Spatial Reference
The Service Territory Feature Class defines the spatial reference for the UN feature classes. If you want to add to, update, or edit the Service Territory, these changes must be done before you create the UN. Once this spatial reference has been defined and the UN has been created, it cannot be changed.
Requirements
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a spatial reference with a vertical coordinate system with a direction of positive up.

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a resolution that defines a minimum Z value with negative values for below grade elevations.

To set this vertical system for the Service Territory feature class:
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From the content pane in ArcGIS Pro, right click on the name of your map and select properties.
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In the left side menu, click Coordinate Systems.
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If the Current Z box says <None, > click the box.
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In the search box, enter navd88 and hit enter.
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Expand the menu from Vertical Coordinate System > Gravity-related > North America.
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Select NAVD88 height (ftUS) from the list and click OK.

For more information, see the Esri topic Vertical Coordinate Systems.
Impact on ArcFM
If these values are not set, Conduit Manager cannot create vaults.