Outsourcing Services the way we see it
Buying Utility Assets—
Failure Should Not Be
An Option
Asset optimization best practices can help utility
companies save billions of dollars by dramatically
improving failure rates.
Despite what the Apollo 13 crew
believed, failure is an option that
many companies in the fossil power
generation industry seem willing
to risk.
An unfair statement? Perhaps, but
consider how the fossil power
generation industry stacks up against
other major industries in terms of
failure rates. From 1994 to 2004,
the airline industry saw its failure
rate improve by 78 percent, according
to the National Transportation Safety
Board (NTSB).
Meanwhile, the nuclear generation
industry recorded a 68 percent
improvement rate, according to
the Institute for Nuclear Power
Operations (INPO). Yet, during that
same time period, the fossil power
generation industry’s failure rate
improved by just 10 percent according
to the Generating Availability Data
System (GADS).
What’s the difference between the
industries? A large part of the answer
lies with asset optimization. After being
among the early adopters of asset
optimization best practices, the airline
and nuclear power generation industries
each achieved dramatic improvements
in their failure rates. Meanwhile, except
for a handful of visionary companies
within it, the fossil power generation
industry’s failure rate improved only
slightly. And billions of dollars of
opportunity were missed.
Yet another unfair statement? Again, the
facts speak for themselves. Among other
benefits, asset optimization best practices
can enable fossil power generation
companies to predict and avoid forced
outages. Considering that just a single
forced outage on a medium-sized unit
can create a $10-million loss, imagine
how many billions of dollars the
industry could have saved had it
embraced asset optimization in the
same way that the airline and nuclear
generation industries have.
 When utility companies buy fossil
power generation plants, their first
consideration is rarely whether the
price is right. Instead, the companies’
corporate development teams are
typically more focused on operational
margin calculations related to age,
condition, and generation costs versus
market settlement price. And they
almost never factor asset optimization
practices into the equation, even
though they can—and normally do—
improve not only the purchase price,
but the long-term business value of
the plant.
Which all begs the questions: What
are asset optimization best practices,
and how can and should the fossil
power generation industry adopt them?
What Are Asset Optimization
Best Practices?
Asset optimization best practices go
beyond the traditional constructs and
ideas associated with asset management.
They extend to the deployment of
effective process improvement and
innovative technology to predict failures
and improve reliability.
Best practices are achieved through
the integration of world-class diagnostic
and predictive failure technologies,
together with effective operations
and maintenance (O&M) and outage
planning and scheduling systems.
Because only a few visionary fossil power
generation organizations have achieved
such a high level of integration, the
industry is, by and large, missing the
benefits that asset optimization best
practices can deliver.

A single forced outage

on a medium-sized unit
can create a $10-million
loss. Imagine how many
billions of dollars the
fossil power generation
industry could have saved
had it embraced asset
optimization in the Failure Rate Improvement

same way that the airline

and nuclear generation
Fossil 10
industries have.
Nuclear 68

Airlines 78

0 10 20 30 40 50 60 70 80 90 100

Percentage Improvement 1994 to 2004 (10 years)

Sources: Generating Availability Data System (GADS); National Transport Safety Board (NTSB); and Institute for
Nuclear Power Operations (INPO)

2
 Outsourcing Services the way we see it

Successful Asset Optimization— traveling at 35,000 feet in an aluminum

Airlines and Nuclear Generation
The airline and nuclear generation
industries have achieved success in
large part because they have adopted
asset optimization best practices that
have enabled them to predict failure
and take corrective steps to avoid it.
Consider the airline industry. Though
passengers frequently complain about
flight delays and lost luggage, very
few travelers give any thought to the
reliability issues associated with
tube with two gas turbines hanging off
the wings. Why is it that this inherently
and logically unsafe mode of transport
does not cause major concern among
the majority of the traveling public?
The airline industry is actually very
safe. It has achieved reliability to
such an extent that airline travel is
a common mode of transport, with
little thought given to the obvious
fact that it should, by its nature, be
considered unsafe.

Asset Optimization Best Practices

What they are

Implementation of a diagnostic and predictive operational environment
with the ability to predict failure and avoid unplanned outages.

