COST EFFICIENCIES/PRODUCTIVITY

Transcription

1 Updated: EB-0-0 Schedule Page of 0 COST EFFICIENCIES/PRODUCTIVITY.0 INTRODUCTION Hydro One has updated this exhibit to improve the information on Cost Efficiencies and Productivity initiatives and programs being developed and implemented. Although the savings have always been incorporated in the work programs and activities previously filed, this exhibit did not adequately explain the full extent of these savings. 0 Productivity at Hydro One remains an integral part of the Corporation s strategy and business objectives. This exhibit outlines the historical (00 0), present (0) and future (0 ) productivity initiative results within the Corporation. Productivity initiatives typically show results over a number of years and Hydro One continues to realize material cost reductions and avoidances, throughout the test years all of which are of direct benefit to Hydro One customers. Productivity Definition For the purpose of this analysis, the Hydro One definition of productivity is; 0 The effectiveness of productive effort, is measured in terms of the rate of output per unit of input An example of Productivity can be demonstrated by an improvement made in the Vegetation Management Program. This program has realized substantialsavings with the

2 Updated: EB-0-0 Schedule Page of 0 0 introduction of mechanical tools such as the Feller Buncher. The Feller Buncher is a fleet vehicle that significantly increases the efficiency of the Forestry division by cutting trees and stacking them in clusters. This machine reduces the total labour time required per tree from 0. hours to 0. hours. After factoring in the cost and maintenance of the Feller Buncher, a reduction of $0 per tree is realized. The previous cost for clearing one tree was $; the new unit cost using the Feller Buncher is now $ per tree. Hydro One currently has six Feller Bunchers in full-time operation with plans for the purchase of four more. This program will result in sustained savings for the test years and beyond under the Leveraging Technology Savings initiative. For further details on the Vegetation Management Program see Exhibit C, Tab, Schedule. OM&A expenditures over the five test years, demonstrate more productivity; if not for these initiatives Hydro One would be requiring an increased revenue requirement. This is illustrated in Table. Table : Impact to Revenue Requirement Inclusive and Exclusive of Productivity Savings 0

3 Updated: EB-0-0 Schedule Page of 0 PRODUCTIVITY EFFICIENCY INITIATIVES The Corporation s strategic objectives include a commitment to achieve productivity and cost-effectiveness improvements. Table identifies the major categories of productivity initiatives currently underway along with the estimated cost savings achieved from 00 to 0, and forecasted savings for 0 to 0 for Hydro One Distribution. While all savings estimates are for gross cost savings, it should be noted that the implementation costs are taken into consideration as part of the business planning process discussed in, Tab, Schedule. 0 Using the actual savings numbers from historical years (00 to 0) and the forecast savings for the bridge (0) and test years (0 and 0), Hydro One Distribution will realize $. million in savings. For initiatives that are common to Transmission and Distribution, a common cost allocation was used consistent with the Black and Veach studies provided in Exhibit C-- and Exhibit C--. $. million has been forecast in savings for the bridge and test years for Distribution as shown in Figure and Table.

4 Updated: EB-0-0 Schedule Page of 0 Figure : Distribution Productivity Savings Table : 0

5 Updated: EB-0-0 Schedule Page of 0 PRODUCTIVITY INITIATIVE KEY SUCCESS STORIES This section discusses the productivity categories and provides greater detail on how Hydro One is making improvements in an effort to provide greater value to the customer. Some key success stories have been provided to demonstrate the commitment Hydro One has made to reduce costs and improve productivity while maintaining or improving its output.. Back Office 0 Back Office productivity initiatives are related to the reduction in costs of the administrative and support functions that have been outsourced. The savings are shown in Figure. Figure : Back Office Savings (in $Millions)

6 Updated: EB-0-0 Schedule Page of 0 0 Hydro One negotiated a multi-year outsourcing contract for back office work programs primarily focused on information technology, call service operations, supply management services, finance and accounting, and payroll administration. The contract which was originally setup in 00 had an established annual price decline for the baseline services. The contract was subsequently renegotiated in 00 with an end date of 0. This extended contract included improved service levels and a steeper annual price decline for the five years as a result of negotiated cost reductions and commitments to new business system (SAP) implementation. Hydro One expects to continue to outsource back office elements beyond 0 through a new competitively bid contract that will result in further savings as discussed in Exhibit C, Tab, Schedule.. Business Transformation Business Transformation productivity initiatives are business unit led large IT projects that streamline processes and increase efficiencies. The savings are shown in Figure. Figure : Business Transformation Savings (in $Millions)

