Better Than New

Dear Learned Leaper,

Why would I use rejuvenation, when I can have new cable?

Cable Guy

Dear Cable Guy-

I suspect, Cable Guy, that you’re not a circuit owner. Do you work for one of the cable manufacturers? If you were a circuit owner, you would know that money does not grow on trees and rejuvenation is almost always considerably less capital intensive than wholesale replacement. The question would have had more merit had it been asked two decades ago when the first generation of rejuvenation technology was becoming commercially important. The anticipated life of the first generation of fluid in non-demanding applications was and remains about two decades. The generally anticipated life of post 1990-vintage cables is about four decades. The 2X difference in anticipated life complicated the economic analysis of the treat or replace question. Advanced technology from Novinium can provide the same four-decades of service life, so that issue is a relic of the 20^th Century.

How about post-injection reliability? In the January 31, 2012 issue of the Las Vegas Regional Journal, it was reported that NV Energy experiences about a 0.6% failure rate when it replaces cable. NV Energy reports that the older injection approach has about the same failure rate over a 12-year period. Utilizing Novinium’s state-of-the-art technology and the outstanding craftsmanship of our service delivery experts, our overall failure rate is less than 0.4%. That’s about 33% better than the failure rate of new cable. Novinium rejuvenation technology is better than new! But, here’s the really cool part, Novinium technology and delivery methodology continues to improve! In the graph nearby I am pointing at the beta value of our Crow-AMSAA analysis of all of the faults we have ever experienced treating millions of feet of cable on three continents. The value is 0.56. A value less than one indicates that the failure rate is decreasing – a one would mean that it is staying the same, and a value greater than one would indicate deteriorating reliability. To learn more about Crow-AMSAA, check out my August 11, 2011 post, “Crow.”

Novinium announced the passing of the “Better than new” milestone today. Click here to read the press release. We periodically post a transparent summary of our failure history at novinium.com/Lessons.aspx.

Better next year,

Thermo B. Frog

The Color of Capital

Dear Gregarious Green One,

My firm uses Ultrinium™ and Sustained Pressure Rejuvenation to treat cables after they fail. The ability to capitalize single section injection with Novinium technology means we can earn a regulated rate of return on the capital thus expended. I read your four-part blog, “The Color on Money” and was wondering if you could do a similar analysis to help us quantify the benefit of our approach.

Considering Capital in Colorado

Dear CCC-

I am pleased that you appreciated my “Color of Money” posts. Click on I, II, III, and IV to review that work. Many of the concepts in the “Color of Money” apply to the “Color of Capital.” In fact, Parts II and III are prerequisites if you need a primer on depreciation and the time value of money respectively.

The ability to capitalize single sections of injected cable is available only from Novinium. In FERCs (Federal Energy Regulatory Commission) Letter order dated January 18, 2000, John Delaware, the Chief Accountant, wrote to the petitioner, Georgia Power:

“You indicate that CableCURE is used to rehabilitate entire segments of your underground distribution system (e.g. entire residential subdivisions as opposed to individual runs of cable between two terminal points).”

The only way you can capitalize CableCURE is if the entire subdivision is rejuvenated. The letter order is attached to this post for the interested reader. Novinium’s technology has no such limitation. The Letter Order promulgated by FERC’s Chief Accountant on September 4, 2008 and associated submittal information removes that limitation and can be accessed by clicking here. All of the above discussion is also true for RUS-funded circuit owners. Click here is view the RUS order of April 3, 2009.

That takes care of the regulators; now the analysis. We will compare two cases. All of the inputs are shown on the worksheet nearby. Parenthetical references to the worksheet cell designations appear in the following text.

Case 1

The cable fails, is repaired and put back in service. In our model the user can indicate how many faults are tolerated before the cable is replaced, together with an estimate of the time between faults. For this example, we assume the cable will fault twice over a two year period before it is replaced. The capital cost to replace is a modest $33.00/ft (Cell B7) and the O&M cost of a fault is $13.72/ft (Cell D13) in today’s dollars. That’s $4,500 (Cell B11 + Cell B12) divided by as assumed segment length of 328 ft (Cell B13).

Case 2

The cable fails, is repaired and injected in a single integrated operation. In our model the bundled unit capital is $20.06/ft (Cell D23). The model user can change any of the costs inputs and an assumption of the post-treatment reliability. For this example, the post-treatment failure rate is assumed to be 2% (Cell B26), which is about twice Novinium’s actual post-failure experience of about 1%.  To put this 1% failure rate in perspective consider that it is three-times higher than Novinium’s non-post-failure experience of about 0.34%. This higher-than-typical post-treatment failure rate is inherent in post-failure treatment. The post-injection fault is assumed to occur two years (Cell B27) after injection. Again the model user can adjust any of these assumptions.

