revenue protection as part of utility financial...
TRANSCRIPT
Revenue Protection as part of Utility Financial
Sustainability
By LPP Fourie
(Pr Eng)
SARPA 29 July 2010
Synopsis
‘Revenue Protection is an integral part of a holistic
approach to achieve utility financial sustainability. ‘
•Losses value chain & the quantification of losses, and integrated
approach in minimising losses.
•What efforts should management make to improve the business
economics of the electricity utility?
• Benchmarking: What is happening elsewhere?
Agenda
• Introduction
• Losses value chain
• Losses Quantification
• Holistic approach to financial sustainability
• Gains for the utility from managing losses
• Conclusion
• Financial sustainability – what does it mean?
– Cash returns from operations are sufficient to pay for all cash expenses
– Cash coverage ratio being equal to 1 or better
• Integrated approach to planning
– Understanding all the activities that affects cash flow,
– Maximise revenue,
• Improve cash collections by reducing cash losses
• Curb non technical losses
• Increase tariffs
– Minimise operational cost
• Least cost generation
• Reduce overall losses losses
• Increase operational efficiencies
• Improve quality of supply
Introduction
Cash returns
Cash expenses
Introduction
• Holistic view to
balance net cash
• Tariff adjustments
are the last resort
to balance cash
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 Ops
To fund
liabilities & Investment
De
term
inin
g A
ss
um
pti
on
s
Investment Plan•Capital
•Funding
TX
Net Cash Liabilities
Tariff Options
Balancing Cash with Revenue
Losses reduction
• Reduce cost of generation and imports
• Normally reduces the most expensive generation if least cost generation strategy is followed
Reduction in Technical Losses
• Will convert into additional sales
• Or will reduce the cost of additional generation if it cannot be converted into sales
• Or both
Reductions in Non Technical losses
Revenue protection is all those utility activities that
ensure that losses are minimised, both from a
revenue and a cost perspectiveDEF=
Losses Value chain
• Energy in
• Technical losses
• Consumption
• Non technical losses
• Sales
• Cash collected
Energy In Technical losses ConsumptionNon Technical
lossesSales Cash Collected
Energy available
from Generation
and imports
Electrical losses
on the network
Cash collected
from energy
billed
Revenue from
energy billed
Energy
consumed but
not billed
Energy
consumed and
billed
Losses Value chain
• Energy losses consists of
– Technical losses
– Non technical losses
• Technical losses is evident due to:– Network configuration and
– Network loading
– Consist of demand losses and energy losses
• Non technical losses is caused by:– Factors outside the electrical system,
– This could include inaccurate meters,
– Inaccurate meter readings,
– Technical problems with meter installations,
– Billing errors or errors in record keeping,
– Consumption by non metered installations and
– Energy theft
• Cash losses– Energy billed (sales) for which no payment has been received
Losses Value chain
Energy in
(EI)
Technical
losses
Energy
Available
(EA)
Customer
consumption
Admin losses
Theft
Energy Billed
(EB)
Cash
Collections
(CC)
Un-Billed
CC/EI
Collection Efficiency (CE)
CC/ES Non Technical losses =
EA-EB
AT&C
1 - (1-OL) X CE
Collection Losses
1-CC/ES
Overall energy
losses (OL)
EI-EB
Sales
(ES)
Billing Rate
ES/EB
Losses Value chain
• Overall efficiency benchmarks
– AT&C
– CC/EI
• Aggregate Technical and Commercial Losses (AT&C)
– Aggregate of technical and cash losses
– Measured in %
– AT&C = 1 - (1-Overall losses %) X Collection Efficiency%
• Cash collected per unit of energy in (CC/EI)
– Is the ration between cash collected and energy in
– Is given in c/kWh
– This is normally compared with the average billing rate
Losses Quantification
• Needs to know the components and quantum of losses to decide on
appropriate mitigation strategies
• Can easily determine overall energy losses
132 kV
Technical losses
Non - Technical losses
11 kV
• Illegal connections
• Erroneous reading
• Energy waived
• Energy unrecorded
• Defected meters
• etc
• Tx losses
• Station losses
• Feeder Losses
• MV/ Trf losses
• LV losses
Sub - Station
11 kV
LV
E tot = Ec + Etech + Enon-tech
M M
M M
M M
M M
M M
275 kV
132 kV
M M
• Can calculate technical
energy losses
• Derive non technical
losses from the above