Leverage of an extensive knowledge base

to maintain and/or improve fossil power generation plant performance.

Enables fossil power generation organizations to move beyond

the traditional constructs of preventative maintenance, Reliability Centered Maintenance
and ‘hope and pray’ philosophies.

Minimization of operational and commercial risk.

Achievement of top decile reliability and costs.

What they are not

Run it until it breaks — a philosophy that is still commonly employed by many industries
and businesses.

Preventative maintenance — provision of tender loving care on a regular basis, and hope
for continuous operation until the next planned maintenance activity.

Kaizen — incremental and continuous improvement philosophies prevalent in the Japanese

business environment, which attempt to engage and engender participation at all levels of
the organization.

Reliability Centered Maintenance — commonly termed RCM as developed by the late

John Moubray. It is currently perceived as the holy grail of many maintenance engineers
across a wide spectrum of sophisticated process industry operations—providing
‘mean-time-between-failure’ capabilities.

Buying Utility Assets—Failure Should Not Be An Option 3

 The chart below details the evolution
of the airline industry in terms of
reliability and reduction in unplanned
failures, i.e., crashes. The trend is
obvious and provides a clear indication
of the art of the possible.
Improvements in
Airline Failure Rate
It’s no coincidence that the airline
industry’s failure rate improved
after it embraced asset optimization
best practices. The same types of
improvements were achieved by the
nuclear generation industry after it
did likewise.
To be fair, not all of these achievements
are the direct result of asset optimization.
But these techniques and the sharing of
data, together with a focus on safety
versus top line economics, have clearly
created a significant fiscal benefit and
improvement in reliability.
Overall, reliability in the nuclear
generation and airline industries is
due in large part to a small number of
factors (outside of the excellence in
engineering), including:
■ Deployment of predictive asset
optimization technologies
■ Sharing of data and asset optimization

And that’s not all that the two industries
have in common. In fact, one of the
key components of the airline and
nuclear generation industries’ success
has been their willingness to share
critical data, through third-party solution
providers. Using asset optimization best
practices, competitors openly share
operational, performance and failure
mode information. This practice has
best practices
■ Funding of semi real-time hosted
systems to capture, track and record
the performance characteristics of
thousands of operational units to
create a comparative database (airlines)
■ Standard operational philosophies
associated with maintenance
■ Adoption of an operational

allowed these industries to break the philosophy where reliability is

standard paradigms of independent paramount and failure is not an
asset management, greatly improve option, rather than being driven
failure rates, and achieve a standard of only by top-line economics
excellence—not to mention, billions
of dollars in savings from the dramatic
failure rate improvements.

World Wide Historic Airline Failure Rate—per Million Departures

100
90
Number of Accidents

80
70
60
50
40
30
20
10 89 92 83 80 75 72 54 54 51 34 37 38 19 20
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Study Years 1991 to 2004

Source: www.NTSB.gov [National Transportation Safety Board]

