Outsourcing partnerships for utility operations and maintenance

Outsourcing is one of today's industrial mega-trends as identified by industry leaders, groups, and organizations. Brought on by economic gymnastics over the past several years, outsourcing is resulting in creative new management options as the economy calls for further resource optimization.
By Eric J. Hager, General Manager, Armstrong Service Inc., Orlando, FL. September 10, 2004
Key Concepts
  • Outsourcing often brings expertise not available from inplant staff.

  • Performance goals for service providers need to be clearly set and monitored.

  • Operations and maintenance providers may furnish capital for utility improvements.

    Processes drive business
    External factors
    Case study
    Boiler replacement
    Environmental permitting
    More Info:

    Outsourcing is one of today’s industrial mega-trends as identified by industry leaders, groups, and organizations. Brought on by economic gymnastics over the past several years, outsourcing is resulting in creative new management options as the economy calls for further resource optimization.

    The outsourcing of central utility plant operations and maintenance (O&M) functions is one of those trends showing rapid growth. This trend has experienced the most notable expansion in the process industries where reliable utility services are essential for product quality, plant production efficiency, and market competitiveness.

    Processes drive business

    A typical process plant experiences frequent process changes to meet the variable demands for a variety of products. Process needs drive the business and are essential to the enterprise.

    Utility support services must adapt to these changes without compromising product quality or increasing costs. Unfortunately, demands on utility services are rarely met with a corresponding commitment of corporate capital. Economic pressures have resulted in the reduction of trained personnel. Aging utility infrastructures often operate at less-than-ideal standards, resulting in increased costs and, in severe cases, plant bottlenecks.

    The choices are simple: optimize plant utilities with internal resources or contract with operations and maintenance professionals. Contracting with an outside service organization offers the benefit of professional resources that routinely respond to challenges across many different industries and especially process industries (Fig. 1).

    Unlike institutional and commercial buildings, process plants must do more than provide building comfort to occupants. The following utility service requirements are typical in many process industries:

    • Electric service that may demand redundancy to ensure uninterruptible status

    • Steam at varying pressures to serve multiple thermal processes

    • Compressed air for instrumentation and processes

    • Chilled water for process applications

    • Process hot water and washdown water

    • Refrigeration systems

    • Wastewater treatment

    • Multiple fuel types depending on availability and cost.

      • External factors

        Engineers and plant managers face increasing responsibility for multiple functions as experienced senior staff members retire or are economically released. For example, some specialists are now required to become generalists responsible for functions foreign to them. This can lead to early employee burnout, decreased morale, general frustration, and physical stress.

        Often, internal personnel, with minimal training in new areas, are expected to respond to increasing demands. Such demands are likely to include dealing with complex tariff structures, volatile energy/fuel pricing, and changing state and federal environmental laws and regulations.

        However, the emerging trend to outsource utility plant O&M functions can leverage professional firms, with an experienced support staff, to meet today’s challenges. The result is an increasing number of partnerships being formed between producers and service providers.

        Case study

        One example of a successful O&M partnership is a Fortune 500 food processor. The site’s energy infrastructure was originally built in the 1950s and modified to accommodate several plant expansions.

        Periodic boiler repairs were no longer sufficient to ensure reliable steam service. The average plant steam load of 70,000 lb/hr peaked at 125,000 lb/hr and was serviced by five natural gas-fired water tube boilers: three providing 30,000 lb/hr, one 80,000 lb/hr and one 100,000 lb/hr of steam. As a backup fuel, all boilers were permitted to burn No. 6 fuel oil.

        Two new boilers were going to replace the aging boilers that were well beyond their useful lives. The company assigned responsibility for boiler replacement, permitting, and commissioning to its O&M partner. A comprehensive approach was used by the O&M partner to bring the new boilers online and enable the food processor to meet its changing utility demands.

        The approach to the project highlighted the O&M partner’s ability to leverage specialized staff support functions that had become victims of staffing reductions. At first, this statement may appear to be in conflict with itself. But well-run corporations, in highly competitive global markets, must commit their limited resources to core business activities. Utility systems simply provide vital support to these core business activities and can be shortchanged at budget time.

        In this case, there were issues going beyond just the equipment. There was a need to analyze the steam system in great detail before advancing to investing in boilers. Then, relating to the new boilers, there was the complex task of the environmental permitting process requiring specialized knowledge to thread one’s way through the maze of agencies and paperwork.

        There were also nontangible factors to consider in this application. For example, there was the issue of employee morale on the part of the company’s staff. Efforts were made to minimize potentially negative attitudes and maximize employee productivity. The process of integrating the partnership also needed to address realigning goals and sustaining performance. All of this had to be conducted within a framework of limited capital availability.


