompanied by broadening the roles and responsibilities of the remaining positions, eliminating the gap created by the flattening. Some smaller hydro management organizations, for example, have eliminated craft supervisor positions and transferred the responsibilities to craft foremen.

In addition, Navigant has observed hydro operating organizations that have regionalized and flattened management structures, which has resulted in more management cost savings.

Remote Control is Essential for All Except Largest

Operators of locally controlled, small or medium hydro facilities are moving toward a remote-controlled environment. In 2001, some 40 percent of the hydro units in the GKS Hydro database were remotely controlled. In 2011, that jumped to 53 percent. That shift most likely is driven by economics. Navigant’s database has shown that automated or remotely controlled facilities cost significantly less to operate than those with on-site control rooms. Figure 2 compares the average cost per generating unit to operate the station (staffed on-site control rooms vs. remotely controlled) by various unit sizes. Annual cost savings are dramatic, and the savings will continue indefinitely. As Figure 2 demonstrates, smaller units show the biggest cost difference.

There are some cost-saving caveats. Organizations with the best cost performance have reduced the number of operators on-site significantly or eliminated them altogether; however, when operator positions are eliminated, these responsibilities shift to the maintenance staff. This requires more training for the maintenance staff that, depending on their capabilities, could be significant. Successful implementations are using this approach after sufficient training.

Very large facilities that have remote-controlled units in the GKS Hydro database have not shown a significant cost advantage over facilities with fully staffed, on-site control rooms. This anomaly is because most have not fully eliminated on-site operators for risk reasons, precluding the labor cost savings that would occur. Managers of large facilities should be aware that remote control will not pay dividends if the facility cannot deal with the risk of an operator’s or maintainer’s assuming the role of a traditional operator.

Work Force Flexibility is Key

Upon visiting a remotely controlled medium or smaller facility, most people not familiar with how hydro facilities are operated and managed are shocked to realize how few people are at a plant on a day-to-day basis. A maintenance worker dispatched to a remote plant must be capable of performing all the tasks required. If not, additional staff must be dispatched to perform the activities beyond the capability of the original person. As has been seen with Navigant’s fossil benchmarking program, GKS Hydro benchmarking has shown an increasing use of a multiskilled, multifunctional work force that increases the efficiency and cost-effectiveness of the operation.

Figure 3 lists common skill classification combinations Navigant’s subscribers have tried. All of the combinations pay dividends, but the most successful from a cost perspective have created multifunctional (O&M) and multidiscipline (electrical, mechanical, technician, laborer) positions. Often referred to as a “hydro utility worker,” this person can perform most activities at the station. Moving to this structure requires much training, but the flexibility is worth the investment.

Time-based Maintenance Cycles are Being Stretched or Eliminated

Those familiar with how maintenance work on core generating assets in the hydro industry is planned and scheduled have heard the term “annual.” The annual is a time-based cycle under which inspections, cleanings, adjustments and repairs are performed on crucial equipment. The turbine, generator, generator breakers, governors, generator step-up transformers and compressors have been on this annual cycle list. The GKS Hydro benchmarking program has been tracking the time-based maintenance cycles for this equipment and compared the average cycle times from 2001 to 2011. For major equipment such as the turbine, generator and step-up transformer, the average time-based maintenance cycles have been extended from about a two-year average in 2001 to about a three-year average in 2011.

The impact of these extensions on the overall maintenance programs of each subscriber has been significant. The base man-hours associated with performing these inspections and repairs, multiplied by the number of units in the system, results in large maintenance man-hour numbers. Extending these cycles affects the bottom line.

Nevertheless, is a time-based cycle approach the best method to determine when maintenance is required for core generating equipment? Hydro operators have been slow to move away from this approach, but change is coming. Given the squeeze on O&M dollars, owners and operators are seeking to obtain the best return on their expenditures. Again, as experienced by fossil generating organizations, more focus has been placed on equipment monitoring, condition-based assessments and other methods to distribute the maintenance effort to where it is needed most.

Routine Maintenance is All They do Now

Years ago, it was common for owners and operators to maintain large, heavy maintenance groups that supplemented station or regionally based staff to perform major overhauls. The scope of this work typically was broader and included more intensive repairs and reconditioning work than that covered in an annual or biannual inspection. The skills required for people in these groups were specialized and required experience from years of performing similar overhaul work across the system.

