A new approach to utility asset management.
Charles D. Feinstein is an associate professor of operations management and information systems at Santa Clara University and the CEO of VMN Group, LLC. Jonathan A. Lesser is the president of Continental Economics, Inc.
Natural gas and electric utilities have always been concerned about reliability and safety, and each year spend billions of dollars repairing and replacing transmission and distribution assets. However, unlike the commodities they sell, there are no markets to value safety and reliability. Utilities can’t purchase these attributes directly, but instead must determine the best targets for each, while constrained by available resources. There are no guarantees. No system is 100 percent safe or reliable. No amount of planning or investment can completely eliminate sudden, unplanned equipment failures.
In fact, reliability and safety share characteristics of public goods. Customers along a specific distribution line, for example, can’t choose different levels of reliability; it’s the same for all of them. Thus, utilities must somehow determine how best to provide needed safety and reliability at the lowest possible cost. And state utility regulators must be able to evaluate those determinations accurately and independently.