An Optimized Approach to Management of Critical Infrastructure

Posted on June 18, 2015

Age is the silent killer of America’s critical infrastructure.  In 2013, the American Society of Civil Engineers (ASCE) graded this infrastructure a D+ and noted that the majority is being pushed far beyond designed limits and intended life.  In 2013 alone, investor owned electric utilities and stand alone transmission companies invested a record $37.7 billion in transmission and distribution infrastructure, to strengthen the grid [1].  In order to avoid mortgaging the financial health of future generations, stewards of this infrastructure have an obligation to find more innovative and effective ways of dealing with the maintenance of our nation’s critical assets.  

A critical part of this aging infrastructure is the electric power grid that supplies power to our nation.  Utilities, industrial and manufacturing plants, hospitals, commercial and government campuses, municipal water treatment plants and other critical facilities rely on underground power cable systems.  Additionally, in many residential neighborhoods, underground residential distribution (URD) of electricity has been commonplace since the early 1970s.  Due to replacement costs, limited budgets and other constraints, many of these underground assets are currently being operated beyond their designed and anticipated life expectancy.  While many of these assets have been relatively dependable over the past few decades, failure rates are beginning to increase, leading to costly outages and emergency repairs.  With consumers demanding improved grid reliability, this increase in failure rate is troublesome, as it impacts reliability indices, valuable production uptime, worker productivity and public image.  The utility may also incur an earnings penalty for failing to meet mandated reliability targets.

So how, then, do utility companies deal with these critical, aging and increasingly failing assets?  Some simply choose not to.  In a reactive or “run to failure” strategy, assets are operated to the point of failure and then repaired or replaced.  Though this strategy is cost efficient in the short term and maximizes the useful life of each individual asset, it is a poor long term strategy.  It will lead to an aggressive rise in failure rates over time, widespread outages, customer complaints and subsequent action by Public Utility Commissions (PUCs) or other regulatory bodies.  Ultimately, this strategy will lead to higher operations and maintenance (O&M) costs, impacting the utilities bottom line financial performance.

Other utilities prefer to take more proactive action, replacing segments of their underground cable population based on a prescribed set of gating and prioritization criteria.  Perhaps the most common proactive measure is to replace assets based on their age or vintage.  For example, the underground cable in all neighborhoods that are more than 30 years old might be replaced wholesale.  This approach can quickly become costly, resource draining, time consuming and inefficient.  Let’s assume a utility has 10,000 miles of aged URD cable, a fully burdened replacement cost of $20 per foot and an annual underground cable program budget of $30 million.  To manage within budget, this utility can replace around 284 miles of URD cable each year.  At this rate, it will take more than 35 years to replace the entire 10,000 miles.  Depending on the assumed useful life of the cable, the utility may become entrenched in an endless loop of replacement.  This is somewhat akin to washing every window of the Empire State Building by hand; by the time you reach the last window at the top of the building, the bottom windows are once again dirty. 

Much like human beings, cables do not age uniformly.  Analogously, if two or three cavities are found during a routine exam, you would likely not expect your dentist to suggest extraction of all your teeth and replacement with expensive porcelain veneers.  Underground power cable assets are no different.  Well performing assets are often located right next to severely damaged or defective assets, making age a poor predictor of remaining useful life or expected future performance.  As a result, age based strategies often lead to the replacement of a significant amount of perfectly good (but aged) assets, along with the bad.  Since only replacement of defective assets will bring down the failure rate of the overall population, it will often be years or even decades before this strategy will pay dividends by way of improved system performance and lower operating costs, since much time, effort and capital is spent replacing cable that was never the cause of outages.

Another common proactive approach employs a measurement system and prioritization of cable replacement based on a combination of failure history, repair attempts and criticality.  A typical “three strikes and you’re out” ranking system calls for replacement of any underground assets that have experienced more than three failures and subsequent repairs.  Cables with three strikes are added to a running list of assets slated for replacement.  However, in many cases, a fair share of these assets may fail again before they are replaced.  The same example utility we previously discussed would still only be able to get to the worst 284 miles worth of cable on the list.  As such, this approach, like the aforementioned age based replacement strategy, may quickly become limited by resource availability, cable replacement budget or inefficiency.  Growth in replacement backlog will often outpace the utility’s ability to replace assets, leading to a rise in failure rates that can only be leveled or reversed with unsustainable increases in annual replacement budget.

Being that budget and electricity rates cannot be increased limitlessly and resources cannot be endlessly multiplied, utility companies are continuously in search of a more efficient and effective solution – a solution that walks the balance between the cost effectiveness of “run to failure” and the easily capitalized yet costly nature of replacing underground assets wholesale based on age or previous performance.  In all previously discussed proactive methods, asset age or historical performance are used as informational proxies for prioritization of replacement, since the actual condition of each asset is not known.  But what if that condition could be determined?  And what if the health of each asset could be reported with the precision required in order to determine the exact location and nature of each independent defect within the cable system?  This valuable information would certainly make the prioritization of cable replacements much more fact based, efficient and impactful.  In addition, it would provide the opportunity for targeted repair of assets with only minor defects, prior to failure, preserving replacement budget, avoiding outages and saving time. 

