WHITE PAPER

PAS 55 FOR ELECTRIC UTILITIEs

CONTENT
PAS 55 AND ENTERPRIsE AssET MANAGEmENT SOFTwARE......................................... 1 WHY ADOPT PAS 55?. ................................................................................................... 4 Intrinsic benefits of adopting PAS 55 include:......................................................... 5 WHAT TO LOOK FOR IN EAM sOFTwARE. ....................................................................... 5 CONCLusION............................................................................................................... 7 ABOuT IFS .................................................................................................................. 8

PAS 55 FOR ELeCTRIC UTILITIes

PAS 55 FOR ELECTRIC UTILITIEs

B Y M I C HA E L B L A L O C K GL O bAL IN DU S TRY D I RE C TO R F O R EN E Rg Y A N D U TI L I TI E S IFS

For the electric utility sector, more so than perhaps any other industry, enterprise asset management (EAM) is a core business discipline that affects all of the utilitys key stakeholders. Rate payers certainly want the utility to squeeze performance from the capital assets their rates underwrite. Regulators and employees want to ensure these assets are being designed and operated in accordance with environmental and safety requirements. And shareholders in investor-owned utilities want to make certain that the assets are operated and maintained in a manner consistent with producing the highest rate of return from their capital expenditures. But while standards like ISO 9001 have been in existence for years allowing organizations to document quality, no specific standards have previously existed that allow electric utilities and other asset-intensive businesses to prove they are following best practices designed to better serve their stakeholders. In this whitepaper, we will discuss Publically Available Specification 55 (PAS 55), a specification from the British Standards Institute and the International Asset Management Committee. PAS 55 has immediate and significant implications for utilities executives. One reason that PAS 55 is of such immediate importance is that in rate cases, utility rate payer organizations and interveners are already asking questions about PAS 55 compliance to ensure that rates are not increased to pay for new capital assets, when more effective management could deliver additional life or capacity from existing assets. Investors and other stakeholders will also be looking for PAS 55 compliance as a measure of good management practice. But independent of these pressures external to the organization, utilities executives themselves will likely come to see PAS 55 as a useful tool to help them ensure that they are making good on their fiduciary responsibility in accomplishing corporate strategic plans by setting sound asset management policy consistent with organizational goals and turning that policy into actionable activities and communicating that to all parties involved in the asset value chain.

PAS 55 AND ENTERPRIsE AssET MANAGEmENT SOFTwARE

This PAS is specifically intended to cover the lifecycle of assets and in particular assets that are mission critical to the purpose of the organization, such as are power stations. Just as ISO 9001 was an organizational standard for quality assurance, PAS 55 is an organizational standard for best practices in the area of asset management.

PAS 55 FOR ELeCTRIC UTILITIes

While the specification is really about harmonizing organizational mission/goals with your asset management policies, business processes, and best practices, it does have implications for the information technology (IT) systems that are used to support its adoption. Lets address these areas where the PAS specification and IT systems, like enterprise asset management software, intersect by looking briefly at the seven key areas to PAS 55 attainment: In Section 4.1General Requirements, the specification states that organizations must establish, document, implement, maintain, and continually improve their asset management system. In this context and paper, asset management system refers collectively to the overall policy, strategies, governance, plans and actions of an organization regarding its asset infrastructure. While this requirement is not directed to address IT systems, per se, it does have implications to the IT system(s) used to manage direct and outsourced activities having to do with the assets. In Section 4.2Asset Management Policy requires that top management authorize an overall asset management policy that derives from and is consistent with the organizations strategic direction and goals. This requirement supports the companys interests and states the desired impact of asset management systems implementation. It includes statements regarding the policys values and behaviors that must be communicated to all stakeholders including risk tolerance, safety, environmental compliance, regulatory compliance and continuous improvement. Under the requirements of this section, policy can be thought of as a strategic corporate intent that is to be met through asset management and through a fully implemented asset management strategy. In Section 4.3Asset Management Strategy, Objectives, and Plans requires the creation, documentation, implementation and maintenance of a long term, asset management strategy consistent with the organizations mission and defines the corporations assets functions and required performance levels to be attained. This section of the PAS also deals with the need to identify and consider the needs of stakeholders over the lifecycle of the asset, including employees, suppliers, customers and shareholders and their concerns with regard to safety, health, environmental performance and sustainability of the business. At a high level, the strategy provides the information, direction, and guidance to enable specific asset management objectives and plans to be produced to deliver the policy requirements in section 4.2. The plans take into consideration matters such as legal requirements, regulatory issues, financial considerations, stakeholder needs, and other requirements that are critical to the company and consistent with the policy. Plans are developed for all major aspects of your asset management system, like design process, risk management, ensuring the availability of spares, reliability sustainment, contingencies for emergencies or major events that can be reasonably anticipated. In Section 4.4Asset Management Enablers and Control states that the organization shall establish and maintain an organizational structure of roles, responsibilities,

