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 members are very different in terms of size, customer composition and system configuration, many of the EPRI products simply don't match up well with individual utilities needs. In addition, EPRI's and GRI's product delivery schedules don't always aligned well with actual need dates. Lastly, utility personnel are not able to keep updated on what the research groups have produced.
But despite the fact that Con Ed uses only 20 percent of the products produced by the consortiums, analysis results show that the realized cost savings and cost avoidance were well in excess of the cost of all the research and the ratio of benefits to cost have consistently grown.
Year R&D cost)
1984 1.6 to 1
1987 2.0 to 1
1991 3.7 to 1
R&D staff realized that the way to increase the return on EPRI investments they needed to focus their attention on areas of EPRI R&D that were closely aligned with Con Ed's own strategic interests. To generate real value, they also targeted only projects that were likely to solve major
technical problems relevant to Con Ed and that required resources beyond the company's capability. The following are cases in point.
Indian Point 2
As nuclear power plants age, their internal components become coated with radioactive metal oxides. This occurs when metal particles, the products of corrosion and wear, are bombarded by neutrons as they circulate through the plants primary system. Although these radio-isotopes are mostly
removed through filtration and demineralization, a small volume is deposited on coolant system surfaces. In a typical pressurized water reactor (PWR) plant, the radiation fields created by these radio-isotopes gradually increase over the first several years and then level off. Even so, personnel who perform maintenance on the primary system are quickly exposed to heavy doses of radiation.
Con Ed's Indian Point 2 Plant is one of the country's earliest large PWRs. Since the mid-1970s the company's plant, engineering, and R&D personnel have studied and implemented methods of removing metal oxide coatings from the primary system to reduce radiation fields. In the late 1970s and early 1980s, company personnel worked with EPRI, Empire State Electric Energy Research Corp. (Eseerco), and others to research different chemical processes that might remove the deposits without damaging vital reactor and primary cooling systems. In 1989, Con Ed successfully tested a chemical process called the AP/ Can-DeremTM on three major component subsystems, dramatically reducing workers' exposure by over 110 man-rem.
In 1987, Con Ed spearheaded a program to determine whether a similar process could be used to decontaminate the full primary system. A group (em consisting of EPRI, Eseerco, 10 other utilities that own PWRs, and Westinghouse (em was formed to investigate the potential of several dilute chemical solvent processes (including AP/Can-Derem). Based on cost and waste disposal consideration, Con Ed ultimately chose to employ the AP/Can-DermaTM process. The demonstration served as the first full system chemical decontamination of an operational PWR, and reduced radiation levels by about 13 percent. Assuming that levels increase only at projected rates, the anticipated savings from reduced radiation exposure, increased worker productivity, and reduced levels of generated radioactive wastes is estimated at $35 million over five operating cycles.
Energy Star Program
In the early years of Con Ed's demand-side management
programs, economic as well as
environmental concerns motivated several major commercial customers to seek help in reducing their energy consumption. One customer, for example, discovered that its computers and related equipment accounted for approximately 40 percent of its total electricity consumption. After checking with major computer manufacturers, Con Ed R&D personnel concluded that technology was available to design and manufacture computers that could significantly reduce energy consumption.
The U.S. Department of Energy (DOE) learned about Con Ed's inquiries through EPRI, and met with the Environmental Protection Agency (EPA), Con Ed, other utilities, as well as environmental and consumer advocates to discuss a possible alliance. Their first step was to determine how much energy reduction could reasonably be expected.
With support from DOE, New York State Energy Research & Development Administration (NYSERDA), EPRI, and others, Con Ed sponsored an MIT study of New York City to estimate the savings and feasibility of realizing savings from more energy efficient information technology. The results placed energy cost savings over a five-year period of nearly $150 million, even without equipment rebates. Cooperative efforts led to EPA's Energy Star Program, which has been credited with catalyzing the development and commercial success of new information technologies that have already led to millions of dollars of energy cost savings in the commercial sector.
Con Ed is unique in that the bulk of its customers receive their electricity from a predominately underground transmission and distribution system. Locating faults on this congested metropolitan system can be difficult and time consuming, yet high service reliability is extremely important because the loads served (e.g., stock exchanges, insurance and banking firms, entertainment and tourist industries) can ill afford lengthy outages. Most of Con Ed's customers receive electricity from low-voltage networks. But even though a low voltage network that is supplied by approximately 24 primary voltage feeders can continue to operate even with two feeders out of service, Con Ed was concerned about the number of network feeder faults (between 1,500 and 2,000) experienced annually. The company has sought to reduce the time needed to
locate these faults and thereby
reduce the duration of outages.
Current technology enables maintenance personnel to locate faults by sending high-voltage pulses through the damaged lines and checking for the pulses along the system by entering manholes. When the signal can no longer be detected, the location of the fault is isolated to the section between manholes. Although effective, the process is time consuming, requiring six hours on average. Con Ed took its problem to Bell Laboratories, funding a project to develop an above-ground fault locator. Successful field trials found the prototype able to locate faults in less than 4 hours.
Based on the success of the prototype, Con Ed was then able to recruit EPRI and Eseerco to sponsor another project with Bell Labs to develop an even faster fault locating system. This system will use strategically placed sensors with highly accurate electronic clocks to localize the fault. If successful, the new system could reduce the time required to locate a fault from hours to minutes and reduce the application of high-voltage pulses.
The Bell Labs prototype, now in use at Con Ed, is estimated to reduce the time to locate faults by 3,000 to 4,000 maintenance crew hours per year. If successful, the newer technology could triple this savings.
A Proactive Future
The value of consortium R&D will become increasingly difficult to prove to electric utility executives who are experiencing increased competition from neighboring utilities and others new suppliers of electricity. Although collaborative research does leverage what a single company gains from its modest monetary contribution, consortium members must learn to cooperate in developing needed technology while protecting their own vested interests. New consortium guidelines must be established to ensure that the benefits exceed the potential liabilities. Different kinds of alliances may need to be formed between noncompetitors.
For Con Ed, proactive participation in consortium R&D as conducted by EPRI, GRI, Eseerco,
NYSERDA, and others has been a cost-effective way to develop needed technology. Through alliances with these organizations, the company has been able to leverage limited R&D dollars and maximize its financial returns. Value analyses have conclusively demonstrated that the company has received favorable and growing returns from its R&D investments. However, as competition increases there will be greater challenges for utility R&D personnel to develop and deliver beneficial technology more rapidly. The above examples illustrate how R&D personnel can contribute to their utility's competitive position by increasing the value of existing assets, building customer loyalty, and reducing system O&M costs. t
Dr. Robert Bell is vice president of R&D at Consolidated Edison. Wayne H. Seden is a consultant to the utility.
If You Don't Evaluate, How Do You Know it Works?Value analysis is a vital part of the total R&D management process-a report card of how well the individual R&D programs are producing for the company, as measured by the affected business units. Business unit personnel may be unaware of R&D results in their areas of interest, or maybe the results simply don't match up to real needs. Value analyses point out where these disconnects take place.
For planning and budgeting purposes, a company needs to evaluate programs based on their: 1) importance to business (unit) strategy, 2) prospects for producing future benefits, 3) externality benefits, and 4) unique capability (i.e., only available option), 5) asset value enhancement potential, and 6) past performance.
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