Cost Estimation Review Training and Support JIEDDO ...

Cost Estimation Review Training and Support JIEDDO ...

USAID-FUNDED SECTOR REFORM AND UTILITY COMMERCIALIZATION (SRUC) EDM COMMERCIAL LOSS REDUCTION EFFORTS COMMERCIAL METERING STRATEGY & ROAD MAP SLIDE DECK Meeting with the Commercial Directorate on 12 December 2016 This document was prepared for the United States Agency for International Development by Deloitte on contract AID-OAA-TO14-00006. The contents are not the responsibility of USAID, and do not necessarily reflect the views of the United States Government. TABLE OF CONTENTS 1. DIAGNOSTIC SUMMARY 2. STRATEGIC ROAD MAP APPROACH 3. STRATEGIC ROAD MAP SUMMARY 4. METER TESTING LABORATORY SUMMARY 2 DIAGNOSTIC SUMMARY 3 How can the Strategic Roadmap be Used Internally, as a guide to identity initiatives that: Build meter-to-cash capabilities sustainably within EDM Maximize the contribution of the meter-to-cash processes to EDMs strategic vision of sustainable high growth Reduce commercial losses, increase customer satisfaction, build business intelligence and reduce operational costs along the meter-to-cash value chain Externally, as a suite of transformative initiatives that EDM partners can support (private sector, public sector, donors, etc.) In terms of next steps, the strategic Roadmap should be followed by a Business Plan for all targeted initiatives, that includes a costbenefit analysis and a time line for implementation. The cost-benefit analysis applied to the testing lab can be used as a guideline 4 As-Is Assessment Methodology We defined the focus of our analysis: the meterto-cash value chain

within the context of the full revenue cycle We assessed the maturity levels of the value chain processes We recommended 21 high-level interventions 5 We summarized our diagnostic concerns Definition of the Meter-to-Cash Impact Chain 6 Weaknesses Strengths Commercial Metering Value Chain Overall Maturity Heatmap 1 2 Metering Procurement Data Capture Management 3 a Meter Operations Processes b Meter Installation Meter Reading

Adherence to technical CMS indicates routes and specificatio itineraries ns (STS for automatically prepaid, AMI, AMR) Large Manual backlog in upload of new meter readings installations prone to errors for Cases of HV, some faulty MV, & installations Manual GCBT calculation of Poor MV90 did energy balance supervision not results in Not all points deliver high risk of are metered, expected corruption no segmented results and fraud view Slow overall No link procuremen between

t process, networks backlog system (NIS) and customer Lack of data (CMS) standards to enforce important stress & calibration tests Lack of loss analytics Key Mature Medium Weak 7 4 c Meter Control & Inspection Billing Data Collection 5 Billing Issuance & Support Prepaid billing data Prepaid bills

correct, issued autolinking matically customers & meters Billing calculation is automatic for all customers except special clients (which are still out of Bills for Meters not CMS postpaid tested for clients quality (special (only relay Audits are not very clients, HV/ test is effective in MV, large performed) tracking the customers Meters are source of of LV) need removed commercial to be unnecessari losses at assured ly from the billing (e.g. case of field to be consumptio tested

n exceeding Meter data contracted is manually capacity or uploaded in peak) replacemen t process 6 Payment Absence of offline payment reduces risk of fraud Vendor payment channels are integrated into 3E system Special clients are out of the CMS THE STRATEGIC ROAD MAP APPROACH 8 From Current State to the Future State Current State Future State Strategic Strategic Road Road Map Map

Lack of reliable data for loss calculation & analytics Lack of systems integration Decisions not based on data Departments working in silos Lack of assurance in project implementation results in financial losses & performance worsening Define strategic initiatives to achieve future state. Ensure initiatives build sustainable capabilities. Avoid piece-meal approach to fixing performance gaps unsystematically Sustainable high growth Financial strength & profitability Infrastructure maintenance Modern data systems Modern organizational management & governance Expansion of power supply to increase population access Others Measure progress of the journey regularly 9 To-Be Sustainable Capabilities Methodology (Part I) We recommended 21 high-level interventions We analyzed the dependencies between the 21 recommended

