17 th International Conference on Electricity Distribution

1. Risk-based Asset Managementfor Networks Competitive Advantage through Innovative Maintenance and Investment Strategies 17th International Conference on Electricity Distribution Barcelona, 13th May 2003

2. Preliminary note This document represents a summary of A.T. Kearney‘s risk-based asset management approach. The focus of the presentation is on risk-based maintenance and investment management. The paper is not as meaningful without the presentation, supplementary comments and empirical project figures.

3. Europe Risk-based Asset Management Increasing cost pressure from regulatory authorities is triggering an unrelenting squeeze on the grid budget. Pressure fromindustrialassociations Pressurefrom national chain customers Comparison of grid usage fees in Germany, England & Wales1) (in € Cts/kWh) Pressure from over 100 antitrustprocedures -50% -25% -3%2)p.a. Pressure from global industrial customers Pressure fromdisclosedfees Pressure frominternationalmarket players Source: Office of Gas and Electricity Markets (Ofgem) 2001, A.T. Kearney research 1) Typical medium-voltage consumption 2) Regulatory scenario - Ofgem

4. Intensified main-tenance of important equipment Earlier replacement of particularly unreliable and important equipment  Minimization of risk Risk-based Asset Management Risk-based asset management optimises cost and risk jointly by focusing on important and less reliable pieces of equipment. Evaluation of pieces of equipment of same type1) according to reliability and importance Low 0,5 Probability that piece of equipment does notbreak down 20% 5% 0,6 Highrisk 0,7 Reliability 0,8 Less intensive main-tenance of less impor-tant equipment  Reduction of main- tenance costs and replacement investments 0,9 Lowrisk 17% 58% High 1,0 4000 0 3000 1000 2000 Importance [€] Low High Economic damage in caseof breakdown 1) Example: Medium-voltage overhead lines

5. Risk-based Asset Management The determination of the optimal maintenance and investment strategies is done in four steps. Overview of risk-based asset management Costs bynetwork segments Reliability/ Importance matrix Maintenance andinvestment strategies Target parameters Segment B Segment B Networkcosts Segment A Segment A Risk Segment B Reliability Reliability Systemavailability Segment A Network costs Importance Importance 1 2 3 4 Network segmentation and prioritisation of segments Evaluation of equip-ment per segment with respect to impor-tance and reliability Definition of possiblemaintenance andinvestment strategies Evaluation ofalternative strategies and determination of optimal strategy

6. Client example Risk-based Asset Management A recently implemented risk-based strategy of pole replace-ment combines a condition-based change with the systematic prevention of grid deterioration. Risk-based strategy of pole replacement Strategy Strategy definition for pole replacement for MV overhead lines • Area-covering: change of poles according to centralized controlling of condition • Important and less reliable overhead lines: additional change of poles to prevent grid deterioration: • High importance:Operational lifecycle < 55 years • Average importance:Operational lifecycle < 60 years • Currently: consumption of 1,490 pole rods p.a. Low Condition-based change of poles + change of poles to prevent grid deterioration Relia-bility 0,6 0,8 Fewer pole changes Condition-basedchange of poles High New: Consumption of 1,052 pole rods p.a. 2000 4000 Low High Importance [€]

7. Client example 1.400 1.400 1.200 1.200 1.000 1.000 800 800 600 600 400 400 200 200 0 0 Risk-based Asset Management To determine the optimal maintenance and investment strategy, we evaluate time-based cost/risk development of alternative strategies. Simulative calculation of anticipated time-based cost/risk development for alternative strategies Definition of optimal maintenance and investment strategy Budgettarget Strategy 1 Planned costs High Legaltarget Planned costs/risk [€] Strategy 2(low-cost) Actual strategy Risk Overallrisk [€] 2003 2020 Year Strategy 1(certain) Strategy 2 Planned costs Low Low Costs [€] High Planned costs/risk [€] Risk • Maintenance • Replacement investments Strategy 1 = optimal strategyregarding costs and risk 2003 2020 Year

8. -15% Maintenance Costs Replacement Investments Expenses Risk-based Asset Management Risk-based asset management saves approximately 15% of controllable network expenses with virtually no change in overall risk. Savings potential of operational asset management cash effective grid expenses Remarks • Overall, an implementation project saves 15% of controllable network costs • In certain segments of the network, savings potential is even considerably higher • In our experience, the savings potential amounts to about 1% of the total revenue1) • Systematic training of staff assures that savings will continue. • Newly trained staff will easily achieve additional savings over time. 1) for integrated utilities with own power generation

9. Risk-based Asset Management Based on our project experience, a four step approach is recommended to design the concept for the risk-based asset management approach. Approach to develop risk-based asset management Project Phase I: Short Assessment 1 2 Assessment of cost and risk optimization potential to be expected from risk-based asset management Quick Scan Cost Analysis 4 Weeks Project Phase II: Concept Development Project Phase IV: Implemen- tation 3 4 5 6 Expanded Data Capturing Reliability Analysis Importance Analysis Strategy Design Project Phase III: Concept Specification 7 8 Planning & Controlling System Data Structures & IT Support 12 Weeks

10. Risk-based Asset Management Your contact: Frank Heinz A.T. Kearney GmbH Jan-Wellem-Platz 3 D – 40212 Düsseldorf Dr. Orlando Wagner A.T. Kearney GmbH Trattnerhof 1 5. Stock A – 1010 Wien Mobile: +49 175 2659 738 Direct: +49 211 1377 2738 Fax: +49 17513 2659 738 frank.heinz@atkearney.com Mobile: +43 664 4227 453 Direct: +43 1 53 667 113 Fax: +43 1 53 57 967 orlando.wagner@ atkearney.com