Upload
others
View
5
Download
0
Embed Size (px)
Citation preview
Utility Sustainability- Business Essentials
AFRICAN UTILITY WEEK2009
At van der Merwe & Louis Fourie
BUSINESS IS LIKE THE WEATHER- EVERYONE TALKS
ABOUT IT, BUT FEW UNDERSTAND WHERE IT COMES
FROM……
PRF 2
3
Road up to hereRoad up to here ……..
• 80% of Sub Sahara Africa enacted a
Power sector reform law
• 75% Experienced some Privatisation
• 66% Corporatised their entities
• >50% establish a regulator
• >33% had IPP’S
STOPSTOP
By 2006…
PRF 2
Content
1. Strategic Business Plan2. Long Term Sustainability3. Utility Business Model4. Modeling Structure5. Revenue requirements
6. Multiyear Tariffs7. KPI’s
PRF 2
The Way Forward ….
PRF 2
1) STRATEGIC BUSINESS PLAN
7
Key Forces impacting on Global Energy Industry
Trends impactingon Utility
Globalisation
Competition
Customer Expectation
Technology
Supply/Demand
Investment priorities
Core Competencies
Governments expectations
•Trading•Commercialisation
Outsourcing •Reliability•<outages•Power quality
World bank/IMF
•Pre Payment•Gas/Wind•Others
CONTROL/REVIEW
BU Business Planning - Objectives - Strategies - Action Plans - KPA’s/KPI’s
Divisional Strategic Guidelines - Purpose Objectives - Environmental
Analysis - Strategic Guidelines
Functional Plans
Divisional Plans
Utility - Strategic Plan - Financial Plan - Incl budgets
Identify Gaps
Review
Review
Utility Strategic Plan /Guidelines - Purpose Objectives - Environmental
Analysis - Strategic Issues - Objectives/Targets - KPA’s/KPI’s
Functional Strategic Guidelines - Purpose Objectives - Environmental
Analysis - Strategic Guidelines
Distribution/Generation Strategic Guidelines - Purpose Objectives - Environmental Analysis - Business Strategies - KPA’s/KPI’s
Review
BU Plan - Bu Business
Plan - Budget
CONTROL/REVIEW
Preparing the Utility Plan
A particular Process needs to be followed
PRF 2
THE BUSINESS PLAN…Is a road map of intent, providing directions for the electricity utility to move forward and helps to ensure customer satisfaction on theroad ahead. It needs to be flexible, offer alternatives to the supply and demand requirements and consider the risks of outages and inadequate supply against cost considerations for the customers.
The plan must have ( several) ‘cards up the sleeve’ .
PRF 2
2) LONG TERM SUSTAINABILITY
Happy Customers are….
Quality
ContinuityQuantity
Cost
Eco
nom
y of
sca
le
Cu
sto
me
r M
ix
Div
ers
ity
Ge
og
rap
hic
al
na
ture
Co
mm
erc
iali
sati
on
PRF 2
3) UTILITY BUSINESS MODEL
PRF 2
Typical Vertically Integrated Business Model
Generation, Trading &
Risk Management
Transmission Distribution Customer Service
Operational Shared Services (Fleet, Engineering/Design, System Planning, Supply Chain, etc.)
Corporate Center(Human Resources, Information Technology, Finance, etc.)
Manage Governance
PRF 2
Utility Process Model and Supporting Business Process Model
Plan the business
Manage Energy
Revenue
Provide Customer requested
construction (New Service Connections)
Provide & Service
the network (Construct &
Maintain )
Manage customer
interactions(Customer
relationship management)
Renew the Business
Operate thesystem
4Develop growing value strategy
4Ensure future business success
4Develop business improvement methodology
4Develop business plan
4Monitor business plan performance
4Manage utility regulatory relationship & compliance
4Restore network to acceptable reliability levels
4Monitor system / network performance & accounting
4Plan & execute network/ system outages
4Billing4Vending4Collect revenue4Manage fraud
4Provide new service
4Relocate system assets
4Provide system capacity
4Manage system assets
4Acquire energy
4Develop customer performance standards
4Manage corporate image
Manage governance
Provide support services
4Manage IT 4Manage real estate4Manage supply chain
Manage Human Resources
Manage Safety and Risk
4Manage office services
Manage Financial Resources
4Manage fleet
Manage Electrification
4Planning4Contract
management4Customer
Education
Manage Energy Purchase & Product
Development
4Purchase Energy
4Electricity Pricing
4Develop Products
PRF 2
4) MODELING STRUCTURE
PRF 2 16
Asset company
Customer company
Hybrid company
Generic Business Model
Combination of customer and asset company principles to ensure balanced hybrid full service
entity
‘Wires Only’
‘Retail Only’
•Energy Sources
•Generation mix
•Tariff structures
•Capacity/availability
charges
•Network
Requirements
•Network
Operations
•Customer mix
•Diversity
•Cust Demand
•Customer care
•Geographical
spacing
Industry
Business
Residential
•Customer mix
•Diversity
•Cust Demand
•Customer care
•Geographical
spacing
Governance / Regulatory
Electricity Supply Business Chain
•Profit
•Loss
PRF 2