interventions & grouped them into nine strategic initiatives to ensure coherence & maximize the ability of EDM to create sustainable capabilities in its weakest areas in the value chain 10 Grouping of Interventions in to Strategic Initiatives Concept Paper Intervention Number High-Level Interventions Identified in the Concept Paper 1 2 4 21 9 11 19 5 10 3 7 8 13 14 15 18 6 17 16 12 20 Define and Standardize the Losses Calculation Process Mapping of Commercial Losses Design a Long-term Loss Reduction Program Conduct Audit Processes along the Entire Full Revenue Cycle Meter Specification Standardization for HV, MV and BCLV clients Define a Policy for Pre-paid Meters Define the Meter Lab Structure for Quality Control Establish Inspection and Control Procedures of the Commercial Processes Define on-site meter inspection crews Systematic Mapping of all Metering Issues/Problems

Define a Process to Verify if the Meters are Operational once removed from the field Prepare and Plan for Faulty Meter Replacement Assurance Program for AMR Roll-out Establish Redundancy Process for Communication Metering Control Centre Implementation Portable Data Terminal Roll-Out Customer re-registration GIS Implementation Systems Integration and Process Design Establish a Policy for Developing People Define a Policy for Community Education 11 Strategic Inititative Number Strategic Initiatives in the Rodmap 1 Loss Analytics and Management Capability 2 Meter Specification Policy Definition 3 4 Procurement & Supplier Qualification Inspecton Field Crew 5 Meter Asset Management Plan 6 Meter Reading Process 7 Integrated Network to Customer Information System

8 9 Establish a Policy for Developing People Define a Policy for Community Education Mapping of Strategic Initiatives to Value Chain Processes 1 2 Metering Procurement Data Capture Management 3 4 Meter Operations Processes a b Meter Installation Meter Reading c Meter Control & Inspection Billing Data Collection 7 Loss Analytics & Management Process Mapping of

Strategic Initiatives 3. Procurement & Supplier Qualification 6. Meter Reading Process 5. Meter Asset Management Plan 4. Inspection Field Crew 2. Meter Specification Policy Definition 1. Design of a Loss Analytics & Management Capability 9. Develop a Policy for Community Education 8. Establish a Policy for Developing People 7. Integrated Customer to Network Information System Key Initiatives Processes Strategic Initiatives Linked to Meter-to Cash Value Chain Processes Value Chain Process with Weak Maturity Strategic Initiatives Linked to the entire Meter-to-Cash Value Chain Value Chain Process with Medium Maturity Strategic Initiatives Linked to the Wider Revenue Cycle Strategic Initiatives Linked to the Full Enterprise Value Chain 12 5 Billing Issuance & Support 6 Payment To-Be Sustainable Capabilities Methodology (Part II)

We analyzed nine recommended strategic initiatives: Description Impact Resources Implementation Plan We leveraged our industry experience & EDMs priorities to develop an impact scoring model of the interventions based on four priorities aligned to EDMs strategy: Revenue increase Operational cost reduction Business intelligence creation Increased customer satisfaction We also estimated the effort required in terms of: Resources Time to implement 13 We depicted strategic initiatives in terms of their relative impact & effort to identify the optimal sequencing: high impact-low effort, medium impact-effort & low impact-effort. Scoring of Strategic Initiatives Scoring based on industry expertise with EDM validation Strategic Inititative Number 1 2 Strategic Initiatives in the Rodmap Impact on EDM Operational Business

Revenue Cost Intelligenc Increase Reduction e Business Effort Customer Satisfaction Impact Resources Time Effort Loss Analytics and Management Capability 4 2 4 4 3.7 2 2 2.0 3 4 1 4 3.2

2 2 2.0 Meter Specification Policy Definition 3 Procurement & Supplier Qualification 1 3 1 2 1.6 2 2 2.0 4 Inspecton Field Crew 4 2 4 3 3.4 3 2

2.5 5 Meter Asset Management Plan 2 4 3 3 2.8 4 3 3.5 4 3 4 4 3.9 4 4 4.0 Integrated Network to Customer Information System 3 3 4

4 3.5 4 4 4.0 8 Establish a Policy for Human Capital 3 4 4 4 3.6 3 3 3.0 9 Define a Policy for Community Education 3 2 2 4 3.0 4

