The engineering team, in addition to seeking innovations and new technologies, must also be constantly improving current processes, such as:

a) Substations and powergrids Design: It is important to standardize the design of electrical networks and substations, because this can minimize effort and time in new projects and it will also help to standardize maintenance and operation plans that can be executed consistently at minimum cost.

b) Manufacturer: it is recommended that the manufacturer may be asked to provide maintenance services for warranty period. This will ensure single point responsibility for manufacturing and maintenance issues. The costs associated with an annual maintenance contract may be included in the initial cost of the equipment.

The use of companies that perform engineering and support activities is encouraged, and the contracts established must have their payments conditioned to performance indicators (execution time, technical indicators, energy efficiency, and others). For main activities, it is also recommended that outsourced companies be used to establish an efficient cost benchmark between activities developed internally and by third parties. In general, there are three types of contracts that are used:

a. Full-Coverage Service Contract: A full-coverage service contract provides 100% coverage of labor, parts, and materials as well as emergency service and preventive maintenance. The Contract must be measured and paid for the performance of the equipment for which it is responsible. This type of contract is recommended for areas where the company has low coverage or for the most critical equipment. Full-coverage contracts are usually the most expensive type of agreement in the short term. In the long term, however, such a contract may prove to be the most cost-effective, depending on the owner’s O&M objectives. Advantages of full-coverage contracts are ease of budgeting and the fact that most of the risk is carried by the contractor. However, if the contractor is not reputable or underestimates the requirements of the equipment to be insured, the contractor may do only enough preventive maintenance to keep the equipment barely running until the end of the contract period.

b. Full-Labor Service Contract: A full-labor service contract covers 100% of the labor to repair, replace, and maintain most equipment. The owner is required to purchase all equipment and parts. Some preventive maintenance services can be included in the agreement along with minor materials. This can be the second most expensive contract regarding short-term impact on the maintenance budget. This type of contract is usually advantageous for medium or big companies who can buy in bulk and obtain equipment, parts, and materials at reduced cost. For small companies, cost control and budgeting become more complicated with this type of contract, in which labor is the only constant. Because they are responsible only for providing labor, the contractor’s risk is less with this type of contract than with a full-coverage contract.

c. Preventive-Maintenance Service Contract: The preventive-maintenance contract is generally purchased for a fixed fee and includes several scheduled activities. Generally, the contractor provides the materials as part of the contract. The contract may or may not include arrangements regarding repairs or emergency calls. This type of contract is recommended only for specific situations, such as substations and special equipment (voltage regulator, capacitor bank, reclosers, etc.). The main advantage of this type of contract is that it is initially less expensive than either the full-service or full-labor contract and provides the owner with an agreement that focuses on quality preventive maintenance. However, budgeting and cost control regarding emergencies, repairs, and replacements is more difficult because these activities are often done on a time-and- materials basis. With this type of contract, the owner takes on most of the risk. Without a clear understanding of preventive-maintenance requirements, an owner could end up with a contract that provides either too much or too little.

Individual annual accounting analyses are carried out for operating and maintenance costs as a whole and for system. Also, individual monthly accounting analyses are carried out for main system facilities, these comprise, at the very least, the technical service units, customer service, units/crews of new investments and corrective maintenance. For these evaluations, individual and segregated accounting analyses are carried out for the main components of these operating costs.

Rates of return: Achieving a rate of return is an important aspect in ensuring that company activities are operating like comparable businesses. In cost management, setting appropriate rates of return for each separate line of commercial or technical activity is an important factor to avoid cross-subsidization. Only projects and initiatives with a reasonable rate of return can be executed. For SOEs, its productivity should be benchmarked with similar business activities in the same industry and private companies. For this evaluation minimally the following criteria must be used for new projects: (a) simple payback; (b) return on investment; (c) net present value; and (d) life-cycle cost.

Procurement policies and procedures must be competitive, non-discriminatory and maintain high standards of transparency and technical quality. To this end, in general, companies tend to always choose the same providers, as this results in traditional economies of scale. However, it is important to have a mechanism that encourages the search for new suppliers, albeit on a smaller scale and with less capacity to meet the needs of the company, as a way of seeking solutions in the market. Some practices can help optimize operating and maintenance costs:

a. History: for new procurement, the qualification and choice of the vendor must be based on the past history of the supply of material and services.

b. Evaluation: Tender evaluation using Weighted Average Criteria, the evaluation should be done based on both technical and commercial terms.

c. Inspection: (i) after purchase, trial order is given to the new vendors; third party inspection of factory may be arranged by the utility; (ii) the regular supplier may also be inspected during the manufacturing process by the third party; and (iii) each equipment from the factory should be inspected at the store for physical damage.

