MBOA2 Capital vs O & Mppt - USMA...

Annual Educational Conference

SPURRING INNOVATIVE IDEAS SPURRING INNOVATIVE IDEAS IN WIDE OPEN SPACESIN WIDE OPEN SPACESAnnual Educational Conference

Capital vs O&M What Procurement Needs to Know


SPURRING INNOVATIVE IDEAS SPURRING INNOVATIVE IDEAS IN WIDE OPEN SPACESIN WIDE OPEN SPACES

Today’s Presenters

•  Bob Stoner-‐ Product Manager, ABB

•  Barbara ServaEus-‐ Regional Sales Manager, Lindsey Manufacturing

•  David Bonk-‐ VP Industrial Affairs, Osmose UElity Services



Electrification Products

Robotics and Motion Power Grids

Industrial Automation

ABB (ABBN: SIX Swiss Ex) is a pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids, serving customers in utilities, industry and transport & infrastructure globally. Continuing more than a 125-year history of innovation, ABB today is writing the future of industrial digitalization and driving the Energy and Fourth Industrial Revolutions. ABB operates in more than 100 countries with about 132,000 employees. www.abb.com

Low Voltage Products Medium Voltage Products Solar Inverters UPS and Power Conditioning EV Charging Infrastructure Service Solutions

High Voltage Products Transformers Substations Substation Automation Protection & Control Communication Networks Power Grids Semiconductors Enterprise Software Microgrid Solutions FACTS HVDC Service Solutions

Control Systems Measurement Products Turbocharging PLC’s Service Solutions

Power Generation Oil & Gas Marine Pulp & Paper Mining Metals Aluminum Cement

Drives Motors & Generations Robotics Service Solutions



Grid AutomaEon

•  Enterprise SoQware •  AutomaEon Products •  AutomaEon SoluEons •  Microgrids •  Distributed GeneraEon

Grid IntegraEon •  SubstaEons •  FACTS •  HVDC •  Plant ElectrificaEon •  ConsulEng •  System IntegraEon

High Voltage Products

•  HV Breakers •  Gas Insulated Switchgear •  Generator Breakers •  Capacitors •  HVIT, SSVT, Surge Arresters

Transformers •  DistribuEon •  Dry type •  Large & Medium Power •  Small Power •  InsulaEon & Components •  System IntegraEon

Service

Power Grids



Solu%on Benefits Example Embed InstallaEon Service with new product purchase

•  Increased performance/reliability •  Capitalize installaEon with product

Customer purchases OEM technical assistance for commissioning and training – included in price

Extended WarranEes •  Lower maintenance costs •  Included in product price (Capital)

OEM installs equipment to ensure proper applicaEon, warranty lengthened from original purchase

Long Term Product Care Agreements •  Reduced Life Cycle Ownership Cost •  Included in product price (Capital)

Complete care of product for 20+ year period; 65% savings over customer performing life cycle care

Product Life Extensions •  Increased life expectancy •  “New” product with O&M

Replacement of key component during maintenance – extends product life by 15+ years

Product Upgrades and Uprates •  Increased performance and life expectancy •  “New” product with O&M •  PotenEal to capitalize with new nameplate

Product retrofifed with newer technology, uprated for capacity and new nameplate raEng – over 70% of product new

Exchange Programs •  Increased life expectancy •  “New” product with O&M

Cyclic replacement of breaker drives to ensure operaEon and reliability

SoluEons for Capital and O&M Budget ConsideraEons:



ABB

ABB SuggesEons for Supply Managers:

! With major equipment purchases, consider service – usually an aQer thought

! What do your account rules and regulaEons permit? (FERC – tesEng as part of a rehabilitaEon project, for example, can be capitalized) ! There are opEons to replacement that can provide same life extension benefits

! Consider Total Cost of Ownership – does it make sense to contract for product care services that may lower overall ownership cost?

! Compare “apples to apples”

! Be creaEve – open a dialogue with the OEM





FOR MORE INFORMATION: BOB STONER

ROBERT.F. STONER@US .ABB .COM 724 -‐696 -‐1426



Celebra%ng 70 years of successful solu%ons

•  Since 1947 Lindsey products and systems have been solving complex problems in the transmission and distribu%on of electric power.

•  Hardware and soQware products that address Grid resiliency, smart grid monitoring, and criEcal T-‐line needs

•  Known for reliability and performance that exceeds expectaEons.



