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Presented by Dr.Himadri Banerji Ex CEO inPresented by Dr.Himadri Banerji Ex CEO inReliance Energy and Leader GLG at theReliance Energy and Leader GLG at thePlanTech 2010 Mumbai, 4th and 5th FebPlanTech 2010 Mumbai, 4th and 5th Feb

11

Performance-Based Regulation in Electric Utilities: Reliability Improvement

Using Integrated Asset Management Standard PAS 55.

Dr. Himadri Banerji

PlanTech 2010

Mumbai

4th and 5th February




22

Presentation AgendaPresentation Agenda

Restructuring of Electricity IndustryRestructuring of Electricity Industry

What is Performance Based RegulationsWhat is Performance Based RegulationsWhy PBR:Why PBR: Moving away from Rate CaseMoving away from Rate Case

Major Structural Options for PBR,Major Structural Options for PBR, Targeted PBRTargeted PBR

Service Standards, Reliability , Penalties and Cost of ENSService Standards, Reliability , Penalties and Cost of ENS

Asset Management Defined Asset Management Defined

PAS 55 Asset Management BS StandardPAS 55 Asset Management BS Standard

Integrated SystemIntegrated System

Scope and InterfacesScope and Interfaces

Organizational Strategic PlanOrganizational Strategic Plan

Management System StructureManagement System Structure Asset Risk Analysis and Control Asset Risk Analysis and Control

Design and Development PhaseDesign and Development Phase

Operational Phase: Probabilistic Risk Assessment Operational Phase: Probabilistic Risk Assessment

Thank YouThank You




33

Targeted PBR and Targeted Incentives: ServiceTargeted PBR and Targeted Incentives: ServiceStandardsStandards

If distribution were a competitive market, providers wouldcompete on the basis of price, service quality, and customerservice.

But there is no meaningful competition for distribution services.

Consequently, the quest for lower costs and higher profits willdrive utilities to cut service quality and customer service.

Setting standards with built-in incentives (rewards and penalties)will encourage utilities to find acceptable lower cost ways toprovide a specified level of service.




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Background: Electricity Industry RestructuringBackground: Electricity Industry Restructuring

The restructuring and liberalization of electricity industry worldwide haveincreased the incentives for a cost effective and efficient use of availableassets in all segments of the power industry.




55

What is performanceWhat is performance--based regulationbased regulation

The term performance-based regulation is the most recent in a long lineof vocabulary used to describe regulatory approaches that rely on financialincentives and disincentives to induce desired behavior by a regulated firm.

The desired behaviors, or outcomes, are generally 1) lower costs, 2)improved service, and 3) more rational allocation of risks and rewards.

The renewed interest in PBR largely reflects dissatisfaction with cost-of-service or rate-of-return regulation, especially the perception that cost-of-service regulation stifles utility innovation and causes utility managers to bemore responsive to regulators than to customers.

PBR may also be pursued by utilities seeking higher profits, moreflexibility, or less risk.




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PBR Structures : Price and Revenue CapsPBR Structures : Price and Revenue Caps

The major structural options are price caps and revenue caps.

Both options create the same incentives to cut costs, butrevenue caps create much better incentives for investment indistributed resources.

Also, revenue and price caps merge as rate design fordistribution utilitiesmoves toward fixed monthly fees.

Revenue caps provide an opportunity to achieve many of the

purposes of fixed charge rate designs while avoiding thesubstantial economic and public acceptance problemsassociated with such rate designs.

However Most regulators start with Target Based PBR.




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Service Standards: Service ReliabilityService Standards: Service Reliability

1. Reliability. This includes a long list of specific standards including the extentand duration of outages, service restoration time, frequency of planned outages,

performance of worst circuits, and voltage variations.

2. Call Center Performance. This addresses how quickly and how fully calls to

the utility are answered and how well consumer questions or complaints are

resolved.

3. Field Service. This covers a wide range of situations in which utility employees

make visits to the customers location. Standards may include how well

appointments are kept and time to connect new service, test meters, and replace

street lights.

4. Billing and Complaints. This includes billing accuracy, metering accuracy,

complaint rates to the utility and regulator, overall customer satisfaction, and

power quality complaints.




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It is important to make the penalty large enough that it will receive andkeep management¶s attention PBR mechanisms may include servicequality penalties of no less than one percent (100 basis points) of equity.The calculations are based on cost of ENS or energy not served.

Service Reliability Cost of ENS and Penalties




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Service Reliability Measures Top US Utilities




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�The financial services sector has long used the phrase to describe themanagement of a stock or investment portfolio - trying to find the best mix of capital

security/growth and interest rates/yield.

2. Main board (usually financial) directors and some city analysts use the term in

relation to mergers and acquisitions- buying and selling companies, re-organizing

them, divesting low value elements and trying to raise capital value and/or yields.

3. Equipment maintainers have also adopted the name (particularly in the US) in order

to gain greater credibility and visibility for their activities. As µmaintenance¶ has for so

long been treated as a necessary evil, and low on the budgeting priority list, whereas

µAsset Management¶ sounds more professional and value-adding?

Maintenance has an important part to play, but it¶s really only one of the variables in

managing assets (others include, for example, choosing the right assets in the first

place, using them appropriately, or trading short-term performance against long-term

sustainability etc).

Asset Management Myths and Realities




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Asset Management Myths and Realities Asset Management Myths and Realities

4. In line with the maintainers seeking greater corporate credibility, the large

number of software vendors selling asset information management systems

(including asset registers, GIS systems, work management, history gathering,

materials control & cost reporting etc) have often relabeled their products as

³Enterprise Asset Management Systems´. This has given rise to a misconception

that Asset Management is an technology initiative to sort out the data and IT

infrastructure (often leading to great expense and the µtail wagging the dog¶).