Financial Planning Process• The financial structure needs to be based on the following:
– Utility’s Business plan requirements and objectives– Generation plan taking into account gas infra structure, gas
availability and possible coal based generation– The cost of current and future generation– Transmission and supply requirements– Other support measures– Focus on cash flow requirements– Tariff structures and levels, including fuel/renewable levies
• Results are tested in long term financial model, – Profit and loss statements,– Sources and application of funds, – Balance sheet and – Financial ratio
19
Generation plan
Demand forecastTANESCO LTD
GRID SYSTEM DAILY LOAD CURVES
100
150
200
250
300
350
400
450
500
550
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
TIME (HOURS)
PO
WE
R (
MW
)
Methodology in developing the FMP
TANESCOAccumulated Cashflow Forecast
5 % annual Tariff Increase (2006 as from Jul, 2007 - 2010 as from Jan)10% Fuel Surcharge as from Jul 06 (the 2006 Fuel su rcharge added as tariff
increase) to Dec 2010IPTL Bought by Jan 2007
-300,000
-200,000
-100,000
0
100,000
200,000
300,000
400,000
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep
-06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep
-07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep
-08
Nov
-08
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep
-09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
TS
HS
m
NET Cash Balance After Operational Activities NET Cash Balance After Committed Capital Net Cash Balance after funding
Note: Only 2006 Capital included
Utility OPEX
Investments
TX & DX requirements
Fuel
AssumptionsDeliverables
FMP
Data
Business Economic Model
Analyses and Monitor
ReportIn Summary
PRF 2
5) REVENUE REQUIREMENTS
Revenue requirementsOperating Expenses - USc/kWh
-
2.0
4.0
6.0
8.0
10.0
12.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Operating Expenses (USc/kWh): Grid Generation and Transmission CostsOff Grid Generation Costs Distribution Costs5% and index to inflation 10% and index to inflation15% and index to inflation 20% and index to inflation25% and index to inflation
PPA costIPP vs. own plantCost of fuelRenewableCost of off grid genDispatching planSpinning Reserve
Generation Cost Triggers
TANESCOCash Flow Requirements
Scenario 4
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
Jan-06
Feb
-06
Mar-06
Apr-06
May
-06
Jun-06
Jul-0
6
Aug
-06
Sep
-06
Oct-06
Nov
-06
Dec
-06
Jan-07
Feb
-07
Mar-07
Apr-07
May
-07
Jun-07
Jul-0
7
Aug
-07
Sep
-07
Oct-07
Nov
-07
Dec
-07
Jan-08
Feb
-08
Mar-08
Apr-08
May
-08
Jun-08
Jul-0
8
Aug
-08
Sep
-08
Oct-08
Nov
-08
Dec
-08
Jan-09
Feb
-09
Mar-09
Apr-09
May
-09
Jun-09
Jul-0
9
Aug
-09
Sep
-09
Oct-09
Nov
-09
Dec
-09
Jan-10
Feb
-10
Mar-10
Apr-10
May
-10
Jun-10
Jul-1
0
Aug
-10
Sep
-10
Oct-10
Nov
-10
Dec
-10
Tsh m
Operating Expenses Energy Purchases Funding Investments&Capital Total Revenue Net Cash required after Subsidies
Utility Cash flow Requirements
PRF 2
Utility cash requirements
Important elements to focus on before tariffs are opted for…
Revenue Requirements in the Financial Planning Process– Determine all assumptions affecting cash flows– Load forecast
• Forecast customers per customer group• Determine consumption per customer per forecast group• Determine forecast per customer group
– Revenues• Tariff per customer group• Consumption per customer group• Sales per customer group• Collection levels• Revenue
– Expenses• Energy purchases
– Generation plan (taking into account gas restrictions in the short term)– Fixed and variable cost per generation source (incl PPA variables)– Units dispatched per power source– Cost of generation
• Other operating expenses– TX and Dx operating requirements
– Cash flow from operations• Net cash flow from operations: Revenue minus expenses• Cash resources to fund liabilities and Investment
– Investment• Capital investment plan• Funding plan
– Liabilities• Restructured debt• New debt (operational and investment)
– Net cash is derived as Cash from operations minus Investment minus liabilities– Net Cash shortfall adjusted by lastly by adjusting tariffs
Revenue from Sales•Tariff per customer group•Consumption per customer group•Sales per customer group•Collection levels
Cash Flow from Operations
GX
ExpensesLoad Forecast•Customers per customer group•Customer per forecast group•Forecast per customer group
DX
Net Cash from OpsTo fund
liabilities & Investment
Det
erm
inin
g A
ssum
ptio
ns
Investment Plan•Capital•Funding
TX
Net Cash Liabilities
Tariff Options
Balancing Cash with Revenue
TANESCOAccumulated Cashflow Forecast
5 % annual Tariff Increase (2006 as from Jul, 2007 - 2010 as from Jan)10% Fuel Surcharge as from Jul 06 (the 2006 Fuel su rcharge added as tariff