Capex or O&M Challenges – at a high level

•  Capex or O&M? –  InterpretaEon differs by company

–  Federal, state, and company-‐internal requirements

•  Impact on vendor –  Engineering or IT (and someEmes purchasing) may not be aware of

requirements

–  Discussion between purchasing and vendor(s) usually happens aQer all scope and price requirements finalized

–  New technology approaches may stop the discussion due to fear of the unknown or ‘rocking the boat’ or ???



Capital or O&M Challenges – at a deeper level

•  Is a soQware license a capital expense? –  During development or evaluaEon stage?

–  Once technology is approved? –  Is it sEll a capital expense if it is charge annually?

•  If a soluEon (hardware, soQware and services) is purchased as one order, is everything in the order considered capital? Does that include installaEon? Training? On-‐site support?

•  If the product is movable do you have to wait unEl depreciaEon is complete to move it? Will the installaEon costs to move it always be considered O&M?



Capital or O&M Challenges – deeper sEll

•  What about cloud compuEng? –  Doing the analysis in the cloud instead of on-‐site reduces cost and

security resources

–  Can the cost for cloud data services be a capital expense? –  Does moving the analysis to a cloud server change the status?

•  If a soluEon (hardware, soQware and services) is purchased as one order, is everything in the order considered capital? Does that include installaEon? Training? On-‐site support?

•  If the product is movable do you have to wait unEl depreciaEon is complete to move it? Will the installaEon costs to move it always be considered O&M?



Working with the challenges

Challenge

•  Post iniEal year purchase annual license and data charges viewed as O&M

•  Sensors are mobile but moving to monitor other criEcal lines changes installaEon costs to O&M

What has worked for Lindsey

•  MulE-‐year data and license cost offered as part of iniEal purchase. Added value -‐ opportunity to lock in pricing or facilitate discounts

•  Factory can re-‐work sensors

•  MulEple line selecEon can be developed as part of the iniEal purchase



RecommendaEons to Sourcing

•  Become part of the team. Get involved early so engineering, operaEons, and purchasing work together making the requirements known before trying to write the purchase order.

•  Please treat your vendor(s) as part of the team. Include the O&M v. Capex discussion. We want to support your requirements but someEmes it takes a lifle extra thinking (and internal discussions) to get there.



Thinking Out of the Box – Sourcing can invesEgate new technology

•  The Power industry is in turmoil right now +

–  With 2 commissioners, FERC lost the ability to act

–  Transmission projects subject to significant uncertainty –  Assigned rates are not guaranteed without FERC leadership

•  There are ‘non-‐standard’ technologies that offer access to more capacity at higher value than tradiEonal approaches: –  Lower cost –  Faster to implement

+ from WIRES newslefer





FOR MORE INFORMATION: BARBARA SERVAT IUS

BSERVAT IUS@L INDSEY-‐USA .COM 404 -‐550 -‐9313



A Framework for Capital Funding of Wood and Steel Structure Life

Extension Programs



Osmose Overview

"  Osmose Utilities Services, Inc. "  2,000 Employees "  Headquarters: Peachtree City, GA "  Strategic Focus: Life Extension of Critical Utility T & D Structures "  Nationwide organization of 400+ crews visit 6,000,000+ structures annually

"  Services "  Wood Pole Inspection & Treatment "  Wood Pole Restoration/Trussing "  Steel Structure Inspection and Rehabilitation "  Pole Engineering Services/Pole Loading Analysis/JU Make-Ready "  Infrared/Reliability Inspections "  Padmounted Transformer Inspection/Rehabilitation "  UG Vault (Network) Inspections "  Storm Recovery Services

www.osmoseuEliEes.com 17




Why is this topic relevant to utilities?

•  With slowing top-line revenue growth at many utilities and continued pressure for earnings growth, downward pressure on O & M budgets is increasing

•  The average utility does not earn its allowed ROE, putting further pressure on the need to reduce non-fuel O &M

•  The impact of weather patterns on revenues and O & M budgets can be positive or negative--this “faucet finance” makes it difficult for managers to fund and execute selected reliability programs on a consistent basis

•  (Significant) expense reductions can be difficult and disruptive to achieve

•  New data on life extension impacts, recent FERC case precedents and changing industry practices provide a framework for evaluating the use of capital funding for selected system life extension programs




Benefits of Effective Capitalization

•  Immediate benefit to earnings through O&M reductions (shareholder benefit), or to fund other maintenance program priorities

•  Long term reduction in PVRR (ratepayer benefit) •  Reduces future CAPEX required for structure replacement

