Analysis of 10 years of data collected from owners and operators of hydroelectric facilities reveals several important trends. The common theme seems to be the need to do more with less, in regards to staffing, maintenance, support and more.
By Kerry J. LaLiberte
Owning and operating hydroelectric generation assets in North America has become an increasingly complex task. Scarce resources are being stretched to deal with a myriad of issues:
– Aging assets demand refurbishment to maintain acceptable levels of reliability;
– Competition is increasing for operations and maintenance (O&M) dollars among types of generation assets within an organization;
– Heightened regulatory requirements related to station security and cyber security are prompting changes that increase operational costs; and
– An aging workforce threatens to undo decades of accumulated knowledge as valuable employees move into retirement.
These and other issues have created challenges as owners and operators of hydro facilities struggle to maintain their operations with less.
Over the past decade, Navigant Consulting Inc. has been observing these emerging issues and advising owners and operators how to best respond to these and other management challenges. Successful hydro generation companies of the future must change how they structure and manage their operating organizations. Navigant provides Generation Knowledge Service® (GKS®) benchmarking for fossil, hydro and wind generation facilities. The source of the information for this article is Navigant’s GKS Hydro® benchmarking service (see box on page 28).
Rethinking the hydro organization management structure
Ten or 15 years ago, it was common to find traditional O&M management organizations at most hydro generation facilities. These organizations were most often functionally based and had multiple layers of middle managers who reported to the plant manager (see Figure 1 on page 30). Today, only the largest hydro generation facilities still use this structure. The medium-sized and small stations have largely abandoned, regionalized, or chipped away at this traditional structure to reduce personnel and minimize management costs. Management cost reduction has been primarily accomplished in two ways: regionalization and “flattening.”
Regionalization is where a traditional organization for a hydro station is “stretched” or expanded to cover more than one facility. This makes a lot of sense, especially for smaller and medium-sized stations. Essentially, rather than having individual organizations, one management structure is created for a group of stations located in a particular region to share management staff over multiple facilities (i.e., a group of stations on a river system or some other combination). Depending on the level of regionalization, this consolidation can have a significant impact on the bottom line.
Flattening the management structure involves eliminating layers, then transferring those responsibilities up to the next level or down to the subordinate position. Usually, this approach is accompanied by broadening the roles and responsibilities of the remaining positions, eliminating the gap created by the flattening. A number of smaller hydro management organizations, for example, have eliminated craft supervisor positions and transferred the responsibilities to craft foremen.
Additionally, Navigant has observed hydro operating organizations that have both regionalized and flattened management structures, resulting in even greater management cost savings.
Remote control is essential for all, except the very largest
Operators of locally-controlled, small or medium-sized hydro facilities are beginning to move toward a remote-controlled environment. In 2001, about 40% of the hydro units in the GKS Hydro® database were remotely controlled. In 2011, that jumped to 53%. That shift is most likely driven by economics. Navigant’s database has shown that automated/remotely controlled facilities cost significantly less to operate than those with on-site control rooms. Figure 2 on page 32 compares the average cost per generating unit to operate the station (staffed on-site control rooms vs. remotely controlled) by various unit sizes. Annual cost savings are dramatic, and the savings will continue indefinitely into the future. As the figure demonstrates, smaller-sized units show the biggest cost difference.
There are some cost saving caveats. Those organizations with the best cost performance have significantly reduced the number of or eliminated altogether the operators on-site. However, when operator positions are eliminated, these responsibilities shift to the maintenance staff. This requires additional training for the maintenance staff that, depending upon their capabilities, could be significant. With sufficient training, Navigant has observed very successful implementations using this approach.
Surprisingly, very large facilities that have remote-controlled units in the GKS Hydro® database have not shown a significant cost advantage over facilities with fully-staffed, on-site control rooms. This apparent anomaly is due to the fact that most have not fully eliminated on-site operators for risk reasons, precluding the labor cost savings that would occur. Managers of large facilities should be aware that remote control will not pay dividends if the facility cannot deal with the risk of an operator/maintainer assuming the role of a traditional operator.
