Increasing performance and reducing costs, new challenges in asset management for the Power & Utility industry

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1 Icreasig performace ad reducig costs, ew challeges i asset maagemet for the Power & Utility idustry Doato Camporeale Risk Executive Director Over the past few years, with the cotiuig ecoomic crisis, may compaies operatig i capital itesive idustrial segmets, have embarked o programs ad iitiatives desiged to maximize the utilizatio rate of their facilities ad at the same time icrease the curret retur o ivestmets. Aother factor which is ifluecig the strategic choices i Asset Maagemet is represeted by the orgaizatioal ad structural chages uderway; ideed several extraordiary activities, i some istaces quite sigificat, have recetly ivolved certai large eergy groups i Italy. New Approaches to Asset Maagemet I order to uderstad the challeges that the idustry is facig i the comig years, PwC has orgaized a roud-table i Rome last May, with the suggestive title: Asset gai or drai. More tha forty seior executives ad experts from fourtee coutries atteded the evet. The cotributios of the operators i the Gas ad Power segmets proved to be very iterestig, sice they testified directly that the asset maagemet issue o loger affects exclusively the maiteace or the operatig activities, rather it ow ivolves the etire busiess maagemet. The ew approaches to the Asset Maagemet developed by the compaies, i additio to cofirmig a clear break with the past, have show may commo aspects. All models, for example, are based o the measuremet of the risk value (risk-based approach, icreasigly of a quatitative-probabilistic ature), ad are defied with the aim of improvig the itegratio of processes, orgaizatio ad systems, ad are desiged to esure a better aligmet betwee busiess goals ad operatioal targets. However, several are the reasos that led these compaies to embark o major projects to review plaig ad asset maagemet; i some cases it was the eed to give a cocrete aswer to the stakeholders i the face of very serious evets, while i other cases it was the eed to reew quite old ifrastructures, or the eed to alig ad itegrate the maagemet of the assets portfolio i the face of ew acquisitios. Itegrity of the assets ad competitive edge I the ear future, Power & Utility compaies will be ivolved i the defiitio of ew strategies for Asset Maagemet. It is clear that esurig the itegrity of their ow assets over the etire life cycle ca be a opportuity. PwC s Eergy & Utilities Idustry Newsletter 3

2 Havig reliable assets ad flexible maagemet models eables to better follow the evolutio of busiess scearios: respodig quickly to ew market treds, ad aticipatig ay sigs of chage ca be the key to success i a eviromet where demad ad profit as a whole, although ot cosistetly, sigificatly reduced compared to the past. It is o woder that idustry leaders have implemeted programs ad plas for the reductio of asset-cost ad the maximizatio of retur o ivestmet based o the idetificatio ad assessmet of the operatioal risks. The itroductio of risk-based decisio makig models applied to the maagemet of assets, i fact, allows o oe side to cocetrate resources o techologies, plats or compoets that have the greatest impact o the busiess, ad o the other side to create assessmet systems that itegrate busiess performace with operatioal performace (Asset Performace Maagemet). The eed to maximize the retur o ivestmet (corporate target), for example, requires a joit effort betwee areas that traditioally have differet goals such as maiteace (availability of plats) ad operatio (utilizatio of plats). Makig the differet areas commuicate ad cooperate aroud the asset is just oe of the most sigificat beefits of this approach. (Figure1) Eterprise Asset Maagemet: models ad best practices to support compaies Makig a structured system for asset maagemet based o the aalysis of the operatioal risks, is ow made easier by a rather recet stadard, ISO55000 (formerly PAS55), which defies, thaks to the collectio ad aalysis of the experiece matured by may asset-itesive compaies, the priciples ad the istrumets to implemet systems of Eterprise Asset Maagemet. The stadard, which is certifiable, is a milestoe for may idustries. I particular, the Power & Utility compaies, especially i the Aglo- Saxo coutries ad i Norther Europe, were amog the first to adopt this model (Figure 2). The beefits resultig from the applicatio of the stadard ISO55000/PAS55, or other models derived from it, spa beyod the corporate boudaries. Ideed, effectively ad efficietly maagig 4% 12% 53% 31% Sour ce : Aber dee 2010 High-Level strategic fuctio Mid-level strategic fuctio Low-level strategic futio Cost of coductig busies s Figure 1 - The value perceptio of Asset maagemet chages: from a ecessary cost-cetre to a strategic fuctio for the busiess. Figure 2 - Scope of applicatio of the stadard PAS55 4 Thik4Eergy