3 3.5 6 7 Meter Reading Process Scale: 1 initiative with less impact 4 initiative with significant impact 14 Impact Effort Analysis 4.0 2/23/20 2/23/20 3.5 2/23/20 2/23/20 2/23/20 Highest Impact/ Effort Impact 2.5 2.0 Medium Impact/Effort Quick Wins 2/23/20

1.5 Loss Analytics & Management Capability 2 Meter Policy Definition 3 Procurement & Supplier Qualification 4 Inspection Field Crew 5 Meter Asset Management Plan 6 Meter Reading Process 7 Integrated Network to Customer Information System 8 Establish a Policy for Human Capital 2/23/20 2/23/20 2/23/20 3.0 1 1.0 Lower Impact/Effort

0.5 0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 9 Develop a Policy for Community Education Effort Outcome Areas Loss Reduction Meter Operations Human Capital 15 Community Education Recommended Losses-Related KPI EDM Losses Key Performance Indicators Number of Inspections Carried

Out Recommended Additional KPI for EDM Based on Other Utilities, e.g. Eskom % Customers inspected per category based on loss intelligence, e.g. large customers, urban / rural, residential / agriculture, etc. % Customer inspections based on loss analytics, e.g. Low / no consumption Disconnected meter supply points continuing to advance % Customer inspection carried out based on energy balancing Number of Frauds Detected Technical and Non-Technical Losses per CSA, Transmission Area and Globally %Frauds detected per category based on loss intelligence, e.g. large customers, urban / rural, residential / agriculture, etc. % Frauds detected based on loss analytics % Frauds detected based on energy balancing Total losses per customer category, e.g. large customers, urban / rural, residential / agriculture etc. % of losses measured through transformer and feeder level energy balancing Total Losses at Acquisition Cost Total losses at the consumer tariff Energy Balancing and Statistical Metering % Statistical in-grid meters installed at MV level % Feeders and transformers balanced Accuracy of feeder and transformer balancing, based on inspection effectiveness Number of transformers with losses >30% Rationale

Once the organization develops a loss analytics & management capability, inspections can be directed to increase efficiency based on intelligence, i.e. loss analytics or energy balancing. Losses is further stratified and reported on this stratification to provide further granularity in the reporting. Efficiency per category and loss detection method enable prioritization of resources and fine tuning of analytics per strata. Losses per category enable prioritization of resources and identification of appropriate actions. Effectiveness of transformer and feeder level energy balancing. The losses can be differentiated by tariff category, to obtain more appropriate revenue loss allocation. Additional 16 Operational measures on the implementation of feeder, transformer level energy balancing and statistical ingrid meters. THE STRATEGIC ROAD MAP SUMMARY 17 Duration of Strategic Initiatives Implementation Years 1

2 3 4 1. Loss Analytics & Management Capability 2. Meter Specification Policy Definition 5 Revolving The The capability capability needs needs to to be be reinforced over time in a reinforced over time in a revolving revolving way way 3. Procurement & Supplier Qualification Focus Focus on on weak weak commercial commercial metering metering processes processes 4. Inspection Field Crew

5. Meter Asset Management Plan 6. Meter Reading Process 7. Integrated Network to Customer Information System 8. Establish a Policy for Human Capital 9. Define a Policy for Community Education 18 Impacts Impacts go go beyond beyond the the metermeterto-cash to-cash value value chain chain Operational Breakdown of Strategic Initiatives 1. Loss Analytics & Management Capability 1.1. Loss Calculation 1.2. Root Causes & Mapping 1.3. Energy Balance 1.4. Long-term Reduction Plan 1.5. Audits 2.4. SLAs 2.5. AMI

Standard 2. Meter Specification Policy Definition 2.1. Gaps 2.2. Reliability Tests 2.3. Calibration Tests 3. Procurement Supplier & Qualification 3.1. Reliability Test (ALT) 3.2. Calibration Tests (100%) 3.3. SLAs 4. Inspection Field Crew 4.1. Visual Inspections 4.2. Technical Inspections 4.3. Asset Inspection 5. Meter Asset Management Plan 5.1. Technical Procedure 5.2. Action Plan 5.3. Monitoring & Control 19 Operational Breakdown of Strategic Initiatives 6. Meter Reading Process 6.1. AMR & AMI - Split Metering