Workforce flexibility is key
Upon visiting a remotely-controlled medium or smaller-sized facility, most individuals not familiar with how hydro facilities are operated and managed are shocked to realize how few people are at the plant on a day-to-day basis – and that’s the rub. A maintenance worker dispatched to a remote plant must be capable of performing all the tasks required. If not, additional staff must be dispatched to perform the activities that are beyond the capability of the original person. As has been seen with Navigant’s fossil benchmarking program, GKS Hydro® benchmarking has shown an increasing use of a multi-skilled, multi-functional workforce that increases the efficiency and cost-effectiveness of the operation.
Figure 3 on page 33 lists the more common skill classification combinations Navigant’s subscribers have tried. All of the combinations pay dividends, but the most successful from a cost perspective have created multi-functional (O&M) and multi-discipline (electrical, mechanical, technician, laborer) positions. Often referred to as a “hydro utility worker,” this individual can perform most activities at the station. Moving to this structure requires a good deal of training, but the flexibility provided has shown it is more than worth the investment.
Time-based maintenance cycles are being stretched or eliminated
Those familiar with how maintenance work on core generating assets in the hydro industry is planned and scheduled have heard the term “annual.” The annual is a time-based cycle under which inspections, cleanings, adjustments and repairs are performed on crucial pieces of equipment. The turbine, generator, generator breakers, governors, generator step-up transformers, compressors and more traditionally have been on this annual cycle list. The GKS Hydro® benchmarking program has been tracking the time-based maintenance cycles for this equipment and compared the average cycle times from 2001 to 2011. For major pieces of equipment like the turbine, generator and step-up transformer, the average time-based maintenance cycles have been extended from about a two-year average in 2001 to about a three-year average in 2011.
The impact of these extensions on the overall maintenance programs of each subscriber has been significant. The base man-hours associated with performing these inspections/repairs, multiplied by the number of units in the system, results in very large maintenance man-hour numbers. Extending these cycles certainly impacts the bottom line.
However, is a time-based cycle approach the best method to determine when maintenance is required for core generating equipment? Hydro operators have been slow to move away from this approach over the years, but change is on the horizon. Given the squeeze on O&M dollars, owners and operators are seeking to obtain the best return on their expenditures. Again, as experienced by fossil generating organizations, more focus has been placed on equipment monitoring, condition-based assessments and other methods to distribute the maintenance effort to where it is most needed.
Routine maintenance is all they do now
Years ago, it was not uncommon for owners and operators to maintain large heavy maintenance groups that supplemented station or regionally-based staff to perform major overhauls. The scope of this work typically was broader and included more intensive repairs and reconditioning work than that covered in an annual or biannual inspection. The skills required for individuals in these groups were specialized, gaining experience from years of performing similar overhaul work across the system.
Today, although Navigant does not have specific statistics to support this viewpoint, subscriber interviews indicate there is a shift away from owners and operators performing this work. In addition, the advent of a newer multi-functional and multi-disciplined work force, and the generalist nature of this new “hydro utility worker” employee type, increases the chasm between their skill set and the specialized skill set of the major overhaul staff. As a result, a number of major hydro organizations are moving away from, or have disbanded, central heavy maintenance groups and now rely on contractors to fill the gap. Most of Navigant’s subscribers now focus on the routine maintenance and are gradually losing their capability to perform the big maintenance jobs in house.
The new maintenance “expert”
An aging workforce and ongoing retirements over the past 10 years have significantly impacted how owners and operators plan for the future. While most have brought on younger workers to deal with attrition, as well as stepping up training activities to transfer knowledge to the next generation, owners and operators are beginning to use technological advancements to aid in maintenance management. Hydro has been slow to introduce this concept when compared to other types of generation. Perhaps the low cost of generation, combined with high reliability, has kept sophistication at bay. Ten to 15 years ago, many operators had not introduced computerized maintenance management and relied on people’s memories, paper files, and standard practices to manage maintenance activities. There didn’t seem to be a reason to move from the approaches that worked well for years.