        Assess steam demand

        Prior to selecting a replacement boiler, the O&M partner assembled a team of thermal specialists to review the plant’s point-of-use applications for steam. The team consisted of professional engineers with certified energy manager (CEM) status that had audited more than 300 steam systems.

        Inefficiencies in the steam distribution system and condensate return system were identified and quantified. Opportunities for heat recovery, resulting in reduced steam demand, were also developed.

        The following projects were implemented to optimize the steam distribution system:

      • Improve condensate return

      • Replace failed steam traps

      • Use waste-heat recovery from air compressors to heat washdown water

      • Modify warehouse heating

      • Add flash steam recovery.

        • These steam distribution and point-of-use projects had favorable impacts on the plant’s total operating costs and, when coupled with other energy demand projects, helped the site offset increased capital costs for the boilers.

          Boiler replacement

          The original equipment manufacturer of the replacement boilers applied similar efficiency objectives to the equipment design as the steam system engineers did in analyzing needs. As a result, economizers and continuous blowdown systems were incorporated into the new boiler design (Fig. 2).

          A real-time “Energy Optimization System” provided online remote monitoring of key steam and condensate system criteria. This permitted the O&M partner to lower operating costs by leveraging staff resources.

          Such cost reductions were the result of technicians skilled at monitoring process industry utilities across multiple plants. Real-time data monitoring ensures that the right resources and equipment are employed in response to a qualified event at the plant. Such detail is essential when an issue relates to production or the environment.

          Environmental permitting

          Environmental regulations at the local, state, and federal levels require continuous review to ensure compliance. Staff members of most process plants have difficulty keeping current with these requirements, which, in severe cases, can impact operating costs.

          The O&M partner maintains a current database of state and federal environmental regulations throughout the country. In addition, an accomplished environmental manager, conversant in compliance requirements, was a member of the O&M partner’s team. This individual was also skilled in cost-effective compliance strategies.

          Prior to engaging with the O&M partner, the client was resigned to having to undergo major permitting under the Clean Air Act. This process included the need for continuous emission monitors and air pollution control equipment.

          However, the O&M partner was able to recommend a problem-solving environmental project strategy. That strategy resulted in an additional 40% steam generating capacity over what the older boilers could provide. It did this without the use of add-on controls.

          The results represented a savings of more than a $1,000,000, or over one-half of the final cost of the project. Today, the site boasts the lowest emissions boilers in the state for both nitrogen oxides and carbon monoxide. Tests show that the boilers can produce two-thirds of a million tons of steam annually with carbon monoxide emissions lower than that generated from the cars and trucks driven by a family of four. Bottom line: the plant utilities are contributing to both a cleaner neighborhood environment, and an enhanced public image for the corporation.

          Employee morale

          While there are multiple approaches to O&M staffing, this site’s O&M partner agreed to interview the client’s current staff and transfer qualified candidates to its own payroll. One of the most positive outcomes of this approach was the improved morale of transferred O&M employees. Many went from nonkey-support personnel to prime assets for their new employer. They now can cultivate their skills and receive additional training.

          The O&M provider is committed to training and motivating these employees with performance incentives. Skill levels are enhanced, and new career paths are available.

          Goals and performance

          The partnership identified key performance indicators and the utility monitoring system captured real-time performance data to measure them. The plant has provided performance incentives to ensure reliability and cost competitiveness.

          Plant management meets quarterly with the O&M provider to review performance and share strategies for achieving additional efficiencies.

          While commodities pricing will fluctuate over time, the plant’s O&M partnership ensures a competitive advantage through optimal usage of its utilities.

          Capital availability

          All too frequently, site management of multisite corporations cannot get capital allocation for utility projects. Even when these projects are virtually risk-free and deliver returns well above corporate internal rates of return, capital allocations are tough to negotiate and must compete on a priority basis with all other requests.

          In this case, the O&M provider furnished all the capital for utility infrastructure improvements. Monthly utility service fees include a capital recovery payment, fuels, electricity, consumables, and O&M labor.

          Savings from efficiency projects and improved performance have entirely offset capital for the new boilers, a new compressor, and distribution system improvements. The site’s utility reliability has improved while avoiding impending capital improvements in the plant’s aged infrastructure.

          More Info:

          For additional information on how O&M outsourcing can be applied to utility operations, the author can be contacted by calling 407- 370-3301, emailing to ehager@armstrongservice.com , or visiting armstrongservice.com . Article edited by Joseph L. Foszcz, Senior Editor, 630-288-8776, jfoszcz@reedbusiness.com .