Internal Audit Report. Power Facilities Maintenance. January 10, To:

Transcription

1 January 10, 2002 To: J.G. Rodford S.A. Gillies J.R. Irvine D.T. Dunlop E.Y. Leung R.P. Penneway G.N. Sherlock D.A. Harrison L.I. Bell M. Costello Audit and Risk Management Committee Internal Audit Report Power Facilities Maintenance AU0213PS Audit Services Prepared by: G. Parmar R.E. de Leeuw B Roby (Delta Electricity Australia) A.Y. Lee

2 Executive Summary As observed in our previous audit in Fiscal 1999, the maintenance strategy is forward-looking as it optimizes the balance amongst maintenance, commercial management and water resource availability. Although the strategy implementation has progressed, some initiatives are not completed as planned due to funding and staff constraints. The number of hours that BCH generation is unavailable is better than Canadian Electricity Association (CEA) average while the generating unit failure frequency is worse than CEA. This indicates that either BCH failures are less complex or that BCH staff are more effective in repairing failures. These results are similar to the last audit results. (Comparison to CEA average does not suggest using this as BCH performance targets. Indeed, BCH should set its own targets for competitiveness and maximum profitability.) Overall, facility managers indicated that current asset performance is satisfactory, with no serious immediate concerns. The various systems for measuring asset health are not yet sufficiently installed to assess future trends. Facility managers also suggest that risks are increasing. There are competing funding demands (e.g., safety), deferral of non-critical maintenance items, gradual deterioration of some major equipment and civil works (excluding dams), and decreasing time for maintenance due to other business initiatives such as training and regulatory requirements. Maintenance funding (OMA) has increased since 1999 but recent benchmarking studies still show BCH maintenance costs to be lower than other utilities. Facility managers state that the current funding addresses immediate critical needs. The level of maintenance funding beyond the next few years is difficult to assess because acceptable risks and desired performance targets have not been set. Risk is known to be increasing. Better information on asset risks, proposed risk mitigation measures and their related ranking is needed to support funding requests and ensure effective resource allocations. Capital investments have increased since 1999 and benchmarking indicates that BC Hydro s reinvestment rate is low. A Generating Equipment Strategic Investment Program (GESIP) framework is being utilized to assist investment decision-making and a proposed, five year Page 1

3 Internal Audit Report Page 2 Executive Summary $280 million capital plan has been drafted. Some facility managers expressed concerns that approved capital work is not always completed, primarily due to a lack of qualified personnel. Performance monitoring and reporting continues to require development. A Power Facilities Scorecard has been developed but other management reporting and performance measures vary across facilities. The maintenance and operational data captured by various groups and systems are not consolidated, integrated, and analyzed to obtain maximum value. Also, the ability to link the budget and actual expenditures to work (planned, performed, and completed) still remains a challenge due to the current financial reporting system constraints. This audit did not address People Resourcing, a significant risk area in the 1999 audit, This risk is not limited to maintenance work and the audit time did not allow proper re-evaluation of this area. Our audit conclusions are summarized in the following table: MANAGEMENT ELEMENT Maintenance Strategy Requires Mgt. Attention (Increasing Risk) CURRENT PERFORMANCE RATING Developing (System Evolving) Performing (Working System) Superior X Asset Health Current Condition Future Condition X Funding Capital Investment Maintenance Costs (short term) Maintenance Costs (long term) X Performance Monitoring/ Reporting Performance Reporting Management Monitoring Effectiveness of Maintenance Maintenance Planning Work Management X X X X X X X