This situation has changed over the past decade. Today, practically all of our subscribers have introduced computerized maintenance management into their operations and rely on these systems to help control maintenance activities. Furthermore, many are now viewing these systems far more broadly, fully expecting that the maintenance information being fed into computer histories will ultimately become an extremely valuable repository, helping to replace some of the knowledge in the heads of the retirees. Many have high expectations for the databases they are attempting to build and are hoping these systems will become the new maintenance “expert.” This is a significant shift for an industry steeped in tradition and resistant to change.
The support services factor
GKS Hydro® benchmarking takes a holistic approach in how to benchmark hydro. The system benchmarks the entire hydro business as if it were stand-alone. In this manner, the data collected is a comprehensive analysis of all the appropriate costs to run that business and establish a solid basis for comparison across participants. As part of doing this, Navigant has created high-level profiles of the sources of costs that drive bottom-line O&M costs. Figure 4 shows the average cost distribution for stations comprising our benchmarking database. The chart demonstrates the functional pieces of O&M costs: operations, plant maintenance, waterways and dams maintenance, buildings and grounds maintenance, support services, and public affairs and regulatory.
The largest chunk of costs (about 36%) is regulatory driven and comes from requirements associated with the operating license and not related to generation. Costs for fish mitigation, visitor’s centers, parks, recreational facilities, taxes, water rentals and environmental controls are included in the chart. Most consider these costs largely uncontrollable and a cost of doing business. Public affairs and regulatory costs have fluctuated over the past 10 years, from a low of 33% to a high of 38%. The next largest chunk of cost is support at 27%. That chunk of cost should be of considerable interest to the industry because of its size, its growth (was 24% 10 years ago) and the relative inability of the hydro manager to control it. Unlike public affairs and regulatory costs, support costs have steadily risen over the past 10 years.
Support costs include a variety of crucial services for the hydro generation team: corporate management staff and facilities, fleet, purchasing, human resources, warehousing, accounting, legal, information services, training and security. Most of these costs emanate from central organizations and are either billed or allocated to station organizations or collected at the corporate level. How hydro organizations account for these costs is another discussion entirely, but the reality is: these costs are huge, hydro generation management has limited control over the level and quality of the service being provided, and if they don’t use the service they most likely will get billed for it anyway.
The downward pressure on O&M costs is unlikely to disappear. Most hydro owners and operators must focus their attention on how these support services are provided in the future. If history is any guide, support services cost will continue to grow and chip away at cherished maintenance budgets.
So what’s next?
It’s certainly difficult to predict the future, but a continuation of the current trends seems likely. The trends discussed here all share a common theme – using less. This all-important “less” is less labor resources, which translates into a future of: more organizational consolidations, more required flexibility in the workforce, more reliance on information systems and increased awareness of the drivers of your business costs.
Background on the GKS Hydro® service
The source of the information for this article is Navigant Consulting Inc.’s GKS Hydro® benchmarking service. GKS Hydro® is a web-enabled subscription benchmarking service that provides a diagnostic assessment of each participating company’s performance relative to industry peers. Using cost and operational performance benchmarks as an objective baseline, companies gain an understanding of improvement opportunities that can be used to identify and close performance gaps.
First implemented in 1994, GKS Hydro® combines quantitative benchmarks with management consulting expertise to assess each participant’s hydro generation business. The process that Navigant has developed through this program helps build industry awareness, establish a solid basis for comparison, and position companies to implement meaningful performance improvements. This service provides a knowledge base of more than 100,000 MW of installed capacity.
Kerry LaLiberte is a director with Navigant Consulting Inc., whose Energy Practice includes more than 350 experts focused on issues across the entire energy value chain, including renewables, as well as providing energy market research reports.