ENERGY REGULATORY COMMISSION San Miguel Avenue, Pasig City
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Republic of the Philippines ENERGY REGULATORY COMMISSION San Miguel Avenue, Pasig City IN THE MATTER OF THE APPLICATION FOR AUTHORITY TO IMPLEMENT AN ENTERPRISE ASSET MANAGEMENT (EAM) SYSTEM, WITH PRAYER FOR PROVISI AL AUTHORITY ERC CASE NO. 201 3-014 RC MANILA ELECTRIC COMPANY (MERALCO), DOCRETEIY Applicant. x-----------------------x ORDER On January 28, 2013, Manila Electric Company (MERALCO) filed an application for authority to implement an Enterprise Asset Management (EAM) System, with prayer for provisional authority. In the said application, MERALCO alleged, among others, the following: In order to start integrating and updating its asset information in compliance with the directive of the Commission in its Order dated July 6, 2011, in time for the preparations for the filing of its Fourth Regulatory Period reset application, there is a need to be granted authority to implement the Project as soon as possible; 2. As can be seen from the Gantt Chart for the Project, it will require at least twelve (12)4onths for the Project to be completed with the target qórhpletion by December 2013; ERG CASE NO. 2013-014 RC ORDER/April 8, 2013 Page 2 of 19 3. Thus, there is an urgent need for a provisional authority to be issued for it to immediately start the implementation of the EAM Project and finish the same on schedule in the absence of factors that are beyond its control. Said provisional authority would enable it to realize the efficiency of an integrated asset management system as soon as possible so as to belier serve its consumers; 4. In support of the prayer for the grant of a provisional authority, attached to the application as Annex "E" is the Judicial Affidavit of Mr. Rodulfo C. Despojo, Information System Engineer in its IS-Electric Distribution Management System Office; 5. It prayed that the instant application be approved and that the building block components associated with the Project from the time it is put to service and considered used and useful within the Third Regulatory Period be considered as a deferred amount to be included in its Fourth Regulatory Period reset calculations; and 6. It is, likewise, prayed that pending hearing, a provisional authority be immediately issued authorizing it to implement the EAM Project. Relative to the prayer for the issuance of a provisional authority, the Commission initially reviewed the instant application. THE ENTERPRISE ASSET MANAGEMENT (EAM) PROJECT The EAM Project is MERALCO's tool to improve and update the processes and procedures for the upkeep of relevant and up-to- date asset information. It will support the entire life cycle of work and asset management process and will be used to track all types of electric distribution assets from acquisition to retirement. EAM means the whole life optimal management of the physical assets of an organization to maximize value. It covers the design, construction, commissioning, operations, maintenance and decommissioning/replacement of plant,/quipment and facilities. "Enterprise" refers to the managemçf of the assets across departments, locations, facilities and ip/qme cases, business units. ERC CASE NO. 201 3-014 RC ORDER/April 8, 2013 Page 3 of 19 By managing assets across the facility, organizations can improve utilization and performance, reduce capital costs and asset-related operating costs, extend asset life and subsequently, improve return on assets. The EAM Project aims to review and streamline MERALCO's EAM processes and provide an integrated EAM application to manage assets from acquisition to disposal while maximizing operational efficiency and providing information for asset investment decisions. II. PROCUREMENT AND COST MERALCO conducted a two (2)-step evaluation process in order to select the most appropriate solution for the integrated asset management system. The first step was to determine whether the existing systems can address the regulatory and business needs. The second step was to determine if acquiring a Commercial-Off- The-Shelf (COTS) would be a better option. It evaluated the total costs needed to implement and maintain the two (2) options in a ten (10) - year period from 2013 to 2022, as shown below: Ontion 1: Intearate Existina Systems Component Cost (PhP) Migration Cost to the Supported Version 352,981,323 Software Protocol License for Mainframe Interface 49,555,421 Enhancements 1,276,864,589 Infrastructure 175,796,261 Data Communication 1,789,504 O&M Cost 487,569,062 Training Cost and Communication 3,666,900 HW Cost Maintenance 350,949,349 Total Cost 2,699,172,408 ERC CASE NO. 2013-014 RC ORDER/April 8, 2013 Page 4 of 19 Option 2: Acquire a COTS EAM Component Cost (PhP) Software [Capital Expenditure (CAPEX)] 76,713,941 Services (Configuration, Integration, Training) (CAPEX) 187,239,896 Infrastructure (CAPEX) 153,186,362 Data Communication (CAPEX) 1,789,504 Software Maintenance 158,960,687 Maintenance Services 49,527,482 Users Training