4 Internal Audit Report Page 3 Key Recommendations Executive Summary Continue with the maintenance strategy and expedite development of techniques for predicting asset health. Review the project status of the Reliability Centered Maintenance and Equipment Health Rating initiatives underway. Determine remaining work required and the costs involved, identify elements that can be integrated to avoid overlap, and set targets for completion. Review each plant and determine acceptable risk level and performance targets (e.g., failure rate, availability etc.) based on commercial needs, business requirements, and strategic value. Standardize risk ranking criteria for annual work planning and resource prioritization among the facilities. Use the risk information and desired performance targets to demonstrate a costeffective program of corrective and preventive maintenance, and from this determine the necessary funding. Continue to enhance the GESIP framework for capital investments planning, address the issues relating to the under-utilization of capital funds and provide the necessary personnel to complete the planned capital work. Identify the information requirements of Power Facilities staff and key stakeholders and continue developing a formal management reporting package at the fleet level that meets their needs. Standardize and streamline the information capturing process to improve accuracy and efficiency. Improve the accounting of costs and work and ensure there is consistent and accurate reporting of work status (work planned and performed, with associated budget and expenditures) as well as appropriate accountability measures. Management Response Significant progress has been made since the last audit on Asset Plans and the Generating Equipment Strategic Investment Program. Management agrees with the further improvements in these key recommendations and, subject to competing resourcing requirements, will implement these improvements by March 2003.

5 Internal Audit Report Page 4 Executive Summary 1. Background 2. Audit Objective and Scope Contents 3. Observations and Recommendations 3a. Maintenance Strategy 3b. Asset Health 3c. Maintenance Costs 3d. Capital Investment 3e. Performance Monitoring and Reporting

6 Internal Audit Report Page 5 1. Background The Power Supply generation assets include generation, control system and switchyard equipment; buildings and grounds; dams and waterways. The assets are located in 35 hydro and thermal facilities. In December 1999, Audit Services conducted a Power Supply Maintenance audit. The audit focused on seven key areas: maintenance strategy, asset health, capital investment, maintenance costs, performance monitoring and management reporting, maintenance work management, and people and resources. Key observations from the 1999 audit were: The new maintenance strategy provides a strong foundation for effective maintenance. The generation assets were performing at levels that were comparable to Canadian utility industry averages. Several early warning indicators showed that the level of asset risk was increasing. Capital work was consistently below approved plan and reinvestment in hydro assets was relatively low compared to that of other utilities. While core hydro maintenance costs had increased, they were relatively low compared to that of other utilities. The process of defining work requirements based on risk assessment tended to be informal. Major initiatives of developing condition assessments and asset plans for each plant, as well as new information systems were underway. Staff competencies were considered superior but many plant staff were approaching retirement age. There was a need to accelerate resource planning to ensure appropriate knowledge and skill transfer.

7 Internal Audit Report Page 6 2. Audit Objective and Scope Objective The objective of this audit is to provide assurance that the power plant maintenance level is appropriate, maintenance management is effective, and maintenance and capital funding is adequate. Scope The scope of this audit is to review the implementation of the recommendations of the December 1999 audit, and to review the business risks, processes, procedures and controls in the key component areas of: Maintenance Strategy Asset Health Maintenance Cost Capital Investment Performance Monitoring and Management Reporting The review comprised interviews with Power Supply staff and other BCH employees, examination of maintenance strategy initiatives and documentation, and analyses of asset performance and maintenance costs. We also reviewed benchmarking studies conducted by Haddon Jackson Associates. This audit did not address People Resourcing issues. It is recognized that this was a significant risk area in 1999, however this risk is not limited to maintenance work and the time frame for this audit does not allow proper re-evaluation of this area. The technical nature of the audit required the addition of subject matter expertise in the areas of power asset maintenance. Consequently, the internal audit resources were supplemented by Mr. Brian Roby, Delta Electricity (Australia) and Mr. Bob DeLeeuw, both are professional engineers with extensive maintenance experience in hydro and thermal assets.

8 Internal Audit Report Page 7 3a. Maintenance Strategy In 1996, Power Supply adopted a new maintenance strategy that links plant performance to commercial marketability and revenue enhancement. The maintenance strategy has progressed well, with the addition of new components relating to condition assessment, asset plans, asset risk assessment. The various components of the maintenance systems are shown below: 2001 Work Definition Work Management Facility Planning Fleet Planning Vendor Specified Preventive and Predictive Equipment Health Rating EHR Rates Condition of Major Plant Items New Improved Uses RCM Inputs Improved Vendor Specified Preventive and Predictive Modified with Experience Reliability Centred Mtce Risk and Cost Based Preventive and Predictive Burrard, Seton, Revelstoke, Ruskin Corrective Maintenance As Identified Operating Information "OI" On-Line Predictive Maintenance Action Items Go to Corrective Maintenance or Asset Plan Seton Only Computerized Maintenance Management System Passport Defines Most Maintenance Work Component of Base OMA Projects Base OMA Asset Plans Contain Major Issues and Risks Strategies KPI's and 20 Year Budget Forecast Projects Budget Foundations OMA and Capital All Facilities Strategic Generation Equipment Strategic Investment Program "GESIP"

