Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 169
Appendix G
Prioritization and Decision Making In Technology Development
at the Electric Power Research Institute
This appendix summarizes information learned by a committee member (Edwin Zebroski) in
interviews with EPRI managers) at the Electric Power Research Institute in Palo Alto, California, on
September ~ ~ and October 2, 1997. Following a brief explanation of similarities between OST, EPRI,
and the Gas Research Institute, the EPR! decision-making process is discussed in more detail.
ANALOGIES BETWEEN OST, EPRI, AND GRI
The EPRI and GRI support research for their respective industries, electricity and natural gas, in
market sectors such as production, distribution, environmental impacts, and new commercial uses.2
Within each institution, the same decision-making processes for project selection and evaluation were
applied to the R&D activities across all sectors, making these processes ones that could be applied
generally to R&D work of many kinds (i.e., not restricted to R&D activities in any one sector, such as
environmental impacts).
The committee devoted special attention to EPRI and GR} because of similarities between these
institutions and OST. All three organizations formulate and manage R&D that is executed by contractors,
partly on a sole-source basis and partly on an REP and open bid basis. Other similarities exist in their
respective research portfolios, organizational structures, and context.
Research Portfolios
Several features of the R&D activities of EPRT and GR} are analogous to those of OST. Both EPRT
and GRI develop process improvements that lessen environmental impacts and facilitate compliance with
environmental regulations. Both EPRI and GRI have programs on environmental monitonug and
remediation technologies. Both manage R&D in several technical areas, with projects at various stages of
technical maturity (i.e., from basic research to applied engineering and demonstration).
'The managers interviewed were Robert Brockson (Environment), Gene Eckhart (Customer Service Group), Michael Evans
(EPRI CSG Co., a profit-making subsidiary), Mark Samoyj (Power Electronics and Power Systems), and Steve Gehl (Strategic
Planning).
Ethic might he `?n~en~le~rer1 through the increased availability of an affordable energy source.
169
OCR for page 170
170
Decision Making in the DOE-OST
Organizational Structure
As described in further detail in this appendix and the next, both EPRI and GR} have several tiers of
program structure, each managed by staff and advised by an oversight body. These institutions serve a
customer base that is a collection of quasi-independent member utilities that support a centrally
coordinated R&D program based on their perceived benefits (to each member utility as well as to the
industry at large).
Context
Other similarities are those of context arid include the broad range of interests that these institutions
must serve and the changes in recent years due to the changing interests and needs of their respective
clients. Like OST, both EPRI and GRI have experienced declining and more tightly defined, controlled,
and scrutinized budgets. Both EPRT and GRI have experienced greater pressures to be responsive to the
short-term needs of their clients.
Features of EPR] and GR] Decision-Making Processes
Both EPRI and GRI have highly structured decision processes for goal setting, project definition, and
project selection. Although the decision organization structures differ, they are functionally equivalent in
providing decision processes that connect the setting of general goals and missions with the formulation
and selection of specific projects.
Both EPRI and GR] have made the transition from decision processes that were largely "top-down"
(in defining goals, missions, and content of their R&D programs) to more "bottom-up" processes, which
develop a program content that is closely coupled to the current needs of their clients. Both organizations
have good track records of the yield on R&D in terms of benefit-cost ratios for individual projects that are
selected and eventually applied in the field. They also have relatively good track records in terms of the
cumulative benefit-cost ratios of their entire programs for their client communities.
Furler remarks on EPRI's evolving decision-making process appear below. Appendix H discusses
GRI's methodology and provides tables suggestive of analogies to OST within DOE-EM.
ORIGIN AND PAST PRACTICES OF EPRI, 1972-1990
EPRI was set up by the electric utility industry in 1972-1973 as a response to a congressional
proposal to establish a federal organization apart from the federal Energy Research and Development
Agency (now DOE) that would develop improvements in electricity supply, delivery, and use. The
federal agency was to be supported by a tax on electricity bills. The counterproposal by the industry was
to form a nonprofit research organization managed by the industry and supported by dues from the
electric utilities and by pass-through charges levied on the regulated earnings. This proposal was
accepted by the U.S. Congress.
Most of the divisions of the new EPRI organization inherited some legacy R&D programs that had
been supported by the Edison Electric Institute (EEI), a trade organization. These projects had been
initiated by EEI and managed by advisory committees that met several times a year. As the size and
complexity of these programs grew and as the projected 10-year expenditures rose to several billion
dollars the need for ongoing professional management and subject matter technical expertise became
widely recognized in the utility industry. This recognized need coincided with pressure from the U.S.
Congress for an energy research institution' which resulted in the formation of EPRI.
OCR for page 171
Appendix G- EPRI
171
Funding and Membership
Initially, EPRI was funded by dues that were based on a fixed formula paid by participating utilities.