PAS 55 FOR ELeCTRIC UTILITIes

and authority consistent with the achievement of asset management policy, strategy, objectives, and plans, addressing the details of how you implement the plans put forward in section 4.3. This section outlines requirements for organizational structure, the responsible parties, and their levels of authority. In addition, consideration is given to the requirements, expectations, communications, competence and training of all stakeholders and to the possible impact they may have to the organizations management of assets. The IT system(s) are specifically discussed, addressing the need for sharing of information and the retention of knowledge across the organization with special focus regarding outsourced activities. The IT system must address all phases of the asset lifecycle, including the processes of planning and engineering of the asset, maintenance and operation of the asset and the eventual retirement or decommissioning of the asset. Across this entire asset lifecycle, the IT system is used to define enterprise risks and how they will be managed. This work includes physical failures, operational requirements, environmental events, terrorist acts, stakeholder financial risks and various legal and other requirements. One of the most important aspects for PAS 55 adoption is the requirement that the IT system(s) used must support an accurate and consistent view of all asset informationone version of the truthinsuring policies, plans, and actions are based on an accurate understanding of the history and current status of your asset infrastructure. In Section 4.5Implementation of Asset Management Plans outlines the requirements for establishing, implementing, and maintaining processes and procedures for the management and control of the asset management plan and activities across the entire asset life cycle including the assets creation, acquisition, or enhancement, utilization of the asset, its maintenance, and decommissioning and/or disposal. Up to this point, we have been basically planning and putting policies, procedures, and plans into place to enable implementation. Weve planned the work, and now, we work the plan, applying the enablers and controls to throughout the lifecycle of the asset. In Section 4.6Performance Assessment and Improvement sets forward guidelines for establishing, implementing, and maintaining processes and/or procedures for monitoring and measuring performance and assessing asset condition. These guidelines are a useful tool in documenting your compliance in following established asset management protocol and policy. The guidelines also aid the organization in ensuring you are achieving targets through activities like benchmarking and communicating results to those who need to know about them. Performance assessment systems must record failures, incidents, and non-conformances, enabling improvement in performance over time. Audits are then used to ensure that you are documenting performance, providing top management with visibility into the asset management system and any associated improved metrics or deliverables.

PAS 55 FOR ELeCTRIC UTILITIes

A major challenge for many regulated companies is their ability to demonstrate to regulators, rate payers, interveners, or other stakeholders that they are actually doing what they say they say they are going to do. Information technology is a tremendous help in capturing the data required to meet this challenge. Section 4.7Management Review mandates periodic reviews to keep top management informed and engaged in assessing the continuing suitability, adequacy, and effectiveness of the overall asset management system. These reviews not only allow senior management to perform ongoing due diligence, but serve as notice to asset managers and their staffs that management is engaged and paying attention to their activities. Audit results, incident reports and other data points are all incorporated in a format that is comprehensible and actionable by management. This ongoing system of review keeps an asset management system, in essence, alive, so it does not become just another documented set of practices that may or may not be followed.

WHY ADOPT PAS 55?

PAS 55 represents a response to the demands of both stakeholders and regulatory bodies for more accountability with regard to management of capital assets. Asset management affects the financial performance of an enterprise, the environment, occupational health of employees, and even prices for commodities including electric power. So on a fundamental level, the best reason to adopt PAS 55 is to provide the high level framework for good business policies, processes, and best practices that demonstrate that you are engaging in effective, optimal asset management. And ensuring optimal asset management is something any stakeholder in a utility or other enterprise that relies heavily on fixed capital assets must be concerned about. For a typical utility, asset management is fundamental to the fiscal and functional health of the organizationin many cases even more so than traditional investment criteria like debt to revenue ratio. Determining whether an asset is being operated in optimal fashion is more complex than typical financial metrics. It must encompass how the utility or organization constructs, operates and maintains assets and how they go about retiring them when they are past asset life and are no longer capable of supporting the services required by customers. PAS 55 compliance is a way to ensure that all stakeholders needs are addressed as a vested party of the overall utility enterprise. As PAS 55 becomes an ISO standard, regulators will pay special attention to the degree to which utilities are compliant. According to documentation from the National Association of Regulatory Utility Commissioners (NARUC), that body is already assuming that PAS 55 will indeed become an ISO standard. PAS 55 has become a regular topic of discussion at NARUC meetings. But apart from these external pressures to adopt PAS 55, there is ample internal motivation that should cause utilities executives to seriously consider adopting the

PAS 55 FOR ELeCTRIC UTILITIes

standard. Utilities and other asset-intensive industries can benefit organizationally by adopting the best practices mandated in PAS 55, so enlightened self interest, rather than stakeholder pressure, could be another driver for standard adoption.