6.2. Metering Control Center 6.3. Metering Data Model 7. Integrated Network to Customer Information System 7.1. Technical Standards 7.2. Mapping 7.3. Registration 8. Establish a Policy for Human Capital 8.1. Rewards Policy 8.2. Career Development Plan 9. Define a Policy for Community Education 9.1. Strategic Objectives 9.2. Design Policy 9.3. Action Plan 20 6.4. Portable Data Terminal Strategic Initiatives Overview (1/9) 1. Loss Analytics & Management Capability 1.1. Loss Calculation 1.2. Root Causes & Mapping 1.3. Energy Balance

1.4. Long-term Reduction Plan 1.5. Audits Problem Statement EDM lacks of standardized processes and procedures to effectively understand the losses in terms of calculation precision, its causes and segmentation. Furthermore, there are also lack of a sustainable approach to ensure long-term loss reduction. Description The standardisation of the loss calculation procedure improves the loss calculation precision The energy balance and correct mapping of the root causes of losses assists in structuring a more targeted action plan to combat losses and the ability to evaluate the outcome of implemented initiatives Enhanced data quality and loss analytics capabilities help in developing a more effective long-term reduction plan The audits will help to identify gaps in the business procedures and tasks execution failures that lead to revenue losses 21 Strategic Initiatives Overview (2/9) 2. Meter Specification Policy Definition 2.1. Gaps 2.2. Reliability Tests 2.3. Calibration Tests 2.4. SLAs

2.5. AMI Standard Problem Statement There is a lack of documented metering strategy, policy and standards within EDM. EDM requires a clear vision for their metering strategy and a roadmap for the future implementation of the strategy within the organisation. Furthermore, the meter specification lacks on detailed testing procedures (reliability and calibration tests) Description EDM must ensure the development of a long-term metering strategy with clear identification of goals and required plans for the achievement of the strategy is required The meter specification must define the tests to be conducted prior to asset acquisition The calibration tests (while EDM does not have its own lab) and accelerated life tests must be required from the vendor 22 Strategic Initiatives Overview (3/9) 3. Procurement Supplier & Qualification 3.1. Reliability Test (ALT) 3.2. Calibration Tests (100%) 3.3. SLAs Problem Statement EDM has not defined a process for supplier qualification. This may compromise the asset quality control. Quality control is an important point to take into account when purchasing meters and can be achieved through meter testing to evaluate its performance in terms of calibration and reliability. Description

The supplier qualification consists of establishing requirements that the meter supplier must meet in order to be able to take part in the bidding process In terms of technical qualification the supplier must provide meter testing reports from a certified laboratory and reports specified in the EDM technical specification The supplier qualification ensures faster meter acquisition and reduces the probability of acquiring meters with poor performance and durability 23 Strategic Initiatives Overview (4/9) 4. Inspection Field Crew 4.1. Visual Inspections 4.2. Technical Inspections 4.3. Asset Inspection Problem Statement A key problem encountered in many utilities and experienced in EDM is the lack of regular testing/validation of meter installations. Furthermore, ensuring the quality in testing is also a challenge. Description Visual inspections are aimed to enhance the relationship with the customers and be able to identify eventual problems Technical inspections are aimed to verify if the meter is operating properly and if there are meter anomalies/by-pass Establishing elite teams to audit inspections help improving inspections quality and reducing corruption practices

24 Strategic Initiatives Overview (5/9) 5. Meter Asset Management Plan 5.1. Technical Procedure 5.2. Action Plan Problem Statement There is currently no systematic process in EDM that tracks the meter assets in an asset lifecycle manner. This includes not only the procurement process and decommissioning processes, but also the complete cycle of receiving of the asset, the testing, distribution, installation and disposal. Description The initiative is focussed on the development of the required policies and procedures required to manage the maintenance of all meter asset data through the asset lifecycle. This has an impact in: The refinement of meter specifications Meter procurement decisions Meter asset control Effective meter maintenance plan implementation Consistent logging of meter faults Easy integration to network or GIS systems to map the physical location 25 5.3. Monitoring & Control Strategic Initiatives Overview (6/9) 6. Meter Reading Process 6.1. AMR & AMI Split Metering 6.2. Metering Control Center 6.3. Metering Data Model 6.4. Portable Data Terminal Problem Statement