•  Ineffective capitalization can drive sub-optimal asset management decisions •  Less comprehensive inspect-only programs, or programs focusing only on the overhead structure

and associated components may increase volatility in future replacement CAPEX requirements •  Reduces flexibility in capital rationing / asset investment planning

•  For Transmission—an alternative way to take advantage of current favorable regulation and market conditions in addition to large-scale asset construction or replacement programs

•  Solutions that sustain current transmission plant but require less capital spend •  Life extension strategies that significantly delay otherwise-required replacements

!  Diversifies capital investments !  Helps keep overall capital spend at sustainable level




Why is this topic relevant for Supply Chain? •  Secure funding source is important factor in how you “bid the program”

–  Work quantities/volume commitments can affect pricing –  Contract term can affect pricing –  Programs more challenging to bid with a “non-firm” budget

–  Project stops and starts can add unbudgeted mobilization/de-mobilization costs

•  How program is bundled/packaged can affect ability to capitalize work –  Comprehensive “Capital Project” approach vs. one-off services/quick-hit projects

•  Supply Chain can play a more active role in the process –  Having funding conversations and gaining organizational agreement up front –  Being part of discussions with Operations and Finance –  Being better prepared to ask the right questions when Operations comes to you with a

new program to source

•  Improves long-term potential for a successful company/vendor partnership that achieves program operational and financial objectives






Wood Pole Decay and Loss of System Strength & Resiliency




Significant Corrosion Impacts on Steel Towers & Foundations




Thinning/Section Loss




Significant Section Loss




Significant Section Loss




Key to Capital Consideration = Life Extension (Beyond Originally-Estimated Useful Life)

Steel Structures •  The application of specialized remedial coating systems •  The rehabilitation of damaged concrete foundations or corroded

structural steel components in lieu of replacement •  The installation of sacrificial anodes as an additional measure of

cathodic protection against continued structure deterioration

Wood Poles •  The application of specialized remedial treatments, including

the application of external preservative pastes at the groundline, as well as internal fumigant treatments





Wood Pole Service Life


Decay Hazard or Deterioration Zone as outlined by the AWPA




Wood Pole Service Life (continued)

Previously published research by Osmose on Predicted Service Life by Decay Hazard or Deterioration Zone is shown below. Predicted Service Life is calculated as the point where 50% of the sample has a remaining strength less than NESC requirements to remain in service

Decay Zone 1 Decay Zone 2 Decay Zone 3 Decay Zone 4 Decay Zone 5

49.8 years** 56.8 years** 44.5 years** 43.0 years** 40.3 years**

** Data compiled on 751,000 utility poles commercially inspected across the U.S. between 1988 and 1999

•  A similar study conducted by Quanta Technology in 2012 calculated the average expected life of a wood pole in the U.S. at 53 years




Tower Construction Population Timeline

Source: Journal of Protective Coatings & Linings; Volume 27/Number 7; July 2010




Expected Steel Structure Service Life

Sources: SCS Global Services: Environmental Life Cycle Assessment of Southern Yellow Pine Wood and North American Galvanized Steel Utility Distribution Poles, April 2013; Predicting the Service Life of Galvanized Steel—The Fabricator, May 2003; Hot-Dip Galvanizing Costs Less, Lasts Longer—American Galvanizers Association , 2007

•  Galvanized steel utility poles/towers have not been used/tracked for a long enough period to empirically determine average service lifetimes directly

•  Research data from similar steel structures, as well as known corrosion rates for galvanized steel, can be used to estimate average expected service life

•  Based on a search of available third party sources, an Average Estimated Life Span for Steel Transmission Structures in the range of 60 to 85 years is reasonable

•  Limited inspection data in Northeast U.S. shows average age to reject status of 83 years

•  Osmose was unable to source any “expected design life” or warranty information from steel pole manufacturers

!  In reality, it’s not necessarily age that matters, it’s condition—not all structures fail at the same age or rate

•  Influenced by age, structure type/design and location (environment)




Relevant Industry Standards – Wood Poles & Steel Structures ANSI (American National Standards Institute):

–  ANSI 05.1 – standards document to set specifications for “which trees can become poles” (fiber strength requirements, circumference measurements, quality/knots, sizing, etc.)