Intrinsic benefits of adopting PAS 55 include:

Well documented roles and security. PAS 55 requires compliance with well-defined and

rigorous implementation of best business practices and in overall information stewardship by the organization. Effective services management. The standard outlines requirements for information management practices that enable integration of services management capabilities, providing access to information to external contractors relevant to support their activities and accountabilities in asset management. These requirements, in turn, provide a means to manage and document information shared with third-party contractors and to track the activities of those third-party contractors, showing they are following established asset management protocols. Knowledge Transfer. You can have the best asset management plan in the world, but if you cant operationalize the plan by sharing it with all parties in the value chain of the organization associated with the assets, the organization cannot act in a coordinated way. Document Management. PAS 55 best practices call for a supporting document management capabilities that are an integrated part of the asset management plans and actions that you take. Collaboration. The PAS 55 specification is explicit in its requirements for information stewardship. It states that whether one or multiple systems are used to track asset information requirements, only one version of asset data must be maintained one version of the truth that is available to all application views and to all stakeholders. It also requires support of the entire asset life cycle, including the upfront initial planning, engineering design, construction and commissioning phases, key to having information available for operations and maintenance and later in performance assessment. Performance assessment and improvement. It should go without saying that a systematic approach of collecting transactional information, summarizing it and looking back at it for performance trends, directions, and issues is beneficial to executive management. Without this, management decisions would be based on best guesses only.

WHAT TO LOOK FOR IN EAM sOFTwARE

PAS 55 is a specification that deals with the requirements for business policy, practice, and governance, rather than a how to book for implementation of best practices. In dealing with the role of IT technology, it is relatively agnostic on what

PAS 55 FOR ELeCTRIC UTILITIes

system or systems are used or should be selected to facilitate compliance. But there are aspects of PAS 55 that place specific requirements upon any EAM software that may be used by utilities and other asset-intensive organizations. The most significant of these requirements is for an enterprise software environment that supports the entire asset lifecycle. This requirement in effect rules out computerized maintenance management systems (CMMS). CMMS or simple work management systems are really focused on one phase of an assets life cyclethe operational phase involving maintenance and repair. So by definition, these simple tools used alone cannot comply with the specification due to their lack of support for the preliminary planning, design engineering, construction, and commissioning phases of the asset life cycle. This situation is as it should be since the key to successful management of a capital asset-driven business is mastery of the entire life cycle process from the beginning of planning and engineering of a new asset all the way through to the ultimate decision to decommission that asset. The goal of management must be to maximize the business value and return on the enormous investment that asset represents. Optimizing this process requires close collaboration, not only with internal parties, but with the engineering design firms, contractors, equipment suppliers, and others involved in designing, constructing, and commissioning the asset. It requires collaboration with the internal parties who manage the asset during its operational phase, along with external parties involved in outsource maintenance work, refits, life cycle extensions and other projects that change the specifications of or the total lifecycle cost and lifespan of the asset. CMMS systems and simple work management systems do not offer this life cycle view, and therefore, are not sufficient to support PAS 55 compliance. This new standard will likely drive more and more utilities and other asset-intensive companies to implement fully functional EAM with strong asset lifecycle capabilities including plant engineering. Most of the more direct implications for IT systems supporting EAM and for other enterprise software is contained in Section 46, which states that: The organization shall identify asset management information requirements considering all faces of the assets life cycle. "The organization must design, implement and maintain a system for management asset management information. "PAS 55 complaint organizations must also provide employees and stakeholders access to information that is relevant to their activities, and to their responsibilities. "Organizations also must establish, implement, and maintain procedures for controlling asset information across the organization.

PAS 55 FOR ELeCTRIC UTILITIes

So while PAS 55 does not directly mandate that a particular set of IT products be implemented, it does set goals for IT governance and control that are best met by an enterprise application capable of encompassing the entire asset life cycle and making information available to all stakeholders from a central, unified repository.

CONCLusION
In summary, let me reiterate two major points that executives at utilities and other asset-intensive enterprises should consider. First of all, PAS 55 complianceeven before it becomes an ISO standardmay be a smart move. Stakeholders are already showing interest in this specification as an indicator of management prudence and effective asset management - and regulators are not far behind them in this regard. Moreover, the best practices mandated by PAS 55 constitute good business policy, practices and procedures. Compliance should be viewed by senior management as a tool for ongoing organizational improvement. Secondly, as stated, PAS 55 does not specifically address enterprise IT systems, but does place requirements upon an organization that can be directly impacted and facilitated by the system used. PAS 55 mandates for one version of the truth is more easily attained through an enterprise application approach to IT system, while the need to support the entire asset lifecycle is not handled by many applications offerings in the marketplace. PAS 55-compliant asset management must be supported by IT applications that facilitate communication with all stakeholders, encompassing both internal and external parties that have a hand in engineering, construction, commissioning, operating, maintaining, retrofitting, upgrading, and replacing the assets. The correct choice of IT system provides the systematic enterprise framework for collection of transactional information critical for compliance and for effective communication of corporate policies, procedures, plans, and actions concerning asset infrastructure. Utility company executives intent on PAS 55 compliance should carefully consider the breadth and depth of these requirements to make certain that the enterprise applications they select and implement truly support this end.

As IFS Global Industry DirectorEnergy and Utilities, Michael Blalock is responsible for industry strategy and direction globally for the sector and leads the business development efforts for IFS footprint in North America. Blalock has more than 25 years of experience serving the Utility Industry, holding senior leadership positions with companies including SAP America, SAIC, and General Electric. Blalock holds a degree in electrical engineering from the University of Alabama at Birmingham, completing the executive business curriculum at Cambridge Institute. Blalock began his career gaining direct industry experience as a staff engineer in the Corporate Planning Department at Southern Company.

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