A Rising Tide

Issue 4 and Volume 106.

By Brian K. Schimmoller
Managing Editor

My January opinion piece discussed the growing trend toward a back-to-basics business strategy in the energy industry, as companies began to retrench and refocus on core strengths in response to the slowing economy and the Enron debacle. In the intervening months, this trend has only accelerated at a corporate level, as Wall Street, investors, shareholders, company boards, and the media all put on their detective hats to ferret out potentially damaging, or at least suspect, business practices.

The current unrest in the power generation sector – canceled and/or delayed power plant projects, more and more power plants being put up for sale to improve balance sheets, concerns over the viability of various financing models – calls for a back-to-basics approach at the individual asset level as well. A key component in ensuring success at the corporate level is by ensuring success at the individual asset level. This will help to ease unrest and anxiety, and provide a tangible rallying point in the face of falling stock valuations, credit-worthiness, public perception, etc.

The path to success at the power plant level should be built around benchmarking, which, depending on who you’re talking to, can either be a four-letter word or a 12-letter savior. Modern benchmarking should not be equated with the “benchmarking studies” that many consultants pitched to the utility industry 5-10 years ago – studies that took a year to 18 months to complete and often had little tangible payback. Instead, modern benchmarking should be approached as a data- and results-driven tool with which to gauge performance relative to a peer group and implement near-term changes to improve performance.

Some people believe that benchmarking will be next-to-impossible in an increasingly competitive power generation environment, as power plant operators keep operating data and O&M strategies in Al Gore’s proverbial “lock box.” I’d argue that exactly the opposite will occur. In an uncompetitive, vertically integrated utility market, benchmarking was easier since utilities shared data more readily, but it actually meant relatively little. No one – not the utility commissions, not the shareholders, not the public – demanded that utilities and their power plants become top performers.

Conversely, when the make-or-break economic fate of utilities and power plants is at risk, relative performance takes on added significance. The U.S. nuclear industry, in the aftermath of Three Mile Island, recognized that benchmarking was essential to its very survival. As terms like top and bottom quartile infiltrated and took root in the nuclear consciousness, performance improved, to the point where the nuclear industry is now operating at record levels.

The rest of the power generation industry has been slower to adapt. The World Energy Congress presented the following conclusion at its most recent meeting in October 2001: “If the substantial gap between worldwide average performance and the top performing plants could be eliminated through the application of best practices, this would result in an estimated savings of up to $80 billion per annum in building and operating capacityellipse” The World Energy Council’s Performance of Generating Plant (PGP) Committee has been collecting data from fossil and nuclear plants for three decades, but, as the quote suggests, there is still much room for improvement. Recognizing the concerns plant owners have about collecting and sharing sensitive competitive data, the PGP Committee is planning to publish examples where the derived value associated with benchmarking and open dialogue clearly exceeds the cost plus risk.

“The power industry is not used to sharing data outside of the traditional government channels such as NERC and DOE,” says Brad Whitlock, Principal with Navigant Consulting, which offers a commercial benchmarking product called Generation Knowledge Service (GKS). “But as the data sources dry up, asset owners are going to have to share data in other ways.” The crux of the matter is sharing this data in a manner in which security and confidentiality are maintained. The GKS software system, for example, enables users to see who makes up their peer group of power plants, but does not let users see which data points (reliability, cost/kWh) are associated with which plants. “Our users are comfortable with sharing this level of detail for the benefit they gain,” says Whitlock.

Many power plant owners benchmark within their own fleets. This is necessary and valuable, but it’s inherently limiting as well. A wider net must be cast. So don’t be afraid to share some internal data and operating strategies and pit your plant against its peers. By all means, take any and all measures necessary to guarantee data confidentiality, but don’t let these concerns get in the way of benchmarking efforts. Benchmarking is the most direct path to improvement, for your plant and for the industry.

Simply put, a rising tide lifts all ships.

Reinforcing the benchmarking and knowledge-sharing themes, I wanted to take this opportunity to recognize a new feature being launched with this issue of Power Engineering. Called “Managing the Plant,” this column will share the experience and expertise of power plant managers from around North America, at plants large and small and of every design and configuration. The focus of the first installment is Tennessee Valley Authority’s coal-fired Cumberland Fossil Plant, and its plant manager, Leonard “Bud” Hancock. I encourage you to learn about some of the strategies Cumberland is using to enhance its performance. I’m confident you’ll come away with some ideas to consider for your facility; even if not, it will provide an excellent benchmarking exercise.

If you have any comments or suggestions about the “Managing the Plant” column, or nominations for candidate plant managers to feature, please let me know at [email protected] or 918-831-9866.