Xcel Energy realizes big savings by basing procurement decisions on life-cycle costs.
After years of paying lip service to the importance of considering life-cycle costs, most utilities continue to base purchasing decisions primarily on first costs (see “Are You Debit or Credit?” T&D World Structures supplement, October 2011). Xcel Energy is an exception. Today, Xcel Energy is seeking to break from the pack by using life-cycle cost analyses as a driver for purchasing several major categories of equipment.
Xcel Energy's supply chain organization seeks to reduce overall costs of asset ownership, improve operational performance, manage risk and support the utility's social and environmental leadership. As part of its efforts, the supply chain recently began spearheading a series of intracompany initiatives to improve procurement practices for several categories of equipment, wood poles being one of the first in the queue.
A high bar was set at the outset of the wood pole procurement initiative with several objectives:
Reduce life-cycle costs
Improve lead times
Improve supplier reliability
Improve product quality, including durability, longevity and user satisfaction
Enhance environmental stewardship.
A cross-functional team of more than a dozen Xcel Energy personnel was formed. The team's goal was to arrive at a solution that would foster utility-wide buy-in for the decisions made. The team had to ensure all key stakeholders were given an opportunity to provide input, and it had to facilitate analysis of the total life-cycle cost of all the different transmission and distribution wood pole options available. The pole procurement team, which coined the name Life-Cost Optimization Strategy Team (Life-COST), was comprised of representatives from a variety of areas:
Through the Eyes of the Stakeholder
Supply chain sourcing and inventory strategy
Transmission and distribution engineering, operations and asset management
System performance and standards
The interdisciplinary skills represented by Life-COST were critical to enabling comprehensive analysis of life-cycle costs and the success of the initiative.
Wood poles are a critical component of Xcel Energy's overhead infrastructure and, thus, the project was in the limelight. With regulated operations in three Western and five Midwestern states, Xcel Energy's system consists of nearly 300,000 conductor miles of transmission and distribution lines, which represents 1.5 million wood poles on the distribution system and 250,000 wood pole structures on the transmission system. Xcel Energy purchases about 15,000 to 17,000 wood poles annually.
Once the team was formed and the objectives of the initiative reviewed, the team's first challenge was to develop a plan of attack. Ultimately, the team designed a scope of work that included an extensive list of items:
Product and Supplier Selection and Product Quality
Internal investigation, including stakeholder interviews to develop a thorough understanding of wood pole usage, from cradle to grave
Life-cycle cost analyses of various wood pole species and treatment combinations, maintenance polices and procurement scenarios
Survey comparable investor-owned utilities regarding their pole procurement practices and experiences with various pole suppliers, including collecting and reviewing their wood pole specifications
Collection and review of the latest information on wood pole quality, effective manufacturing and treatment processes, and the efficacy of various wood preservatives along with interviews of researchers from both industry and academia
Investigation regarding current and pending environmental regulations that could impact the availability, use and disposal of certain types of wood preservatives and treated wood
Enhancement of procurement specifications based on items 1-5
Closing the Loop
Issuance of a request for proposal reflecting findings from items 1-6
Review and analysis of proposals and short-listing of potential suppliers
Interviews and audits of short-listed suppliers
Rating and ranking of suppliers and their proposals, and selection of primary suppliers
Close the loop with Xcel Energy stakeholders interviewed as part of item 1
Periodic inspections of suppliers' operations and delivered materials to ensure quality requirements are being met
Ongoing communication with suppliers to foster continuous improvement of the alliance relationship.
All of these activities were critical to the success of the initiative, but a few were particularly impactful and noteworthy.
Rather than assuming they already knew everything there was to know, the Life-COST team members committed to conducting a thorough investigation of every aspect of wood pole usage at Xcel Energy. The investigation relied heavily on getting input from stakeholders who deal with wood poles on a regular basis. The team also committed to closing the loop with the stakeholders by reporting back on the findings from the investigation and how the findings were used to guide the balance of the procurement initiative. The team viewed both the interviewing and reporting processes as being essential to ensuring buy-in from the stakeholders regarding the decisions that, ultimately, the team would make.