Characterization of all the processes necessary for the activity of electricity distribution, with description of the main activities of each one of them. These processes and activities are all those that imply direct action on consumers or facilities, such as activities in the regular commercial cycle, customer service and technical service, and operation and maintenance activities for electricity distribution facilities. For each of them, it is important to establish the efficient cost associated with each of the processes, using market prices as a reference, considering the price of contracting its execution or provision in the market when there is reasonable competitiveness. In cases where the market was not sufficiently developed, efficient cost was calculated based on the definition of the main tasks that make up the activity (materials and services).

Transparency: The rationale and objectives of performance budgeting are clearly documented and reflect the interests of stakeholders. Identifying the costs of any given function of commercial and technical activity is essential. For SOEs, the major issue is accounting for costs associated with fulfilling public service obligations (if applicable). If public service obligations are subsidized by the public purse, costs should be identified in a transparent manner to ensure neither overcompensation nor under-compensation. Some recommendations include transparency disclosing in proportion of shared costs with public purse; proportion of shared costs and assets that are attributed to commercial activities, when non-commercial activities are not conducted separately. The degree of subsidies disbursed by the State should be made transparent.

Operating Cost optimization is included in the infrastructure and equipment design phase and when planning facility operation and operation of the system. There is a plan to reduce operating unit costs and it includes annual objectives and monitoring of their fulfilment. Some actions can help reduce or control more routine operating costs:

a. Productivity: The company must have a system of control and management of productivity and production of crews working in the field based on the production performed. It is recommended to use concepts adapted from the OEE (overall equipment effectiveness).

b. Life cycle: It is necessary to check if the service life of the equipment operated below the life cycle established by the manufacturer and to investigate the reasons for this occurring.

c. New Asset: It must be constantly analyzed whether the maintenance and operating costs of equipment with a long-life span are not exceeding the cost of acquiring new assets.

It is important to promote the use of performance indicators in budgetary decision making, that is, the use of the estimated budget must be linked to technical and commercial indicators that measure the investment objectives and costs used. Processes whose indicators are within the target must be prioritized in the allocation of the budget, while processes in which performance indicators are below the target must be constantly reassessed. The main results of this practice are: (i) improving the setting of objectives and the monitoring of performance; (ii) emphasis on planning; (iii) improving management, transparency, and efficiency. Performance budgeting is useful to improve performance orientation, including program evaluation and spending reviews.

The maintenance activity must be considered not only from technical aspects, but also the costs of realization and the costs of non-realization must be evaluated. Utilities can use a new methodology Reliability Centered Maintenance to optimize maintenance resources and to develop maintenance plan for distribution networks and substations. Some practices for utilities to have in place are:

a. Computerized maintenance management system (CMMS): Utilities use a management software that performs functions in support of management and tracking of O&M activities, with some minimal functionality such as work order generation, prioritization, and tracking by equipment/component, historical tracking of all work orders generated, tracking of maintenance activities, storing of maintenance procedure and of all technical documentation or procedures by component, real-time reports, calendar or run-time-based preventive maintenance work order generation, capital and labor cost tracking by component and others;

b. Training and standards: There is an annual training and recycling plan for maintenance crews. It is defined the reporting requirement for O&M activities and its frequency, also there are Operations and Maintenance Manual including written operations procedures and preventive maintenance work procedures and checklists.

c. work orders: All types of work to be performed must be created in the system like a work order. The work orders can be into one of two categories: planned work and unplanned work. Work orders must have the minimum information to guarantee the safety and quality of the work, such as: Geographic location, reference equipment, standards, contact of the Operation Center, and among others.

d. Management of field work: Remote dispatch should be used and dynamic dispatch of crews to reduce travel time and improve response to emerging jobs.

e. Human Resources Management: It is important to reduce the non-productive time of the crews (late out, early return, extended breaks) to optimize field force utilization. In addition, processes should be created to use field forces to close work plans when completing work, eliminating additional administrative costs;

In addition to these practices on the maintenance process, it is also important to highlight that maintenance can be performed reactively in emergency situations (corrective maintenance) or planned to act preventively (preventive and predictive maintenance).

