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15 Challenges Facing Utility Industry Fleet Operations in 2005

January 2005, by Mike Antich - Also by this author

Fleet vehicles and related equipment for utility companies are mission-critical capital assets that have a direct and significant impact on achieving corporate objectives. Utility fleet management requires managing diverse and often geographically dispersed assets. These fleet assets include over-the-road and off-road vehicles, such as medium-duty trucks, utility vehicles, backhoes, boom trucks, and a variety of portable and specialty equipment. Fleet operations often include motor pools of shared vehicles for engineers and corporate staff, as well as specialized wheeled equipment such as air compressors for field crews.

Here are 15 challenges utility fleet managers are addressing:

1. Increased Fuel Expenses Impacting ‘Flat Line’ Budgets
Higher fuel cost is the number one issue facing utility fleets this year, and it will be for the coming years. “The rising cost of fuel is having a big impact on operating costs,” said Frank Castro, CAFM, utilities fleet manager for Tacoma Public Utilities in Tacoma, Wash. Most utility fleet managers are bracing themselves for fuel prices to stay elevated and volatile for the foreseeable future. “Although many things have contributed to the dramatic rise in fuel prices, the anticipation that prices will fall again is unrealistic,” said Dennis Hogan, CAFM, manager - fleet services for Alliant Energy in Madison, Wis. What compounds this problem is that most utility fleet managers are managing to a “flat-line” budget, which means that money to pay for the increased fuel expense must be found by making cuts elsewhere in the fleet budget or improving fleet efficiencies, said Hogan.

One way that some fleets are compensating for the increased fleet expense is moving to a chargeback system for internal customers or, if they already employ a chargeback system, increasing the rates charged to end-user departments, added Hogan.

2. Changing Fleet Application
Some utilities, especially electric utilities, have begun to outsource construction projects to independent contractors and to focus more on maintenance of the electrical grid. One such fleet is Sempra Energy, which owns San Diego Gas and Electric. “We have shifted from construction to more of a maintenance-type of fleet operation in the field,” said Ken Tucker, team lead - fleet services for San Diego Gas & Electric. “Our vehicle specifications are following suit and are geared more toward maintaining the electrical system as opposed to doing new construction.” As more utilities outsource construction projects, it will change the fleet application and ultimately alter fleet composition and types of equipment procured.

3. Increased Vehicle Acquisition Expenses
The cost of medium-duty trucks has increased, as has the cost for upfitted auxiliary equipment, which has been compounded by the recent increase in steel cost. This has prompted budget re-adjustments to compensate for the increased steel prices charged for auxiliary truck bodies.

Many utilities can no longer defer new-vehicle acquisitions. Fleet managers report that equipment failures have reached a point at which it is no longer cost-effective to prolong service life, plus there are concerns about potential liability issues in operating units beyond their optimal service life. One industry report estimated that 40 percent of the vehicles in utility fleets are overdue for replacement. The reason cited is ongoing reductions in capital expenditure budgets.

Some utilities assign cars to corporate staff for business use. But the trend has been to move these individuals to driver reimbursement programs. The typical criteria is that if an employee drives fewer than 10,000 business miles a year, then he or she should use a vehicle from the motor pool rather than being assigned a vehicle.

4. Concerns About Rising Interest Rates
Increasingly, utility companies are examining alternative funding strategies for new-vehicle acquisitions. Fleets that fund vehicles using floating rate leases, are concerned about rising interest rates, said Mark Hennesy, CAFM, director, fleet for Xcel Energy in Denver, Colo.

5. Initiatives to Maximize Fleet Utilization
A key focus for the utility fleet market has been to optimize fleet utilization and vehicle replacement cycling, part of company-wide initiatives to improve asset accountability. These strategic asset management initiatives cover all utility company assets, not just fleet vehicles and equipment. The fleet utilization initiatives are designed to eliminate unnecessary capital expenditures in the fleet procurement budget and re-assign underutilized units to other end-users, said Hennesy. If unable to be re-assigned, underutilized equipment is eliminated from the fleet. There is a strong focus at utility companies on how mission-critical assets are purchased, maintained, and optimized throughout their entire lifecycle.

Many utilities are also exploring the acquisition or updating of existing fleet management systems to better track end-user utilization of utility vehicles. Fleet managers desire more real-time data available to them, rather than being dependent upon reporting by the end-user departments. Fleet departments are seeking to use enhanced asset management systems to maximize elimination of unnecessary operating expenses and other “soft costs” associated with fleet maintenance management.

6. Fleet Downsizing
A corollary trend to fleet utilization is fleet downsizing. Utilities are seeking to eliminate unnecessary assets and optimize the use of other assets. For instance, the Tennessee Valley Authority has reduced its fleet from a high of 4,500 vehicles in 1997 to approximately 2,800 units today.

