To be successful, large-scale distribution modernization programs will need to avoid the traps that have ensnared some early movers, such as:
Overly ambitious goals: Eager to demonstrate results, a utility may overcommit to the number of projects it expects to complete yearly in its program. There are inherent risks to this approach, especially when the program itself is still evolving. Permitting or easement bottlenecks as well as design development and completion delays can quickly derail dozens of projects in an overly aggressive schedule. Barring contractual restraints on spending, costs can also escalate.
Beware also of lofty modernization goals that are unrealistic. For example, a utility might be tempted to set a goal of undergrounding the majority of its distribution system. A few projects into such an effort, however, it may discover that undergrounding costs are significantly higher than anticipated. It may then be necessary to shift gears quickly and think strategically about which lines to relocate underground and how to protect the remaining overhead lines from failure. Budgets may need to be reallocated to solutions that minimize the work performed and investment applied to a circuit while still meeting reliability targets set forth at the project’s onset.
A less ambitious start may have greater chances of building a foundation for long-term success. By aiming to complete construction on a smaller set of projects in the first year, a utility and its project team can identify and address potential risks upfront. With early focus on the design, permitting and easement processes, utilities can be prepared to hit the ground running in year two with more realistic goals and shovel-ready projects.
Insufficient due diligence during contractor selection: While experience in previous transmission and distribution projects is valuable, it does not always produce the knowledge base and skill sets that large-scale distribution modernization programs require. A great number of distribution projects take place in downtown or metropolitan areas. The noise and other disruption they can create along streets and sidewalks can be significant for people living and working nearby. Community outreach plays a larger role when decisions are made regarding which distribution lines to locate underground.
Similarly, contractors with deep experience in transmission projects may be attuned to the rate at which construction materials are consumed and the productivity rates that can be anticipated on construction. Distribution projects can be more unpredictable. For example, when undergrounding a line, a construction crew might hit rock, forcing it to mobilize in a location that requires different easements or more conduit than anticipated. Contractors must be aware of the potential for variables like these when bidding on projects.
Extra scrutiny, therefore, is needed when evaluating contractor portfolios during the request for qualification and proposal processes. Utilities are wise to request greater-than-typical details on prior applicable experience, along with insights on the project risks contractors anticipate and how those risks have been factored into their pricing, schedule and project delivery plans.
Imprecise contract language: On investments of this magnitude, some of which may total in excess of $1 billion, project success can hinge on the fine print in construction contracts. Clear role definitions, change management strategies, performance incentives and missed-milestone penalties should all be clearly articulated. Each is critical to mitigating risk and meeting schedule and budget targets.
Supplier contracts should be equally precise. When projects are small, utilities often have a good sense of the materials and equipment they have on hand. On large programs, material and equipment management becomes far more complex. These contracts should be written with the consequences of delivery delays and other risks in mind.