• For technical losses
– Calculate demand losses
– Calculate energy losses
Losses Quantification
• Demand losses
– Have to obtain this from load flow studies
– Need to do it for all voltage levels
• Energy losses
– Derived from demand losses and loss load factor (LLF)
– Energy losses = MD loss in kW*LLF*hours in period
• Determining the Loss Load factor– From statistical metering
– From the load factor (LF)
– LF = Total Energy Available/(Maximum Demand in kW*hours in period)
– The following formula shows how to derive the LLF from statistical metering
Losses Quantification
• Determining the Loss Load factor– From the load factor (LF)
– LLF = k*LF+(1-k)*LF^2
– The factor k depends on the load profile, if no data is available, normally
assumed as .3
– k = (LLF-LF^2)/(LF-LF^2)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1 3 5 7 9 11 13 15 17 19 21 23
pu lo
ad
Typical Load Profiles
Residential Residential Low Income
Commercial/Residential Commercial
Residential Residential
Low Income
Commercial/
ResidentialCommercial
LF 0.59 0.32 0.69 0.61
LLF 0.40 0.17 0.50 0.44
k 0.18 0.30 0.16 0.32
Typical Results
• Energy losses
– Energy losses follow demand profile
– Energy losses increase exponentially as load increases, therefore nullifies the
improvement in non technical losses
– Energy losses are still high, and the technical losses depends a lot on the
network configuration
– Utility 1 a urban network, lots of cable, where as utility 2 includes a lot of rural
networks
0%
5%
10%
15%
20%
25%
30%
Jan-
05
Mar
-05
May
-05
Jul-0
5
Sep-
05
Nov
-05
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep-
06
Nov
-06
%
Utility 2 Energy LossesCumalitive
Overall losses (OL) Technical losses (TL) Non technical losses
0%
5%
10%
15%
20%
25%
30%
35%
Apr
-09
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep-
09
Oct
-09
Nov
-09
Dec
-09
Jan-
10
%
Utility 1 Energy LossesCumalitive
Overall losses (OL) Technical Losses (TL) Non-technical losses
Typical Results
• AT&C
– Shows the combine effect of technical and cash losses
– For Utility 2 one can see that mitigation strategies had a positive effect
on cash losses helping AT&C to improve.
– For Utility 1 no mitigation strategies have been implemented yet
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan
-05
Ma
r-0
5
Ma
y-0
5
Jul-
05
Sep
-05
No
v-0
5
Jan
-06
Mar
-06
Ma
y-0
6
Jul-
06
Sep
-06
No
v-0
6
%
Utility 2 AT&CCumalitive
Collection Loss (CL) AT&C Overall losses (OL)
0%
10%
20%
30%
40%
50%
60%
70%
Ap
r-0
9
Ma
y-0
9
Jun
-09
Jul-
09
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
Jan
-10
%
Utility 1 AT&CCumalitive
Collection Loss (CL) AT&C Overall losses (OL)
Typical results –
Mitigation strategies
• Technical losses
– Network Optimisation – open
points
– Reduce overloading,
especially transformers
– Balancing of load
– Ensure optimal voltage levels
• Non technical losses
– Appropriate systems
– Improved meter reading
strategies
– Meter installation audits
– Appropriate disconnection and
re-connection strategies
– Organisational change to
enhance revenue protection
V S
Holistic approach to financial
sustainability• Identify all activities affecting cash flow
• Understand and model the relationships accordingly (business
economic model)
• Obtain relevant inputs from other modeling, like:
2
Generation plan
Demand forecast
Business Economic Model
TANESCO
Accumulated 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 surcharge added as tariff
increase) to Dec 2010
IPTL Bought by Jan 2007
-300,000
-200,000
-100,000
0
100,000
200,000
300,000
400,000
Jan-0
6
Mar-
06
May-0
6
Jul-06
Sep-0
6
Nov-0
6
Jan-0
7
Mar-
07
May-0
7
Jul-07
Sep-0
7
Nov-0
7
Jan-0
8
Mar-
08
May-0
8
Jul-08
Sep-0
8
Nov-0
8
Jan-0
9
Mar-
09
May-0
9
Jul-09
Sep-0
9
Nov-0
9
Jan-1
0
Mar-
10
May-1
0
Jul-10
Sep-1
0
Nov-1
0
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
OPEX
Investments
TX & DX requirements
Fuel
Assumptions Deliverables
FSP
Business− Loss quantification
− Electrical Master plan
− Business plan
− Etc
• Scenario Planning
− Mitigation Strategies
• Monitoring and Reporting
framework
− KPI’s
− Dashboard
• Reduce technical losses from 16 to 14 % and non technical
losses from 5.5% to 2.5% ,
• Increase the collection efficiency from 93% to 97.5%,
• Collection of old debtors over a 3 year period,
• Increase in operational efficiency with 40% (measured in
kWh per employee or number of customers per employee).