4

At the same time, both the airlines
and nuclear generation entities have
maintained their competitiveness,
improved the overall reliability
standards within their respective
industries, reduced failure costs
and increased operational margins.
How Can Fossil Power
Generation Leverage Asset
Optimization Best Practices?
Leading-edge companies in today’s
increasingly competitive operational and
commercial environment are looking to
organizations with the experience and
skills to develop and deploy integrated
maintenance technologies that can
deliver predictive asset optimization
functionality integrated with world class
O&M philosophies.
Sharing critical data within hosted
centers of excellence enables companies
to leverage an extensive knowledge
base without jeopardizing their
competitive advantages. This approach
also enables organizations to move
away from traditional constructs of
preventative maintenance, RCM and
“hope and pray” philosophies prevalent
in the last millennium.
However, fossil power generation
companies cannot expect to achieve
these goals rapidly on their own. To
bridge the gap, they will need to bring
in a third party with the capability to
enable implementation and transition
the companies toward a completely
diagnostic and predictive operational
environment. The adoption of a business
process outsourcing (BPO) approach
also can help bridge the chasm, and
deliver improvements in availability and
in measurable service level agreements
and key performance indicators.
Buying Utility Assets—Failure Should Not Be An Option
Outsourcing Services the way we see it
BPO gives companies the ability to
leverage a comprehensive asset base
beyond its own boundaries. This has
been demonstrated in the airline
industry, where the world’s leading
airlines have adopted this approach
in their development of outstanding
asset optimization models. If the fossil
power generation industry is to make
the next critical step, it needs to make
a similar paradigm shift.
A New Journey for Fossil
Generation Companies
Geoffrey Moore (Crossing the Chasm,
1991) argued that the difference
between early adopters of technology
(enthusiasts and visionaries), and
the majority (the pragmatists), exists
because of the differences in expectations
that these groups exhibit. It is clear
that some industries—the airlines and
nuclear generation among them—fall
into the category of early adopters.
Yet the fossil power generation
industry—while not a laggard—is
clearly in the pragmatists group.
The fossil power generation industry
can be viewed, in Everett Rogers’ terms
(Diffusion of Innovations, 1962), as
being part of the late majority.
The categorization of the fossil power
generation industry as a late majority
player is based on its willingness, or
lack of, to adopt innovation and the
general level of awareness, interest, and
acceptance of technologies and the
speed with which it adopts and adapts
to innovative ideas and technologies.
The most visionary fossil power
generation companies are taking the
first steps on this journey to realize the
benefits of asset optimization best
5

The value realized by
asset optimization is
found not only in reduction
of the failure rate, but also
in the hidden costs related
to market interaction and
the ability to effectively
manage and maintain
market presence.
6
practices and improve reliability in
the way that the airlines and nuclear
generation sectors already have. These
companies are clearly the innovators
in the industry.
For many fossil power generation
companies, the journey to become
innovators may be difficult, potentially
costly, and fraught with pitfalls and
missed starts. Some companies will
be tempted to protect perceived
intellectual capital and to build
capabilities in-house by bolting
together disparate component systems.
In fact, the historic tendency of the
industry—build it in-house inside the
comfort zone—is a paradigm that will
be difficult for many to overcome, and
if they do not, these companies will
clearly rank among the late majority
and the laggards.
What options are available to the
fossil power generation companies
to achieve the standards of excellence
exhibited by nuclear generation and
the airline industries and enable them
to adopt a philosophy that positions
them as members of the early majority?
Adoption of Innovation
Laggards
Late Majority
Early Majority
Early Adoptions
Innovators
0 5
Adoption Percentage
Source: Diffusion of Innovation Theory by Everett Rogers, 1962
Much of the answer centers on asset
optimization best practices. That’s
because the value realized by asset
optimization is found not only in
reduction of the failure rate, but
also in the hidden costs related to
market interaction and the ability
to effectively manage and maintain
market presence. Lost opportunity cost
has multiple elements that impact the
total cost of forced outages, including:
■ Failure to meet market commitment
■ Costs of balance market ‘make-up’
■ Customer service/public perception
■ Political impact
■ A 5 to 20 percent improvement in
maintenance efficiency will enable
an avoided cost of additional labor
of up to ~$700,000 on an average
mid-sized base loaded unit, according
to the Federal Energy Regulatory
Commission (FERC)
■ Increased revenue from improved
generation reliability, is greater than
$445,000 on one mid-sized base
loaded unit per year, according to
the FERC’s 2006 Equivalent Forced
Outage Rate (EFOR) Study
10 15 20 25 30 35 40