increase) to Dec 2010IPTL Bought by Jan 2007
-300,000
-200,000
-100,000
0
100,000
200,000
300,000
400,000
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep
-06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep
-07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep
-08
Nov
-08
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep
-09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
TS
HS
m
NET Cash Balance After Operational Activities NET Cash Balance After Committed Capital Net Cash Balance after funding
Note: Only 2006 Capital included
TANESCOAccumulated Cashflow Forecast 2006-2010
No Tariff IncreasesGeneration Option 1
-800,000
-700,000
-600,000
-500,000
-400,000
-300,000
-200,000
-100,000
0
Jan
-06
Ap
r-0
6
Jul-0
6
Oct
-06
Jan
-07
Ap
r-0
7
Jul-0
7
Oct
-07
Jan
-08
Ap
r-0
8
Jul-0
8
Oct
-08
Jan
-09
Ap
r-0
9
Jul-0
9
Oct
-09
Jan
-10
Ap
r-1
0
Jul-1
0
Oct
-10
TS
HS
m
NET Cash Balance After Operational Activities NET Cash Balance After Committed Capital Net Cash Balance after funding
Note: Only 2006 Capital included
Modeling Examples under different Utility cash req uirements
Utility-Option1
UtilityOption 4
Utility Option 3
UtilityOption2
$m$m $m
$m
PRF 2
6) MULTI -YEAR TARIFFS
Revenue Requirement
Average pricelevels
Annual Price Increase
Immediate
Structures of individual tariffs
Tariff levels relativeto each other
Tariff structures & Cost reflectivity
Long term
phasing approach
Tariff Scenarios for Financial AnalysisBase CaseTariff Increase Mar-06 0% 0% 0% 0% 0%Interim Tariff increase May-06 0%Scenario 1 Tariff Increase Mar-06 5% 5% 5% 5% 5%Interim Tariff increase May-06 15%Scenario 2Tariff Increase Mar-06 0% 5% 5% 5% 5%Interim Tariff increase May-06 0%Scenario 3Tariff Increase Mar-06 0% 5% 5% 5% 5%Gvernment Subsidies Tsh Bn 38,060Scenario 4Tariff Increase Mar-06 5% 10% 10% 10% 10%Interim Tariff increase Sep-06 15%
Example of Typical Phasing
Phase 1 Revenue requirements
Phase 2 Tariff rebalancing
1. Revenue increase based on FMP – price increase• Before yearend
2. Commencement of COS study• Completion year ‘n’
Proposed Roadmap towards cost reflectivity in tarif fs
1. Completion of COS study1. Cost reflectivity of all tariffs for revenue neutrality2. Tariff structure analysis
2. Phasing plan with milestones3. Implementation strategy
Costreflectivity
Year n & beyondYear 0COS tariffs
Revenue neutrality
T1yr1…T2yr1…T3yr1…T4yr1…..
Current tariffs
Currenttariffs structureNon cost reflective
T1yr2…T2yr2…T3yr2…T4yr2…..
Phasing in approach
Utility subsidy independent but capital dependent Commercially viableYear 1 Year 2
PRF 2
7) KPA’S & KPI’S
Goals / Behaviour changes KPI'sDefinition Unit
Accurate demand and capacity forecast to define network needs Demand forecast accuracy (% error vs. Actual) %
Accomplish Electrification and FBE supply goals New connections #New FBE connections #
Improve interruptions frequency SAIFI °/1Improve interruptions duration SAIDI °/1Improve technical losses Technical losses %Accomplish Electrification and FBE supply goals New connections #
New FBE connections CComplete CAPEX construction according to network planning CAPEX finished vs. CAPEX planned %
CAPEX costs finished vs. planned %Optimise costs of detail eng and construction Average cost per type of network R / unitOptimise time of detail eng and construction Average time per type of network days / unitImprove interruptions frequency SAIFI °/1Improve interruptions duration SAIDI °/1Improve system outages NR and duration of grid and partial grid failures #Improve failure rate per network component Average failure rate per component Failure / year
Accomplish Preventative Maintenance PlanMaintenance finished vs. plannedPlanned vs unplanned maintenanceNr and duration of planned and forced outages
%%
Nr/Hr'sReduce technical losses Technical losses %Live line maintenance Work done by life line teams %Reduce average OPEX cost per voltage level Opex/km R / km
Develop capability for quick response to outages Customer satisfaction index% of positive
answersAverage restoration time hoursClaims and request average response time days
Improve safety for employees and society OSHA Rate %Lost Time Accidents %Accidents per voltage level #
Network Planning
Network Creation
Network Maintenance
Network Operation
Key Performance area’s (KPA’s)
• These are the specific Performance areas to be measured
− Technical
− Financial
− Commercial
Key Performance Indicator’s
• Indicators that would measure a specific area, like Turnover, Losses, Collections etc
PRF 2
Conclusion• To model is to build understanding of the
utility• Understanding brings opportunity• Opportunity leads to:
– Efficiencies– Sustainability in long run
Happy Customers….
PRF 2 35
ENDEND