–  Sets standards to establish consistent pole strength

AWPA (American Wood Preserving Association): –  Sets standards for preservative penetration and

retention in newly manufactured poles

NESC (National Electric Safety Code): –  Establishes required pole strength for overhead

lines –  Sets standards for when a pole is no longer

serviceable based on its remaining strength

ASCE (American Society of Civil Engineering):

ASCE 10-97 – Design of Lattice Steel Transmission Structures

ASCE 48-11 – Design of Steel Transmission Pole Structures

ASTM (American Society of Testing and Methods): ASTM A572-04—mechanical and chemical properties required for steel

ASTM A123—galvanizing requirements for poles

ASTM 153--galvanizing requirements for hardware

AISC (American Institute of Steel Construction)

ACI (American Concrete Institute)

SSPC (Society for Protective Coatings):

SSPC SP7—surface preparation to precede galvanizing

NACE (National Association of Corrosion Engineers)

AGA (American Galvanizers Association)

!  Nothing in any of the relevant industry standards which establishes maintenance practices required to ensure a wood pole or steel structure achieves its expected service life






GAAP and FERC Capitalization Requirements GAAP rationale: Capitalization results from improvements to existing assets if future economic benefits result from the expenditure, then the improvement should be treated as a capital expenditure and appear on the balance sheet as an asset. Future economic benefits occur if any of the following conditions are met:

" Service life of an asset is extended

" Quality of output expected from an asset is improved

" Expected quantity of output from an asset is increased

FERC rationale: Governed by FERC’s uniform system accounts - Electric Plant Instruction

" Asset life

" Quality

" Quantity

! FERC Uniform System of Accounts and more recent case precedents are consistent with GAAP rules for capitalization




Substantial Addition or “Betterment” to Pole Plant •  Expenditures that maintain an original level of benefit or are incurred for the

purpose of keeping the asset in an ordinarily efficient operating condition are expensed in the period they are incurred (O & M)

•  Expenditures expected to produce (future) benefits beyond the current accounting period (or fiscal year) and provide a more permanent benefit in longevity, utility or worth are capitalized (betterments)

•  To be considered a betterment, a post-acquisition expenditure must improve the long-lived asset in at least one of four ways:

•  Increase the asset’s useful life over that which was originally estimated •  Improve the quality of the asset’s output •  Increase the quantity of the asset’s output •  Reduce the costs associated with operating the asset

•  Post-acquisition expenditures classified as betterments should be capitalized, added to the cost of the long-lived asset, and then depreciated over its useful life. Expenditures classified as maintenance should be treated as current expenses




FERC Uniform System of Accounts Balance Sheet Chart of Accounts Section 101. – Electric Plant In Service

–  Definition (A.) “This account shall include the original cost of electric plant, included in accounts 301 to 399…having an expectation of life in service of more than one year from the date of installation…”

Category 3. – Transmission Plant Account (355.) – “Poles and fixtures”

10. Poles, wood, steel, concrete or other material 12. Reinforcing and stubbing 14. Shaving and painting

Category 4. – Distribution Plant Account (364.) – “Poles, towers and fixtures”

12. Poles, wood, steel, concrete or other material 15. Reinforcing and stubbing 17. Shaving, painting, gaining, roofing, stenciling and tagging

593 and 594.1 Maintenance Accounts (j.) Shaving, cutting rot, or treating poles or crossarms in use or salvaged for reuse




Relevent FERC Case Precedents Novinium, Inc. – Docket No. AC08-143-000 (September, 2008)

• Capital accounting treatment approved by FERC for URD cable injection, “provided the company used the product to extend the useful life of its segments beyond their original estimated useful lives”

• Related cases filed by utility companies have allowed for comprehensive capitalization of all related “construction costs,” including the inspection - when the determination that injection is required has already been made (at the program level)

Waverly Light & Power – Docket No. AC11-2-000 (February, 2011)

• Waverly seeks ruling on accounting treatment for retro-filling in service transformers with bio-based dielectric coolant that extends the useful life of the transformer

• FERC approved capitalization given accelerated performance testing of the technology, along with a reference to the Novinium case as an applicable precedent

Considered a capital expenditure if betterment principle is met (based on original asset useful life)




Relevent FERC Case Precedents (continued) IMCORP – Docket No. AC09-27-000 (March, 2009)

• Requested that FERC confirm “that the cost of underground cable assessment technology may be capitalized when it is used in connection with rehabilitation projects to extend the useful life of an underground cable system”

• IMCORP’s assessment technology allowed for evaluation of the cable based on test results, not just based on the age of the cable, significantly reducing the amount of capital required and lowering customer rate impacts

• FERC ruled that “the cost of underground cable assessments may be capitalized subsequent to the determination that a one-time major rehabilitation project must be undertaken and that the project will extend the overall electric cable system’s useful life beyond the original estimated service life”

•  Both inspection and remediation costs may be capitalized as long as three criteria are met:

1.  Costs are associated with a defined program, not the result of an asset failure

2.  Recommended actions are taken within a reasonable period of time, and

3.  All actions are documented at the individual asset level




The Basic Pole Inspection & Treatment Program Process

•  Visual Assessment - decayed tops/crossarms, blown arrestors, missing guy guards, etc.