The investigation followed a two-pronged approach: a review of past practices, historic records and documentation, and a rigorous interviewing process. This helped to ensure the balance of the procurement initiative was based on representative, objective information versus the perceptions and impressions of the team.
The interviewing process was thorough and considered regional user needs and experiences. In the end, the team sought answers to more than 260 questions through a wide-reaching push that involved interviewing approximately 80 employees and managers from areas as diverse as safety, environment, operations, purchasing and stores, among others. The team placed particular emphasis on collecting input from line personnel as the primary users of wood poles. The input drove the direction of the team, including refining specifications and defining how proposals from potential suppliers would be evaluated in terms of effective quality control, technical expertise, guaranteed stock, emergency response, lead times and transportation, ability to provide comprehensive field support, customer service and many other factors.
To the team's knowledge, this was the first time Xcel Energy had used such a broad collaborative process to define requirements for a widely used product. The team found the stakeholders to be genuinely enthusiastic about providing input.
The team calculated the total cradle-to-grave life-cycle costs of all the different transmission and distribution wood pole species and treatment options available to Xcel Energy and then ranked the options based on a comparison of net present values. To facilitate the analyses, the team used an economic forecasting model developed by EDM International Inc. that relies on wood pole performance data mined from utility maintenance records.
The life-cycle analyses accounted for several important variables, including first costs. Also considered were differences in inspection and remedial treatment requirements for different species and treatment combinations over their projected lives. The costs for pole reinforcement and replacement during the target service lives were considered for both transmission and distribution lines. The analyses also accounted for the differences in service conditions occurring across Xcel Energy's different operating companies.
Based on the collective findings from the stakeholder interviews, life-cycle cost analyses, survey of other utilities, review of the latest information on wood pole quality and preservative treatment, and current and pending environmental regulations, the team decided to modify its specifications to use an alternative treatment to what it had primarily used and include more stringent requirements for pole and preservative treatment quality.
A variety of the quality requirements were made more stringent with the majority directed at ensuring the long-term durability of wood poles. Examples of the types of modifications included enhancing requirements intended to ensure wood poles are properly sterilized to kill any biological agents that would promote internal deterioration before preservative treatment is applied, and enhancing requirements for penetration and retention of preservatives.
In addition, the team investigated the potential benefits of implementing through-boring for Douglas fir transmission-sized poles and determined this material enhancement was a good fit for Xcel Energy. Research and experience strongly suggest that, although the cost of these poles is a bit higher, through-boring yields more effective treatment of the ground line area (and pole tops if specified), thereby contributing to a significant increase in life span relative to a pole without this treatment enhancement.
Following thorough evaluation, the team chose two vendors — McFarland Cascade for Xcel Energy's Public Service Company of Colorado and Southwestern Public Service Co. operating companies and Bell Lumber & Pole for Northern States Power Co. — to supply both distribution and transmission poles.
For Xcel Energy's service territory, three species and treatment combinations were determined:
Pentachlorophenol (Penta)-treated Douglas fir for larger transmission poles
Penta-treated southern yellow pine for smaller transmission and distribution uses
Penta-treated western red cedar for use in specialized applications where pole weight is an issue.
Using Penta across the enterprise addressed an ongoing problem within parts of the utility with regard to wet or bleeding creosote-treated poles. During the interview process, many stakeholders identified dripping creosote poles as a cleanliness issue from both a customer and employee perspective. Based on its investigation, the team was confident the treatment processes used by the selected suppliers and the switch to Penta would eliminate these problems for Xcel Energy customers and employees.
In part, because Xcel Energy was implementing more rigorous quality specifications for preservative treatment than previously required, the team conducted random quality-control inspections of poles at the suppliers' facilities and on receipt at Xcel Energy service centers. This proved to be a wise decision as one of the suppliers had not previously produced poles to meet such stringent quality preservative specifications. Xcel Energy's quality-control procedures revealed a significant percentage of the poles that supplier initially produced did not meet the specifications and process adjustments were needed. This shortcoming was undetected by the supplier's own quality-control procedures. The supplier immediately began adjusting its manufacturing and quality-control procedures, and after a few of rounds of refinements, it was able to begin producing poles that consistently meet Xcel Energy's requirements.