3 its ow assets provides cocrete aswers to the growig demads for trasparecy that stakeholders ad regulators pose to compaies regardig the maagemet of their operatios, ad which cocer, i geeral, the itegratio of the idustrial complex i the territory (ecoomic value geerated, evirometal protectio, health ad safety of people). The experiece ad maturity of compaies deeply affect the operatig approach to be used durig the itroductio of Eterprise Asset Maagemet. Immediately idetifyig the objectives to be achieved, relyig o a umber of key elemets, eables to accelerate the implemetatio of the stadard ISO55000/PAS55 (optimizatio of resources eeded ad reductio of developmet time)(figure3). A recet survey coducted by PwC, i sevety-two coutries aroud the world, has show that i respect of the expected icrease i demad for eergy, a series of big issues are still far from beig resolved: the difficulty i fidig capital to fiace ivestmets, the ability to esure access to eergy to large groups of people (the curret situatio of fuel poverty is worrisome) ad the security of supply (i view of the icrease i blackouts ad the eed to moderize power geeratio, trasmissio ad distributio plats) are some of the most importat. Takig a remark by David Etheridge, leader of Power & Utility PwC USA, we ca really say that the assets are the lifeblood of this idustry. The compaies with clear Asset Maagemet policies, supported by effective maagemet models will be more prepared tha others i dealig with the ew market scearios. They will be able, for istace, to better defie the targets i relatio to the existig assets (cotrol ad reductio of costs ad/or icrease i the utilizatio rates) as well as idetify, amog the available techologies ad players operatig i the market, the best strategic optios to broade the busiess areas ad itegrate their ow portfolio of assets. Figure 3: Key elemets to support the implemetatio of the Eterprise Asset Maagemet systems (PwC experiece) PwC s Eergy & Utilities Idustry Newsletter 5

4 Review A summary of the importat poits emergig from the roudtable discussio: 1 Power ad utilities compaies are gaiig sigificat beefits from addressig gaps ad opportuities i their eterprise asset maagemet (EAM) systems. 2 Effective ad efficiet eterprise asset maagemet is a vital bedrock for addressig the safety, asset maiteace ad reewal, ad capital ivestmet challeges facig compaies. 3 May compaies are decidig to pursue PAS55 certificatio while others are decidig ot to seek formal certificatio but are fidig the PAS55 framework useful as part of their approach to EAM. 4 Developig a commo risk maagemet laguage thorughout the orgaisatio is all-importat ad was highlighted as a key priority by may compaies. 5 EAM performace improvemets is importat for improved ivestmet decisio makig, through whole life costig approaches, ivestmet optimisatio ad greater deploymet of decisio support tools. 6 Icreased efficiecy i asset maagemet, potetial for cost reductio idetified, improved asset performace, improved cotractor ad direct labour maagemet. 7 Takig a expaded view of assets is importat, lookig beyod the physical portfolio to cosider the outside eviromet, your workforce, suppliers, subcotractors ad everythig that could be associated with itroducig risk i how you maage those assets. 8 PAS55 is provig useful i the dialogue with the regulator, demostratig legal, regulatory ad statutory compliace through evidece i the form of cotrolled ad systematic processes. 9 Data is importat but people are everythig. It s importat to create awareess that everyoe i the orgaisatio has a cotributory roleto play i a effective asset maagemet system, istillig a sese of purpose, owership ad directio. 10 Compaies at the roudtable reported that their EAM projects ca be helpful i addressig silo metalities ad developig greater cosistecy, cohesio ad a oe team perspective i maagig risk. Tavola 1: Sitesi dei pricipali puti emersi el corso della tavola rotoda dedicata al settore Power & Utility 6 Thik4Eergy

5 4 thik eergy Thik4Eergy The Eergy & Utilities Sector periodical ewsletter Published ad freely distributed by PricewaterhouseCoopers SpA Court of Mila registratio umber 487, of 30 October 2009 Editor PricewaterhouseCoopers SpA Editorial Director Giovai Poggio Parter Eergy Utilities ad Miig Scietific Committee Agela Margherita Bellomo, Fraco Boga, Doato Camporeale, Vicezo Capoga, Giapaolo Chimeti, Fracesco Galasso, Giulio Gradi, Alessadro Gradietti, Paola Guastella, Adrea Lesi, Fracesco Pimpielli, Luca Sparatore. Copyright 2012 PricewaterhouseCoopers SpA This ewsletter does ot costitute a professioal opiio ad its relative cotet is provided solely for iformatio purposes. The articles cotaied i this ewsletter may ot be reproduced by ay meas without the prior ad explicit writte authorizatio of PricewaterhouseCoopers SpA. The citatio or extrapolatio of portios of the articles cotet is allowed o coditio that the authors ad the Thik4Eergy ewsletter are refereced as the source PwC. All rights reserved. PricewaterhouseCoopers ad PwC refer to the etwork of member firms of PricewaterhouseCoopers Iteratioal Limited (PwCIL). Each member firm is a separate legal etity ad does ot act as aget of PwCIL or ay other member firm. PwCIL does ot provide ay services to cliets. PwCIL is ot resposible or liable for the acts or omissios of ay of its member firms or ca it cotrol the exercise of their professioal judgmet or bid them i ay way. No member firm is resposible or liable for the acts or omissios of ay other member firm or ca it cotrol the exercise of aother member firm s professioal judgmet or bid aother member firm or PwCIL i ay way.