Other Assumptions

Warranty remittances of $10/ft (Cell B23) are negative capital expenditures, that is, the remittances are subtracted from the subsequent replacement capital. Upon post-injection failure, the book value is written off, terminating the ratemaking-allowed return and providing a lump sum tax benefit of the book value. Cash flows are calculated for two rehabilitation cycles, up to 100 years. This approach allows residual values to be properly ignored as de minimis. Finally, replacement is assumed to have a zero-percent failure rate. At least one major investor owned utility has reported that new installations suffer a 0.6% “infant mortality” failure rate, and hence this assumption results in a slight understatement of the incremental value of Novinium^® post-failure rejuvenation.

Bottom Line

The cumulative net present values (NPVs) for the two cases are plotted nearby. Since the revenue or sale of electricity is the same in all cases, those revenues are ignored and only capital and O&M costs are depicted. This cost-only analysis is why all of the NPV values are negative. Nonetheless, the higher the cumulative NPV value is on the graph, the more advantageous to the circuit owner.

The blue line is for Case 1, and in the short run it is the superior choice. The problem is that once a cable begins to fail, it will re-fail. Sooner or later the ratepayers will be very upset with deteriorating reliability. Capital inefficient replacement is executed after the second fault (Cell B14) and the NPV plummets.

The orange line is for Case 2, and it represents an investment in reliability. The initial cost is about twice as great, but because the investment is capital, the circuit owner begins to earn a regulated rate of return. In the end, the incremental NPV advantage of Novinium post-failure rejuvenation is $18.42/ft. If your replacement cost is higher, say $44/ft, the difference becomes $21.15/ft. If in Case 1, the cable is allowed to fault a total of three times, the difference rises to $24.56/ft. Even if the cable is replaced after a single fault, the best alternative to rejuvenation, rejuvenation still enjoys an $11.45/ft advantage.

If you would like to run this model on your specific circumstances and execute “what if” scenarios, contact us at novinium.com/Contac.aspx.

Always conserving capital,

T. B. Frog

70-20120322_FERC_Letter_of_Approval.pdf (78.87 kb)

Euro-Rejuvenation

Dear Thermo,

I heard that besides the old rejuvenation technology offered by UTILX and Novinium’s improved technologies, that there is a third competitor in Europe.  Pray tell?

Hedging my bets

Dear Hedge-

There is only one firm in the world that can provide advanced Novinium technology. Today there are a total of twelve U.S. patents and their foreign equivalents. An up-to-date list of those patents is available at …

novinium.com/patents.aspx

If you want the safest and most reliable technology in the world, Novinium and our partners are the only source. Our friends down the road at UTILX Corporation offer technology invented by Novinium founders about two decades ago. Our founders are proud of their achievements, and this frog has written extensively that the performance of that old approach is quite good for non-demanding applications. Check with your risk management folks before you use that approach, however, because Novinium technology is much safer. Heaven forbid that you find yourself justifying your choice of a less safe choice to a jury. For a thorough discussion of the risks with all of the commercially significant injection approaches, check out my June 9^th, 2010 post, “Biggest Risk is Electrical.” Within that post is a link to a comprehensive risk analysis titled …

Rejuvenation Hazard Analysis 

There is a firm in Germany that offers silicone injection of power cables.  Their website is at …

www.kabelsanierung.de

Next, click on “Kabelsanierung,” which is German for cable rehabilitation. The firm is run by Professor Rudolf Wimmershoff formally at the Technical University of Regensburg. To this frog’s knowledge, Professor Wimmershoff’s rejuvenation approach has not been used too far from Bavaria. This frog cannot recommend the good Professor’s approach. He utilizes a common siloxane oligomer, which is generally used to waterproof masonry and such. The oligomer cross-links to a thick fluid resin after injection. The problem with this chemistry is that cross-linked polymers in the strand interstices can do nothing to improve the insulation’s dielectric properties, because they are way too big to diffuse into the insulation. To this frog’s knowledge there have never been any papers written to describe the post-injection performance of the good Professor’s approach. The firm’s primary businesses are transformer diagnostics and cable diagnostics.