Several forward thinking utilities across the country have made this concept a reality and are currently identifying and extending the life of their underground cable assets through fully capitalized assessment and rehabilitation programs.  By precisely assessing the actual health of each asset, these utilities are able to discard the broad brush and take targeted action, repairing or replacing only those assets that will be truly responsible for the future outages experienced by their customers.  In fact, on average after over 50,000 assessments, these utilities have been able to determine that over 72% of aged underground assets still meet the manufacturers’ quality standards with no required action, and can be expected to perform as well today as they did decades ago.  By deferring replacement costs related to these well performing assets, these utilities can now dramatically extend the reach of its annual budget, by taking strategic and targeted action on only the remaining 28% of assets that require repair or replacement.  Returning to our previous example, the utility now has only 2,800 miles out of the 10,000 mile population that need to be addressed.  In addition, the utility now has the detailed results required in order to make informed decisions on whether to repair or replace each segment within that 2,800 miles.  This has effectively tripled the reach of the program; in other words, the utility can fully address the true source of its customer outages, for the entire population, in less than a third of the time it would have taken to replace all 10,000 miles.  This targeted approach allows for more focused resource planning and deployment of cable replacement and repair crews, optimizing the effectiveness of these resources while quickly and dramatically reducing outage frequency.

In addition to the substantial amount of deferred replacement costs, extended reach and increased resource efficiency, there are several other key benefits to this approach.  Each of the forward thinking utilities that have adopted this strategy has been able to introduce a high level of predictability and stability to their annual underground asset management budgets.  In many cases, this has led to a level and consistent budget, with positive return on investment (ROI).  On average, utilities have experienced returns in the 300-500% range, resulting in hundreds of millions in deferred costs and making this strategy a sound use of ratepayer funds.  The return on investment is more than strictly financial, as system performance metrics also trend in the right direction.  Since this strategy involves fact based prioritization and targeted action on only those assets potentially responsible for future outages, the impact on key metrics such as SAIDI, SAIFI or CAIDI is much more immediate.  Lastly, as part of an ongoing program, the assessment results used for all decision making are backed with a guarantee, for up to 20 years. 

Assessment of aged cable systems has traditionally been thought of as an O&M expense.  However, a 2009 Federal Energy Regulatory Commission (FERC) ruling [2] allows utilities to use capital for cable assessment as part of a one-time major cable rehabilitation project.  According to FERC, “the cost of underground cable assessment technology may be capitalized when it is used in connection with rehabilitation projects to extend the useful life of an underground cable system.”  Additionally, FERC specifies that this capitalization is “subsequent to the determination that a one-time major rehabilitation project must be undertaken and that the project will extend the overall electric cable system’s useful life beyond the original estimated service life.”  Capitalization of cable system assessment costs is permitted because future accounting periods are benefited by this life extension and because these assessment costs are not associated with any other ongoing maintenance programs.  It is important to note that these capitalized assessment programs can be employed alongside existing O&M testing activity, provided the utility has put in place appropriate internal controls to distinguish ongoing O&M testingcosts and assessment costs that are part of a rehabilitation project. 

The pressure to deliver uninterrupted electric power to consumers in a safe, environmentally conscious and cost effective manner is a challenge that all electric utilities face today.  As we look towards the future, we must continue to apply a “do more with less” mindset, as we restore and manage our nation’s critical infrastructure.  Those strategies which efficiently provide the most significant improvement and highest return on investment must be selected, as we cannot reasonably expect current practices will allow us to care for our public assets in a sustainable fashion.  As stewards of this critical infrastructure and its potential financial impact on future generations, we have an obligation to focus on innovation, efficiency and effectiveness in our asset management solutions.


[1]  “A Look to the Future”, Thomas R. Kuhn, Electrical Perspectives, Jan/Feb 2015, p. 6

[2]FERC Docket No. AC09-27-000, March 9, 2009

Authored By:
With over seven years of experience in the Utility and Renewable Energy industries, Aaron currently holds the position of Manager, Client Business Services at IMCORP in Manchester, CT. Aaron's current areas of focus include asset management program design, strategy development, economic modeling, big data analysis, visualization and forecasting related to the health of transmission and distribution systems. Prior to joining IMCORP, Mr. Hills worked for several divisions of United Technologies
Authored By:
Darren Byrne is a Market Development Specialist for IMCORP in Manchester, CT. His focus is developing market strategy, penetration and positioning of the companies services within renewable energy and utility markets. Darren holds a Master of Business Administration degree from the University of New Haven and a Higher National Certificate in Electronic Engineering from Matthew Boulton College. Mr. Byrne has spent most of his career in various business development, marketing

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