A standardized project selection and CAPEX portfolio governance process is helping Con Edison execute the right projects at the right time and monitor their performance 'in flight.' In the end, all stakeholders came out ahead.
Consolidated Edison delivers power to approximately 3.7 million electric and 1.2 million gas customers in the world's most dynamic and demanding marketplace - metropolitan New York. It’s a challenging job and an essential service that Con Edison does safely and reliably. Yet, more and more, priorities have been compounded by climate change, customers concerned with costs, sustainability, and changing regulations. Increasingly, it’s become critical to track and evaluate where every dollar of the utility’s $2 billion annual capital budget is spent, and to fund projects that best align with Con Edison’s long-term strategy and the optimal balance of stakeholders’ needs.
According to Frank LaRocca, Director of Business Improvement Services, “Strategic value in a utility is not just financial. We have to maximize our investment portfolio across multiple dimensions. For instance, if a project mitigates risk for the public or for our employees, or improves reliability or safety in any way, it is valuable in a manner that financial returns and cost savings don’t measure.”
"UMT360 software brought it all together, with rich capabilities to manage financials, and support our planning and control needs. Ultimately, it helped us get the insight needed to make smarter business decisions."
Director of Business Improvement
Objective standards for merit-based decisions and control
LaRocca was initially hired to enhance governance Con Edison’s IT and Shared Services capital spending based on the success he’d had as CIO of another New York based utility. The program was so successful that he was asked to expand the governance process throughout the company’s entire capital spend, including the core operations of Gas, Electric and Steam.
UMT helped Con Edison develop a framework to select projects impartially using well-defined strategic objectives, track their performance, and impose financial controls. Standardized business cases and merit-based decision-making helped quantify the selection process. “Applying this framework throughout the portfolio lifecycle, including annual planning, ongoing execution and rate case optimization, helped Con Edison reap the full value potential,” explains Daniel Theander, UMT Partner and Utilities practice leader.
LaRocca also pioneered the “Sweep” methodology to dynamically reallocate capital spending from project to project throughout the year. Unspent funds from under-budget or underperforming projects are quickly reassigned elsewhere in the portfolio, where they can provide higher returns. “We're given a certain amount of budget to optimize and spend,” says LaRocca. “As stewards of this budget, our process ensures that we utilize it strategically and effectively.”
Con Edison is working on better training and enablement for project managers. “We’re in the process of arming them with the right tools to execute projects and programs and plan resources, LaRocca explains. “And we have the governance and the financial control to support them.”
LaRocca now has his sights set on asset and O&M cost optimization. “We currently employ many smart algorithms to determine the health and life expectancy of our infrastructure. With some of the technology that UMT offers, we can take that even further. We're just starting to explore that option now.”
With the UMT solution still rolling out, Con Edison is already seeing tangible benefits from a standardized governance process, including:
- Standardized CAPEX optimization - Every project dollar is subjected to the same objective optimization process based on well-defined strategic drivers.
- Increased budget utilization - Budgets are being utilized effectively with less over-runs or under-runs and better forecasting.
- Better project execution and benefit realization - More projects are starting and ending on time and are being tracked for intended results upon completion.
- More informed interactions with Public Service Commission - This new process provides the data and the integrity necessary to adequately support rate-case discussions and justify investment decisions.
“What we are doing is enabling the operating folks to do what they do best – providing electricity, gas, and steam to the greatest city in the world,” concludes LaRocca. “In the end, we’re better able to serve our customers reliably, safely and cost effectively.”