energy business solutions newenergy strategist ® michigan public service commission february 28,...

Energy Business Solutions

NewEnergy Strategist®

Michigan Public Service CommissionMichigan Public Service Commission

February 28, 2005February 28, 2005

Energy Business Solutions2

Name and Date

Strategist - Integration Has Its Advantages

Strategic Planning with a Single Model

FinancialSupply

Market

Uncertainty

Customer


Name and Date

NewEnergy Strategist® - Corporate Strategic Planning

Fully Integrated Strategic Analysis

Customers Producers Transmission Financial Performance

Applications

Resource Mix Evaluation and Optimization

Portfolio Risk Management Supply Contract Bid Analysis Customer Retention and

Profitability

Applications (continued)

Competitive Market Assessment

Regional and International Market Analysis

Co-generation Profitability Strategic Business Planning Corporate Restructuring Merger & Acquisition Analysis Asset Management Financial Forecasting Stranded Investment Cross Subsidization /

Lost Revenue


Name and Date

Strategist Modules

Supply and Demand Analysis Modules

Load Forecast Adjustment (LFA) Generation and Fuel (GAF) Differential Cost Effectiveness (DCE)

Financial Analysis Modules

Capital Expenditure and Recovery (CER) Financial Reporting and Analysis (FIR)

PROVIEW™ Resource Optimization


Name and Date

Power Portfolio Components

Owned Generators Includes thermal, hydro, and pumped storage units Fuel contracts may be modeled with floor, ceiling, take-or-pay, or

pipeline limits Emissions allowance credits may be used to offset the cost of

releasing SO2, NOx, or other effluents

Power Contracts Includes block energy purchases and sales contracts, call and put

options, and fully dispatchable purchases Contracts may be firm or non-firm Costs/revenues may be input with energy rates, capacity rates, or

both

Demand Controls Interruptible load with costs, restrictions, and “payback” characteristics Conservation and marketing programs with costs, market penetration,

and hourly load impacts


Name and Date

Power Portfolio Analysis

Market Dispatch

Companies (or a single pool) may buy from and sell to spot energy markets

Market interchange is based on load requirements, expected marginal generating costs, and transmission limits, tariffs, and losses

Multi-Company Accounting

A single pool may be dispatched with company interchange based on split savings

Companies may be dispatched with transmission constraints/losses/tariffs between them, with interchange based on market clearing prices

System Reliability / Emissions Constraints

Commitment and spinning reserve requirements Automatic Maintenance Scheduling Emissions Cap


Name and Date

Capital Projects

Capital Expenditure and Recovery Module (CER)

Model the total capital budget of a utility and perform revenue requirement, profitability and Internal Rate of Return Calculations for new capital additions

Help assess the viability of incremental acquisitions and investments Ability to model project-specific financing Used to calculate capital requirements for PROVIEW alternatives Passes all information based on NEW capital additions to the

Financial Reporting and Analysis Module


Name and Date

Financial Statements

Financial Reporting and Analysis Module

Completely integrated financial analysis Retail revenues transferred from the Load Forecast Adjustment

Module Fuel, O&M, emissions, purchased power costs, and wholesale

revenue transferred from the Generation and Fuel Module Capital additions are transferred from the Capital Expenditure and

Recovery Module Assets and Liabilities are modeled to develop beginning balance

sheet Automatic financing logic can be used to issue new short term and

long term debt Proforma financial statements generated (Income Statement, Balance

Sheet and Statement of Cash Flows)


Name and Date

Integrated Strategic Planning

PROVIEWDP ResourceOptimization

Marketing ProgramDesign

LoadForecast

Adjustment

Generationand Fuel

DifferentialCost

Effectiveness

Optimization,Resource Plans

Marketing

PowerBasePowerBase

Financial Reporting

and Analysis

ClassRevenue

Holding Company

Financial Planning, Financial Planning, Consolidation and Consolidation and

AnalysisAnalysis

Capital Expenditures

RecoveryEEI Data EEI Data ProcessorProcessor


Name and Date

Load Forecast Adjustment Module (LFA)

