The conventional wisdom about utility spending is correct, but key factors affecting customer satisfaction aren't obvious—and are tricky to control.
Squeezing Juice from Plants
Asset optimization is a favored utility strategy in an economic downturn.
Generation plant construction has gone down with the economy. "Our project finance pipeline is as dry as I have seen it," says energy analyst Jerry Pfeffer of Skadden, Arps, Slate, Meagher & Flom, speaking at a recent energy conference in New Orleans. He predicts it will take at least a year or two until new construction starts up again in any significant manner.
That downturn can be attributed to any number of factors, from the cyclical nature of business, to the fallout from Enron, to accounting practices. So instead of building new generating plants, companies are turning toward asset optimization to squeeze dollars and megawatts from already existing power plants.
Taking aim at this trend, Fortnightly turned to some top experts to find out how to get the most from power plants.
According to Christopher Grier, a director at Navigant Consulting, the best way now to improve the bottom line is to increase capacity and energy from existing plants. "It's just so much less expensive than building a new plant, plus you don't have all the issues surrounding siting and permitting," Grier says.
He has worked on coal plants in the Northeast and Midwest and found the same drivers of value kept showing up over and over again. Those drivers are somewhat basic-minimization of fuel costs, heat rates, and forced outage rates.
Philip Q. Hanser, an economist and statistician with the Brattle Group, points out that while asset optimization has been talked about by utilities for years, it has a lot more relevance now than it used to. Especially for pure-play generators, he believes getting as much profitability as possible from assets is important. He compares plant optimization to the airline industry, where it was called "yield management"-which meant that if not fully loaded, the asset (the airplane) was not getting as much yield as it could have. That led to the hub-and-spoke routing system and to the crazy-quilt system of varied fares among passengers. But all those systems were aimed at increasing profitability.
Terry Maxey, vice president and PassPort production manager with Indus International, believes the answer to asset optimization lies in software. Maxey explains that the PassPort is enterprise management software that is used at power plants for work management, supply chain procurement, and safety compliance. And while the software is used at a variety of places, it is in use at over 80 percent of the nuclear plants in North America. But Maxey cautions that "we don't think you buy a piece of software, put it in a PC, and things are great."
Instead he likes to think of the software as a catalyst to the key drivers at a plant such as management and regulatory performance. He says a direct benefit of using PassPort is reduced outage time. A 50- to 60-day nuclear plant outage used to be common, but now 20 days is more the norm. Also, if there is an unplanned outage, PassPort helps end it sooner.
Meanwhile, Hanser says the drop in liquidity in