Tuesday, February 6, 2018

Accelerating Digital Transformation : A Playbook for Utilities McKinsey&Company Adrian Booth, Eelco de Jong, and Peter Peters

All industries have realized the need to transform themselves using Information Technology tools. This article exposes the reasons why utility firms lag many other industries in adapting technologies for greater efficiency and effectiveness and what steps they can take to overcome barriers. Attempts at incorporating agile or lean management strategies or adding piece-meal digital technologies yield modest results.

By reorienting their focus, utilities can realize performance gains, according to the article, in areas such as "safety, reliability, customer satisfaction, and regulatory compliance" (p. 1).  Specifically, the article mentions improvement to technologies that enable "reimagining customer journeys, adding digital leak detectors to gas grids, using predictive models to schedule maintenance, and other asset management activities, and equipping field workers with mobile devices that let them access technical instructions while in the field" (p. 1).

The authors acknowledge what they view as the barriers to transformation. The first, utilities operate  to protect existing infrastructure investment and reduce asset investment risk. Second, as an industry not considered on the cutting edge, the utility sector has difficulty attracting innovators, such as data scientists. Third, legacy systems, processes, and procedures deter innovation.

The article offers solutions to these impediments to change by suggesting three focus areas and their key tasks. The focus areas include: "adopting digital ways of working, attracting and retaining digital talent, and modernizing the IT architecture and environment" (p. 2). The key tasks included for adopting digital ways of working, "Gain support of senior leaders so a digital transformation has high priority" and "Build a digital factory to produce new applications and insights using digital-native methods" (p. 2). For the focus area, attracting and retaining digital talent, the authors listed two key tasks: "highlight the intellectual challenge and social value of the utility's work" and "Tap into a broad pool of digital specialists who value the balance and stability that a utility offers" (p. 2). The last focus area, modernizing the IT architecture and environment, the authors suggest these key tasks: "Simplify the utility's product portfolio and business processes" (p. 2) and "Shift from all-in-one, monolithic IT systems to modular IT architectures" (p. 2).

The article's prescriptions apply to large utilities with the financial capability to engage in a multi-year,enterprise-wide change.


Friday, August 18, 2017

The Rising Advantage of Public-Private Partnerships : McKinsey&Company, Capital Projects and Infrastructure

Michael Della Rocca identified the benefits of Public-Private Partnerships (P3s) as extending beyond the ability to finance major infrastructure projects. Estimated at about $3.5 trillion, the infrastructure needs of the United States has other hurdles besides finance issues. Other obstacles include adhering to budgets and schedules. According to a Syracuse University report,  P3 projects overcome those hurdles more consistently than traditional government owned, managed, and financed projects. However, only 9 percent of U.S. projects have a P3 structure. Rocca cited government's faulty perceptions about P3s as the reason for the lack of acceptance.

Rocca listed the following "pain point" that P3s can alleviate:

"Unclear responsibilities
Poor alignment with strategy
Insufficient optimization of project features
Lack of an ownership mind-set in the delivery team
Lack of discipline in execution
Poor project controls
Low initial cost mind-set
Poor resource optimization"

Admitting that P3s cannot solve all these problems, Rocca referenced P3 successes in the United
Kingdom, Australia, and in the United States. Collectively, the projects saved project owners
up to 20 percent compared to traditional project financing. Rocca offered these statistics:
"The UK Audit Office found a reduction in project schedule overruns deploying a P3 model. An Australian study of 54 projects showed that only 1 percent went over budget; they also beat the schedule on average by 3 percent, while traditional approaches were on average 24 percent late."

The P3 model does not apply in instances of high "political, procurement, delivery, or revenue risks;
value-for-money analyses clearly point out instances where this model is not applicable". If investors demand certain returns on their contributions or if the partnership executes a flawed contract, avoid P3s.

As to the future of P3s in the United States, in January 2016, the Federal Highway Administration noted statutes that included the P3 model as a project delivery mechanism in 36 states and the District of Columbia and Puerto Rico. Rocca anticipated a growing use of P3s in the United States in the future.


Saturday, July 29, 2017

Power Struggle Is Taking Shape On a Mighty River : New York Times, 7/29/2017

A number of past posts have illustrated instances of public/private partnerships (P3s) as they apply to water and other infrastructure. According to Kirk Johnson, the writer of this article in the New York Times, the Trump administration has adopted this form of ownership as a way to accomplish his campaign promise to refurbish and repair U. S. infrastructure. The transfer of ownership would result in these benefits, Trump administrators assert, "lowering costs to taxpayers and improving efficiency" (p. A12). The article mentioned these assets as potential targets for sale: the Bonneville Power Administration on the Columbia River, and "two other big public power operators, based in Colorado and Oklahoma" (p. A12). 