For preventive maintenance some recommended practices are:

• Job Planning: Every activity must have a planning stage that must be carried out in advance and, if possible, by different personnel who will carry out the activity. The plan must contain all the necessary resources: materials, equipment and labor.

• Job Scheduling: optimize work schedules over a period of several months, smoothing peaks/valleys for equipment and labor, minimizing the impact of limited resources;

• Workstations: Jobs: It is important to work with a plan considering several workstations in different regions. This improves flexibility for resource sharing, rather than artificially restricting labor and equipment to a single operations center or territory;

• Supply Chain: Look for an improvement in the materials staging to eliminate the impact in other stages of the process. The supply chain should never "command" the all operation.

• Resource Availability: All resource options (contractors or employees) should be considered based on demand and cost. When the workload associated is constant, it is an ideal task to outsource work with a fixed amount.

For corrective maintenance some recommended practices are:

• Trend: It is possible to check the volume trend of this work in recent years to realize that the volume can be predicted based on environmental events. As such, model work plans must be created and made available for application in this work, minimizing planning and maximizing standardization.

• On-call staff: It is necessary to maintain a minimum number of crews, of different types, available in the regions with the highest incidence of events or the highest density of consumers.

Obtain political support with government authorities and promote awareness for the introduction of a program. Successful programs have usually been associated with a preponderant role of government authorities to tackle the challenge, where public utilities regularly report progress to senior government authorities.

While this is not a direct action by the distribution utility, political support is key to reducing electricity losses in particular with large commercial and industrial customers. In some cases, a dedicated and transparent budget is established to manage the transition of certain residential customers with low consumption. Some countries have provided this support in the form of targeted subsidies to customers with low consumption (such as less than 100 kwh/month). This budget support to targeted customers needs to be properly estimated and defined its duration.

As part of proactive activities, the utility can make in collaboration with the government is to foster development and implementation of energy efficiency standards: promote new materials and construction standards with local and national governments, such as the use of solar heating, thermal insulation of roofs and natural and efficient lighting.

Establish a dedicated infrastructure investment plan in the distribution network and secure resources to reduce vulnerability and adulteration of equipment and connections. Provide modern meter facilities with monitoring facilities and an engineering sector in charge of technically analyzing the technical losses of the system and seeking new technical solutions. The plan should also have a well-established technical loss calculation and quantification methodology based on internationally recognized references or existing national regulations. One of these methodologies10 to evaluate the cost of loss is provided by “Guide for the Evaluation of Large Power Transformer Losses” and its reference is provided in the next section. Verify the current cost of losses and analyze possible solutions to reduce prioritizing the actions with the highest return for the company, investing in those with a positive net present value (NPV).

Identifying and securing financial resources have been critical conditions for the successful development of an electricity loss program. These financial resources, ideally with concessional terms, would ensure availability of investments over time and clearly established targets. The program would also determine the destination of the additional income resulting from the regularization. Any loss program must be preceded by an economic and financial analysis; and have specific sources of financing for projects and/or supported by public agents in the country. These investment resources can be from multilateral banks with advantageous commercial conditions and long-term amortizations, or from the utility’s income and balance sheet.

Strengthen access to and functionality of the commercial systems. Experience has shown the importance of making regular checks of personnel that have access to the company’s business and billing systems, as well as performing analysis of the data stored in the Customer Management System (CMS). Access to the billing systems and database of customers should be limited as much as possible within the utility, which should carryout regular audits and verification of who has access to what part of the billing system. Utilities have also to ensure their billing systems and collection mechanisms are properly functioning and the rate of overdue bills are within reasonable limits of the account receivables. Whenever possible integrating their CMS with the Network Information System (NIS) so that customers can be automatically associated with a transformer, meter, and location. The commercial systems should also reflect in transparent manner the support mechanism introduced to socially disadvantageous groups, and this is described next in the social participation practices

Segmentation of the losses among the residential, industrial, and commercial customers is an important activity to be performed early on as part of the study. This is because losses in the industrial and commercial customers are usually concentrated in few customers with high volume, compared to the residential section which is large number of customers with small volume.