NewEnergy Strategist®
Michigan Public Service Commission
February 28, 2005
Energy Business Solutions
Strategist - Integration Has Its Advantages
 Strategic Planning with a Single Model
Market
Supply
Uncertainty
Financial
Customer
Energy Business Solutions
2
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
Energy Business Solutions
3
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
Energy Business Solutions
4
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
Energy Business Solutions
5
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
Energy Business Solutions
6
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
Energy Business Solutions
7
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)
Energy Business Solutions
8
Name and Date
Integrated Strategic Planning
Optimization,
Resource Plans
PROVIEW
DP Resource
Optimization
Financial Planning,
Consolidation and
Analysis
Holding
Company
PowerBase
EEI Data
Processor
Load
Forecast
Adjustment
Generation
and
Fuel
Marketing
Program
Design
Differential
Cost
Effectiveness
Capital
Expenditures
Recovery
Financial
Reporting
and Analysis
Class
Revenue
Marketing
Energy Business Solutions
9
Name and Date
Load Forecast Adjustment Module (LFA)
Function:
Represent Customer Demand for Production Cost and Financial Analysis
Applications:
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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
Energy Business Solutions
10
Name and Date
Sample Structure
COMPANY
Company
LOAD CLASS
Commercial
Small
Commercial
Large
Commercial
Residential
Electric Heat
DLC Water
Heaters
Industrial
Non-DLC
Water Heaters
Chemical
Comp
LOAD GROUP
Energy Business Solutions
11
Name and Date
Sample Structure
COMPANY
LOAD CLASS
LOAD GROUP
Company
Customer
Demand
Customer
Demand
Energy Business Solutions
12
Name and Date
Integration with Other Modules
Load Forecast and
Adjustment Module (LFA)
Company Load
Generation and Fuel
Module
(GAF)
Rate Feedback
Marketing
Capitalized
Costs
Marketing
Expensed
Costs
Production Costs
Capital Expenditure &
Recovery Module (CER)
Financial Reporting and
Analysis Module (FIR)
Incremental
Capital
Expenses and
Rate
Base
Sales, Coincident /
Noncoincident Peak
Requirements
System Revenue
Requirements
Class Revenue Module
(CRM)
Energy Business Solutions
13
Name and Date
Generation and Fuel Module (GAF)
Function:
Calculate Company and System Production Costs
Applications:
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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
Energy Business Solutions
14
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
Energy Business Solutions
15
Name and Date
Network Economy Interchange
Transco
100% ownership of line
System
Genco
Disco
Transco
50%
25%
Transfer
Points
300 MW
150 MW
Market
A
500 MW
800 MW
Transco
25% ownership
of line
Market
B
Energy Business Solutions
16
Name and Date
NEI Methodology
 NEI with no losses, connection charges or transmission constraints
$/MWH
Buyer’s
Savings
Seller’s MC
Buyer pays = Interchange * MCP
Market
Clearing Price
Seller receives = Interchange * MCP
Buyer’s MC
Seller’s
Profit
MW
Interchange
Energy Business Solutions
17
Name and Date
Representation of Michigan
Upper Peninsula
Ontario
North
West
MAPP
South
East
- Areas
- Tie Lines
ECAR
Energy Business Solutions
18
Name and Date
Thermal Unit Dispatch
 The GAF will dispatch generating units in economic order as adjusted or constrained
by the following:
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Must run units
Commitment
Penalty factors
Emissions adders
Multiple fuels
Spinning reserve
Fuel limits
Bid price
MW
Most Expensive
Cheapest
Hours
Energy Business Solutions
19
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:
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General Capital Budgeting
Comparison of Alternative Projects
Modeling the System Incremental Revenue Requirements
Bond Sizing for Project Specific Financing
Expansion Planning Analysis for PROVIEW
Energy Business Solutions
20
Name and Date
Financial Planning and Analysis
 Evaluate financial, rate and shareholder impacts of:
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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
Energy Business Solutions
21
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.
Energy Business Solutions
22
Name and Date
PROVIEW
Function:
To determine the most cost effective mix and
timing of possible future resources
Applications:
 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
Energy Business Solutions
23
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
Energy Business Solutions
24
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
Energy Business Solutions
25
Name and Date
PROVIEW Expansion Constraints
 System and/or Company Constraints:
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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
Energy Business Solutions
26
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
Energy Business Solutions
27
Name and Date
Strategist Planning Studies
 Analyze resource decisions
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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:
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Customer load
Capital costs
Alternative construction programs
Interest rate scenarios
Fuel cost scenarios
Energy Business Solutions
28
Name and Date
Integrated Strategic Planning
Optimization,
Resource Plans
PROVIEW
DP Resource
Optimization
Financial Planning,
Consolidation and
Analysis
Holding
Company
PowerBase
EEI Data
Processor
Load
Forecast
Adjustment
Generation
and
Fuel
Marketing
Program
Design
Differential
Cost
Effectiveness
Capital
Expenditures
Recovery
Financial
Reporting
and Analysis
Class
Revenue
Marketing
Energy Business Solutions
29
Name and Date