9 3a. Maintenance Strategy The following provides a summary of the major system components and its progress: Generating Equipment Strategic Investment Program (GESIP) This program, initiated in March 2001, provides a framework to support a coordinated and informed investment decision-making process. It involves evaluating the investment needs of each facility and providing support for capital allocation using a classification system to assess contribution and risk within the portfolio: financial contribution, health condition and environmental risks. A five year capital plan for Fiscal 2002 to Fiscal 2006, totalling $280 million has been drafted. Reliability Centred Maintenance (RCM) The RCM initiative involves developing new maintenance instructions using a structured process for identifying possible failure modes, severity of consequences, probabilities and developing responses. The process would also meet the WCB requirements for preventive maintenance programs. A pilot program at Ruskin was completed in 1999/2000, and the program was planned for implementation in other facilities over 3 years, commencing in Approved funding to date has been $1.9 million, against a plan of $4.5 million. The project completion time has been extended due to a lack of OMA funding and staff resources. RCM has been completed at Seton, which includes entering the new Preventive Maintenance program into the Passport Work Management System and performing maintenance work accordingly. RCM studies are in progress at Ruskin, Burrard, Bridge River, Revelstoke, Cheakamus, John Hart, and Seven Mile. The studies have validated a majority of the existing maintenance procedures as well as identifying areas of over and under maintenance. Many preventive maintenance task intervals have been extended, though some have been reduced. Internal Audit Report Page 8

10 Internal Audit Report Page 9 3a. Maintenance Strategy Equipment Health Rating (EHR) The EHR initiative, started in 1999, rates the condition of major plant items (e.g., turbines, exciters, etc.) based on physical assessments and expert opinions. The initiative comprises two phases. Phase One, which consists of testing, inspection and condition assessment for six major equipment categories at 32 plants, is complete. Phase Two work, which consists of rating equipment health and prescribing remedial work is currently underway for Seven Mile and Kootenay Canal and planned for another 5 major stations. Approved funding to date has been $1.2 million against a plan of $1.8 million. The completion time of the initiative has been extended and the scope is significantly reduced, due to a lack of funding and qualified personnel. Operational Information (OI) This initiative, started in 1996, is an automated station monitoring system which provides real time information locally from the SCADA system (e.g. reservoir levels), operating information on some equipment (e.g. generator temperatures) and records of trip and alarm events to facilitate diagnoses of forced outages. The system is now operational at 26 facilities for SCADA information and at 8 facilities (the seven largest power stations and John Hart) for equipment condition. This system was implemented to provide benefits across Power Supply including those in Power Facilities, where managers indicated that the tool provides useful operational information to enable timely diagnoses and corrective action. The project is now complete with actual expenditures of $19.6 million, against a plan of $22.3 million.

11 Internal Audit Report Page 10 3a. Maintenance Strategy Asset Plans Asset plans were updated in 1999/2000 for all facilities in a standard format. The revised asset plans contain major issues and risks, strategies, annual work plan by equipment and 20 year budgets for capital and OMA. Facility managers are generally satisfied with the asset plans and the information is being used as a source for annual budget planning. Passport Work Management System (Passport) The Passport work management system, implemented in early 1999, is now fully installed and user acceptance has improved. There has been significant progress regarding the maintenance strategy. However, some concerns are becoming apparent. There appear to be several common elements among EHR, RCM and another risk management project currently on hold. Some efficiency may be realized by integrating at least some elements of these initiatives to eliminate redundancies and by utilizing maintenance reports from the Passport system. Integration may provide a more timely solution for the completion of the most critical elements of each project. Many Power Facilities groups have collected and maintained information regarding asset condition, through various processes and systems. However, the facts and data have not been consolidated, integrated, and analyzed to obtain maximum value. Statistical techniques for assessing the risks associated with aging equipment may be helpful and available through a number of commercial products.