5. If we dig deeper into the information systems world, we even find ³Asset

Management´ interpreted as simply the bar-code labeling of computers and

peripherals, and the tracking of their location/status (i.e. µasset tracking¶).

6. Finally, a few critical infrastructure or plant owners and operators haveadopted the term µAsset Management¶ to describe their core role in life - both

caring for, and making best sustained use of, physical plant, infrastructure and its

associated facilities. T his is the interpretation that the new British Standard, PAS-

55 is focused upon, and is the subject of this presentation.



Why Asset Management? Asset Management is a business

discipline

X management of technicalinfrastructure

Where is the documentation

of this device?

Who is r esponsible

for this device?What is the

utilization of

this device?Who is the owner

of this device?

What is the

status of

this device?

Is there

exper iencewith

this device?

What is the total

cost of this device?

Machinery

Pipes

Operator

Equipment

Tools

Buildings

ASSETS

Tangibles that are used in theoperation of a drinking water orwastewater utility



Executive Summary

asset perspective management information system

� Asset management deal with the left side of the

balance sheet.� Famous quotation about balance sheet on the

LEFT side there is nothing RIGHT; on the RIGHT

side there is nothing LEFT

� Asset management begins from selection, their

selection, maintenance, inspection and renewal

of the particular asset.

� It plays a key role in determining the operational

performance and profitability of industries that

operate assets as part of their core business.

� This emerging professional discipline deals with

the optimal management of physical asset

systems and their life cycles. It represents a

cross-disciplinary collaboration to achieve bestnet, sustained value-for-money in the selection,

design/ acquisition, operations, maintenance

and renewal/ disposal of physical infrastructure

and equipment.

� MIS is the big picture of information system flow,while asset management is part of the system

that monitor corporate assets; covering several

areas

1. Policy Development

2. Strategy Development

3. Asset Management Planning

4. Implement Asset Management Plans5. Asset Management Capability Development

6. Risk Management and Performance

Improvement

7. Asset Knowledge Management

� A well-defined Standard of service (SoS) is the

foundation of Infrastructure Asset Management.

The SoS states, in objective and measurable

terms, how an asset will perform, including a

suitable minimum condition grade in line with

the impact of asset failure.



5 core questions of Asset Management



Presented by Dr.Himadri Banerji Ex CEO inPresented by Dr.Himadri Banerji Ex CEO in

Reliance Energy and Leader GLG at theReliance Energy and Leader GLG at thePlanTech 2010 Mumbai, 4th and 5th FebPlanTech 2010 Mumbai, 4th and 5th Feb

1515

For the purposes of this PAS, asset management is defined in 3.2

Systematic and Coordinated Activities and Practices

Through which an organization

optimally and sustainably manages it¶s

1.Assets and asset systems,2.Asset associated performance,

3.Risks4.Expenditures over their life cycles

for the purpose of achieving itsorganizational strategic plan

Definition of Asset ManagementDefinition of Asset Management

PAS 55 BS StandardPAS 55 BS Standard





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Characteristics of P AS 55 Asset Management BSCharacteristics of P AS 55 Asset Management BSStandard: Integrated and Life Cycle CenteredStandard: Integrated and Life Cycle Centered

It requires a life cycle view and optimal mixture of

investments

operations

maintenance

resourcing,

risks

performance

sustainability

Source: BSI PAS 55:2008





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Degree of implementation: Degree to which asset management strategies,

objectives and plans are in place.






1818

Characteristics of PAS 55Characteristics of PAS 55 Levels of an AssetManagement System


Part 1 contains the corerequirements against which anorganization's AssetManagement capabilities can beassessed.

Part 2 expands on these requirements with examples and guidance designedto aid the understanding of the intent of the Part 1 requirements.

PAS 55 is a two-part specification.





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Characteristics of PAS 55 Asset Management BS Standard: IntegratedCharacteristics of PAS 55 Asset Management BS Standard: Integrated






2020

PAS 55 Asset Management BS Standard: Scope and InterfacesPAS 55 Asset Management BS Standard: Scope and Interfaces






2121

PAS 55 Asset Management BS Standard: Stakeholder RequirementsPAS 55 Asset Management BS Standard: Stakeholder Requirements







2222

PAS 55 Asset Management BS Standard: OSP, Planning and ImplementationPAS 55 Asset Management BS Standard: OSP, Planning and Implementation






2323

PAS 55 Asset Management BS Standard: Management System StructurePAS 55 Asset Management BS Standard: Management System Structure






2424

Asset Manager : Work Control To Life Cycle Analysis






2525

Asset Management Process

Asset Manager: Work Control To Evaluations, Investigation, Problem Identification

Analysis





2626

Development in Asset Management Processes





2727

Information Systems Development in Asset ManagementInformation Systems Development in Asset Management





2828

Risk Management Processes

Design and Development Phase





2929

Risk Management Processes

Compliance to Standards, Procedures, Culture





3030

Probabilistic Risk ManagementProbabilistic Risk ManagementOperational PhaseOperational Phase

Probabilistic risk assessments have the following characteristics:

� explicitly consider a broad set of potential challenges to safety;

� logically prioritize these challenges;

� consider a wide range of options to mitigate these challenges;

� assess sensitivity of results to key assumptions;

�

identify and potentially quantify uncertainties in results.

Performance requirements have the following characteristics:

� based on measurable, quantifiable parameters that are directly related to safety;

� timing of measurements is specified;

� numerical performance criteria are set for each parameter;

� corrective actions are required to be taken if performance criteria are not met;

� performance trends are monitored;

� performance criteria and/or corrective actions are adjusted based on

performance trends.





3131

Questions

Discussions

Thank You

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