EnergyBiz - January/February 2008 - (Page 56) » Guidebook Moving Out OutsOurcing t&D By WilliaM Opalka W hen northe ast UtiLitie s t Wo y e a r s ago (Transmission & DisTribuTion auTomaTion) may need over the next decade. Once more transmission projects are announced the term could be extended for a few more years. As utilities compete for assets – not just construction material and heavy equipment, but engineering talent and other intellectual assets – they may find themselves forced to enter long-term arrangements with their vendors and consultants just to reserve a place in line as those resources are in greater demand. The NU agreement is to be executed from 2008 to 2013 and is valued at $750 million. Bosco said that as more projects are identified and approved, work from the deal could last as long as 2017 and be worth more than $1 billion. Northeast Utilities appears to be looking at the anticipated construction programs in the rest of the United States and is responding to perceived competitive pressures to line up not just equipment and infrastructure, but also talent. “There are only a few contractors who have the capability to do projects of this scale, so we determined that before it’s taken away from us, we would have to lock up their services for a number of years,” said Jim Muntz, senior vice president for transmission for Northeast Utilities. Without this arrangement Muntz sees a replay of the history of nuclear power plant construction. “In the 1970s everybody was trying to build new plants, so if you weren’t locked in, you may have ended up with somebody’s ‘B’ team. Or, you may have tried to do it yourself, which came with rather mixed results,” Muntz said. “While other parts of the utility’s operations, like plant construction, looked to outsourcing solutions, T&D appears to be one of the last departments to embrace the concept,” said Tim Hope, a vice president of operations for ABB. ITC Holdings in Michigan is solely in the transmission and distribution business. Joe Welch, president and CEO of ITC, sees an opportunity in that electricity market sector by buying transmission assets and building even more in several Midwestern and Plains states. ITC is the only independent transmission company and is seeking markets where it can expand. Its plan for a 180-mile-long transmission line in kansas to serve wind generation was recently approved by the Southwest Power Pool. Because he believes it runs counter to the self-interest of vertically integrated utilities, Welch is skeptical of a “great transmission build-out” occurring. Meanwhile, the company is taking an active role to mitigate the effects of the aging workforce issues. ITC and the unions representing its workers have embarked on training linemen for maintenance and construction. “We’re Ok for now, but in four or five years I expect we’ll start seeing some big holes (in the workforce),” he said. That makes the demand for highly skilled and specialized workers even more acute as more and more projects are contemplated. Consider the challenge of finding cable splicers for a 45-mile XLPE transmission line NU is building now in Connecticut. Contractors are bringing in workers from France. was completing a 21-mile 345-kilovolt transmission line, with more than 12 miles of it underground, its contractors literally scanned the four corners of the globe to find qualified workers. Solid-core cable splicers were hard to come by, and more than 20 were needed to work around-the-clock for several weeks, even undergoing a two-week refresher before work could begin. “Once a job like that starts, there’s no way to even think of having any interruptions,” said Frank Poirot, a spokesman for NU Transmission, a unit of Northeast Utilities, which has operations in three New England states. Its contractors had workers committed to the project from England, New Zealand and Australia. While this example is rather extreme, it illustrates the extent to which utilities are forced to go to execute the next great build-out in transmission and distribution projects over the next decade and beyond. And that’s just one relatively small $350 million project in one state. Multiply that by dozens of utilities throughout North America, contemplating billions in infrastructure, counted in thousands of miles in the aggregate, over the next several years. Overlaid on this acute shortage of skilled tradesmen is a loss of talent as many left the industry and will continue to do so, all while transmission projects languished for more than a decade. And many utility construction departments perform maintenance and repair functions and are not used for new construction projects as they don’t view it as a core competency. While siting and regulatory issues remain with the utility in the internal departments, design and construction of large projects are done by outsourcing. “The customers are looking for more of a turnkey type of solution,” said Ben Bosco, senior vice president of Quanta Services, responsible for business development. With so many projects in populated areas requiring underground cabling, which often has several times the complexity of overhead wiring, there are added demands for expertise. “The push for outsourcing transmission and distribution often comes from cost-cutting pressures. As private equity has taken an interest in utility acquisitions the pressure to eliminate costs increases,” Bosco said. An example from a few years ago of cost-containment occurred when Puget Sound Energy in Washington State essentially outsourced its entire construction services unit when Quanta Services acquired it. Quanta essentially took over the 600 people responsible for all construction and engineering. More companies appear to be engaged in strategic partnerships with their contractors. In the case of NU and Quanta, both parties recently executed a memorandum of understanding for projects over the next several years. The companies say this is the first arrangement of this type in the utility industry. But the agreement lists projects in which commitments have been made and does not yet consider all the work NU 56 E n E rgyB i z January/February 2008
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