12 Internal Audit Report Page 11 3a. Maintenance Strategy Currently, Passport is not being used to its fullest potential with respect to asset condition assessment and work management. More accurate data input and coding of work orders into the specific work types (e.g., preventive, condition based and corrective) is required to enable analysis of maintenance and costing. Recommendations Continue with the maintenance strategy and expedite development of techniques for predicting asset health. Review the Risk Management initiative currently on hold, as well as the project status of the Reliability Centered Maintenance and Equipment Health Rating initiatives underway. Determine the remaining work required and the costs involved, identify elements that can be integrated to avoid overlap, and set targets for completion. Review and confirm compliance with WCB regulations before making a decision to delay RCM. Review the maintenance and operational data captured in the Passport system and consider opportunities to utilize the information for assessing plant condition and analyzing risk trends, using suitable statistical tools. Improve data integrity with more rigorous use of work codes. Management Action Plan Management agrees with the recommendations and, subject to competing resourcing requirements, will implement these improvements by March of 2003.

13 3b. Asset Health We assessed asset health based on past and current performance, comparison with industry (CEA) performance, and assessment by plant personnel. The CEA averages allow comparison of BCH performance against Canadian industry standards. Note however that we do not suggest using the CEA averages as performance targets. Indeed, BCH should set its own targets for competitiveness and maximum profitability. Two accepted industry indices, Forced Outage Rate (FOR), and Unavailability Factor (ICbF) were chosen to measure plant unavailability: FOR is the percentage of time that the plant is unavailable due to forced outages. ICbF represents the percentage of time the plant is not available to generate revenue. We also selected failure rate of generating units to measure reliability. Failure rate is the number of times per year that generating units failed while in service. Results Forced Outage Rate and Unavailability Factor for are shown in the charts below. Both factors for BCH are better than the CEA average. 2.50% FORCED OUTAGE RATE BY YEAR (BC Hydro mean = 1.67%, CEA mean = 2.03%) (Lower values are better) BCH BCH mean CEA mean 10.00% 9.00% 8.00% UNAVAILABILITY FACTOR (ICbF) (BC Hydro mean = 7.93%, CEA mean = 9.17%) (Lower values are better) BCH BCH mean CEA mean 2.00% 7.00% Forced OutageRate 1.50% 1.00% Unavailability Factor 6.00% 5.00% 4.00% 3.00% 0.50% 2.00% 1.00% 0.00% 0.00% Year Internal Audit Report Page 12 Year

14 Internal Audit Report Page 13 3b. Asset Health Based on 2000 statistics, BCH s equipment is 30% less reliable than the CEA average (i.e., BCH s failure rate mean is 3.05 compared to the CEA mean of 2.34). The failure rates for BCH units with capacities greater than 100 MW are shown below: FAILURE RATE 2000 (without starting failures) Units > 100 MW (BC Hydro mean = 3.05, CEA mean = 2.34) (Lower values are better) Stations BCH mean CEA mean #/Year REV01 REV02 REV03 REV04 MCA01 MCA02 MCA03 MCA04 GMS09 GMS10 GMS01 GMS02 GMS03 GMS04 GMS05 GMS06 Station GMS07 GMS08 The year 2000 results are similar to those observed in the audit of The comparatively high failure rate for generating units, combined with low forced outage rate and unavailability factor, indicates that either BCH failures are less complex or that BCH staff repair failures more quickly than other CEA members. SEV01 SEV02 SEV03 PCN01 PCN02 PCN03 PCN04 JOR01 KCL01 KCL02 KCL03 KCL04

