Continental Economics and VMN Group LLC Develop New Transmission and Distribution System Asset Planning Methodology

Continental Economics and VMN Group LLC Develop New Transmission and Distribution System Asset Planning Methodology

Many utilities have developed their own methods to address the inevitability of equipment failure and evaluate the tradeoffs between replacing and repairing aging assets.  Others rely on methods developed by consultants.  Some of these methods are simply ad hoc; e.g., “replace utility poles that are 30 years old” or “test underground distribution lines every five years.”  Although ad hoc rules may, in some cases, appear to work well, they are, by definition, not based on sound engineering and economic principles.  Thus, utilities who employ such rules cannot know whether they provide a least-cost strategy.  Furthermore, such rules are less likely to pass the increased regulatory scrutiny that accompanies increased planned expenditures.  In other cases, utilities rely on flawed analytical tools.  These tools, while not ad hoc, can potentially lead to worse decisions, depending on the flaws in the underlying assumptions or the analytical approaches.

Although the comprehensiveness of these methods varies, they all lead to inefficient or, worse, incorrect decisions.  In other words, utilities end up spending more money than necessary to achieve desired levels of safety and reliability, or they obtain less reliability and safety than their methodologies claim to provide.  In either case, both ratepayers and utility shareholders lose: ratepayers can end up paying more than they need to and utility investors may see lower returns if certain investments are disallowed by regulators.

To address these limitations, Continental Economics and VMN Group LLC have developed software that provides a new integrated approach for T&D asset planning, including optimal repair-replace-test strategies, and spares valuation and location analysis.  This approach can also be used by local distribution utilities, as well as natural gas and oil pipelines.  Using a dynamic optimization methodology, the methodology addresses four key uncertainties that existing planning methodologies do not: (1) uncertainty regarding an asset’s current condition and how that condition changes over time; (2) uncertainty regarding the accuracy of tests of an asset’s condition; (3) uncertainty regarding an asset’s remaining life; and (4) uncertainty regarding the effects of repairs on an asset’s condition and, therefore, its remaining life.  The methodology has already been used by one major Regional Transmission Organization, saving it hundreds of thousands of dollars annually.

With this new approach, utilities and natural gas pipelines can meet reliability and safety standards at the lowest cost, and provide clear justification to regulators for needed capital investment.  A more detailed discussion of this new methodology, and how it corrects the flaws of existing methodologies, can be found in the article, “Opening the Black Box: A New Approach for Utility Asset Management,” published in the January 2014 issue of Public Utilities Fortnightly.

To arrange a demonstration of this important new software, or for more information, please contact Dr. Jonathan Lesser, Continental Economics,, or Dr. Charles Feinstein, VMN Group LLC,

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