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PAN-EUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES - The EURELECTRIC experience Mr. Otso KUUSISTO Chairman of EURELECTRIC WG “Distribution Benchmarking”. Representing the European Electricity Industry at Expert, Strategic and Policy-making Level. Generation. Transmission. - PowerPoint PPT Presentation
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PAN-EUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES
- The EURELECTRIC experience
Mr. Otso KUUSISTO
Chairman of EURELECTRIC WG “Distribution Benchmarking”
Representing the European Electricity Industry at Expert, Strategic and Policy-making Level
Our technical partners:
48 companies from 22 countries were benchmarked
MAIN PARTIES INVOLVED:
– EURELECTRIC WG Distribution Benchmarking
– EURELECTRIC NE Finance & Economics
– PA Consulting Group 5
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Why benchmarking?
• Benchmarking already used by many regulators in assessing companies’ efficiencies
• Learning about benchmarking methods• Disseminating knowledge
– various degrees of understanding and experience in the participants
• Experimenting on European-level– Anticipating regulators’ actions– first truly pan-European benchmarking
• Indicative benchmark of overall performance
Interest in International Benchmarking
Method used
“Grid Volume model” developed by PA Consulting Group
• Cost driversCost drivers: physical parts of grid infrastructure
• Cost equivalentCost equivalent: average costs of operating a cost driver / year
• Grid volumeGrid volume = cost drivers • cost equivalents
• Only OPEX benchmarked• Companies compensated for 1) labour cost level
and 2) customer density
Method used (2)
voltage(0,24-1 kV)
Mediumvoltage(2-29 kV)
Highvoltage(30-70 kV)
Subtrans
-mission(71-150 kV)
Custo
-mers
Lowvoltage(0,24-1 kV)
Mediumvoltage(2-29 kV)
Highvoltage(30-70 kV)
Subtrans
-mission(71-150 kV)
Custo
-mers
Transformer and contact bays
Cables
Overhead lines ST
Sub-transmission
Transformer and contact bays
Cables
Overhead lines HV
High voltage
Transformer and contact bays
Cables
Overhead lines MV
Medium voltage
Cables
Overhead lines
Low voltage
Customers
Cost driver
1Cost / customer
CostUnit
2.735Cost / transformer
333
78
346Cost / transformer
84
93
27Cost / transformer
50
36
40
45Cost / km of line
Transformer and contact bays
Cables
Overhead lines ST
Sub-transmission
Transformer and contact bays
Cables
Overhead lines HV
High voltage
Transformer and contact bays
Cables
Overhead lines MV
Medium voltage
Cables
Overhead lines
Low voltage
Customers
Cost driver CostUnit
Cost / km of line
Cost / km of line
Cost / km of line
Cost / km of line
Cost / km of line
Cost / km of line
Cost / km of line
Cost drivers (indexed):
Method used (3)
Participating companies grouped by
1) Region1) Region: – North - South - East - Central
2) Size2) Size: (number of customers)
– Large: > 300 000– Medium: 300 000 - 100 000– Small: < 100 000
3) Level of urbanisation3) Level of urbanisation:Nr of customers / km of low voltage line– “City”: > 80– “Mixed”: 80 - 20– “Rural”: < 20
Main results (1)Baseline Benchmark
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Company
Co
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ity
co
rre
cte
d e
ffic
ien
cy
Main results (2)Baseline Efficiency in Regions
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Co
st
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ity
Co
rre
cte
d E
ffic
ien
cy
Eastern Southern Central Northern
Main results (3)Efficiency and Level of Urbanisation
City - Mixed - NonCity
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
Eff
icie
nc
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Main results (4)Baseline Efficiency and Size
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Small Medium Large
Main results (summary)
– Performance from 100% to 45% * – Efficient companies in all regions of Europe– Efficient companies in all size categories
– Sensitivity: robust model, but data uncertain– High satisfaction by participants (survey)
* 3 low-end companies considered as outliers; at the top-end 2 companies outliers; 20% error margin
Troubles & uncertainties
– 22 different accounting legislations, 48 different internal accounting systems…
– Guidelines & manual created for the project, to help report the various operating costs
– Separating OPEX and CAPEX not always self-evident: ratio of CAPEX to OPEX: from 28% to 72%…
– Allocation of overhead costs to operations also added to uncertainty
– Different degree of unbundling complicates allocation– Labour costs: 10-fold difference between highest and
lowest salaries
CONCLUSIONS (1)
• THE MAIN UNCERTAINTY IN THE BENCHMARKING STEMS FROM THE USE OF DIFFERENT ACCOUNTING PRINCIPLES
• WELL DEFINED DATA IS A BASIC PREREQUISITE FOR ANY BENCHMARKING EXERCISE
CONCLUSIONS (2)
• THE CORRECTION FOR DIFFERENT LABOUR COST LEVELS IS PRAGMATIC – AND AN “EXACT” CORRECTION CANNOT BE DEFINED
• The effect of labour cost level on the total performance is influenced by:• Average labour costs (wage level)• Productivity• Level of automation
CONCLUSIONS (3)
• THE DENSITY CORRECTION IS AN APPROXIMATION MADE TO COMPENSATE CITY COMPANIES
• THE MODEL CAN BE IMPROVED – IN ORDER TO IMPROVE THE BENCHMARK AND TO INCREASE LEARNING
What we got…
– INDICATIVE benchmark of overall efficiency– Results NOT suitable to draw regulatory conclusions– Sharing of experience among participants– Improved understanding of benchmarking as a process
• within participants• inside EURELECTRIC
“BENCHMARKING IS FAR FROM BEING EXACT SCIENCE”
CONCLUSIONSAims of Benchmarking are Important:
Incentivesfor Companies
High quality of supply
LowestPossible costs
Appropriatelevel ofinvestments
Project timing:
February – September 2002
1
Project start-up
2
Adaptation of model to national conditions (questionnaire)
3
First work-shop
4
Data collection phase
5
Calcu-lations
6
Final work-shop
March April JuneMayFebruary July
7
Last data adjust-ments
8
Final reports
September
Two recent EURELECTRIC reports:– “Pan-European Benchmarking of Electricity
Distribution Companies - Final Report”– “Business Trends in the European Power Industry
- the Financial Situation of Distribution Business”BOTH REPORTS AVAILABLE AT OUR CONFERENCE STAND!
Distribution issues in EURELECTRIC
– Networks Committee– WG “Distribution Issues”, chaired by Peter
BIRKNER (Lech-Elektrizitätswerke AG)MORE INFORMATION AVAILABLE AT OUR CONFERENCE STAND!
THANK YOU FOR YOUR ATTENTION!
Contacts:
Mr. Otso KUUSISTO
Mr. Mihai PAUN
The Union of the Electricity Industry – EURELECTRIC