■ A typical mid-sized fossil power
generation fleet can expect to endure
more than $300 million in lost
opportunity costs associated with
forced outages in an average year
Considering these factors, along
with the potential benefits of reducing
both direct and hidden costs, how
can fossil power generation companies
leverage the broader data sets available
within the overall industry without
compromising their intellectual capital
or competitive advantage and become
early adopters?
For many companies, the solution
is Business Process Outsourcing. As
the airline industry continues to
demonstrate, BPO achieves the
synergies demonstrated by hosted
centers of excellence. Sharing of data
is critical to the deployment of asset
optimization best practices and enables
individual companies to maintain the
integrity of competitive data.
The BPO approach to data sharing
enables individual generation plants,
generating companies and utilities
to share operational data related
to multiple elements of the plant
operation, while at the same time
maintaining the confidentiality of their
data. The potential savings, according
to FERC, and the achievement seen
within the airline industry, make this
a multi-billion dollar opportunity that
the fossil power generation industry
cannot afford to ignore.
Who Are the Visionaries that
Will Lead the Way?
Nuclear generation and the airlines
are clearly innovators, as these two
industries have adopted best practice
asset optimization technologies and
Buying Utility Assets—Failure Should Not Be An Option
Outsourcing Services the way we see it
shared information, together with
leveraging the benefits of third parties
to provide the governance, guidance
and impartiality that are required to
enable these concepts to be realized.
For airlines, it is the Federal Aviation
Association (FAA) and for nuclear
generation, it is the Institute for
Nuclear Power Operations (INPO).
What is the organization that has the
capability to provide this service to
the fossil power generation industry?
Capgemini believes that the Edison
Electric Institute (EEI) has the
capability, experience, skills and
impartiality to fill this role. EEI is
positioned with its unique bi-partisan
approach, comprehensive membership
and powerful advocacy capabilities.
EEI has the credibility to enable the
fossil power generation industry to
share operational data in an effective,
confidential and impartial way, while
also enabling the achievement of
improvements in-line with the leaders
in the deployment of asset optimization
best practices—the nuclear generation
and the airline industry.
However, establishing this capability
will take time and effort. In the interim,
the use of impartial third-party
international organizations with
demonstrated capabilities in the areas
of BPO can provide the capabilities
and hosted functionality that are
required to enable the initial
implementations to be successful and
the necessary data to be shared.
Clearly, asset optimization should
be a topic on every fossil power
generation company executive’s
agenda—today’s deregulated markets
require every company to minimize
risk and achieve shareholder value.
7
 www.us.capgemini.com/energy
Moving Forward
With an unprecedented wave of merger
and acquisition activity expected to
inundate it, the fossil power generation
industry stands to benefit dramatically
from asset optimization best practices.
Indeed, the plants that strive to be
innovators—following the lead of
the airline and nuclear generation
industries—will represent the best
investments for the visionary fossil
power companies that recognize the
outstanding business value that asset
optimization best practices offer.
Why Capgemini?
Industry Expertise. With more than
10,000 consultants dedicated to energy,
utility and chemical projects across
Europe, North America and Asia
Pacific, Capgemini brings industry-
specific experience to help address
the complex business issues that
executives face.
About Capgemini and the
Collaborative Business Experience
Capgemini, one of the
world’s foremost providers of
Consulting, Technology, and Outsourcing
services, has a unique way of working
with its clients called the Collaborative
Business Experience.
Backed by more than three decades of
industry and service experience, the
Collaborative Business Experience is
designed to help our clients achieve better,
faster, more sustainable results through
seamless access to our network of
world-leading technology partners and
Amin Bishara
Vice President
Utilities Outsourcing Practice
North America
amin.bishara@capgemini.com
Copyright © 2006 Capgemini. All rights reserved.
Global Outsourcing Leader.
Capgemini is the global leader in
developing closer, more effective,
trust-based outsourcing relationships
that deliver better, faster and more
sustainable results. No other service
provider matches the range and
flexibility of Capgemini’s intelligent
mix of solution portfolio, commercial
model or delivery location options.
Capgemini’s innovative Rightshore™
approach means having the right
resources in the right location, and at
the right cost. As our clients’ needs
change, we provide flexible and
scalable solutions through over 100
integrated delivery centers globally.
Trusted Partner. Capgemini is a
results-driven business partner trusted
by leading utility companies. For more
information about how Capgemini is
helping its utility clients, please visit
www.us.capgemini.com/energy.
collaboration-focused methods and tools.
Through commitment to mutual success
and the achievement of tangible value,
we help businesses implement growth
strategies, leverage technology, and thrive
through the power of collaboration.
Capgemini employs approximately 61,000
people worldwide, with reported 2005
global revenues of $8.7 billion USD.
More information about our services,
offices and research is available at
www.us.capgemini.com/energy.
Paul Halpin
Senior Manager
Utilities Outsourcing Practice
UTILAO061020DL_POV
North America
paul.halpin@capgemini.com