Electricity Today July/August 2009

THE CASE FOR ALLIANCE PARTNERSHIPS
By Parvez Patel and Robert Zabors

In recent years (now known as ‘the good old days’) as utilities focused on capital projects to meet projected load growth, managers of supply chains faced a two-front battle – investing in growth while managing existing assets. They faced a difficult set of challenges:

• Increasing supplier power due to labor shortages and consolidation of service & materials providers;

• Rising fuel costs that increase parts and service costs;

• Volatility and increases in commodity prices, as global markets forecasted tight supply and increasing demand, driving up costs for key components in generation, transmission and delivery;

• Aging infrastructure and aging workforce;

• Stricter compliance while facing uncertainties of future regulation and technologies (e.g. Smart Grid).

For the near term, at least, the model has shifted – challenging even the most agile supply chain. Billions of dollars of capital project deferrals have been announced in the last few months – driven by concerns around demand growth and in some cases to maintain liquidity in uncertain capital markets. There is also the potential for cancellation of future growth projects that looked certain only a few months earlier. Low natural gas prices and a new set of environmental regulations threaten large coal and nuclear construction projects in the development pipeline, while transmission projects appear to have greater support.

But the asset management challenges of aging utility infrastructure remain regardless of the economic climate.

To paraphrase several utility executives at a recent supply chain conference – ‘most of the deferred projects cannot be considered discretionary. Costs may be deferred, but they will be required at some point.’And regulatory expectations for service standards show no signs of accepting lower performance. (Potential reference to the current ice storm?)