The lack of a reliable and automated process for collecting data on post-paid customers results in data quality issues, errors and manipulations from human intervention. Failed communications can lead to poor billing processes and lead to losses; Although split-metering has proved to be an effective solution to combat meter by-pass and therefore reduce considerable the residential losses, only 10% of the prepaid customers have split-meter installed. Description EDM must develop an assurance program for the AMR rollout to reduce revenue losses associated with poor program implementation of meter replacement program for EDMs big customers. Furthermore, robust communication is crucial to avoid poor billing processes EDM must implement one central intelligence unit (MCC) and have dedicated operational teams in each of the client service areas. EDM must perform the replacement of integrated meters to split-meters in a prioritized manner by areas with high losses rate 26 Strategic Initiatives Overview (7/9) 7. Integrated Network to Customer Information System 7.1. Technical Standards 7.2. Mapping 7.3. Registration Problem Statement There are issues identified in the customer information network. It includes CMS registered customers and their integration with the geo-referenced system (GIS). Another problem is the current point-to-point methodology that hinders the integration between systems (current and future).

Description Re-registering all customers and being able to link them with the Network to Customer Information System (NCIS) allows for efficient planning of the distribution system, expansion projects, distribution network improvements, asset management and contributes towards different activities to combat losses such as consistent client registration, field inspections, meter problems mapping, etc. For system integration, an Enterprise Service Bus (ESB) implementation would facilitate the communication between systems 27 Strategic Initiatives Overview (8/9) 8. Establish a Policy for Human Capital 8.1. Rewards Policy 8.2. Career Development Plan Problem Statement EDM lacks on a policy that is aimed to maximize the potential of the workforce and provide the structure for linking individual goals to departmental and organizational goals through the objective-setting process. It was identified that rewards based on individual performance indicators are no longer in place. This includes incentives to promote efficiency using a bottom-up strategy. Description Provide a career development plan for employee growth and

enhanced performance. An increase in the knowledge base at EDM allows for sustainable growth and capabilities to cope with the demand The loss reduction performance should be used as a KPI for incentive programs. This ensures that all employees would benefit from EDM loss reduction 28 Train Human Capital Reward Strategic Initiatives Overview (9/9) 9. Define a Policy for Community Education 9.1. Strategic Objectives 9.2. Design Policy 9.2. Action Plan Problem Statement EDM has no education work for the safe and adequate use of energy in low-income communities where it is most difficult for people to pay for energy. Description The utility's presence in low-income communities, where there are often problems with illegal practices to steal energy or difficulties for paying for energy, is very important for EDM to be aware of the problems and together with the people of the communities to seek for solutions Some utilities around the world that have structured this type of work and maintained it for several years have managed to reduce energy theft in communities by up to 70% 29

METER TESTING LABORATORY SUMMARY 30 Testing Lab Solutions Lab Lab Modalities Modalities Type-testing Lab Accelerated Life Test Lab Portable Equipment Objective Objective To assess the functioning of the meters within the pre-specified metrological conditions, specially metering errors To assess the functioning of the meter when subjected to stress conditions (temperature, humidity, vibration, tension, etc.) To conduct tests of power parameters such as consumption levels, active & reactive power, harmonic measurement & calibration errors, amongst others 31 Business Impact The alternative for EDM to have its own meter test lab can add the following values: The meter test lab can be the start-up of a Technologic Centre to improve EDM know how

Development of training program for the EDM employees Provide services for other companies Make calibration of a hundred percent of the meters purchased with competitive costs Deploy Meter Asset Management Reset the software of its prepaid meters if be possible in the future to apply timely tariffs Pre-qualification of the meter manufacturer Support the process of customer complaints, etc. 32 Testing Lab Recommendations 1. Acquisition of a type-test lab to perform calibration of 100% of the meters purchased by EDM 2. Request the vendor to provide certificates from accelerated life tests before buying its meter 3. Perform accelerated life tests of existing meters in an independent lab or at ESKOM 4. Evaluate the need for purchasing specific equipment to conduct accelerated life test for electrical and electromagnetic stress 33 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (DTTL), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global) does not provide

services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. This communication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and their related entities (collectively, the Deloitte network). None of the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. 2016. For information, contact Deloitte Touche Tohmatsu Limited 1300 Pennsylvania Ave NW, Washington, DC 20004 United States of America 35

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