1. Project Summary
Essential Energy has embarked on a whole-of-business asset management focussed business transformation with ambitious targets which, when met, will enable Essential Energy to meet net zero and rapidly evolving industry challenges. This project involved the uplift of Essential Energy’s capabilities to create 14 network strategies, 26 asset class strategies and 7 implementation strategies to create line of sight and build quantitative risk models to provide real reductions in customers’ distribution network charges while maintaining the current levels of network risk. The project is creating a step change in capabilities to enable the implementation of risk-based asset management approaches.
2. Project Description
Project objective and scope
Essential Energy has embarked on a journey to uplift its network investment methodologies to deliver greater value to its customers.
The Asset Strategies Project commenced in mid-January 2020. Over four phases the Project Team is producing 14 network strategies, 26 asset class strategies and 7 system/implementation strategies. As of 5th March, the work completed includes 11 network strategies and 12 asset class strategies. Three system strategies will be completed by the end of April this year, with the remaining strategies be completed by November 2021.
Best practice asset management principles
The asset management strategy methodology incorporates the best practice principles of:
- Line of sight – Activities and approaches in the strategies can be traced to corporate objectives.
- Whole of life– The total costs of asset ownership are optimised to provide the required function.
- Support System – Our strategies have included all the enabling elements of the asset that allows it to operate and create value for the organisation.
- Value – The full benefits (returns) on investment are clearly demonstrated.
The asset strategies’ methodology is also based on the SALVO (Strategic Assets: Life Cycle and Value Optimisation) decision making methodology as illustrated for poles below:
Essential Energy has established a line of sight from corporate objectives through to strategy (“What” and “Why”), investment planning (“When” and “What” following AER Regulatory Determination of the five-year plan) and works delivery by Customer and Network Services.
Line of sight asset management objectives with performance targets have been defined for each corporate business driver in the strategies.
Given the competing priorities of time, cost and quality (i.e. depth of analysis), it was decided that 26 asset class strategies would be developed to establish a baseline maturity level across the network, with selected ‘deep dives’ into high value areas.
Another principle of the asset strategies’ methodology is the concept of iterative development which is related to the ‘80/80’ approach. Aiming for strategies that are 80% right and 80% implemented is better than 100% right and 20% implemented.
The asset class strategies include a 20-year network risk forecast and whole of life costs for different risk scenarios as shown for circuit breakers below:
Asset Management tools
The quality of asset management analysis and decision-making has been uplifted through an improved strategy development process and several tools developed jointly by Essential Energy and KPMG. These include:
- Asset Class Strategy Development Process;
- Network risk model bow-tie analysis;
- Risk monetisation through the Appraisal Value Framework;
- Levels of Probability of Failure Modelling linked to asset strategy levers; and
- A poles ‘deep dive’ model.
Each of these is presented below.
Asset Class Strategy Development Process
The asset class strategy development process has been designed to align with SALVO steps 1 to 4. Improved life-cycle decisions are identified, where applicable, for asset management, engineering, innovation and Customer and Network Services as shown below.
Network risk model bow-tie analysis
The development of a network risk model for each asset class strategy is based on an analysis of asset class population including failure modes from a Failure Mode Effects Analysis (FEMA). The bow-tie model includes ownership of controls for failure consequences as given below for Overhead Switchgear functional failure.
Appraisal Value Framework
The Appraisal Value Framework measures monetised risk including the residual risk after an asset intervention action as shown below for a pole:
The Appraisal Value Framework quantifies the cost of consequence for network investments. A consequence of failure example for Overhead Links, Switches, and Fuses is shown below with a Power-BI map of asset class risk at the depot level. Totals show the consequence cost should the entire switchgear fleet fail.
Level of PoF Modelling linked to asset strategy levers
Depending on the quality of data, a PoF model can be developed at the asset level (including sub-populations) or failure mode level. The asset management decisions that can be addressed increase in complexity with the 7 levels as shown in the diagram below.
Essential Energy and KPMG have further refined this concept to define the asset management strategy levers that can be addressed across the asset lifecycle of acquisition through to intervention.
Poles Deep Dive PoF Model
A level 1 PoF Model was not able to address several asset management problems that Essential Energy wanted to address. Several software tools were tested, but due to the specific challenges of electricity assets, they were not deemed fit for purpose.