• Additional step tariffs above inflationary tariffs
• Monitoring and reporting through appropriate KPI’s
Holistic approach to financial
sustainability
-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
Jan-
06
Ap
r-06
Jul-06
Oct
-06
Jan-0
7
Ap
r-07
Jul-0
7
Oct
-07
Jan-0
8
Ap
r-08
Jul-0
8
Oct
-08
Jan-0
9
Ap
r-09
Jul-09
Oct
-09
Jan-
10
Ap
r-10
Jul-10
Oct
-10
TS
HS
m
UTILITY 2
Accumulated Cashflow Forecast
NET Cash Balance After Operational Activities
NET Cash Balance After Committed Capital and Liabilities
Net Cash Balance after funding
Base CAse
-1000
-800
-600
-400
-200
0
200
20
07
/20
08
20
08
/20
09
20
09
/20
10
20
10
/20
11
20
11
/20
12
20
12
/20
13
20
13
/20
14
20
14
/20
15
20
15
/20
16
20
16
/20
17
20
17
/20
18
20
18
/20
19
20
19
/20
20
20
20
/20
21
20
21
/20
22
20
22
/20
23
20
23
/20
24
20
24
/20
25
20
25
/20
26
20
26
/20
27
(K '0
00
)M
illio
ns
UTILITY 1
Accumalated Cash Flow Forecast
All In (Inflation & Step tariffs) Base Case Bank Balance
• Technical Loss reduction from 20% to 17%, non technical losses from 6% to 3%,
• Maintain collection efficiency,
• Convert expensive generation, and optimise generation mix,
• Restructuring of debt,
• Increase the quality of supply and reducing outages,
• Increase sales through electrification and large mining loads,
• Additional step tariffs in short term and
• Overdraft to support short term cash deficit
Mitigation Strategies
Benefits from managing losses
• Technical loss reduction
− Reduce the cost of supply, as this will reduce the cost of generation and imports
− Will save on the most expensive generation in a least cost generation strategy
− Network optimisation (optimal switching arrangements, balanced loading, optimal
voltage levels) will not need capital investment (except if new switchgear is
required to implement the optimal open points)
− Network strengthening will require investment
• Non Technical loss reduction
− Will either be converted into additional sales, or reduction in generation cost
(same as for technical losses), or both
− Will not need huge investments, might increase short term operational expenses
to implement the necessary strategies
− Will also encourage efficient usage of electricity as customers will pay for what
they consume and tend to force average consumption down
Conclusion
• Revenue protection is part of a holistic approach
• Losses can be reduced through tailored mitigation
strategies
• Management can get the utilities back to financial
sustainability by implementing the right strategies
– Monitoring and reporting
– Loss quantification
– Business economic modeling
– Integrated planning
• Charge market related tariffs by cutting out losses and
inefficiencies
ENDEND
To To measure is measure is to know…to know…