A holistic, new approach to cost/benefit analysis.
The still-fresh memories of last year's Northeast blackout coupled with rising congestion nationwide have increased...
Utility R&D: The Cutting Edge of Competition
As electric utilities move ever closer to all-out competition, senior executives are streamlining their organizations, reducing spending, and developing strategic plans to ensure their company's future success. Organizations that cannot substantiate their contribution to the company's financial bottom line risk major budget cuts. A utility's research and development (R&D) organization is a prime candidate since its contributions are generally viewed as long term and difficult to quantify.Yet R&D is a vital resource for companies that compete in an open market. The large R&D budgets of semiconductor, computer, and other electronic companies attest to their management's belief that survival depends on keeping a technological edge over their competitors. However, R&D must be planned and managed properly in order to maximize return on the investment.
Consolidated Edison (Con Ed) has been a constant supporter of R&D organizations in New York State, and a member of the Electric Power Research Institute (EPRI) since the research consortium was formed in 1973. In 1985, the company began conducting value analyses to determine the level of technology transfer between EPRI and its members. In later studies, Con Ed attempted to verify that the company was deriving sufficient value to justify its continued involvement with EPRI. (The company has adopted the same procedures to evaluate its own internal programs as well as those managed by the Gas Research Institute (GRI)).
The original value analyses involved identifying actual applications of EPRI technology and estimating the value they realized. The process required the review
of hundreds of commercial-grade hardware, software, and
procedures, as well as results of utility-related environmental and health studies. Con Ed has repeated these analyses at regular intervals (em 1988, 1992, and 1995.
Year/ Exam- In
Products: ined Relevant Use
1992 398 251 (63%) 75 (19%)
1988 427 243 (57%) 91 (21%)
1985 400 138 (35%) 83 (21%)
Significantly, a very small percentage of the used products accounted for the bulk of benefits realized from EPRI R&D. (Benefits here refers to cost savings or cost avoidance realized by applying a product.) In the 1988 assessment, a mere 13 products accounted for more than 77 percent of the estimated $44 million in cost savings and cost avoidance over a 10-year period. In the 1992 study, only 17 products accounted for 99 percent of the estimated $201 million in realized benefits.
The value analyses also provided the following insights:
s The most significant R&D benefits have occurred when action was taken jointly by a company R&D manager and a business unit representative who identified and solved a major technical problem.
s Often the most significant successes have occurred when technical solutions were not immediately available. In these cases the R&D department has sought partners who were facing a similar problem and were willing to share the development costs, assume some of the risk and could provide a broader market for potential technology suppliers.
s Most products of consortium R&D are not usable by even the most diversified utilities. EPRI and GRI are both national R&D consortiums, with charters to develop technologies that meet "common" needs of members. But, since the