7 Filed: 0-0- EB-0-0 Schedule Page of 0 0 Customer Information System (CIS) Value Realization: The CIS Project is part of the overall information technology ( IT ) strategy (moving into SAP applications) to replace several of Hydro One Distribution s key enterprise information systems ( the Cornerstone Initiatives ) as they reach their end of life. This new system provides a new interface for dealing with its customers throughout the province. The 0 degree view of the customer profile with enhanced customer issue resolution capability will reduce handling time on calls and correspondences improve billing timeliness and accuracy and increase first call resolution ( FCR ) all of which will improve customer satisfaction. The expected benefits of this new system are enabled primarily through application and process changes, greater data transparency, and integration and collaboration across Hydro One s lines of business. Benefits will be realized through reducing the time required to issue bills which will result in significant cash flow savings. Accounting processes are also streamlined in the new CIS due to the integrated nature of CIS with the existing SAP Accounting platform. There will also be a reduction of bad debt expense through better tracking of delinquent accounts and more efficient collection processes. Integration of CIS with other enterprise SAP platforms and new technologies such as smart meters will drive work force productivity improvement. 0 A common SAP platform for CIS enhances productivity in the area of application maintenance support across Hydro One and with Hydro One s outsourced service provider. Rationalization of the hardware environment on which CIS runs will reduce infrastructure management and support costs as well as facility costs and hardware refresh. Hydro One has made substantial improvements to the customer experience in the Integrated Voice Response (IVR) automated call system at the Contact Centre as a means

8 Updated: EB-0-0 Schedule Page of to mitigate future costs by directing calls to the automated system rather than the more expensive agent handled calls. Asset Analytics Value Realization: The Asset Analytics Project is also part of the overall information technology ( IT ) strategy to improve business practices. Asset Analytics is a powerful software package that allows thorough analysis of the huge volume of Hydro One data. The system shows prioritized lists of assets requiring maintenance and / or replacement. Use of this tool will ensure asset investments will be made in areas that have the highest priority based on our system information. This will ensure the assets with the greatest need for maintenance or replacement are completed first which will avoid costly failures in the field result in much higher costs and customer inconvenience. For further details on the Asset Analytics tool, see, Tab, Schedule. Business Process Consolidation: The automation of the current, very manual process for annually compiling budget baselines and preparing financial information in support of rate applications will reduce time and effort in the data handling as well as in the intensive quality assurance checking currently required.. Telephony Telephony productivity initiatives enhance and rationalize services to reduce the monthly expenses for phone and data services. The savings from this category are shown in Figure.

9 Updated: EB-0-0 Schedule Page of 0 Figure : Telephony Savings (in $Millions) 0 Standardization of cell phone contracts through the adoption of Government subsidized cell phone plans are directly reducing costs by lowering voice and data rate plans and eliminating the paper billing process. Enhancements to telephone, video and web conferencing are reducing travel costs as more and more employees utilize the technology to replace costly physical meetings when appropriate. Utilization of the Telecom Expense Management software will enable Hydro One to rationalize the number of voice and data line circuits as well as power system circuits (e.g. metering, provincial mobile radios, station phones, SCADA and satellite) across the province.. Business Systems Business Systems productivity initiatives encompass savings realized from the incorporation of more efficient processes facilitated by the installation of more

10 Updated: EB-0-0 Schedule Page 0 of 0 technically advanced computer systems. The savings from the Business Systems category are shown in Figure. Figure : Business Systems (in $Millions) 0 Hydro One has replaced its main business systems with SAP and will continue to gain efficiencies from these improved systems. Implementation started in 00 and was completed in 00. The system modules that were implemented include Work Management, Supply Chain, Finance, Project Systems and Payroll, realizing value in areas such as Productivity, Cost Effectiveness, Process Efficiency, Better Decision Making, Compliance and Employee Engagement. Examples of savings being realized include: Strategic Sourcing - considerable savings have been realized by consolidating purchases for volume discounts, ensuring maximum value for equipment life cycle,

