Renoir Consulting Limited May 2006 ‘Improving Efficiency and Profitability’ POWER SECTOR - DISTRIBUTION

Renoir Consulting Limited

May 2006

‘Improving Efficiency and Profitability’

POWER SECTOR - DISTRIBUTION

2006 © Renoir Consulting Limited

Contents

• About Renoir

• Current Indian Scenario in Distribution

• Case Study – TNB Distribution

– Project History

– Project Goals

– Project Results

– Project Approach

• Next Steps


The Renoir Group

• Founded in UK in 1994

• Operating in India since 1995

• Implementation Specialists

• Vertical Specialisation in Generation and Distribution

• Experience in UK, USA, Germany, Malaysia, Philippines and India

• Excellent references

• Facilitate change in culture and management behaviours

• Focus on bottom line improvement

• Commit to delivering a Return-On-Investment

• Don’t write reports and don’t develop theoretical solutions


References Worldwide


Contents

• About Renoir



– Project History

– Project Goals

– Project Results


• Next Steps


• Estimated level of billing efficiency of 55%

• Estimated collection efficiency of 41%

• 2001-2002 SEB losses of Rs 33000 crore = 1.5% GDP

• SEB lose 110 paise for every unit of electricity sold(SOURCE: MINISTRY OF POWER APDRP OVERVIEW)

Indian Scenario – Distribution


Commercial losses 213.82 203.79 235.58 239.24( Excluding Subsidies)

Commercial Losses 83.86 92.98 130.8 136.7(Including Subsidies)

Rate of Return -31.64% -28.32% -31.94% -26.13%( for losses without subsidy)

Current Indian Scenario

2002-03 2003-04 2004-05 2005-06 Provisional Provisional

Revised Estimates

Financial performance of state electricity boards ( In Rs. billion )


“There is a lack of accountability in distribution, outdated rules, regulations, management structures,

and practices…..unless you establish accountability at all levels, you can never improve performance”.

Union Minister

Source: Financial Express 18 March 2002

Current Indian Scenario – Distribution


Contents

• About Renoir



– Project History

– Project Goals

– Project Results


• Next Steps


Contents

• About Renoir



– Project History

– Project Goals

– Project Results


• Next Steps


Background : Power Sector in Malaysia

•Government Policy not to fully privatize electricity power industry.

– TNB (Tenaga Nasional Berhad) continues to generate & distribute power

•Ongoing effort to restructure the electricity distribution to achieve

competitive prices for end-consumers

•Tenaga Nasional, the largest company in Malaysia had recorded

financial losses for the year ended 1997/8. Its image with the general

public was being tarnished due to

– Supply reliability problems

– Inefficiencies in customer management


Project History

• On successful projects in Generation and Transmission, the TNBD-

Renoir Business Performance Improvement Program (BPI) began in

January 1999 as a contract between Tenaga Nasional Berhad

(Distribution), Malaysia and The Renoir Group, an international

implementation consulting company, based in the United Kingdom.

• Renoir would be the catalyst for change, introducing the business

improvement methodology the ‘Technology of Change’, “transferring”

this knowledge to a core team of change leaders, within the TNBD

structure.


Contents

• About Renoir



– Project History

– Project Goals

– Project Results


• Next Steps


Project Goals`

The issues in TNB were commonly known as the “four big rocks”.

Network Services

• 25% Reduction in breakdowns.

• 15% Reduction in projects WIP.

Customer Services

• 15% Reduction in non-technical losses (towards total losses target of 5%

nationally).

• 15% Reduction in debtors (towards an ACP target of 27 days nationally).


Change the culture of the organisation from ‘passive, problem-oriented’ to ‘results-focused, performance-driven, action-orientated culture’

and develop change leaders.

Project Goals


Contents

• About Renoir



– Project History

– Project Goals

– Project Results


• Next Steps


Non Technical Losses

Project Headlines As At End October 2000

Reduction In Losses: (Total losses % measurement). (15% improvement).

State Base (Date) Current Target Imp

Metropolitan Region 15.5% (03/99) 6.06 5.00% 60.9%

Negri Sembilan 8.85% (03/00) 5.40% 5.00% 38.9%

Melaka 13.% (03/00) 8.55% 5.00% 34.3%

Johor 12.8% (03/00) 8.60% 5.00% 32.65%


Cash Flow Management


Reduction Debtors/ACP: (ACP days measurement). (15% improvement).


Wilayah Persekutuan 47.5 (03/99) 38.1 27 19.8%

Negri Sembilan 39.4 (03/00) 35.4 27 10.1%

Melaka 36.8 (03/00) 30.5 27 17.1%

Johor 33.3 (03/00) 29.9 27 10.1%


System Performance – LV Breakdowns


Reduction In Breakdowns (No. LV Breakdowns). (25% improvement).


