“We are Taking a Very Good Program to a Completely Different Level. You can't get where we're going until you've been where we've been.” That statement by Steve Tankersley, vegetation management operations manager, kicked off a meeting in March 2006 that has forever changed the way Pacific Gas and Electric Co. (PG&E; San Francisco, California) and its contractors look at and perform utility vegetation management on PG&E's distribution system.
After that meeting, PG&E immediately negotiated new distribution contract provisions with its contractors. (Transmission has its own attributes and is handled under a separate program.) Two years later, the Vegetation Management Improvement Initiative (VMII) has revolutionized the way PG&E manages vegetation contracts, has allowed for the investment of $12 million into targeted reliability projects ($20 million projected by year-end), and has rewarded its contractors and consultants for reducing routine workload.
PROGRAMS AND REGULATIONS
It wasn't all that long ago when PG&E followed a time and material (T&M) contracting strategy. Vegetation management activities were decentralized, and 18 divisions each ran unique operations. In 1997, a third-party fatality at a neighboring utility prompted a California Public Utilities Commission (CPUC) investigation, which led to what is now commonly called “California compliance.” Developed for the purpose of public safety and fire prevention, California-compliance regulations (CPUC General Order 95/Rule 35 and Public Resources Codes 4292 and 4293) require mandatory clearances between vegetation and high-voltage conductors.
To meet this new challenge, PG&E centralized its program and instituted a cyclical tree-pruning program. The three-year cycle was often set aside to address hot spots on the system or adjusted to accommodate budget constraints. Costs crept upward and reliability suffered, but not to the point that the utility was forced to do anything differently.
Everything changed in 1999 when the CPUC and the California Department of Forestry and Fire Protection (CalFire) levied heavy penalties against PG&E for failing to comply with the new state regulations. PG&E discovered painfully and publicly that a three-year pruning cycle may work for some utilities, but it does not work in a state with strictly enforced clearance requirements.
The vegetation management leadership team made several seemingly radical decisions. The department shifted contracts from T&M to unit price. According to Daran Santi, vegetation management planning manager, the unit-pricing strategy differs from traditional time and equipment contracting in that specific work units — trims, removals and brush — are defined, and the tree-trimming contractor is paid only for the actual work completed.
“Downtime and other nonproductive time is the responsibility of the contractor, and as a result, the contractor is highly motivated to be as productive and innovative as possible,” says Santi.
PG&E still uses this contracting method, as do 24% of other utilities (as reported by CN Utility Consulting). In addition to the shift to unit price, the team changed its inspection contracts from T&M to lump sum and made the dramatic move from a hit-and-miss three-year pruning cycle to an annual patrol of 100% of overhead lines.
Change was not easy, but the entire team, contractor and PG&E alike, pulled together for some pretty impressive results. Compliance audits improved quickly from the low-80 percentiles to 99.5% (those numbers are holding steady between 99.5% and 99.8% today). The vegetation-related system average interruption frequency index (SAIFI) dropped 27% from 0.262 in 1996 to 0.191 in 2004. Program cost initially dropped from $220 million (in 2006 dollars) in 1998 to about $130 million in subsequent years and then held steady. However, holding the line on budget was no easy task as PG&E's overhead-line miles increased by about 28% over that same time period.
By 2002, the program was running smoothly and delivering the required results. Over the next three years, incremental improvements continued, cost began to creep upward and outage reductions began leveling off. During this same time, the entire company embarked on a business transformation effort. Vegetation management soon would be under a consultant's microscope.
THE COST OF RELIABILITY
Reducing cost and improving electric reliability became an obsession at PG&E under the leadership of a new executive team. Throughout 2005, PG&E's business transformation consultant met periodically with the vegetation management operations manager and planning manager. The proposed direction for the vegetation management department was disappointing and uninspired. A cookbook recipe of vendor consolidation was the key concept of the proposal with an estimated cost reduction of 5% to 8% for routine distribution line-clearing contracts.
Considering that these contracts account for more than $100 million in operating expenses, an 8% reduction is certainly worth exploring. But the cost-cutting proposal did nothing to address the department's priorities of outage reduction, customer satisfaction and operational flexibility, nor did it recognize the potential impact such a programmatic disruption might have on the company's reputation if compliance performance faltered.
The program needed a fresh look. PG&E needed to consider the real goals. California compliance is the law, and a safe system is an absolute expectation. These two priorities cannot be sacrificed. To reduce outages, PG&E looked to the vegetation management department for help. What would it take to cut vegetation-related outages in half? How much would it cost and from where would the funding come?
The vegetation management leadership team determined an aggressive course. In order to fund a reliability program in addition to routine compliance, the vegetation management program would have to significantly reduce routine workload without sacrificing safety or compliance.
The team suspected PG&E could tighten up work-listing practices and increase pruning clearances to lengthen the pruning cycle on individual trees. Furthermore, by improving the quality of the pruning and increasing removal rates for targeted tree classes, PG&E also could reduce the annual workload and total inventory.
The PG&E vegetation management program already used a robust quality-assurance/quality-control program, and local management teams held contractors accountable and promoted productivity. In all likelihood, increased oversight would only provide nominal productivity improvements. To be successful, a refocused program needed a real incentive.