Function:Represent Customer Demand for Production Cost and Financial Analysis

Applications: Incorporate load research data Analyze strategic conservation and marketing programs Create data for demand-side/supply-side planning Model direct load control programs Evaluate impact of rate feedback Represent single or multi-company load Analyze Load Growth/Decline


Name and Date

Company

Large Commercial Electric Heat DLC Water

HeatersNon-DLC

Water Heaters

IndustrialResidentialCommercial

Small Commercial

Chemical Comp

COMPANY

LOAD CLASS

LOAD GROUP

Sample Structure


Name and Date

Company

Customer Demand

Customer Demand

COMPANY

LOAD CLASS

LOAD GROUP

Sample Structure


Name and Date

Load Forecast and Adjustment Module (LFA)

Load Forecast and Adjustment Module (LFA)

Generation and Fuel Module

(GAF)

Generation and Fuel Module

(GAF)

Capital Expenditure & Recovery Module (CER)

Capital Expenditure & Recovery Module (CER)

Financial Reporting and Analysis Module (FIR)

Financial Reporting and Analysis Module (FIR)

Class Revenue Module (CRM)

Class Revenue Module (CRM)

Company Load

Sales, Coincident /Noncoincident PeakRequirements

Production Costs

Incremental Capital Expenses and RateBase

System RevenueRequirements

MarketingExpensedCosts

Marketing CapitalizedCosts

Rate Feedback

Integration with Other Modules


Name and Date

Generation and Fuel Module (GAF)

Function:Calculate Company and System Production Costs

Applications: Perform Unit Profitability Studies Model Power Pool Operations Create Market Price Curves Evaluate Unit Bidding Strategies Determine Portfolio Value and Risk Examine Alternative Technologies Evaluate Off-System Sales/Transactions Examine Emissions Compliance Evaluate Generation Fuel Mix Analyze Alternate Fuel Price


Name and Date

GAF Process Flow

Seasonal Load Curves

Load Modifiers Transactions Hydro Generation

Marginal Cost Dispatch Storage Unit Dispatchable Transaction Direct Load Control Network Economy Interchange

System Aggregate Pointers

Probabilistic Thermal Unit Dispatch

Reliability Calculations


Name and Date

Network Economy Interchange

System

GencoGenco DiscoDisco TranscoTransco

Transco100% ownership of line

MarketA

MarketB

150 MW300 MW

50%25% Transco

25% ownershipof line

TransferPoints

800 MW

500 MW


Name and Date

NEI Methodology

NEI with no losses, connection charges or transmission constraints

Buyer pays = Interchange * MCP

Seller receives = Interchange * MCP

Market Clearing Price

Buyer’sSavings

Seller’s Profit

Buyer’s MC

$/MWH

MW

Seller’s MC

Interchange


Name and Date

Representation of Michigan

MAPP

ECAR

Ontario

Upper Peninsula

South East

NorthWest

- Areas

- Tie Lines


Name and Date

The GAF will dispatch generating units in economic order as adjusted or constrained by the following:

Must run units Commitment Penalty factors Emissions adders Multiple fuels Spinning reserve Fuel limits Bid price

MW

Hours

Cheapest

Most Expensive

Thermal Unit Dispatch


Name and Date

Capital Expenditure and Recovery Module (CER)

Function: Model the total capital budget of a utility and perform revenue requirement,

profitability, and IRR calculations Help assess the viability of incremental acquisitions and investments Pass all information based on NEW capital investment to the FIR Transfer the Base Year Revenue Requirements for Proview alternatives

Applications: General Capital Budgeting Comparison of Alternative Projects Modeling the System Incremental Revenue Requirements Bond Sizing for Project Specific Financing Expansion Planning Analysis for PROVIEW


Name and Date

Financial Planning and Analysis

Evaluate financial, rate and shareholder impacts of:

Market Structure Transition Plans Mergers, Acquisitions, Divestitures Capital Costs Business Unit Structure Alternative Construction Programs Fuel Cost Scenarios

Produce planning studies in a short period of time

accurately reflect the long-range financial structure of the company automatic financing capital retirement and expense forecasts revenue determination taxes

run and manage multiple scenarios


Name and Date

Transferring Data Between Modules

Data can be transferred automatically between modules in Strategist. Linking the GAF and the CER enables the user to model construction

expenditures for planned resource additions.