The formula took into account the number of customers, the overall size of power generation, and the
overall revenues of each company, and covered bow stockholder-owned utilities and cooperatives. This
fee provided the utility with membership in the organization, access to all R&D results, and opportunities
to serve on several levels of oversight and technical committees and the Board of Directors. Member
utilities included power cooperatives and municipal and federal power authorities such as the Tennessee
Valley Authority. In the last few years, about 20 percent of the companies that are non-utility generators
have become members. At its peak, total membership represented about 90 percent of the electric-
generating capacity of the United States.
Organizational Structure
EPRT was run by a Board of Directors, which established the formulas for utility dues and the total
size of the EPR} budget. Under the board were technical staff in divisions and Sepal laments.
Each of these management levels had an advisory group. Parallel to the Board of Directors, a
Research Advisory Committee (RAC) was established Mat included top-level technical people Tom
member utilities. The members were composed of directors of research, vice presidents of engineering
departments, and senior project managers of utilities. Each EPR] division and department had its own
technical advisory committee, with utility representation by specialists in the respective technical areas
involved.
Top-Down Definition of Organization R&D Goals
The overall mission and goals of the organization was defined in general terms by the organization
documents and further defined on a continuing basis by the Board of Directors.
Allocation of Budgets to Divisions
The Board of Directors and the RAC held quarterly meetings reviewing the work of EPRI. A special
annual meeting of the two was held together. The outcome of this annual meeting was the determination
of the overall budget level and the division of this budget into major topic categories such as Generation
(spanning both fossil and nuclear), Transmission and Distribution, and Environment.
The divisional and departmental committees, together with EPR! staff, provided the RAC and the
Board of Directors a list of proposed new and ongoing projects that defined the proposed goals and
budget of each division. These projects were generally approved as proposed. Exceptions occurred when
Me board and RAC differed in their proposed division budgets. In such cases, the divisions facing a
tentative budget reduction would have their lists of projects ranked in priority as judged by the staff. The
{owes/-priority projects would be dropped to meet the allocated budget.
Project Definition and Selection
Projects were defined by the technical staffs of the divisions and departments to contribute toward
each division's or deparUnent's general goals and scopes. EPRI experienced growing budgets for most of
its first two decades. This resulted in a significant fraction~ypically 15 to 30 percent-of projects as
OCR for page 172
172
Decision Making in the DOE-OST
new starts each year. Foam processes for contractor qualification and bid selection were established and
used. A generic matrix of selection criteria was used, including the contractor's
· expertise,
· technical track record,
· financial track record, and in many cases, and
· ability to provide cofunding from another source.
Measurement and Control of Projects
The contracts for projects included schedules for major milestones and deliverables, as well as
expenditure forecasts. The project engineer for EPRI would meet regularly with the PI for progress
reviews to supplement the information received in written progress reports. Contract provisions
permitted short-term cancellations or modification of contracts for reasons such as a failure to meet
milestones, a lapse in budget controls, or a change in information on technical feasibility and/or expected
benefits.
Changing Regulatory Environment and Deregulation in the 1990s
The current partial deregulation of the electric power industry has the effect of separating the
suppliers of power generation, electric transmission, and local electricity distribution into three distinct
entities with different interests, technical needs, and competitive pressures. Utility companies no longer
have assured monopoly of supply and transmission in their territories. Thus, each utility is in competition
with other utilities and with nonutility generating companies. The former common interest in improving
the technologies and solving common problems is largely gone, since a particular improvement may be of
greater value to a competitor.
As an indication of these trends, an overall assessment of dues started to show declining participation,
resulting in a reduction of EPRI's budgets for R&D and staff. EPRI responded to this challenge by
adopting a "bottom-up" decision process with more direct involvement of the most interested potential
users in formulating R&D projects and goals.
CURRENT PROJECT SELECTION PROCESS
The practice of EPRI in the 1990s is to formulate its R&D program in a way that supports only the
project work that member companies choose to fund with their membership dues.
A Reorganization That Enables Members to Select Projects
EPRI has been reorganized into "business units," which replaced the former divisional structure.
Determination of the overall EPRI budget and allocation of budgets among the business units are longer
primarily done at the board level.
In the current "cafeteria style" of operation, a "menu" of proposed projects is submitted to the Board
of Directors with the endorsement of the senior technical advisory committee. This committee obtains
inputs from the advisory committees of the business units (formerly divisions), which in turn get advice
and project endorsements from the technical committees at the target level (programs or projects are now
called "targets"~. The board's approval of the list of targets is an endorsement only in principle, because
OCR for page 173
Appendix G-EPRI
173
each target approved by the board must then attain sufficient buy-in by member companies to support the
proposed work.
Each participating company has the option of supporting any target (project) of interest, a group of
related targets, or none. Only a few companies (about 10 percent of the client pool) now broadly support
all or most of the program across the board.
