PPL’s Use Of Capital Budgets May Only Bring Short Relief To Chronic Blackouts

[This is one of my old notes which I am republishing in the new Facebook notes feature]

The context under this heading is based on an opinion piece by a Mike Levery taken from the July 2013 issue of the Asset Management and Maintenance Journal. Mike very subtly highlighted the increasing use of capital budgets to solve operational issues of asset intensive regulatory industries like power and why such use of CAPEX in such industries will only bring short term temporary relief to shareholders and stakeholders.

This has its relevance to what PPL is currently doing (increasing capacity through capital investments) to address issues of unreliable power supply in PNG and the chronic power blackout experienced in major towns and cities in PNG today.

In an attempt to improve productivity in the 1970s in UK, particularly in the state sector, a new term, terotechnology, was introduced. From the Greek word tereo meaning to "take care of' and technology.

Unfamiliar? It was an attempt to look at the whole life operation of assets and, for the first time, brought the concept of time-based planned maintenance into industry. The definition in the Oxford English Dictionary is "the branch of technology dealing with installation and maintenance of equipment". Today, this term, terotechnology, is no longer used; instead we have Asset Management.

Asset Management has evolved in the first decade of this millennium to gain worldwide accreditation for a standard in the whole life management of assets, driven particularly by the Institute of Asset Management's (IAM) introduction of PAS55.

The maintenance element has become just a part of the asset management jigsaw and, in some sectors, an increasingly minor part.

IAM have been at pains to point out that asset management is not asset maintenance, and a number of maintenance managers have re-branded themselves as "asset managers" in an effort to gain greater credibility in their organizations. The implication seems to be that nowadays maintenance is somehow a low-status, unglamorous and unproductive activity.

Whilst in manufacturing and process industry the principles of terotechnology are still fundamental to any maintenance regime, that is not the case in the regulated industries. Whether it be gas, water, electricity or rail, the focus has shifted to the financial aspects of Asset Management, and in particular capital investment. Whilst operating costs continue to be driven down through "efficiency initiatives" in order to deliver short-term shareholder gains, capital investment has increasingly been used to resolve operational issues. In other words, "asset management" has been reduced to running plant until it fails and then using capital budgets to pay for replacement. At the same time maintenance has been reduced to a crisis-driven reactive activity.

Gone is the recognition that effective maintenance using the principles of terotechnology greatly reduces capital investment requirements and hence overall cost, particularly in dealing with asset failure.

Mike concluded that perhaps it is time for the renaissance of terotechnology within an asset management framework in the regulated sector.

PPL needs to get this asset management basis right of operating and managing an asset intensive utility business like power generation and distribution. Having a reliable supply of electricity would mean having its power generation and distribution assets operating at high availability and utilisation levels.

When it comes to management of power generation and distribution assets the focus of PPL it seems has shifted to the financial aspects of asset management, and in particular capital investment. What I think seems to be happening now at PPL is that operational issues are being increasingly addressed by capital investments. That is, the power production assets are being run-to-fail and then using capital budgets to pay for replacements (or boosting capacity without putting in place proper maintenance plans). This will bring short term shareholder gains and temporary relief to PPL management and its customers but will be costly for all in the long run. I think maintenance at PPL is still a largely crisis-driven reactive activity and that significantly contributes to poor utilisation of already installed capacities.

One measure of effective utilisation of power generation assets is the load factor. It is the ratio of system average power generated to peak power demand over a period of time. An Asian Development Bank's (ADB) benchmarking study titled 'Finding Balance: Benchmarking the Performance of State Own Enterprices in Papua New Guinea' that was released in September 2012 reported that PPL has comparatively low load factor of 41%, compared with an average of 66% for the other six power utilities in the region. Even though we have an installed capacity of 292 MW with a combined transmission and distribution losses of 22% and a maximum demand of 92.2 MW, PNG only managed fewer than 50% comparatively. This is an indication that the maintenance management of PPL's power generation assets is comparatively less efficient.

I think PPL know where it wants to go in effectively maintaining its power generation and distribution assets and maximising the full potential of its installed capacities but it just does not know the 'nuts and bolts' of getting there. Perhaps its leaders in the maintenance function (Performance Engineering) just do not know how to get PPL there.

The bottom line is that effective maintenance will improve the availability and utilisation of PPL's production and distribution assets and in the long run reduce capital investment requirements and hence overall costs, particularly in dealing with assets unplanned failures and inconsistent (unreliable) power supply.

On Business PNG on EMTV in July (16/07/13) the issue of 'not so constant' power supply was discussed. This unavailability of low cost power production, affordability and reliable power is reported to be similar to law & order that is making it difficult to do business in PNG.

One of the contributory issues to short falls in meeting demand that was discussed is the lack of interconnectivity of the power grids (Port Moresby, Ramu and Islands). The other was the challenge of meeting the increasing power demand by looking to alternate energy sources. Also discussed was the efforts being undertaken to meet current and future demands with the installation of additional capacities (in both thermal and hydro).

Privatization of PPL was also brought up as a solution to address lack of constant power supply, but, provision and controlling of power is a big business in the country and is something the government will not give up easily. So the solution of privatization is not going to be possible.

However, not surprisingly PPLs efforts for the long term issues of sustaining adequate power supply by strategic maintenance of existing and newly installed assets did not get much mentioned in that program (PPL had started a new division called Performance Engineering in mid 2010). But I do hope that PPL (and the government) is also throwing resources behind the scene to have effective maintenance strategy for its critical production assets in place for the years to come.

I have highlighted before in my post and notes titled ‘The Devil Is In the Details’ that PPL had inherited from ELCOM a legacy of poorly maintained asset intensive business which I believe is the dominant but subtle cause of a majority of our unreliable power supply problems faced today.

Finally we now hear the State Enterprise Minister, the Honorable Mr. Ben Micah, acknowledging and attributing the problems of unreliable power supply to legacy.

How then do we address the challenge of correcting legacy and atoning bad precedence? Do we keep executives who are tied to the old ELCOM way of operation and maintenance and keep on doing what we have been doing by maintaining power productions assets in a ‘project’ mode?

Following the 'old school' modus operandi of operating and maintaining the power generating assets of PPL has not got us very far from where we were or very close to where we want to be. Even when we do eventually achieve the desired power generation capacities through capital investments, the present run-to-fail asset maintenance strategy will certainly not sustain, and at optimal operational costs, the increased generation capacities reached.