Changing Utility Business Models
Pacific Gas & Electric’s (PG&E’s) Regulation and Rates Group was interested in having an industry expert present to the organization a view of the changing nature of the utility business model.
In conjunction with an annual review of organizational progress and future needs, PG&E retained MJB to present a view of factors and drivers that will impact, and likely change, the utility industry business model. The study identified a variety of cost and technology pressures, as well as drawing an analogy to the massive changes seen, and still underway, in the telecommunications industry.
US PowerGen (USPG), a merchant generator with almost 3000 MWs of capacity in New York City, was interested in a detailed review of the NYISO’s Load Forecasting Task Force’s (LFTF) development of the official coincident peak load forecast, particularly as it pertained to Zone J (i.e., New York City).
MJB’s primary objective was to review the LFTF process supporting the development of the coincident peak load forecast and to suggest enhancements to the process to better reflect more sophisticated econometric considerations, as well as other market conditions. The load forecast has a direct impact on the Installed Capacity (ICAP) requirements for NYC, hence on capacity prices. MJB tested many of the assumptions used to establish the coincident peak load forecast, specifically peak demand for Zone J (i.e., the location of USPG’s facilities), examined the processes by which the final values were derived, and recommended enhancements to those processes.
Multi-City Energy Fundamentals
MJB was engaged by GazProm-Promgaz to support the development of an energy strategy for the City of Moscow, Russia.
The project incorporated detailed analysis of the infrastructure and energy strategies of six international cities (New York, Chicago, Toronto, Paris, London, and Copenhagen) providing the client with an understanding of the challenges that similar cities faced and how they were being addressed. The analysis included significant focus on city strategies in regard to renewable and distributed generation technologies in meeting their energy needs. The project included analysis of each city’s heat and power production, review of electric and gas infrastructure, reliability, and use of tri-generation. Additionally, for each city, each of the organizations that regulate energy consumption were analyzed as was the focus of the work of city government in the energy sector.
New York City Energy Fundamentals (PlaNYC 2.0)
MJB worked with New York City’s Department of Environmental Protection (DEP) and its Office of Long Term Planning & Sustainability (OLTPS) in updating the energy chapter of PlaNYC, the City’s long term sustainability plan.
The scope of the project included reviewing the major energy related areas of PlaNYC associated with the city’s energy supply portfolio and demand reduction initiatives. The MJB team assigned to this project included experts on various aspects of the energy industry including energy efficiency, demand response, energy markets, policy and regulation. MJB’s experience in New York State placed the firm in a strong position to offer insight and innovative solutions that reflect the unique characteristics of the city’s energy environment. The results of the MJB effort were included in the updated plan (PlaNYC 2.0) released on April 22, 2011 (Earth Day).
Capital Projects Group Management Review (Transmission)
The client, the Capital Projects organization of a large Mid-Atlantic utility responsible for a multi-year capital program exceeding $5 billion, required a detailed examination of pre-program implementation operational procedures and policies, organizational structure, reporting and communication protocols, and performance metrics and service agreements.
MJB conducted a detailed examination of operational procedures and policies, organizational structure concerns, and reporting and communication protocols, as well as performing a detailed analysis of the performance metrics and service agreements. MJB also conducted operational and performance benchmarking comparing the client’s staffing and project management approach to comparable utilities. MJB was further responsible for data analysis of the historical, current and projected capital projects portfolio, which included progress against metrics related to Schedule, Cost and Project Objectives. A final recommendation for the adoption of a Program Management Office (PMO) to oversee the project portfolio, as well as coordinate with Engineering Asset Management, and other corporate groups was accepted and rapidly implemented.
ISO Development in Europe
The client, one of the largest natural gas companies in the world, was interested in determining the impact of the implementation of an Independent System Operator (ISO) model, as used in the US electricity industry, in the European Union.
The client engaged MJB to prepare a report providing background, perspective and discussion on key issues associated with ISO formation, role, governance, regulation, operation, investment and impact. The study evaluated the consequences (both challenges and opportunities) of ISO formation to the client and its subsidiaries. The scope of the engagement included the seven US-based ISOs (i.e., ISO-NE, NYISO, PJM, MISO, CAISO, ERCOT, and SPP) and, to the extent deemed relevant by MJB, two Canadian-based ISOs (i.e., AESO, IESO). The study addressed the strategic questions posed by the client and provided insight and strategic that allowed the client to properly understand and evaluate the impacts and consequences of ISO formation in its market.
Strategic Options Review
MJB, in partnership with The Brattle Group, prepared a strategic assessment of the Long Island Power Authority’s (LIPA’s) options regarding its long-term organizational structure.
LIPA outsources much of its transmission and distribution operations and management to National Grid under a comprehensive Management Services Agreement (MSA). With the MSA due to expire in 2013, LIPA requested a review of its available organizational options; Privatization, full Municipalization, or a continuation, under a more self-contained organizational contract, of its existing structure. The MJB/Brattle team conducted a quantitative and qualitative analysis of these options, including the development of detailed financial model, and specific operational impacts attendant to each alternative. This project included the analysis of historic performance reports, financial statements, benchmarking, and the review of MSA contract documents to understand the impact on cost and performance of moving away from the status quo. Regular presentations and reports were delivered to the Operating Committee of LIPA Board of Trustees, as well as to the full Board.
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The pace of change in the energy industry is accelerating. New technologies are being developed and deployed, environmental considerations are paramount, market conditions are more uncertain and volatile, and capital market pressures can be daunting. A challenging environment? Certainly. But one also laden with opportunity for those entities aware of and positioned to take advantage of the changes. We offer a range of services to meet clients’ needs in this dynamic environment.