Maintaining aging assets VS improving customer engagement is a 21st century fork in the road for utilities

Utilities are the backbone of modern life. Whether it’s turning on lights when you flip a switch or getting water when you turn a tap, utilities provide the gateway to health, education, entertainment and security. Put simply, utilities are the foundation for the quality of life we enjoy each and every day. But in 2020, utilities are facing an accelerating risk to their business model – their aging infrastructure. 

A 2015 report by the U.S. Department of Energy concluded that 70% of power transformers are 25 years or older, 60% of circuit breakers are 30 years or older and 70% of transmission lines are 25 years or older. And aging infrastructure is not confined to electric utilities. According to analysis conducted by Rocky Mountain Institute, a quarter of active gas mains in the United States are more than 50 years old and a recent report released by the American Water Works Association indicated that the cost of restoring underground water pipes in the United States will total at least $1 trillion over the next twenty-five years.

The impact on budgets

The critical impact of aging infrastructure is the negative pressure it puts on capital budgets, as utilities increase operating budgets. For every dollar spend that shifts from capital to operating expenses, utilities sacrifice earnings that would have been generated by investing that dollar into infrastructure. This tension is best represented by the Deloitte Insights analysis, which captures the rise in North America water utility operating expenses.

As Figure 1 shows, over time the rise in operations and maintenance expenditures is negatively impacting capital budgets. A similar dynamic is also evident with electric utilities with one big difference, when looking at Figure 2. In North America, utilities are reducing their customer care budgets to afford their expanding capital re-investment programs – and that is the fork in the road.

Utilities will continue to reinvest in their networks. But becoming more operationally efficient, does not need to be done at the expense of maintenance-driven system reliability or customer engagement budgets. This begs the question: how will leading utilities take the better path?

What if they could make their operations and maintenance more efficient? This is easier said than done. Historically, most utilities have centered their field asset maintenance strategies on preventative maintenance schedules in which they send out a crew every one or two years, regardless of whether their assets need maintenance or not. Utilities have little choice in this approach as most of their distribution networks were not enabled with SCADA monitoring technologies. SCADA is an expensive and difficult technology to deploy and is rarely done for distribution network assets (transformers, control valves, etc.). If an asset is not monitored in real/near real time, the ability to utilize a condition-based maintenance strategy is not possible.

A recent study published by McKinsey estimated that transitioning to a lean “digital” field force that had full visibility of assets, processes and field workers led to a 20% improvement in productivity and a 50% improvement in customer satisfaction. These goals would not only preserve capital budgets, but also provide an added uplift of increased customer satisfaction.

Leading utility companies who have successfully navigated this fork in the road are leveraging digital tools and advanced analytics. They are investing in technology enablers such as IoT, process digital twins and dispatch optimization analytics to help drive down operating costs. These technologies are deployed in a manner that allows utility operators to have a real-time view of how critical assets are performing in the field. It also centralizes the data so that field worker dispatch decisions are optimized, with full understanding of the most efficient use of field maintenance crews and how their deployment impacts customer experience. 

Once the field asset maintenance process has been digitalized, it allows utilities to continuously monitor how the processes are executing through process monitoring technology. This allows them to enable a golden path of continuous improvement centered on the development of operating metric KPIs, forecasting and planning against those KPIs and the ability to track and tweak the workflow process to drive incremental productivity gains through forward operating cycles. These capabilities will not only preserve capital budgets that will help them to pay for infrastructure upgrades, but, if done correctly, will also provide the added benefit of greater customer satisfaction.

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Saul Zambrano is the Global Industry Director for Energy and Utilities at Software AG. Saul has a decade-long career working across a diverse set of global energy and utility clients, helping shape actionable strategies and deploy large scale operational initiatives in the utility, oil & gas and renewable energy sectors. He has led multiple digital transformations, as both a consultant and operational executive, in the areas of customer engagement, growth, operations optimization and risk quantification and management. Saul has an MBA from the Cox School of Business at the Southern Methodist University, and graduated from University of Texas at El Paso with a BBA in economics.

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