15 Internal Audit Report Page 14 3b. Asset Health As part of the audit, we interviewed area managers to obtain their assessment of the plant condition. The anecdotal information summarized in the following table: CONDITION OF POWER STATIONS SINCE 1999 Kootenay Mica Revelstoke GMS Burrard Canal/Seven Mile Building and Grounds Same Same Same Deteriorated Same Civil Works Deteriorated Deteriorated Deteriorated Deteriorated Same Boiler Systems Deteriorated Power Generation Same Deteriorated Same Same Deteriorated Electric Power Systems Same Deteriorated Deteriorated Deteriorated Same Protection & Control Same Same Same Same Improved Mechanical Auxiliaries Same Same Same Deteriorated Same In our 1999 audit, we reported that the level of asset risk was increasing based on several early warning indicators. During this audit, we were unable to collect sufficient information covering the past two years to comment on asset risk. The initiatives (RCM and EHR) for predicting asset health are not yet sufficiently implemented to assess future trends. At this time, none of them have been operational long enough at any power station to allow assessment of the program effectiveness and provide information for meaningful conclusions on predicted asset health. Accurate corrective vs. preventive maintenance information is not available. Statistical analyses of failure and inspection data to define the trend more precisely have been limited. However, the facility managers advise that the gradual deterioration of civil works (excluding dam safety) continues and significant deterioration of some major equipment has become evident.

16 Internal Audit Report Page 15 3b. Asset Health Recommendations Review each plant and determine acceptable performance targets (e.g., failure rate, reliability etc.) based on commercial needs, business requirements, water supply, and strategic value. As discussed earlier, expedite development of techniques for predicting asset health. Review the project status of the Reliability Centered Maintenance and Equipment Health Rating initiatives underway. Determine remaining work required and the costs involved, identify elements that can be integrated to avoid overlap, and set targets for completion. As discussed earlier, review the maintenance and operational data captured in the Passport system and consider opportunities to utilize the information for assessing plant condition and analyzing risk trends, using suitable statistical tools. Management Action Plan Management agrees with the recommendations and, subject to competing resourcing requirements, will implement these improvements by March of 2003.

17 3c. Maintenance Costs Power Facilities OMA costs have increased steadily from $64.4 million in Fiscal 1999 to $93.9 million (46%) in Fiscal 2002, as shown below: F1996 F1997 F1998 F1999 F2000 F2001 F2002 Plan PMSI Backlog Clearance $ 6.8 $ 7.5 $ - $ - $ - $ - $ - Hydro Maintenance Thermal Maintenance Total Maintenance Operate Plant/Switchyards Environment Supervision & Support Community Relations Other (Training, Shared Services) Sinkhole Total Power Facilities OMA Costs $ 62.9 $ 94.3 $ 64.4 $ 64.4 $ 69.4 $ 79.2 $ 93.9 A little over half of the annual OMA costs was spent on maintenance work. Thermal maintenance increased 36%, from $7.6 million in Fiscal 2000 to $10.3 million in Fiscal 2001 and then increased another 103% to $20.9 million for Plan The Fiscal 2002 increase was primarily for corrective repairs on the failed units at Burrard station. Hydro maintenance increased $5.2 million, from $26.4 million in F1999 to $31.6 million for Plan The increase was due the increasing asset risk identified in the previous audit and the Haddon-Jackson benchmarking study. However, recent benchmarking studies still show that maintenance cost for six of the seven hydro facilities were lower than other similar hydro plants. Internal Audit Report Page 16

18 Internal Audit Report Page 17 3c. Maintenance Costs According to the facility managers, the current funding addresses immediate critical maintenance needs. Non critical items such as vegetation management and maintenance of civil works (excluding dam safety) are deferred which may cost more to repair in the future. They are also concerned with competing funding demands such as environmental management, regulatory conformance and previously capitalized initiatives (RCM, EHR) which are now treated as OMA due to accounting policy changes. As well, the time available for maintenance work is decreasing due to other business initiatives such as training and regulatory requirements. Consistent with the 1999 audit finding, the level of budget funding beyond the next few years is difficult to assess without more information on acceptable risk levels and desired performance targets. The current risk prioritization has improved with the development of prioritization tables, but the tables are used for only 20% of the funding requests, as well, the ranking process is not consistently applied across the facilities. In our view, the tracking and analysis of OMA cost generally requires strengthening to provide a clear understanding of maintenance costs. Recommendation Implement work base budgeting and use standardized principles and ranking criteria to support annual work plan and resource allocation among the facilities. Use risk information and desired performance targets to demonstrate a cost effective program of corrective and preventive maintenance, and from this determine the necessary funding. Management Action Plan Management agrees with the recommendations and, subject to competing resourcing requirements, will implement these improvements by March 2003.

