Providing Value to the
Electric Utility Industry
Patrick Avery, General Manager, Distribution Automation,
G&W Electric Company
and Chair, Distribution Automation Section
A
s a member of this industry and NEMA for more than 25 years, I’ve
experienced many challenges and changes. When I started my career,
distribution transformers were considered a commodity.
challenge to value-selling. Internet auction companies promised
significant price savings by orchestrating online auctions that
forced manufacturers to bid under same-day time constraints for
aggregated volumes of products awarded to the lowest bidder.
Manufacturers and NEMA focused on proving that
transformers provided significant value and should not be
selected solely on price. Consequently, total ownership costs
(TOC) and vendor evaluation became the predominant ways to
evaluate transformers: transformer losses were evaluated over
a 30 year design life to obtain the lowest cost of ownership, and
vendors were evaluated based on reliability, quality, shipment,
and industry support.
Several major manufacturers—who were also NEMA
members—formally opposed these auctions and refused to
participate in them. We presented at conferences, explaining
why value concepts like TLC provided long-term savings.
As users adopted these approaches, it facilitated the
advancement of transformer technology by the development
of amorphous core transformers, low-loss transformers with a
premium price but low TOC.
TOC and vendor evaluation evolved into total life cycle costs
(TLC), the evaluation of products and vendors’ services from
“cradle to grave.” Users began evaluating products and vendors
on their ability to provide the lowest TLC based on industryagreed-upon characteristics and weights:
• Acquisition 20%
• Freight 4%
• Product Distribution 38%
• Installation 20%
• Maintenance 13%
• Disposal 5%
Most investor-owned utilities and many cooperatives and
municipals adopted this approach and established strategic
alliances with vendors based on TLC improvement. However,
in 2000, “internet auctions” appeared, providing another
12 NEMA electroindustry • January 2015
In 2005, as president of the Utility Supply Management
Association, I facilitated a panel discussion between suppliers
and customers to address this issue. Utilities acknowledged that
foreign suppliers, who were often the auction low bidders, lacked
the infrastructures in the U.S. needed to support utilities before,
during, and after the sale. Since then, the remaining internet
auction companies have transformed into bid management
companies who coordinate bids without the same-day time
constraints and instant award to lowest bidder requirements.
Instead, vendors must provide comprehensive data on their
experience, resources, and proposed solutions, along with price.
Today, the industry is focused on implementing smart grids that
encompass reliability, resiliency, microgrids, renewable energy,
big data, smart cities, and other characteristics. Consumers are
demanding these enhancements from utilities struggling to
implement them because public utility commissions will not
give the rate increases needed to fund them. So, NEMA has
been focusing on providing the government with proposals like
technology-neutral energy efficiency tax incentives.
As chairman of NEMA’s newly-created Distribution
Automation Section, I will continue NEMA’s efforts to
help utilities obtain rate increases to fund their smart grid
deployments. We’ll publish white papers and speak to legislators
and consumers to show ROI for smart grid investment based
on improved reliability indices, reduced outage costs, and
performance-based ratemaking…because I am NEMA. ei