11 Updated: EB-0-0 Schedule Page of 0 0 improving security of supply through longer term agreements and fixed pricing, better planning with supplier as well as streamlining standards which simplifies procurement and lowers inventory levels. For further details of Supply Chain productivity initiatives see Exhibit C, Tab, Schedule. Rationalization of Legacy IT Systems - there has been a reduction in IT application, database, licensing fees and support costs with the decommissioning of over 0 business software applications and system tools. The replacement of PeopleSoft, Congo s and SAS applications with modern Enterprise Resource Planning and Business Integration solutions has resulted in an integrated enterprise suite that has further enabled more effective information access and productivity within the company.. Staff Flexibility Staff Flexibility productivity savings are realized from the more efficient use of skilled and non-skilled labour and through the use of Purchase Service Agreements (PSAs) signed with the Unions to clear backlogs. The distribution portion of the savings realized from cost efficiencies in the Staff Flexibility Savings category is shown in Figure. 0

12 Updated: EB-0-0 Schedule Page of 0 Figure : Staff Flexibility Savings (in $Millions) 0 Hydro One continues to make the best use of its available resources. Where safe and possible, we uses lower skilled and/or contract resources to undertake less complex work leaving highly skilled resources to focus on complex work activities. This has resulted in better prioritization and more cost effective completion of the work programs. For further details of the corporate staffing strategy see Exhibit C, Tab, Schedule. Other examples of staff flexibility savings include: Use of casual labour for the Vegetation Management program through a PSA; Facilities, a non-core operation has been positioned for Outsourcing; and The increased use of hiring hall staff to perform cable locates will decrease the unit cost from $/locate to $0/locate by 0.

13 Updated: EB-0-0 Schedule Page of 0 The reduction in total savings in 0 is a result of lower program spending within the Vegetation Management program as the work plan decreases so do the savings, however the proportionate savings per dollar spent remains the same.. Process Improvement Process Improvement productivity savings result from the emphasis placed on more thorough and advanced work activity planning. Process Improvement savings are illustrated in Figure. 0 Figure : Process Improvement Savings (in $Millions) Hydro One has identified internal processes where there are opportunities for improvement. These include, more thorough and interactive advanced planning on complex projects and optimal designs that can be determined prior to project approval

14 Updated: EB-0-0 Schedule Page of which reduces potential design changes or rework. Hydro One is also implementing different ways to undertake field work for some types of work. For example: Cable Locates Hydro One became part of the One Call Government initiative to improve service to customers requiring underground cable locates. Initially this created more service calls and crew inspections for Hydro One since the process did not differentiate between underground and overhead cables. In recognition of this Hydro One has implemented the following processes: o All Clear process which allows the identification of whether the wire is underground or overhead (the latter not requiring a crew to be sent out); o Hydro One s Call centre is no longer required to be part of the Cable Locate process, requests go directly to One Call and then out to the field staff for action; and o Starting in 0, the work is being undertaken exclusively by Hiring Hall field staff. Meter Reads for customers where the smart meter is not functional due to technology limitations, meter reads have been reduced from to per year until the technological issues have been resolved. Distribution Station Refurbishment Hydro One has developed a prefabricated, integrated modular distribution station which provides a more cost effective solution for station refurbishment particularly where space is limited.. Miscellaneous Administration Miscellaneous Administration productivity savings are being recognized with tighter controls and better communication of requirements. The savings from miscellaneous administration processes are shown in Figure.

15 Updated: EB-0-0 Schedule Page of 0 Figure : Miscellaneous Administration Savings (in $Millions) 0 Hydro One continues to instill an every penny counts culture within its workforce to reduce its administrative expenditures to as low a level as possible. Over the past years there have been administration cost decreases between to percent across business units. The main areas where reductions have been implemented are in travel, meals and mileage. This was accomplished by implementing spend limits on meals, fixed mileage rates that decrease with increased mileage and reduced travel expenses by reducing number and improving scheduling of meetings.. Leveraging Technology in the Field Leveraging Technology productivity savings involves making better use of modern technology and equipment in order to accomplish work faster and more efficiently. Savings realized in this category are illustrated in Figure.