19 Internal Audit Report Page 18 3d. Capital Investment A summary of the capital expenditures from Fiscal 1996 to Plan 2002 is tabulated below: Capital Investment in Generation Plants ($millions) F1996 F1997 F1998 F1999 F2000 F2001 Plan 2002 Replacements/refurbishments $ 11.3 $ 17.1 $ 21.3 $ 19.2 $ 14.8 $ 24.5 $ 63.3 Seven Mile Unit Stave Falls New Powerplant Hydro Plant Investment Burrard Thermal Upgrade Burrard Thermal Emission Replacements/refurbishments Thermal Plant Investment Total Plant Investment $ 37.5 $ 56.3 $ 65.4 $ 96.3 $ 68.2 $ 54.8 $ Since the last audit, GESIP was initiated and is one element of a prudent framework to support a coordinated and informed investment decision-making process. A proposed five year capital plan for Fiscal 2002 to Fiscal 2006, totalling $280 million has been drafted. Replacement/refurbishments for hydro plants have increased from $19.2 million in Fiscal 1999 to $24.5 million in Fiscal For Plan 2002, $63.3 million is budgeted, which include investments identified through GESIP. This funding increase will address the concern raised in the recent Haddon-Jackson benchmarking studies regarding relatively low capital reinvestment at BC Hydro facilities.

20 Internal Audit Report Page 19 3d. Capital Investment Facility managers indicated that capital requirements are being met, but the funding has not always been fully utilized due to a lack of qualified personnel and in some cases, difficulty in scheduling planned outages. As a result, some projects need to be carried to future years. Recommendations Continue enhancing the GESIP framework as an evergreen plan. Analyze and address the issues relating to the under-utilization of capital funds and resolve the lack of qualified personnel to complete the planned capital work. Management Action Plan Management agrees with the recommendations and, subject to competing resourcing requirements, will implement these improvements by March 2003.

21 Internal Audit Report Page 20 3e. Performance Monitoring and Reporting Our last audit reported that the performance monitoring and reporting process was undergoing many changes and provided a significant opportunity for improvement. This area remains a priority area which continues to require further development. Performance measures are being developed by each facility, with little standardization. Some measures have no targets and the quantity of measures tends to divert attention from those which are critical. Comparison of performance of each facility and the roll up to fleet level is difficult. As well, the asset performance measures in the Power Supply business unit and BCH scorecards remain undeveloped since the last audit. A significant amount of financial and operating information is being collected and maintained by various groups at the facility and fleet level. There is an opportunity to standardize and streamline the information capturing process to improve efficiency. Performance reporting to Power Facilities varies significantly across facilities. A clear understanding of costs and work status for individual projects or programs is not provided. While reports are being developed to track costs by projects, the process to link the financial budget to actual expenditures on work (planned, performed, and completed) remains a challenge due to limitations of the current financial reporting system. The support for funding requests generally contains limited information on asset risks, proposed risk mitigation measures, and the related ranking of these measures. This lack of transparency hinders effective business planning and impacts resource allocations.

22 Internal Audit Report Page 21 3e. Performance Monitoring and Reporting Recommendations Strengthen the Power Facility Balanced Scorecard by developing a good mix of leading and lagging performance measures that are linked to desired performance level and external benchmark data. Utilize the Balanced scorecard and follow through on off-track performance. Identify the information requirements of key Power Facilities personnel and other stakeholders and continue developing a streamlined management reporting package at the fleet level that meets their information needs. Enhance the reporting of maintenance work and the accounting of costs by ensuring consistent and accurate reporting of work status (work planned, performed, percentage completion and associated costs) by facility and linking budget, costs expended and work performed. Ensure that better information on asset risks and proposed mitigation measures are utilized for the ranking of funding requests. Management Action Plan Management agrees with the recommendations and, subject to competing resourcing requirements, will implement these improvements by March 2003.