UMS Group is an international Management Consulting firm specializing in enterprise-level value creation and performance management solutions. We combine experienced consultants and seasoned industry professionals with world class tools and intellectual capital to assist our clients in diagnosing problems, designing solutions, and implementing change.
January 11, 2011
Utility to Save Up to $600 Million Through Capital Efficiency and Cost Reduction
PARSIPPANY, NJ – A large Canadian electric utility has reduced projected capital expenditures by $300-$600 million over the next 10 years as a result of a Capital Efficiency and Cost Reduction Program facilitated by UMS Group. The program also included creation of a process and planning infrastructure to achieve additional savings well beyond the current plan horizon while maintaining reliability and system performance.
The impetus for this program was an unsustainable level of projected capital investment over the next 10 years, which would have more than doubled investment in Generation and increased Capital spending by a factor of six for Transmission and Distribution. The drivers for these projected increases are the same as those confronting many electric utilities: 1) Increased demand for power, 2) Aging infrastructure, 3) Emerging and ever-changing environmental regulations, 4) Operating challenges relating to shifts in demand, 5) Transmission requirements to serve new “Green” generation sources, and 6) Emerging need for energy efficiency, conservation and load management to offset inevitable rate increases.
“Utilities struggling to meet these challenges need to apply sound asset management practices in order to optimize the tradeoffs inherent to these interrelated yet separate mandates,” said Jeff Cummings, Principal, UMS Group. “We’ve found that most utilities can reduce related projected capital expenditures by 10% or more.”
UMS Group challenged the forecast basis and methods used for the significant increase in capital requirements over the next 20 years using a three-step approach. First, a baseline was established by performing comparative analyses of Generation, Transmission and Distribution capital spending and performance among similarly situated utilities. Then current capital planning practices, processes and tools were assessed for: 1) Degree of alignment of investment priorities to company strategy, 2) Effectiveness of execution in basic contract and project management functions, and 3) Adherence to sound asset management principles. Finally, collaborative workshops were held to build alignment around recommendations and create action plans to close gaps in cost, performance and process effectiveness by applying industry “best practices.”
UMS Group’s pragmatic approach and strong operational grounding in each of these areas, access to best practices and benchmarks in cost and service level performance, and insights into investment optimization, were key to identifying and operationalizing the recommendations that will rapidly decrease this utility’s capital expenditures and establish their process and knowledge infrastructure to achieve sustained savings.