Wilayah Persekutuan 270 (03/99) 115 135 57.4%

Negri Sembilan 64 (03/00) 53 11 17.2%

Melaka 46 (03/00) 47 14 -0.1%

Johor 218 (03/00) 71 54 67.4%


Reduction in WIP – Value


Reduction in WIP (WIP Value). (15% improvement).

State Base (Date) Current Imp

Metro 1,123m (03/99) 770m 31.4%

Negri Sembilan 127m (03/00) 62m 51.1%

Melaka 160m (03/00) 89m 44.4%

Johor 114m (03/00) 62m 45.6%


Project Results

TNBD-Renoir BPI - Monthly Evaluation At December 2000

66,369,461

95,209,077

11,980,000

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

Jan

ua

ry

Fe

bru

ary

Ma

rch

Ap

ril

Ma

y

Jun

e

July

Au

gu

st

Se

pte

mb

er

Oct

ob

er

No

vem

be

r

De

cem

be

r

Jan

ua

ry

Fe

bru

ary

Ma

rch

Ap

ril

Ma

y

Jun

e

July

Au

gu

st

Se

pte

mb

er

Oct

ob

er

No

vem

be

r

De

cem

be

r

Month [1999-2000]

Va

lue

in

RM

Project Commited SavingsActual Savings (Till Date)Invoiced Amount

Current ROI (Actual) = 7.95 : 1.


Contents

• About Renoir



– Project History

– Project Goals

– Project Results


• Next Steps


Definition

6 stage process

Development InstallationChange

ManagementResults

Sustaining Results

Technology of Change


Definition Development InstallationChange

ManagementResults

Sustaining Results

• Training

• Creative Tension• 4 Stages

• Minds Path• Measurement

• Time Frame

• Behaviour

6 stage process


• Process

• System

• Structure

• The Issues



ManagementResults

Sustaining Results

• Process

• System

• Structure• Training



• Time Frame

• Behaviour

6 stage process


• The Issues


The Issues Illustrated(Where The Money Was Lost)

Non-Technical Loses Cash flow?

Los

t in

CIB

S

The

ft/F

ault

y M

eter

Out

stan

ding

Rec

ords

do

not e

xist

Not

fol

low

ed u

p

Opp

ortu

nity


•Many customers details were not in customer information billing system (CIBS).•Many customers were in the billing system but no bills were sent.•The customer address information was sometimes incorrect.• Formal procedures for disconnection were not always observed and practices varied by zone.• There were differing practices in the zones concerning the selection of accounts to disconnect.• Disconnectors spent time waiting for disconnection and reconnection notices to be produced.• There was extensive daily planning, but little weekly or monthly planning to control work.

Customer Services


• Meter readers had stopped completing Irregularity Reports (IRs) for faulty and tampered meters because they were not being used to take action.• Meter readers were seen as solely responsible for customer billing. There were many customer contact points that the MRs did not control where customer billing should have happened. No-one else was being held accountable.• In Tenaga Shops, tellers used to ask ‘how much do you want to pay’ providing the customer with the opportunity not to pay the full bill.• There was a substantial debtors problem across all customer types. The enforcement mechanisms laid down by the Electricity Act were not being followed and this was resulting in customers building up debts sometimes in excess of 1 year and millions of ringgits.

Customer Services


• The supply network and maintenance systems in place were not adequate to provide the levels of supply reliability demanded by the nation. • A lack of information, particularly at middle management level upon which to make business decisions.• A lack of accountability/ownership, particularly at supervisory level for problems that arose. A breakdown was always someone else’s fault and someone else’s problem.• Critical elements were missing from the maintenance management framework. There were no measures of mean-time between failure (MTBF) at a component level to facilitate effective preventative maintenance.

Network Services


• There was a lack of accountability for restoration performance unnecessarily increasing customer outages.• Tenaga had a substantial number of projects in progress at the same time and needed to reduce these numbers to improve lead times for new supply and improve cash flow.•There was no established discipline of carrying out root cause analysis of re-occurring problems.• A lack of co-ordination across departments. • There was a general culture of lack of accountability and performance orientation.

Network Services



ManagementResults

Sustaining Results

• Training



• Time Frame

• Behaviour

6 stage process


• Process

• System

• Structure

• The Issues


“ “ Doing what you have always done and Doing what you have always done and thinking somehow magically performance thinking somehow magically performance

will improve”will improve”

Behaviour Change

What is the definition of madness?What is the definition of madness?