Linking the LFA and the CER will allow the user to evaluate the financial impact of strategic marketing plans that have capitalized costs.

Linking the LFA and the FIR allows load and demand information to be transferred to the FIR for the calculation of revenues.

Linking the GAF to the FIR transfers the O&M, fuel, and purchased power expenses, and generating unit revenues.

Linking the CER and the FIR transfers the capital expenditures, book depreciation, tax depreciation, deferred taxes, insurance costs, property taxes, and construction work in progress balances.

Linking the CER and PROVIEW transfers the Base Year Revenue Requirements and a Revenue Requirements Profile calculated for a future expansion project in the CER to the alternative in PROVIEW.


Name and Date

Assess the profitability and risk of diverse resource portfolios

Manage alternative choices for the use / disposition of existing assets

Compare power purchases and sales opportunities

Develop optimal mix of owned and purchased resources

Evaluate transmission/generation/DSM tradeoffs

Evaluate impacts of changes in reliability / environmental constraints

Applications:

Function: To determine the most cost effective mix and timing of possible future resources

PROVIEW


Name and Date

Power Portfolio Optimization

PROVIEW Optimization Module

Considers economics and constraints of adding new resources or demand side management programs

New Thermal, Hydro, and Storage Units New Power Contracts Conversions of Existing Units Transmission Line Upgrades Demand Side Management Programs

PROVIEW optimizes the company’s (or pool’s) various alternatives while targeting the objective function:

Minimization of Utility Revenue Requirements (i.e. production and capital costs)

Minimization of Average Rates Minimization of Total Resource Cost Minimization of Societal Costs


Name and Date

How does PROVIEW perform its optimization?

PROVIEW utilizes a proprietary dynamic programming algorithm to perform a sequence of interrelated decisions

All possible combinations of new alternatives (type, amount, and timing), subject to input constraints, are given a comprehensive analysis over the planning period

Each plan’s capital cost impacts are evaluated using an Economic Carrying Charge methodology, assuming infinite replacement-in-kind for new alternatives

Plans are ranked for the study based on the present value of the selected objective function


Name and Date

PROVIEW Expansion Constraints

System and/or Company Constraints:

Reserve Margin % Emergency Energy Loss Of Load Hours Emissions Released Emission Allowances Sold

Alternative Constraints:

Annual Minimum and Maximum Added Cumulative Minimum and Maximum Added

Restricted Alternative Combinations:

Mutually Inclusive/Exclusive (enforced over the entire planning period) Simultaneously Inclusive/Exclusive (enforced each year) Dependent and Chained Alternatives


Name and Date

PROVIEW Reporting and Analysis

Comparison Reports show plans side-by-side, ranked by either the Planning Period total or Study Period total (including End Effects)

After an optimization, the top plan is automatically set up in the database, and the System Cost Report shows year-by-year production and capital costs

Any plan generated by PROVIEW (not just the optimal one) may be set up in the database for further analysis

PROVIEW can automatically run an input number of top plans and produce full financial reports over the planning period


Name and Date

Strategist Planning Studies

Analyze resource decisions

Supply-side and Demand-side Build new resources Buy existing resources Refurbish/Repower/Mothball/Retire plants Financial options / futures contracts Environmental compliance options and costs

Evaluate financial, rate and shareholder impacts of:

Customer load Capital costs Alternative construction programs Interest rate scenarios Fuel cost scenarios


Name and Date

Integrated Strategic Planning

PROVIEWDP ResourceOptimization

Marketing ProgramDesign

LoadForecast

Adjustment

Generationand Fuel

DifferentialCost

Effectiveness

Optimization,Resource Plans

Marketing

PowerBasePowerBase

Financial Reporting

and Analysis

ClassRevenue

Holding Company

Financial Planning, Financial Planning, Consolidation and Consolidation and

AnalysisAnalysis

Capital Expenditures

RecoveryEEI Data EEI Data ProcessorProcessor

energy business solutions newenergy strategist ® michigan public service commission february 28,...

Documents

energy rates

capital requirements

date strategist modules

block energy purchases

market penetration

date strategist integration

new capital additions

load requirements