7. Re-assessing Fleet Replacement Cycling

Utility fleets are re-examining their vehicle lifecycle replacement policies. For instance, the City of Seattle Public Utilities in August 2004 decided to conduct a fleet management best practices review. It operates a fleet of 1,000 vehicles. The project includes analyzing fleet replacement practices, in addition to investigating funding alternatives to vehicle acquisition and whether to maintain vehicles in-house or outsource maintenance. This type of fleet reassessment is a growing trend among utility fleets.

8. Technician Shortages and an Aging Workforce
A key problem for fleet operations with in-house maintenance facilities is hiring qualified technicians. Fleets are having difficulty keeping pace with automotive technological changes brought on by the increased use of electronics and the use of ever-changing diagnostic systems to identify vehicle problems. Searches to fill open technician positions are becoming more and more lengthy. Compounding this problem is that the pool of technicians currently working at utility fleet maintenance operations is “graying.” Many utility industry workers “grew up” in the industry because it was a very stable place to work. As the workforce ages, workers, who may have spent their entire working career with a company, have a great amount of institutional knowledge in their heads that will be difficult to replace when they retire. Fleet operations are concerned about losing this institutional knowledge, which will be difficult to replace with new hires.

Utilities, as with all companies, are attempting to do more with less. They are turning to more technology-based solutions, which are being examined to optimize management of the utility fleet. “The budgetary pressure to do more with less is greater than ever,” said Castro of Tacoma Public Utilities.

9. Budgetary Pressure to Reduce Costs
Utilities are adopting more sophisticated asset management strategies that are not simply fleet-driven, but enterprise-wide initiatives. Alliant Energy has implemented a corporate initiative known as Lean Six Sigma - which seeks to eliminate waste in processes, ultimately leading to eliminated costs. The focus on the initiative is financial, with the primary goal to reduce costs associated with the utility’s entire operation, not just fleet. “Six Sigma has provided us with the tools necessary to make data-driven decisions that truly impact the financial standing of the fleet operation and solidifies Fleet Services as a partner in the overall success of our company,” said Hogan of Alliant Energy. “We now share an equal stake with utility operations in our corporate financial success.”

10. Strategic Sourcing and Reverse Auctions
Typically, strategic sourcing and reverse auctions would be considered the domain for commercial fleets; however, utilities are beginning to adopt these practices. For instance, San Diego Gas and Electric Co. and Southern California Gas have adopted strategic sourcing initiatives and, in the past 12 months, each conducted reverse auctions for the purchase of vehicles and equipment. More utilities are investigating the implementation of these procurement strategies.

11. Upcoming 2007 Diesel Emission Regulations
Utility fleet managers are concerned that the cost of diesel engines will increase due to the federally mandated emission guidelines that take effect in 2007. In addition, there is concern that operating expenses will increase with these new diesel engines. Fleet managers say they will need to adjust their fuel/lubricant budgets since the new diesels will run hotter, resulting in an increased frequency of oil drain intervals. This will be a significant expense since an oil drain for an average medium duty requires replacing more than five gallons of engine oil and two oil filters. When you extrapolate this amount to utility fleets that range in size from 200 to 10,000-plus units, this is a justified concern. The new diesel engines also represent a training issue since in-house technicians will have to be brought up-to-speed on the repair and maintenance of the new engines.

12. Financial Burden to Complying with EPACT Mandates
Complying with alternative-fuel vehicle acquisition mandates is very difficult for utilities. “Our budgetary pressures are further exacerbated by the additional financial burden that the EPAct mandates impose,” said Castro. More and more utility fleets are buying fleet credits from other covered fleets to meet alt-fuel mandates, especially since the available number of OEM-produced alt-fuel models has decreased.

13. Outsourcing of Maintenance Management
One strategy to reduce fleet operating costs has been to investigate outsourcing of vehicle maintenance, which typically is done in-house. In addition to possibly reducing operating expenses, outsourcing would allow utilities to address the issue of the shortage of technicians. Outsourcing will help achieve a broader corporate goal of reducing the overall size of its workforce.

14. Trend to Fleet Standardization
The trend to fleet standardization has increased as utilities have transitioned from a regulated to a competitive market. Efforts to bring about increased standardization of fleet equipment and vehicles are needed to help reduce both acquisition and maintenance costs, but they are encountering stiff resistance from user groups. “A key area is working with user groups to sort through the options and features that individual users may want that result in customizing vehicles,” said Tucker. These are not insignificant costs. According to some independent fleet consultant studies, utility vehicles can be as much as 30-percent more expensive when compared to similar vehicles operated by independent contractors.

15. Cultural Clashes Between End Users and Fleet Operations
For many years, utilities operated in an environment whereby public utility commissions provided a guaranteed rate of return on their investments. This operating environment often allowed end users at utilities to obtain almost any type of vehicle and equipment requested. But in the deregulated era of cost constraints, fleet managers find they are butting heads with end users, especially as they attempt to standardize equipment acquisitions. Some utility fleets are re-emphasizing the functional requirements of the job, rather than taking the last truck that was purchased and building up from there. These utilities are now spec’ing trucks from a clean sheet of paper, which some users find difficult to adapt to.

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