Distribution

1. 2014 Electric T&D Benchmarking Distribution Community Insights Conference August 20-22, 2013 Vail, Colorado

2. Agenda -- Distribution • Overview • 2014 Performance Results • Process Model – Context • Structure • Modules Included • Modules – Scope, Key Success Factors, Findings • Asset Management • New Business • Construction & Work Management/Scheduling • Next Steps • On-Sites Prep • How to Use Results (Getting SMEs Involved)

3. Overview

4. A Process Model for Managing the Network We’ll present much of the information in the context of the process model shown below, with a number of the major process blocks broken into “modules” for analysis and discussion. Respond to Emergencies Add New Customers Sustain Network Expand Network Operate Network Project/Portfolio Management Develop and Approve Asset Plans Develop Network Strategy

5. Insights Overview • Spending levels were significantly affected by the economic recession over the past four years. • Distribution O&M spending reached a low point at the depth of the recession in 2009, and has been climbing for the past 5 years. • Distribution Capital spending began to recover 2 years ago. The increase is driven by replacement capital spending more than new business, which continues to be slow. • Improvement initiatives cover a broad spectrum for our panel • O&M cost reduction is becoming an increasingly important focus, because of the multi-year increases in spending and the rates pressure that creates. • The continued low new business has enabled companies to increase investments in replacement/refurbishment spending for reliability improvement.

6. Profiles & Trends

7. Distribution Lines Demographic Profile

8. Distribution line Cost Profile O&M costs are higher than last year. Replacement capital spending is up from last year, continuing a trend over the past several years. Overall capital spending, however, is down.

9. Capital Spending and O&M Expenses Most companies spend more on capital than O&M, although this year there are a few where that is reversed, and the overall totals for the group are closer. Spending per Customer Spending per Asset Distribution Financials Pg 3, 5 Source: DF5, DF20, DF70, ST5

10. Distribution O&M Spending Trend • O&M costs have shown a slight increase over the past several years, with 2012 as the only year in which the average spending level went down. Source: DF20, DF70, ST5

11. Distribution Line O&M Spending Inspection and Maintenance is the largest category of O&M cost, but vegetation management and service restoration are close.

12. O&M Expenses The majority of companies spend between $50-$120 per customer, or roughly 2-5% per asset. Expenses per Customer Percentage of Expenses per Asset Distribution Financials Pg12, 14 Source: DF20, DF70, ST5

13. O&M Expenses (Activity-Based) Vegetation management, maintenance, and service restoration are the largest sources of expenses. Expenses per Asset Expenses per Asset, Excluding Vegetation Distribution Financials Pg35, 36 Source: DF60, DF70,

14. Vegetation Management Expense per “Unit” Expenseper Tree Trimmed Expense per Structure Mile Trimmed There is little consistency in the cost metrics used within the industry, and costs vary substantially between companies. Expense per Tree Managed Expense per Tree Mile Managed Distribution Financials Pg16-19 Source: DF60, SA35

15. Distribution Line Capital Spending • Total capital investment was flat, or slightly increasing from the depths of the recession until 2013, when it dropped for most of the panel. Source: DF5, DF70, ST5

16. Distribution Line Capital Spending Capital to sustain the existing system exceeds the investment for growth and new business. Source: DF50, DF70

17. Capital Spending (Activity-Based) Capital spending is higher than O&M, even with the new business removed. Meter & transformer purchases were substantial for a few companies Spending per Asset Spending per Asset, Less Serve New Distribution Financials Pg25, 26 Source: DF50, DF70,

18. Replacement Capital Spending • Except at the lowest quartile, capital replacement investment has increased steadily for several years, despite the 2013 decline in total capital investment. Median Values

19. Replacement Capital New business investment still hasn’t recovered since the recession. Capital investment for sustaining the system has grown over the past several years. New vs. Replacement Spending per Customer Spending per Asset, Less Serve New 2013 results – need to update Distribution Financials Pg23, Source: DF50, DF70, ST5

20. Capital Spending Most organizations invest $75-$150 on capital projects per customer, which translates to between 3-6% per asset. Spending per Customer Spending per Asset Distribution Financials Pg7, 9 Source: DF5, DF70, ST5

21. Storm Restoration Restoration Spending per Interrupted Customer The cost to restore customers during storms is not well understood as yet. For most companies, costs are incurred for both capital and O&M. For catastrophic storms, costs are captured in different accounts.