•  Sound & Bore - locate and measure internal decay

•  Excavation - expose decay zone at groundline •  Chipping - remove external decay and prepare

pole for preservative application •  Measure and Assess Remaining Strength •  Application of Treatment •  Wrap Pole, Backfill and Tag




Preservative Levels and Strength Reduction No Strength Red

uc%on

(no de

cay)

Ac%ve Stren

gth Re

duc%on

(decay)

Pre

serv

ativ

e le

vel in

pol

e

Time (years)

New pressure treated pole is installed in service 100% original strength (time = 0 years)

Threshold level of preservative

5 10 15 20 25 30 35 40 45

41

End of service life (per NESC) based on original design < 67% Remaining strength (time = 45 years)




Preservative Treatment of In-Service Poles A “Retrofit” Plant Addition to Increase Service Life

No Strength Red

uc%on

(no de

cay)

Ac%ve Stren

gth

Redu

c%on

(decay)

Pre

serv

ativ

e le

vel in

pol

e

Time

New pressure treated pole is installed in service

Threshold level of preservative

Treatment Treatment

42




Creating a Comprehensive Model Incorporating All “Reject and Replacement” Criteria Into Expected Life

Technically, successive treatment will extend the life of the wood pole at groundline with equal efficacy

BUT – as a function of time, other replacement drivers increase in probability (i.e. pole top, framing and hardware issues)

10 Years 10 Years 10 Years 10 Years




Empirical Data Analysis – Pole Treatment Benefits Projected General Linear Model

Decay rates used in analysis are based off projections using a general linear model with a logistic link function and binomial variance Source: Oliver Wyman analysis, Osmose 600k Wood Pole Survivor Rates by Decay Hazard Zone Initial Inspection vs. Recycle Inspection




Life Extension of the Asset Projected General Linear Model

•  Projecting reject rates for poles past age 50 shows an even larger life extension due to pole treatment




Capitalization Approaches to Wood Pole Life Extension

1.  Capitalize Treatment Costs Only

2.  Capitalize both the Inspection and Treatment costs for any pole receiving a remedial treatment

3.  A programmatic, circuit-based approach which also includes the identification and remediation of additional sub-standard system components, along with an inspection and treatment program to extend the life and improve the reliability performance of the circuit




Impact of Capitalization & Materiality of Treatment Costs

! Program expenses aggregated and annualized in context of “mass asset” accounting practice for distribution poles

!  “OpCo” 2016 Distribution Program Expenditures "  Total Spend = $1,629,205 (39,256 Poles @ $41.50/Pole) "  Eligible for Capital Consideration = $1,397,212 (86%)--Both

Inspection and Treatment Costs for all Poles Receiving Treatment •  22,643 Poles Externally Treated @ $31.43/Pole = $669,522 •  28,905 Poles Fumigant-Treated @ $23.33/Pole = $674,256 •  911 Poles Internally-Treated @ $12.39/Pole = $11,287




Key Supporting Considerations to “Betterment” of Steel Structures •  Steel structures that are candidates for rehabilitation are often near the end of

both their accounting and originally-estimated useful lives. If the structure is not rehabilitated, the only other available option to ensure reliable, ongoing circuit performance is replacement

•  Structural rehabilitation materials are made from the same, or very similar materials, with similar properties and protective coatings to the original tower materials; therefore the life expectancy of the rehabilitated leg or foundation is essentially reset to the original expected life when the tower was erected

•  In many cases the impact of the corrosion that is effectively remediated is the only significant problem with the structure or foundation which affects its remaining service life

•  For concrete foundations, in many cases we are changing the overall design which is both significantly different and a measurable improvement over the original installation—not a “like-for-like” repair




Remedial Coating Systems

PPG Protective & Marine Coatings references that the application of recommended coating systems to above and below-ground galvanized (and non-galvanized) steel members and footings will provide 20-25 years of service life on average