Auf Widersehen,

Fehischlag Frog

P1816

Dear Thermo,

What is this swanky “reliability” event that Novinium is sponsoring on the Seattle waterfront in conjunction with the ICC meeting on March 26, 2012?

News in Jersey

Dear Jersey-

First I wish to object to prejudiced policy promulgated by local health authorities. Amphibians are prohibited from attending the March 26^th event to which you refer. Not that I would have any interest in the menu, I won’t eat anything unless it is still moving. The human proclivity to eat long-dead stuff is abhorrent. Forget the food; denying me access to the content is what frustrates my flippers.

IEEE P1816™ is a soon-to-be-approved, “Guide for Preparation Techniques of Extruded Dielectric, Shielded Cable Rated 2.5 kV through 46 kV and the Installation of Mating Accessories.” P1816 starts where most accessory installation instructions end. It defines the best practices for accessory installation that will lead to the highest level of reliability. The P1816 Guide was assembled by circuit owners, component manufacturers, and reliability masters like my Novinium colleagues. On March 26^th, humans who have a stake in reliability will gather to kick-off a multi-part series of webinars that will delve into the details of high-reliability craftsmanship.

Regular attendees of the Insulated Conductors Committee (ICC) will recognize the speaker’s names as authorities on the subject of reliability. Vern Buckholz, an expert on neutral corrosion, Glenn Luzzi of Richards Manufacturing, and expert on cable accessories of all types, Harry Orton an expert on sources of reliability problems, Mike Smalley of WE Energies, a P1816 Co-chair, and Bill Taylor of 3M, an expert on splices and terminations, are just some of the proficient people who will be introducing the topic and setting the stage for a year of informative webinars designed specifically to spread the gospel of reliable craftsmanship. The webinars will be designed for the craft-folk that largely determine the post installation reliability of underground cable components. Management and engineers should plan on attending too, because there will be revelations for all.

Select attendees will also be given access to Novinium’s state-of-the-art eLearning “Cable Prep Course” based upon P1816 at knovinium.com and a companion field guide. If you have not been invited to this invitation-only event, contact your Novinium sales professional at novinium.com/Contact.aspx. To see the agenda click here.

Unable to attend myself, but there in spirit,

T. B. Frog

The Color of Money – Part IV

In my post of February 27^th, The Color of Money – Part I, I gave the big picture answer to Cap’s query. In February 28^th’s follow-up post we delved into the details of depreciation. On my Leap Day post we deliberated discounting. Today, in the fourth and last post of the series, we will tie up loose ends and cover the rest of the assumptions.

Rejuvenation Technology Inputs

In cells B12, B13 and B14, the name for “Product X”, the fully absorbed cost for product X, and the warranty length are entered respectively. Cells B16, B17 and B18, hold the same values for “Product Y.” Cell B20 is the ratio of the warranty length of Product Y divided by the warranty length of Product X.  The accounting lives are assumed to be the respective warranty lives.  The actual life multiplier in cell B21 is the ratio of the actual life of Product Y divided by the actual life of Product X. The warranty life is an approximate indicator of the actual life, as the technology suppliers use some combination of experience, accelerated life experiments, and accelerated life simulations to arrive at reliable life expectations.

For individual large and stable firms, such as most utilities, the spread or difference between the discount factor in cell B3 and the inflation rate in cell B6 is quite constant. If inflation increases, discount factors increase too. The 5.9% spread in the example is typical for the power distribution industry in North America.

Accounting Treatment of Warranty Remittance 

GAAP would suggest that warranty remittances are handled as negative capital expenditures. That is, the cost of replacement is reduced by the amount of the warranty remittance. Any remaining undepreciated value associated with rejuvenation is written off in the year of the failure on both the tax books and the rate-making books. Individual circuit owners may treat these warranty refunds differently. Write to me to tell me how your firm accounts for these warranty payments.  I’ll enhance the model to accommodate your method.

Residual Value

For any net present value analysis there has to be an assumption regarding the handling of residual values at the end of the analysis period. Where two rejuvenation technologies with different actual lives are compared, the technology with the longer life will have a greater residual value than the product with lesser life. For the purposes of this analysis a single replacement cycle is executed after the rejuvenation cycle has completed and future value is calculated to a one century horizon. Cash flows after 100 years are ignored. This assumption favors the technology with the shorter life, since the product with the longer life would have the greater residual value.

Bottom Line

This rigorous analysis confirms and quantifies what should be self evident. The longer the life – the greater the value.

Greener is better,

Thermonuclear Frog