SystemsSystems

Education Education

BehaviouralChange

BehaviouralChange

ProcessesProcesses

Information

Activities

Training

ResultsResults

Structures Structures People

Internal Business Framework

Stage 2 - Development


Disconnection

Faulty Meter

Cross Meter

GovernmentAccounts

Found SupplyDisconnected

CounterClerk

CounterClerk

SpecialLetter

Unpaid &Vacated

Metered IllegalRestoration

Slap-onNotice

W/O 30

No Access

JBE

W/O 90 UPJBack billing

NTL

Unpaid &Vacated

Clerk

W/O40

Close AccountDeduct Deposit

Higher LevelDisconnectionn

DisconnectionExpense

Address Not Found Take to MRE Next MR To Check

Direct IllegalRestoration

TheftClerk

Higher LevelDisconnection

DisconnectedAccount Status

Unbilled TeamFollow-up

Access

No Access

Sub Process Example: Disconnection Issue Management


Process Planning


Process Planning


Process Planning


Management Control System Development


Performance Measurement

KPI Format (Weekly Report)


Standard Operating Procedures


Definition

Change - Stage 3


ManagementResults

Sustaining Results

• Training



• Time Frame

• Behaviour

• Process

• System

• Structure

• The Issues

Project Management Process


Stage 3- Installation

Training Tools - Skills Matrix

% SKILL ATTAINED BY INDIVIDUAL 100.0 0.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

% TRAINED PEO PLE BY

SKILL MULTI-SKILL

Jagd

ish

Ann

e

Pras

hant

Nag

le

Sanj

eev

Sing

h

Raj

esh

Jadh

av

90.0 Influencing SkillsT UT TR TR TR TR TR TR TR TR

90.0 Team BuildingT UT TR TR TR TR TR TR TR TR

90.0 Team MotivationT UT TR TR TR TR TR TR TR TR

90.0 Change ManagementT UT TR TR TR TR TR TR TR TR

90.0% Multi-Skill attained by area

Skill Matrix for TSSL

% SKILL ATTAINED BY INDIVIDUAL 100.0 0.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

% TRAINED PEO PLE BY

SKILL MULTI-SKILL

Jagd

ish

Ann

e

Pras

hant

Nag

le

Sanj

eev

Sing

h

Raj

esh

Jadh

av

90.0 Influencing SkillsT UT TR TR TR TR TR TR TR TR

90.0 Team BuildingT UT TR TR TR TR TR TR TR TR

90.0 Team MotivationT UT TR TR TR TR TR TR TR TR

90.0 Change ManagementT UT TR TR TR TR TR TR TR TR

90.0% Multi-Skill attained by area

Skill Matrix for TSSL

Figure indicates the % Multiskill attained by a area/ division/ region.

Figure indicates the %skill attained by individual.

The individual to be trained

The skill required by individual

% people trained for particular skill



Training Modules

• Technology of Change

• Active Supervision

• Managing with numbers

• Training Skills

• Communication Skills

• Time Management

• Team Building

• Management Systems


InformationInformation

TransparencyTransparency

ProceduresProcedures

AccountabilityAccountability

ConfrontationPositive Confrontation

To provide accountabilityTo change behaviour

ConfrontationPositive Confrontation

To provide accountabilityTo change behaviour

Effective MeetingsStructure and set up

Action solving root causesIndividuals responsible

Effective MeetingsStructure and set up

Action solving root causesIndividuals responsible

Problem AnalysisRoot Cause, not symptoms

5 Why analysisDetermination, not deferral

Problem AnalysisRoot Cause, not symptoms

5 Why analysisDetermination, not deferral

Systems

Creative Tension



Definition

Change - Stage 4


ManagementResults

Sustaining Results

• Training



• Time Frame

• Behaviour

• Process

• System

• Structure

• The Issues



The lack of awareness and understanding that a successful change

process has to go through ‘four changes in mindset’ is a common

reason why many strategic change programmes fail…

We also make false assumptions about peoples ability to adhere to new

ways of working, and to manage and accept change.

Where Most Things Go Wrong!

Change Assessment Management System (CAMS)


Co

nsc

iou

sU

nco

nsc

iou

s

Incompetent Competent

Direct Delegate

Support Coach

The Four States of Mind!

Co

nsc

iou

sU

nco

nsc

iou

s

Incompetent Competent

Compliance Culture

Understanding Usage

Renoir Minds Path Matrix

……No shortcuts possible...No shortcuts possible...

The Four States of Mind!



The four mindsets must be measured by auditing.

Auditing is a quantitative measure of a qualitative thing!

The secret to successful change management is to be able to assess

and measure your progress through the ‘minds path’.

“ “ If you can’t measure it, you can’t manage it.” If you can’t measure it, you can’t manage it.”

The Key to Success!