BASELINES AND THRESHOLDS
Managers of the vegetation management program made a bold decision. PG&E would take the savings from the reduced workload and split it with the tree-trimming contractors and inspection companies. The PG&E portion of the savings would be invested into a brand-new reliability program and other initiatives designed to improve work quality, long-term objectives and the overall customer experience.
To execute the plan, PG&E established a baseline workload level based on 2005 actual workload and 2006 forecasted workload. The system-wide baseline was set at 1,684,861 units. Six tree-trimming companies and three inspection companies are participating in the program, and each one has its own baseline. For every unit of reduction below baseline, the tree-trimming contractor is eligible for a portion of the cost savings as is the inspection company.
“Communication, teamwork and flexibility are critical to the success of VMII. Like a three-legged stool, the program relies on the cooperation and partnership among PG&E, its professional utility forestry consultants and qualified line-clearance contractors,” says Jack McCabe, operations manager of the Davey Resource Group, a division of The Davey Tree Expert Co. (Kent, Ohio). “PG&E sets the goals and objectives and provides program management and project oversight. Utility forestry consultants perform inspections, develop work prescriptions and notify property owners. Line-clearance contractors complete the work in a safe and efficient manner. Quality-control auditors provide feedback to help improve results.”
Naturally, certain rules were established to ensure work quality and sustained performance. The rules focused on four performance areas: total workload, compliance, customer satisfaction and schedule attainment. PG&E set a 2% reduction threshold just to qualify for the incentive. In other words, workload must reduce by at least 2% before there is any payout. Compliance scores must meet or exceed 99%. Customer satisfaction scores, based on monthly customer surveys, must exceed established thresholds. And, because PG&E still conducts an annual patrol of its facilities, its vendors must complete all scheduled work within a strict time line. Vendors must meet all of these thresholds to participate in the incentive program.
“As a result of the shared goals in VMII, pre-inspection and tree-trimming contractors took initiative outside of PG&E's involvement,” says Scott Huffmaster, regional manager for Trees Inc. (Houston, Texas). “We've developed better working relationships and tapped into our own experienced workforce to find unique ways to attain the VMII goals.”
Beyond baselines and thresholds, PG&E's vegetation management team set additional goals. The team set a 5% workload reduction goal for 2006, with additional 5% reductions annually through 2011. Additionally, the team committed to improve reliability by reducing vegetation-related SAIFI by more than 50% by 2011. This equates to dropping the 2005 vegetation SAIFI score of 0.161 to 0.075 in 2011.
Obviously, the goals were aggressive, but two years into the program, what about the results? PG&E and its contractors have faced challenges, but the results have been well worth the effort. In 2006, workload reduced by 7%. PG&E funded nine new field positions to support work quality and customer satisfaction, many of the utility's contractors received their first incentive payments, and the department laid the groundwork for its reliability program.
The 2007 results were a bit more dramatic. The system experienced a 17.8% total unit reduction. Every threshold was exceeded at the system level. PG&E entered into three-year contracts with its vendors to promote stability and show the utility's commitment to its continued success. PG&E established and staffed its reliability program. More importantly, the reliability projects appear to be having the desired effect. The 2007 SAIFI came in at 0.123, well under target.
Vendors benefit from new opportunities even as their routine workload decreases. “PG&E has worked diligently to reinvest the savings of VMII into other vegetation-related programs, which has assisted the contractors in dealing with fluctuating resource requirements,” says Huffmaster. “PG&E's VM System Reliability Program is the most noticeable example. VMII works because PG&E not only changed the fundamental contracting strategy, but it also provided the contractors the tools to monitor their progress and the flexibility with which to manage the work and rely on their own skills and abilities to be successful.”
McCabe says the customers are also fairing well. “As a whole, customers appreciate the new approach. They value the chance to work with professionals who care about the trees in their community, and they like hearing about best-management practices. When people are presented with facts and consider issues like safety, reliability and tree health, they appreciate the long-term focus of PG&E's program,” states McCabe.
VMII was never considered a sure thing. The success so far has been hard fought for by both PG&E and its contractor partners. At the end of 2006, the vegetation management team was cautiously optimistic. The 17.8% workload reduction of 2007 and the year-end compliance result of 99.68% proved the VMII concept was viable and cemented the team's resolve. Fiscal year 2008 promises equal, if not better, results than last year. Year-to-date compliance is 99.73%. Schedule varies by division, but is within operating thresholds systemwide.
Customers are pleased with PG&E's work, especially the reliability work. In addition, the unit workload is currently trending at 24% below threshold, which will adequately fund the reliability program, a newly established public relations program and the contractor-incentive program.
Bob Bell is a vegetation program manager at PG&E and a past president of the Utility Arborist Association. He is an ISA-certified arborist and utility specialist. He has a bachelor's degree in forest science from Pennsylvania State University and an MBA degree from the University of New Mexico. RWBz@pge.com
Editor's Note: For more information about PG&E's vegetation management program, VMII or the VM System Reliability Program, contact Steve Tankersley, VM operations manager, at SAT2@pge.com, or Daran Santi, VM planning manager, at DMS8@pge.com.