A level 5 PoF custom-built Poles model was built in Python to answer these questions:
- Inspection interval review:
- Pole inspection frequency by sub population (pole type & consequence)
- Impact of aggregation due to deliverability constraints (value lost)
- Forecasts using Probability of Failure (population level) applied at the population:
- Risk Forecast
- Maintenance Forecast
- Impact of primary differentiators and acceleration factors
Some examples of the model outputs are given below for all failure modes.
The Asset Strategies Project has adopted a co‐sourced model between Essential Energy and KPMG for the implementation of the project. This model balances the capability available internally in Essential Energy with expertise externally from KPMG to support the successful delivery of a project of this magnitude.
The quality of project management has also been enhanced by:
- A Joint Resource Schedule to effectively manage resources allocated to each strategy;
- A pre-read meeting conducted two to three weeks before a new strategy commences to identify key documents to review and data requirements; and
- A priority work plan for each strategy by week three to confirm the problems to be addressed in this iteration and PoF modelling level.
Benefit/value to Customers
The project focus is on two planning horizons to deliver future value benefits to customers:
- FY 2024-29: Strategic expectation – i.e. downward pressure on customer prices. Reduce costs while maintaining risk through the period.
- FY 2029-34: Unconstrained view and ‘what would happen to risk if we do nothing’.
The diagram below illustrates how the Asset Strategies Project will support the next AER submission in parallel with the implementation of the new Enterprise Asset Management System.
3. Opinion as to specific contributions made by the Project Team
“Asset class strategies provide the foundation required for good decision-making to achieve a sustainable balance between cost, risk and performance. In my experience there is a tendency for asset-intensive organisations to jump straight to deploying data and analytics solutions without first establishing clear strategic guiderails. The work carried out by Essential Energy’s Asset Strategy project team provides the clearest and most easy-to-understand framework I have seen to date against which we can realise short-term gains with the confidence that longer-term objectives will not be compromised in the process.”
Chief Transformation Officer
“Essential Energy has embarked on a whole of business asset management focussed business transformation with ambitious targets which, when met, will set Essential Energy up to be the frontier Electricity Network in Australia and enable it to play a leading role in the transition to net zero.
Essential Energy is not simply digitising existing ways of working and chasing a ‘cost out’ outcome. It is critically reviewing every aspect of its Asset Management System to ensure that it is improving customer outcomes such as safety and reliability while achieving sustainable reductions in its cost base through the implementation of an Asset Management System at world class levels.
At the heart of this transformation is the Asset Strategies Project which has been created fundamentally reassess everything Essential Energy does and tie it back to business objectives and customer value using the world leading SALVO approach. This uplift in Asset Management Capability is unprecedented in its scale, completeness and ambition.”
Executive Manager Engineering
4. General Comments
Successful delivery through COVID-19
The Asset Strategy Project commenced in mid-January 2020 as combined Essential Energy/KPMG project team. From the outset, the Project team organised a business SME launch in February to discuss:
- Project overview and deliverables
- Ways of working with effective business SME engagement
- What is good asset management?
- Network strategies – purpose, scope and outcomes; and
- Asst class strategy – purpose, scope, and outcomes.
In late March 2020, due to COVID-19, the Executive decided to continue the project on remote working basis. All work has been conducted remotely with team and SME interactions via Zoom meetings. The early engagement with business SMEs contributed to work continuing with minimal disruption as effective working relationships had already been established between the project team and the SMEs.
A project team survey in May and June 2020 showed that the remote arrangements were working without impacting the quality of deliverables.
“Overall satisfied with how the project is tracking and noting the current COVID-19 climate with some of the thoughts of where we will focus our efforts to mitigate the project risk. The team has well and truly embedded themselves and the cultural fit is great.” (May 2020)The Asset Project Strategies Team
|Asset Strategies Project Team
Sherrie De Domizio
Standard asset class strategy development process
A standard asset class development process is now embedded and is being using in the Phase 4 asset class strategies being developed by Essential Energy staff.
SME Kick-off meeting
Priority work plan
Asset Class Strategy Deliverable
Each asset class strategy has a reference document in WORD that contains more technical information and assumptions that support the strategy.