• Audit questionnaires are developed to assess the mindset levels using a

structured approach:

1. Closed ended questions for compliance.

2. Open ended questions for understanding.

3. Demonstrative questions for usage.

Measuring the Four Mindsets

• The audit questionnaire answers get converted into a scoring scheme…

• 0 for wrong or not done.

• 1 for partially right or partly done.

• 3 for correct or demonstrated.

• The percentages of each system performance category are plotted

• The target is 100%.



Installation Status

0%

10%

20%

30%

40%

50%60%

70%80%

90%

100%

-5 -4 -3 -2 -1 0 Current

Period

Ach

iev

eme

nt

Installed Partially Installed Not Installed System Utilization Status

0%

20%

40%

60%

80%

100%

-5 -4 -3 -2 -1 Current

Period

Ach

ieve

men

t

Mechanical Understanding Usage

Installation Status



Definition

Change - Stage 5


ManagementResults

Sustaining Results

• Training



• Time Frame

• Behaviour

• Process

• System

• Structure

• The Issues



Section 1

System Performance


LV Breakdowns South

3 2 8

1 4 3

7 9

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

3 5 0

B a s e 4 w k a v g T a r g e t

L V B r e a k d o w n ( J o h o r )

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

% Improvement over base

56%


Section 3

Projects


Project Average Closing Duration - Days

% Improvement72 %

326

92

60

0

50

100

150

200

250

300

350

No.

of

Day

s

Base 4 Wk Avg Target


Section 2

Non Technical Losses


Unbilled Customers SDE

% Improvement93%

52457

35741000

0

10000

20000

30000

40000

50000

60000

No.

of U

nbil

led

Cus

tom

er

Base 4 Mth. Avg. Target


Faulty Meter WP

5.74 mil

9.12 mil*

Total Recovery To Date : RM 5.74 m

7000000

7500000

8000000

8500000

9000000

9500000

24/09/00 10-08-00

22/10/00 11-05-00

19/11/00 12-03-00

17/12/00 31/12/00 14/01/00

WEEK

BA

CK

BIL

LE

D

3000000

3500000

4000000

4500000

5000000

5500000

6000000

6500000

7000000

7500000

8000000

CO

LL

EC

TIO

N

Backbilled (Cumulative) Collection (Cumulative)


Tampered Meter WP

9000000

9200000

9400000

9600000

9800000

10000000

10200000

09-10-00

24/09/00 10-08-00

22/10/00 11-05-00

19/11/00 12-03-00

17/12/0031/12/0014/01/01

WEEK

BA

CK

BIL

LE

D

0

2000000

4000000

6000000

8000000

10000000

CO

LL

EC

TIO

N

Backbilled(Cumulative) Collection (Cumulative)


Definition

Change - Stage 6


ManagementResults

Sustaining Results

• Training



• Time Frame

• Behaviour

• Process

• System

• Structure

• The Issues



Project Results

“I appreciate the discipline that you have put into the workforce, as it was

severely lacking in the traditional TNBD culture . . . .Everyone used to promise to

do things, but rarely delivered. . . . Now people promise, and they deliver . . .

People don’t like to loose face in TNBD, so if they have promised and everyone

knows they have promised, they will deliver. Everyone’s job is now very

transparent, so everyone else knows what you should be doing as well” -

Yazid Adon (GM South).

“I used to be concerned that my people spent too much time in meetings, as I did

not think that the meetings were of any real benefit. Now I realize that they were

of benefit. Now with a KPI and action focused meetings at all levels, I know

that the meeting is at least a focused one. As a result, meetings conducted

are generally a lot shorter and more focused, so on the whole, meeting time is

reduced, but more effective” - Abu Hasan (COO South).


Contents

• About Renoir



– Project History

– Project Goals

– Project Results

– Project

• Next Steps


Conclusion - Next Steps

• India has an estimated level of billing efficiency of 55% and collection efficiency of 41%

• 2001-2002 SEB losses of Rs 33000 = 1.5% GDP (SOURCE

MINISTRY OF POWER APDRP OVERVIEW).• The Power Sector can never be financially viable until these issues are addressed. • The only precondition is addressing the issues we have illustrated.


Queries

Saumil Shah,

Head of Operations - India,

Renoir Consulting (India) Limited

2nd. Floor, Raheja Chambers,

213 Nariman Point,

Mumbai, India

Tel : 022 - 2282 1923

Mobile : (0) 9898246465

Email : [email protected]

Website: www.renoirgroup.com


Conclusion - Next Steps

• Pilot project to demonstrate best practice with empirical evidence.

• Need to select a geographical area for preliminary business audit.

Documents

Renoir Consulting Limited May 2006 ‘Improving Efficiency and Profitability’ POWER SECTOR - DISTRIBUTION