Proponents of  P3s in the article argued that privatization promotes fairness. "Low prices in a nonprofit system have been a huge boost to economic growth" (p. 13). They welcome a debate on subsidized and non-subsidized energy. Rural and areas of low population density that have received subsidies oppose losing federal support. Such areas have attracted large companies like Google, Microsoft, and Amazon to build data centers, requiring large amounts of hydro-power. Federally subsidized systems stall the adoption of renewable energy sources, such as wind, claim other proponents of P3s. Some attribute subsidies as the reason for the unwillingness of Bonneville Power Administration and others to incorporate renewables into the grid.  Others contend that privatization would not solve the problem of integration of non-renewable and renewable resources into the grid. Utilities should commit to integrations with or without privatization, they conclude. 


Friday, July 14, 2017

Water : GlobalViewPoints Noah Berlatsky, Book Editor Greenhaven Press, 2012

To read authors supporting and opposing topics related to water, this book presents both views. On topics ranging from ocean impact from climate change, acidification, and garbage, to regional ground and surface water scarcity and potability, and to hydropower, the volume presents at least two perspectives.

On the first topic, Oceans, the contributors consider the impact of rising sea levels. Taking a long-view of sea level changes, Kieran R. Hickey argues that the melting of ice during the ice age 13,000 years ago resulted in greater amounts of water being released into the oceans than what occurs presently. One country in danger of rising oceans levels, the author contends, is Ireland. The combination of increased water levels and lowering land levels, especially along the southern coast, pose threats to the nation. Relying on local control of these areas rather than a national strategy resorts to a myopic view. The contrasting view, Australian Sea-level Rise Due to Global Warning Has Been Exaggerated, presents both views, for and against, with no conclusive position. The same back-and-forth positions touch on the topics of ocean acidification, and ocean trash.

Reading about the water issues of China, Chile, Uganda, India, and elsewhere gives the reader a picture of the level of sophistication of water law and management worldwide. The lack of central policies in China and elsewhere, the inattention to the environmental consequences of dams, or the efforts to remove pollutants or naturally occurring chemicals from public drinking water, illustrate the challenges to achieve safe drinking water. 

Wednesday, July 5, 2017

Privitisation : The Art of the Deal Economist June 24, 2017 Volume 423 Number 9046

In previous articles, we have discussed various methods the government can take to update aging infrastructure within the United States. One method, public private partnerships, has gotten most attention. This article explains "asset recycling", a concept originated in  Australia. The article defines the idea as, "to lease one piece of infrastructure, such as a toll road, to investors, and spend the money raised on something new" (p. 23), the construction of a new asset or the refurbishment of an existing asset.

The author cites two instances where asset recycling has occurred in the United States, in Indiana and Chicago. The Indiana experience entailed the lease in 2006 of a toll road, 157 miles for the term of 75 years. The state received $3.8bn--far more than the firm that bought the rights could afford. The firm went bankrupt, but the state construction fund benefited from the over-payment.

Chicago experienced the opposite results when it "leased its parking meters to a consortium for 75 years for $1.2bn, a price that was almost $1bn too low, according to a report by the city's inspector-general" (p. 23). Instead of benefiting the construction fund, the city used the funds to reduce their budget shortfall.

Obviously, governments must negotiate wisely to reap benefits of asset recycling. Unlike Europe and other areas, the United States, according to the author, does not have a history of privatization of infrastructure. Additionally,  governments should apply any proceeds to new or existing construction projects, to accomplish asset management goals and  public entities should include terms to renegotiate the agreement to avoid the consequences that Chicago faced.

Wednesday, June 28, 2017

Technology Quarterly : Civilian Drones Economist June 10, 2017

The Economist concentrated this report on the incipient and growing drone industry. Most of the public hears about the use of drones in combat or the desire of internet firms, such as Amazon, to employ them for delivery. The five articles that make up this series span the topics of the companies that produce drones, the industries that buy and use drones, the future of the technology, and the regulations required to manage it.

For our purposes, this blog focuses on how drones factor in infrastructure planning, building, and maintenance. In the article, Seeing Is Believing, the author points to the construction industry as an early adopter. Promoted by the inability to control budgets, construction firms view the problem of overruns as an information issue. According to Chris Anderson of 3D Robotics, construction firms seek to ameliorate the problem through, what he calls, "reality capture, using technology to measure buildings precisely during construction and track the use of raw materials on site to ensure that everything is going according to plan. Drones are ideally suited to the task" (pp. 8-9). By generating point clouds with LiDAR (light detection and ranging), firms compare reality to their models.  The use of drones also conforms to the safety requirements of construction sites--enclosed areas with protective clothing rules.