Mio-Aluminum Corothane

Corothane I HS Aliphatic Finish Coat




Cathodic Protection

Installation of Sacrificial Anodes—minimum design life = 20 years






Steel Structure and Concrete Foundation Rehabilitation




Tower Leg Replacement

Completed Splice Preparing for Concrete




Tower Leg Replacement (continued)








Concrete Foundation Rehabilitation

Concrete Forms After Rehabilitation




Concrete Foundation Rehabilitation (continued)











River Crossing Tower Repairs




Steel Monopole Restoration


Before…



Steel Monopole Restoration


After…





•  For most rehabilitation projects, the steel material used is ¼” or greater in thickness

!  From ASTM A123-01, Zinc Thickness Grade is…

!  Which equates to a coating thickness of 3.9 mils…





!  From American Galvanizer’s Association, this puts us at approximately 70 years for industrial areas




Additional Decision Support Information

•  FERC not expected to issue specific ruling on wood pole treatment; no other “bright line” rules exist on accounting treatment

–  FERC communicated to Osmose that despite “compelling” data, they expect each company to make this accounting determination through their own internal/external review process

•  Softening of tax requirements, recently updated IRS regulations which include capitalization rules for tangible personal property (TD 9636, 9/19/13) –  No longer phrase the betterment test in terms of expenditures that “result” in

a betterment, but instead note that capitalization is required for amounts that are “reasonably expected” to materially increase one of the four factors

•  Capital costs may be eligible for consideration under recent extension of bonus depreciation provisions with potential favorable impacts on cash flow and earnings—need to consult with appropriate internal financial decision-makers



Peer Precedent – Pole Inspection & Treatment IOU/Telco

1. Florida Power & Light

2. PPL Electric Utilities

3. Alliant

4. NIPSCO/NiSource

5. Oncor

6. Detroit Edison

7. CLECO

8. LGE/KU

9. Idaho Power

10. ITC Midwest

11. NorthWestern Energy

Cooperative

1.  Pedernales EC

2.  Adams EC

3.  Guadalupe Valley EC

4.  Southwest MS EPA

5. Georgia Transmission

6. Wise EC

7. Intermountain Rural EC

8. Bluebonnet EC

Municipal/Governmental

1. Gainesville Regional Utilities

2. Lakeland Electric

3. City of Homestead

4. City of Tallahassee

5. Lafayette Utilities System


12. Green Mountain Power

13. Dayton P & L/Indianapolis P & L (AES)

14. Mid-American (IA)

15. Black Hills Energy

16. Public Service of New Mexico

17. Texas New Mexico Power

18. Ameren (MO)

19. Georgia Power

20. Puget Sound Energy

21. Mississippi Power

22. Entergy

23. CenturyLink




Peer Precedent – Corrosion Services

Utilities Capitalizing Steel Structure Inspection & Rehabilitation Program Components:

1. Pennsylvania Power & Light (inspection with coatings, rehabilitation)

2. LGE/KU (rehabilitation)

3. SCE & G (rehabilitation)

4. TVA (rehabilitation)

5. BPA (CP)

6. Entergy (rehabilitation)

7. NIPSCo (inspection with coatings, rehabilitation, CP associated with rehabilitation)

8. First Energy (inspections/rehabilitation associated with circuit upgrade projects)

9. ITC Midwest (inspection with coatings, rehabilitation)




Change Management Issues

Internal Due Diligence Required: 1. Document the case for changing the accounting treatment based on the documented life extension benefits 2. Establish a mechanism to track the inspection (O&M) vs. treatment (Capital) costs separately

!  Change in invoicing/billable items required?

!  Is a separate account necessary to simplify tracking and depreciation of project-related costs?

3. Determine if any regulatory filings are required (i.e. single issue rate adjustment; pre-approval?)

!  Option to change internal accounting treatment but defer regulatory filing until future rate case

4. Is an adjustment to depreciation rate(s) required?




Additional Key Takeaways

1.  Same basic framework is relevant to other programs with a documented life extension benefit—UG cable rehabilitation, substation transformer dielectric coolant, UG transformer rehabilitation, etc.

2.  Benefits must be well documented and supported

3.  Must be consistently applied YOY

Reminder on Relevance to Supply Chain • Importance of secure program funding source • How program is “packaged” is important • Supply Chain can play a more active role • Improves long-term potential for successful company/vendor partnerships





FOR MORE INFORMATION: DAV ID BONK

DBONK@OSMOSE .COM 770 -‐632 -‐6716



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MBOA2 Capital vs O & Mppt - USMA...

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