and Communication 1,833,450 Infrastructure Maintenance Cost 233,659,111 Total Cost 862,910,434 The evaluation results show that acquiring a COTS EAM is more favorable for MERALCO since it has a lower risk of implementation, capable of meeting the schedule, features better quality and technical capabilities and provides better resource availability. It also addresses technology obsolescence. COTS applications are based on new technology and are designed based on the best practices in the industry. MERALCO further evaluated available COTS application in the country with existing local support. The estimated cost of the EAM Project is PhP371,053,000.00 with the following details: Project Component Amount (PhP) Software 76,713,941 Services (Consultancy, Business Process Design, Configuration, Integration, Testing, Training, Installation and Post-Implementation Support) 187,239,897 Infrastructure Cost 105,579,362 Data Communication 807,300 Total Amount 371,053,000 The estimated project cost was based on the result of the planning and costing activities done in 2010. Through the help of Indra, MERALCO's outsourcing partner for existing legacy applications, the cost/man hours of system migration and enhancement were determined. In May 2010, it requested for a best practice/high level presentation among ,Øiferent EAM vendors, which was followed by a series of more dqt'4ed system walk through of ERC CASE NO. 201 3-014 RC ORDER/April 8, 2013 Page 5 of 19 their EAM solution. It crafted the Request for Proposal (RFP) considering MERALCO's current asset management requirements and incorporating the best practices gathered from the different vendors. The RFP was released on August 23, 2010 as approved by Networks Group for the functional requirements and CIT Group for the non-functional requirements. A two (2) - stage bidding was conducted for the said requirement since a detailed technical evaluation is necessary to fully evaluate the acceptability of the received offers. Only the commercial proposals of those evaluated with technically acceptable offers will be considered. The following possible suppliers were recommended due to the criticality of MERALCO's system and to ensure source reliability, direct accountability and full support to participate in the bidding for the acquisition of EAM solution: 1. IBM Philippines, Inc. 2. Oracle (Philippines) Corp 3. Indra Philippines, Inc. 4. SAP Philippines, Inc. The technical proposals were evaluated on September 7, 2010 and based on the evaluation findings of both the Networks Process Group and CIT Group, only IBM and Oracle passed the technical evaluation with IBM garnering the highest rating. III. THE NECESSITY FOR AND THE BENEFITS OF THE EAM PROJ ECT The EAM Project will address and comply with the Commission's directive in its Order dated August 17, 2011 in ERC Case No. 2010-069 RC. At present, the conditions of MERALCO's existing systems are as follows: Its asset management process makes use of different information systems to manage different types of work or activities involving its asss, such as new construction, maintenance work, operqtIos and emergency works. ERC CASE NO. 2013-014 RC ORDER/April 8, 2013 Page 6 of 19 2. All physical asset and historical asset information are currently stored in different systems and in some instances, the information are manually kept as hard copies in its different area or sector offices. 3. Its Fixed Asset Register (FAR), which contains the list of its assets, is not integrated with the foregoing information systems. Thus, any information necessary to update any entry in the FAR will have to be manually lifted or sourced from a particular information system and then, manually transferred or encoded in the FAR. 4. Given the volume of assets installed, operated and maintained throughout its franchise area on a day-to-day basis, the manual encoding and retrieval of asset information in various systems has become unsustainable. 5. The current mainframe legacy systems should be replaced as these are already technology obsolete. This is exemplified by the fact that the mainframe applications could not integrate with the web-based technologies, such as GIS. Most modern mainframes have partially or entirely phased out classic terminal access for users in favor of web-style user interface. 6. Its existing legacy systems, end of maintenance and vendor have already been published by its suppliers. This means that no more replacement parts or compatible service units will be manufactured and thus, can mean a prolonged breakdown of a critical information system. This is crucial as it cannot afford a prolonged breakdown of any of the critical work and asset management systems that caters to more than five (5) million customers throughout its franchise area. Shown below is an estimate of the manual processes involved in MERALCO's current asset management environment that will be automated once the EAM System is operational and the Full Time Equivalent (FTE) of the labor complement for each task: ERC CASE NO.