by Thermo 31. August 2010 22:56

Of Splices and Prices

Dear Ms. Frog,

The other rejuvenation vendor refers to a “blow & go” injection method.  What is blow & go?  Does blow & go make sense for me?

California Dreamin’

Thermo digging a pit

Dear Dreamer-

Nobel prize winner, John Steinbeck, set his novella Of Mice and Men in California.  Few would know that my Great-great-…-great Grandmother, Salinas Bull Frog, a friend of Steinbeck talked him out of his working title, which was “Of Frogs and Men.”  As appealing as that title is, Salinas pointed out three problems to John.  First and foremost, a frog would not be pleased to ride around in Lenny’s pocket.  Second, the words Mice and Men are mutually alliterative and would sell more books.  And lastly she pointed out the play upon the famous line of the poem by Robert Burns that most would recognize, to wit,  “The best laid schemes o' mice an' men.”  Again, clever marketing cachet.

You have to be wondering where this frog is going with this lesson in American literature!  Bear with me for now; it will come into focus soon.  In the story, Lennie, a giant of a man, but with limited mental abilities, loves to pet soft things and cares for a mouse in his pocket.  He accidentally gets into really big trouble and the mob rushes to judgment and would undoubtedly kill Lennie, an outcome that would not be tolerated in 21st Century California.  The story brings tears to my big eyes, but like Lennie, first impressions are often wrong and a more careful analysis and a cooler head are required to reach the right conclusion.  “Of Splices and Prices” requires the same careful analysis, and if they are paying attention in Stockholm, perhaps this post will land the first ever Nobel Prize in Literature to an amphibian.

First, the phrase, “blow and go” was coined by injection operating personnel about a dozen years ago shortly after a pricing paradigm called “Productivity Pricing” was introduced.  Productivity pricing was benevolently conceived by my Novinium colleague, Glen Bertini, to address productivity issues with the more traditional unit pricing.  When a rejuvenation supplier provides straight unit pricing to a circuit owner, the circuit owner has no incentive to provide timely switching orders.  At first glance the circuit owner might prefer the unit approach.  A more enlightened consideration recognizes that the rejuvenation supplier, over the long run, must simply raise prices to cover the inefficiency this situation creates.  Hence, productivity pricing introduces a time-based charge so that both the circuit owner and rejuvenation supplier are incented to work efficiently.  That’s the good news – productivity pricing leads to lower rejuvenation cost per foot.  The bad news, and unintended consequence of productivity pricing, is that minimization of the rejuvenation cost is not the optimum strategy for a circuit owner.  Those operating guys were the first to recognize this fact when they coined the “blow and go” phrase.  They recognized that the rejuvenation vendor’s profit was maximized by injecting all the cables that are easy to inject and abandoning those that present any challenge.


In order to enjoy this result it is necessary to suspend consideration of the cables that must be replaced -- the "go" part of blow and go.  As illustrated nearby, rehabilitaiton encompasses both rejuvenation and replacement.  It is not prudent to consider the two separately.

From where I am sitting in the rejuvenation supply side of the equation, it is tempting indeed to embrace blow and go.  But at Novinium we have a different perspective.  Sure we want to make a profit like the next guy, but we believe that we are best served by aligning our interests with those of our cherished circuit owner customers.  So no, Dreamer, you do not want to embrace “blow and go” and you do not want to embrace productivity pricing.  I will share with you a better pricing paradigm in a moment, but first, let’s see why “blow and go” is usually not the lowest capital solution to your underground reliability issues.

Here is where the “Splices” portion “Of Splices and Prices” comes into play.  On average about half of legacy splices support flow with the unsustained pressure rejuvenation (UPR) paradigm.  Blow and go ignores those cables with problematic splices and those cables must be replaced for a reliable circuit.  You like rejuvenation in part, because it is so much more capital efficient than replacement.  With blow and go in a typical URD project, about a third of the cables must be replaced.  With an aggressive splice replacement approach, Novinium routinely injects over 90% of the cable segments it addresses.  Digging and repairing splices cost money, but it costs a lot less than replacing the cables for the 20-25% of the cable population where the tactic is judiciously applied.  The figure nearby illustrates the concept.  As the aggressiveness with which splices are addressed is increased, the capital cost of rejuvenation (including the capital cost of addressing associated splices) goes up, but the total capital cost of rehabilitation goes down.  Remember, replacement costs much more!

There is a better way.  We call it Enhanced Productivity Pricing (EPP) and it builds upon the operational lessons of the last two decades to provide a highly reliable, fully rehabilitated circuit at the minimum capital cost.  This result is achieved by carefully aligning the interests of the circuit owner with those of the rehabilitation supplier.

Here is how EPP works.  Each of the important, but independent tasks required to test and treat a cable are given individual unit prices.  For a typical looped URD cable for example, these tasks include …

1.     closing the normal open at the beginning of the day

2.     switching a cable out of service and grounding it, when performed by Novinium

3.     testing the cable for splices and corrosion

4.     pinpointing splices and corrosion when required

5.     excavating/restoring a pit when required

6.     removing old splices and installing new splices when required

7.     preparing ends for injection

8.     injection

9.     finishing the injection (removing equipment, clean-up, etc)

10.   switching a cable back into service

11.   opening the normal open at the end of the day

Each of these tasks are billed only as they are executed.  There are no separate charges for time in any of the injection units, 3-9.  For the switching units 1, 2, 10, and 11, Novinium agrees with the circuit owner on an appropriate time standard for each.  We then track the actual time to execute these steps.  For example if step 2 should take 15 minutes, but is delayed by the circuit owner’s dispatch operator and the step requires 30 minutes, the excess time is billed as non-injection activity at an agreed upon hourly rate.  Other tasks, ancillary to the injection, also crop up in a typical rehabilitation job.  For example, suppose a bushing fails when an elbow is removed.  The injection team must cease their injection activity and replace the failed bushing.  Again, this time is billed to the nearest tenth of an hour as non-injection activity. 

Enhanced productivity pricing or EPP is the best way to structure a rehabilitation program.  EPP aligns the strategic interests of the circuit owner with the rehabilitation supplier.  We still get customers that want to use the blow and go paradigm and we are happy to comply, but at least we tell them there is a better way.  Unfortunately the productivity pricing paradigm has been utilized for over a decade, so some are reluctant to change.  Which reminds me again of something the author “Of Mice and Men,” John Steinbeck once said, “It is the nature of man as he grows older … to protest against change, particularly change for the better.”

Looking out for you and embracing the future,

Thermo

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