Ensuring specifications are met is critical as Xcel Energy is counting on the enhanced preservative and pole quality to pay dividends for years to come through longer service lives and reduced pole maintenance costs.
Early in the process, the team made a commitment that it would report back to the approximately 80 stakeholders who provided valuable input during the initial investigation through their participation in interviews. During the latter stages of the project, the team made an effort to debrief each of the 80 individuals; direct contact was made with the majority. If a debriefing of an individual could not be arranged in a timely manner, the team ensured it made contact with at least one person from each of the stakeholder groups who could report back to others in their sector of Xcel Energy's business.
During the debriefings, the team explained the results of the investigative effort, how the findings were used to guide the balance of the initiative, the decisions made regarding material selection (for example, pole species and treatment combinations) and the rationale for those decisions. The feedback the team received for making the effort to close the loop with the stakeholders was positive. The extra effort yielded significant intangible benefits, including fostering a sense of ownership in and support for the entire collaborative process among the stakeholders.
The effort resulted in development of a streamlined, systematized and cost-effective pole procurement process. Xcel Energy is now purchasing poles characterized by enhanced product quality and performance, an optimized total life-cycle cost and improved supply reliability. In addition, the results of the initiative complement the utility's environmental stewardship goals and account for employee and public health and safety.
Compared to the cost of procuring poles, as was done previously, the savings to the utility is expected to be approximately US$6.7 million over a five-year period. Additional significant savings are anticipated in the years to come as Xcel Energy reaps the benefits of installing poles with longer service lives and reduced maintenance costs. The initiative resulted in wins for perhaps every stakeholder who participated.
An ancillary benefit of the project was the Life-COST team identified several substantive opportunities for improvement related to wood pole usage that could be addressed subsequent to selecting a pole supplier. For example, poles procured under Xcel Energy's new pole specifications will have enhanced durability characteristics; in turn, this creates an opportunity to revise ongoing pole inspection and maintenance practices, improving cost effectiveness by taking advantage of these enhanced performance characteristics.
This opportunity and many others were recorded in a parking lot list to be addressed in the future. To ensure Xcel Energy sustains the gains made through the procurement initiative and eventually capitalizes on the additional list of opportunities, a wood pole daily management team has been formed to oversee ongoing activities related to wood pole procurement, handling, installation, inspection and maintenance, repair and replacement, and eventual disposal.
James S. Downie (firstname.lastname@example.org) is the director of vegetation management and ancillary programs for Xcel Energy and led the Life-COST initiative. He oversees vegetation management for transmission and distribution, electric substations, gas facilities and other Xcel Energy-owned property. His responsibilities for ancillary programs include the transmission and distribution wood pole maintenance program, which encompasses inspection and treatment, replacement and reinforcement of the existing pole plant, as well as ensuring the quality of newly procured wood poles. Downie has been with Xcel for 22 years. He holds a bachelor's degree in biology from Hartwick College. He is a member of the Utility Arborist Association, of which he is a former president, and the International Society of Arboriculture.
Andrew H. Stewart (email@example.com) joined EDM International Inc. in 1983 and is currently EDM's president. He holds a BSCE degree from the University of Rhode Island and a master's degree in civil/structural engineering from Colorado State University, where he helped develop reliability-based design procedures for overhead lines. His career encompasses engineering and R&D related to power-delivery infrastructure. He chairs the IEEE Working Group on Management of Existing Overhead Lines and the NERC Alert Task Force. Stewart is a director of Intec Services Inc., a provider of T&D maintenance services.
Bell Lumber & Pole | www.blpole.com
EDM International | www.edmlink.com
McFarland Cascade | www.ldm.com
Xcel Energy | www.xcelenergy.com