Today, although Navigant does not have specific statistics to support this viewpoint, subscriber interviews indicate there is a shift from owners’ and operators’ performing this work. In addition, the advent of a newer multifunctional and multidisciplined work force and the generalist nature of this new hydro utility worker employee type increase the chasm between their skill set and the specialized skill set of the major overhaul staff. As a result, some major hydro organizations are moving away from or have disbanded central heavy maintenance groups and rely on contractors to fill the gap. Most of Navigant’s subscribers focus on the routine maintenance and are gradually losing their capability to perform the big maintenance jobs in-house.

The New Maintenance “Expert”

An aging work force and ongoing retirements during the past 10 years have affected significantly how owners and operators plan. Most have brought on younger workers to deal with attrition and stepped up training activities to transfer knowledge to the next generation, and owners and operators are beginning to use technological advancements to aid in maintenance management.

Hydro has been slow to introduce this concept compared with other generation. Perhaps the low cost of generation, combined with high reliability, has kept sophistication at bay. Ten to 15 years ago, many operators had not introduced computerized maintenance management and relied on people’s memories, paper files and standard practices to manage maintenance activities. There didn’t seem to be a reason to move from what worked well for years.

Today, practically all of Navigant’s subscribers have introduced computerized maintenance management into their operations. Many are viewing these systems far more broadly, fully expecting that the maintenance information being fed into computer histories will become a valuable repository, helping replace some of retirees’ knowledge. Many have high expectations for the databases they are attempting to build and are hoping these systems will become the new maintenance experts. This is a significant shift for an industry steeped in tradition and resistant to change.

The Support Services Factor

GKS Hydro benchmarking takes a holistic approach to benchmark hydro. The system benchmarks the entire hydro business as if it were stand-alone. In this manner, the data collected is a comprehensive analysis of all the appropriate costs to run that business and establish a solid basis for comparison across participants.

As part of doing this, Navigant has created high-level profiles of the sources of costs that drive bottom line O&M costs.

Figure 4 shows the average cost distribution for stations that constitute the benchmarking database. The chart demonstrates the functional pieces of O&M costs: operations, plant maintenance, waterways and dams maintenance, buildings and grounds maintenance, support services, and public affairs and regulatory.

The largest chunk of costs (some 36 percent) is regulatory-driven and comes from requirements associated with the operating license and not related to generation. Costs for fish mitigation, visitors centers, parks, recreational facilities, taxes, water rentals and environmental controls are included in the chart. Most consider these costs largely uncontrollable and a cost of doing business. Public affairs and regulatory costs have fluctuated during the past 10 years from a low of 33 percent to a high of 38 percent. The next largest chunk of cost is support at 27 percent. That chunk should be of considerable interest to the industry because of its size, growth (was 24 percent 10 years ago) and the relative inability of hydro managers to control it. Unlike public affairs and regulatory costs, support costs have risen steadily during the past 10 years.

Support costs include crucial services for the hydro generation team: corporate management staff and facilities, fleet, purchasing, human resources, warehousing, accounting, legal, information services, training and security. Most of these costs emanate from central organizations and are billed or allocated to station organizations or collected at the corporate level. How hydro organizations account for these costs is another discussion, but these costs are huge; hydro generation management has limited control over the level and quality of the service being provided; and if they don’t use the service, they most likely will get billed for it anyway. The downward pressure on O&M costs is unlikely to disappear. Most hydro owners and operators must focus on how these support services are provided in the future. If history is any guide, support services cost will continue to grow and chip away at cherished maintenance budgets.

What’s Next?

It’s difficult to predict, but a continuation of current trends seems likely. The trends share a common theme: using less. This all-important less is less labor resources translates into a future of more organizational consolidations, more required work force flexibility, more reliance on information systems and increased awareness of business cost drivers.

This article originally appeared in PennWell’s Hydro Review.

Kerry LaLiberte is a director with Navigant Consulting Inc., whose energy practice includes more than 350 experts focused on issues across the entire energy value chain, including renewables, as well as providing energy market research reports.

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