22. Practice Areas Using the Process Model

23. A Process Model for Managing the Network The Modules we have prepared for discussion fall within the 3 identified processes: Asset Management, New Business, and Construction & Work Management/Scheduling. Respond to Emergencies Add New Customers Sustain Network Expand Network Operate Network Project/Portfolio Management Develop and Approve Asset Plans Develop Network Strategy

24. Asset Management

25. Scope - Distribution ASSET MANAGEMENT • 2014 Questions • Role • Role of the AM organization in decision-making • Key responsibilities of Asset Managers • Risks • What keeps you up at night worrying about your system? • New inspection programs added this year • Replacement programs underway • Classes of equipment that are becoming problematic • Regulatory Drivers • Regulatory drivers for inspection and maintenance • Predictive Tools • Use of specialized Asset Management software tools • Use of condition-based maintenance techniques • Pole and Cable Management • Pole inspection cycle • Pole reinforcement & treatment approaches used • Cable Injection uses for life extension

26. 1QC Industry Perspective:Distribution Asset Management

27. Key Success Factors:Asset Management

28. Asset Management Roles The primary roles are to develop strategy, optimize the use of assets, and manage risks. Distribution Pg 19 Source: DP60

29. Key Responsibilities of Asset Management Group Asset management groups responsibilities focus on asset planning, investment prioritization, and system performance Distribution Pg 20 Source: DP65

30. Key Responsibilities of Asset Management Group (continued) Additional responsibilities for Asset Management groups involve maintenance strategy, asset information tracking, and work and labor resource planning.

31. Concerns About the System Primary concerns about electric systems involve age & deterioration of the assets, and assuring adequate funds to sustain the system. Distribution Pg 21 Source: DP70

32. Replacement Programs Underway While different companies have different replacement programs in place, most have a focus on wood poles and UG cable, and some interest in transformer replacement and worst circuit programs Distribution Pg 22 Source: DP75

33. Problematic Equipment There is less consistency in response regarding what equipment is becoming problematic. While cable and wood poles are still most mentioned, evidently the replacement programs are working to some degree. Distribution Pg 23 Source: DP80

34. Specialized Asset Management Software Tools 8 of 10 companies indicated they either have or are considering special-purpose Asset Management software. Distribution Practices Pg 26 Source: DP95

35. Regulatory Drivers Regulatory Drivers for Asset Management groups include meeting targets for reliability, public safety, and specific maintenance activities.

36. Pole Inspection and Treatment The majority of utilities are on a 10-year cycle for pole inspection Years Between Inspections Of the 9 companies responding, all 9 capitalize pole reinforcement and bracing, while only one capitalizes pole treatment. Distribution Practices Pg 27, 28 Source: DP100, DP105

37. Cable Treatment for Life Extension System configuration and type of cable drive decisions on cable treatment. A majority of the respondents do not use cable injection regularly. Of the 11 companies responding, 5 capitalize cable life extension activities/technologies, while 6 do not. Distribution Practices Pg 29 Source: DP100, DP110

38. New Business Process

39. New Business Process – Scope of Questions in 2014 • Timeliness • Scheduling jobs to make sure the customer is ready • Timing requirements for installing: • Service Only • Service plus Pole • Service plus Line Extensions • Process • Definition for New Business (Service) Process • New business customer satisfaction measure defined • Percent of new business work contracted • Activities for URD installations performed by developers/customers: Residential va. Commercial • Customer contributions required • Initiatives undertaken to improve the new business process • New Business Scenarios • People at Jobsite for each Trip by scenario • Work done & material installed by utility vs. customers/developer by scenario • Capital Spending: Net of Customer Contributions by scenario

40. 1QC Industry Perspective:Distribution New Business

41. Key Success Factors:Distribution New Business

42. New Business Improvement Initiatives Several companies have major initiatives in the new business arena. Others are focused on more targeted process changes or consistency across the company. New Business Pg 4 Source: DP330

43. New Business Improvement Initiatives (Cont.) Improved customer communications is the focus for several companies. Distribution Pg 44 Source: DP120 New Business Pg 4 Source: DP330

44. Organization Structure for New Business 6 companies have centralized design for large projects, with decentralized delivery. 6 others have fully decentralized new business operations. Source: DP335

45. Organization for New Business (cont.) Source: DP335

46. Timing Requirements for Installations Half of the companies deliver basic services within 5 days. Adding poles or line extensions can add up to 60 days New Business Pg 5-7 Source: DP340

47. Activities Performed By Developers/Customers Developers/customers are expected to do substantial amounts of the work for residential new business for UG, and much less of the work for OH services New Business Pg 8-9 Source: DP345

48. Contracting of New Business New business contracting varies by company. Utilities with higher growth rates tend to use more contractors, with company 40 as the notable exception. % of New Business Work Contracted New Business Pg 18 Source: DP350

49. Scenario ATTRIBUTES Source: DP345b

50. Scenarios: Schematics Existing Scenario #1; new OH service drop 75’OH Service line New Meter 100A 240/120V Scenario 2; new pole, transformer & UG service line 100’ UG Service line Existing Meter 200A 240/120V Scenario 3; new UG primary run; padmount transformer & UG service line 75’ UG Service line 100’ UG primary Meter New 200A 240/120V Scenario 4; new riser pole, UG primary run; padmount transformer & UG service line 50’ 3 phase UG Service line 200’ UG primary Meter 200 kW 120/208V