The Board of Directors continues to provide overall policy guidance on goals, missions, and relative
emphasis on the different areas of technology needs and opportunities. However, votes are weighted by
the degree of participation of the voting company in the topic area involved. The board endorses the
overall budget, which-with some exception for strategic research as described below is composed of
targets with specific funding commitments from interested utilities.
Project Definition and Formulation
Each proposed project is subjected to several evaluations.
Pre-Project Evaluations
Each proposed project (as well as some continuing projects) is formulated or reformulated by the
interested business unit. In the design of a research proposal, before a project is presented to the member
companies the proposed project is reviewed intensively by the Customer Systems Unit, which evaluates
· the potential market (i.e., the reasonably assured base of potential users);
· the benefit-cost expected if the project is fully successful;
· the probability of success (technical risk) that the technical proposal, if funded, would reach the
stated performance goals and deliverables; and
· the risks of being able to accomplish the expected results within the proposed budget and time
schedule.
The continuing discipline of requiring funding buy-in by potential users provides a continuing test of the
effectiveness of these market estimates and cost-benefit calculations.
Technical Advisory Committee Evaluations
The project proposal, along with the market evaluation and the technical risk evaluation, is submitted
to the advisory committee structure and to all of the potentially interested companies that may not be
currently represented on the advisory structure. This process determines which companies will buy into
any given project by confiding it, in effect buying a "share" of the project. The cost of each share
depends on the number of participants and may be adjusted by the relative sizes of the participating
companies. It is possible for a single company to support a project unilaterally. Companies that do not
participate in a given target do not have access to the results of the work.
Strategic R&D
A shortcoming of this cafeter~a-style funding, which is recognized by EPR] managers, is that certain
types of projects will not be pursued. These would include projects that have relatively long-term goals
or projects that explore a possible opportunity that has substantial risk associated with it.
OCR for page 174
174
Decision Making in the DOE-OST
This deficiency is addressed by a category called "Strategic Research," formerly known as
Exploratory Research. This is an assessment set by board policy of about 12 percent of the overall budget
for "Targets of Onnc~rtunitv." These have sometimes been relatively fundamental nieces of engineering
economic, or environmental research aimed at overcoming some obstacle in unclerstanolng a particular
system. Other goals may be to overcome some limiting factor in a system's efficiency, reliability, or
ability to provide a novel function.
Half of the Strategic Research budget (6 percent) is allocated to the individual business units. The
other half is managed by a Strategic Research unit, dedicated to {ong-term or more speculative targets.
The usual pattern is that the work of the Strategic Research unit establishes the feasibility of a novel or
improved approach. If it appears to be able to reach field application, the appropriate business unit caITies
on further development, provided the target can find member support. This process appears to be
working reasonably well to preserve some long-term advanced work, with about 25 percent of the
programs lasting over a several-year penod.
Other Current Practices and Features of EPR! Operations
The practices and features described below contribute to the viability of the EPR] way of supporting
R&D.
Risk Analysis for Cost-Benefit Ratings
Environmental R&D has been especially market driven due to increasing regulatory requirements and
air quality standards. Each proposal is subjected to a sophisticated risk analysis for the environmental
factor or pollutant involved and the expected environmental benefit if the project is fi~nded and succeeds.
Research topics include air quality improvements, watershed management, and fisheries. Avoided costs
are included in the cost-benefit assessments.
R&D Deliverables at Fixed Price
The companies that participate in a target are in effect given a guarantee by EPRI that the deliverable
results will be provided for a promised cost and schedule. This provides a strong incentive to the
companies to participate since it largely precludes the risk that their investment in supporting the project
will be wasted. It also provides a strong incentive for EPR! and contractors to monitor and manage
projects closely to avoid missed milestones, cost overruns, or loss of focus.
User Buy-in and Cofunded Demonstrations Ensure Applications
The pattern of calTying forward only projects that have specific user commitments has largely
eliminated a concern noted in the 1980s that only about 10 percent of R&D results in some areas had
widespread application in the subsequent three- to five-year period. Demonstration projects are
conducted only when a major share of the fielding comes from the host company.
OCR for page 175
Appendix G EPRI
Cost-Benef~t Re-evaluation and Ranking
175
In addition to the pre-project market and cost-benef~t evaluations, a special staff oversight function is
provided to re-evaluate cost-benefit results and rankings periodically.
Information Support Services
Because of the changing paradigms of suppliers, marketing, and competition, the traditional patterns
of customer support, billing, and information flows are also in need of rapid change. Specific examples
are the management of real-time pricing of power supply and power quality issues such as reliability,
freedom from damaging harmonics, and voltage stability. A number of utilities are also providing
specialized telecommunications services. EPR} sees a market for special developments in such topics. It
is expected that many such of these will be specific to a given local situation and therefore call for
proprietary developments. A for-profit subsidiary has been formed to handle this area.
Representative terms from entire chapter:
business units