16 Updated: EB-0-0 Schedule Page of 0 Figure : Leveraging Technology Savings (in $Millions) 0 The use of GPS/Telematics in Hydro One vehicles has allowed for improved travel time through planned route optimization. This leads to increased fuel efficiency and a reduction in greenhouse gases. It also allows for increased fleet response time, and automated tracking of vehicle condition. Hydro One is also using energy efficient vehicles and retrofitting facilities with energy efficient equipment where possible. Recent transformation in the electricity utility industry has been centered on Smart Grid. For Hydro One, Smart Grid commenced with the provincial smart meter mandate. Hydro One recognized that implementing smart meters in a primarily rural geography would be challenging due to the then-existing limitations in metering technology and the lack of metering communications options for data transfer. Hydro One undertook to influence the market to develop robust back office metering solutions with standards-based communications to enable the daily aggregation of over a million meters. This culminated in Hydro One leading Canadian utilities in acquiring dedicated spectrum for

17 Updated: EB-0-0 Schedule Page of 0 the use of the electrical sector. The improved telecommunications reach and connectivity for critical electricity operations enabled the use of mobile technologies to optimize field work execution. It allows information, systems and tools to be available to the workforce when they need them and allows reporting of the completion of work in real-time thus getting information to asset planners and to customers in a more timely and accurate manner.. Centralized Operations 0 Centralized Operations involve consolidating and reorganization groups within Hydro One to create efficiencies in work processes that lead to a reduction in labour time. Figure 0 depicts the savings from this category. Figure 0: Centralized Operations Savings (in $Millions)

18 Updated: EB-0-0 Schedule Page of 0 0 Hydro One is focusing on ensuring as much field work gets done as possible by centralizing and reducing support functions. For example; replacing classroom training with E-Learning courses designed to be completed online at times that do not interfere with critical work activities; an integrated Asset Management strategy centralizing all support functions into one department to streamline prioritization and execution of work; Hydro One is utilizing the Hiring Hall staff on specific work activities such as Cable Locates, Vegetation Management and Distribution Wood Pole Replacement Programs resulting in accelerated work programs and labour savings: and Leveraging the provincial government contract through the Ministry of Transportation Ontario to capitalize on additional fuel rebates..0 UTILITY TRANSFORMATION 0 Hydro One has been involved in a number of industry initiatives that have a large impact on all provincial rate payers. Examples include Hydro One s leadership in the connection of green energy projects, Hydro One s work with Measurement Canada and Industry Canada, as well as equivalent US based agencies to establish industry standards that will ultimately lead to economies of scale across all Utilities. For each of these initiatives, Hydro One has taken a leadership position in the North American industry and helped defray large implementation costs which would have been incurred by Hydro One and other Ontario utilities and ultimately borne by all Ontario ratepayers. Hydro One is part of the Standard Drafting Team on the North American Electric Reliability Corporation s (NERC) revision to the definition of the Bulk Electric System (BES). At the core, the revision was to designate all elements and facilities above 00kV as BES. Adopting this new approach would have resulted in significant additional Capital and O&M costs to facility owners including Hydro One, as BES elements are subject to

19 Filed: 0-0- EB-0-0 Schedule Page of 0 meet the mandatory reliability standards as established by NERC. Hydro One has been able to influence the proposed BES definition application, specifically the exceptions process, which should avoid significant Capital and O&M costs relative to the original proposal UTILITY SECTOR COST PRESSURES In parallel to implementing these productivity improvements, Hydro One and the utility sector in general, face numerous changes that result in increased cost pressures. These additional upward cost pressures can impact the effectiveness and productivity of an organization. As examples, Hydro One has incurred material cost pressures due to the following changes in the sector: The ongoing introduction of mandatory reliability standards including new cyber security requirements. An initial $0-$0 million of Capital was needed to bring our facilities in line with the requirements. On an annual basis there are additional OM&A obligations of approximately $ million to $ million annually and also a requirement for affected employees to use additional security controls in their day-today activities adding steps to their work process. Updated and new environmental standards, such as the elimination of PCBs, result in approximately $ to $ million in added costs per year. New ESA regulations and related escalated engineering requirements and standards result in an annual additional cost of $ million; and Other future industry challenges/opportunities such as implementation of new protection standards (e.g. IEC 0), will continue to put upward cost pressures on Hydro One.

20 Updated: EB-0-0 Schedule Page 0 of 0.0 SUMMARY Hydro One is developing a culture where productivity, efficiency and the customer are considered in every corporate process, practice and policy. Hydro One strives to achieve its missions and vision as a company: We will be an innovative and trusted company, delivering electricity safely, reliably and efficiently to create value for our customers.