In the construction and agricultural industries, drones assist with grading and fine grading of the land. By capturing the topography of the land, within an hour rather than the days conventional methods take, drones reduce cost and time. John Deere, the manufacturer of agricultural and construction equipment has partnered with Kespry, a drone and related software start-up, to exploit this benefit.


Friday, June 16, 2017

Blue Revolution : Rethinking water on a thirsty planet Nature Conservancy Summer 2017

This issue of the Nature Conservancy magazine, that obviously focuses on water, covers topics of water management generally, river management more specifically, drought recovery, and proactive urban water management. The issue gives a reader a clear understanding of the priorities of the Nature Conservancy and their international scope. From projects on the Magdalena river in Columbia, the Ogooue river in Gabon, the Yangtze river in China, and the Colorado river in the United States, the Nature Conservancy has developed a comprehensive program of water management.

The Water for Life article gives a worldview of water management. Giulio Boccaletti, the author,  stated his premise as, "No nation has managed to achieve prosperity without first delivering "water security"--without developing the infrastructure, institutions and practices needed to manage droughts and floods and to ensure a consistent water supply" (p. 22). Boccaletti acknowledged the existence of water insecurity in developed, developing, and under-developed nations. He explained the essentials of each element of water security listed above.  Regarding infrastructure, he included the natural and constructed--the water ecosystems of "rivers, watersheds, wetlands, floodplains, and aquifers" (p. 24) as well as the water collection, treatment, and distribution infrastructure. The industry that posed the most challenge, agriculture, uses approximately 70 percent of the global fresh water. Boccaletti cited institutional changes that increase security and reduce risk--(1) water markets, such as those in Australia, (2) the careful planning and placement of hydropower plants and dams that interrupt the natural flow of river deltas and beaches, and (3) the protection of watersheds, especially those near urban and heavily populated areas. Boccaletti ends the article with these thoughts, "we have promising models to follow--if we remember to invest not only in engineering but also in the engine of life itself" (p. 25).

Lisa Bramen, author of the article "Saving Great Rivers," claimed that river ecosystems suffer from more damage than other ecosystems. Beginning with the state of the Colorado river in the United States, Bramen listed the cities that rely on the river, the power generated from it, and the aquatic life that depends on it. Because of these dependencies, the river fails to flow to its historical terminus, the Gulf of California.  In addition to the Colorado River, the article describes the relatively pristine river of Gabon, the Ogooue, the threatened river of Magdalena of Colombia from forestation and mine pollution, the Irrawaddy river in Myanmar, where construction of dams and hydropower plants endanger the country's productive fresh fish resources, and the Yangtze river in China, where the government, after its construction of the Three Gorges Dam, sought to restore once prolific fish species--the black, grass, silver, and bighead carp. By carefully planning the construction of dams, hydropower plants, and reservoirs that fragment rivers, and by seeking to reduce agricultural nutrients and salt run-off and the pollutants from mining and other industrial efforts, planners can reduce threats to water resources. Informing clients of the science underpinning sound decision making and offering clients the tools to understand the logic behind the decisions,  the Nature Conservancy more fully exposes the consequences of options and final decisions through their "Saving Great Rivers" and "Hydropower by Design" programs.

Regarding drought management, the article by Julian Smith, The Big Dry, recounts effects of drought on the Murray-Darling basin, the area that "supports almost two-thirds of Australia's irrigated farmland, which grows everything from cotton and cereals to livestock and wine grapes" (p. 40). During the drought, the Murray-Darling Basin Authority managed the buying and selling of farmers assets, their water rights, thereby establishing a water market. The water market did not eliminate contentions between farmers, conservationists, and native groups. To reduce friction, in 2015 The Nature Conservancy and others organized "the world's first impact investment fund to buy and sell water rights with the goal of restoring important wetlands. . . In its simplest sense, private investors buy transferable water rights that can be leased or sold to irrigators throughout the basin. . . The key. . . is how the arrangement turns weather fluctuations from threat to opportunity" (p. 43).

The final article covered here, Liquid Assets" explains how five cities "invest in upstream conservation to improve water quality for their residents" (p. 46). The five cities, Sao Paulo, Nairobi, Albuquerque, San Antonio, Savannah, have employed efforts to prevent deforestation, erosion, and nutrient and salt run-off from agriculture at the headwaters of their supply. Such projects require funding. The Nature Conservancy developed an initiative in 2000, the water fund, to facilitate these efforts. The initial one, in Quito, Ecuador, and the 29 subsequently seek to accomplish conservation goals. In Quito, the municipal water supplier contributes to the fund annually by allocating 2 percent of its budget. The water fund concentrates its funds on upstream conservation rather than downstream water treatment.

The three articles discussed clearly illustrate the increasingly collaborative nature of water management. The Nature Conservancy has partnered with nations, municipal water providers, investment firms, scientists and planners to understand how individuals best preserve our most fundamental asset.