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PAN-EUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES - The EURELECTRIC experience

PAN-EUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES - The EURELECTRIC experience Mr. Otso KUUSISTO Chairman of EURELECTRIC WG “Distribution Benchmarking”. Representing the European Electricity Industry at Expert, Strategic and Policy-making Level. Generation. Transmission.

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PAN-EUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES - The EURELECTRIC experience

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  1. PAN-EUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES - The EURELECTRIC experience Mr. Otso KUUSISTO Chairman of EURELECTRIC WG “Distribution Benchmarking”

  2. Representing the European Electricity Industry at Expert, Strategic and Policy-making Level

  3. Generation Transmission Distribution Electric Applications Our technical partners:

  4. 8 1 2 1 1 2 1 1 6 3 1 4 2 1 1 5 1 1 3 1 1 1 48 companies from 22 countries were benchmarked MAIN PARTIES INVOLVED: • EURELECTRIC WG Distribution Benchmarking • EURELECTRIC NE Finance & Economics • PA Consulting Group

  5. Why benchmarking? • Benchmarking already used by many regulators in assessing companies’ efficiencies • Learning about benchmarking methods • Disseminating knowledge • various degrees of understanding and experience in the participants • Experimenting on European-level • Anticipating regulators’ actions • first truly pan-European benchmarking • Indicative benchmark of overall performance

  6. Interest in International Benchmarking

  7. Method used “Grid Volume model” developed by PA Consulting Group • Cost drivers: physical parts of grid infrastructure • Cost equivalent: average costs of operating a cost driver / year • Grid volume = cost drivers • cost equivalents • Only OPEX benchmarked • Companies compensated for 1) labour cost level and 2) customer density

  8. Method used (2) Cost drivers (indexed):

  9. Method used (3) Participating companies grouped by 1) Region: • North - South - East - Central 2) Size: (number of customers) • Large: > 300 000 • Medium: 300 000 - 100 000 • Small: < 100 000 3) Level of urbanisation: Nr of customers / km of low voltage line • “City”: > 80 • “Mixed”: 80 - 20 • “Rural”: < 20

  10. Main results (1)

  11. Main results (2)

  12. Efficiency and Level of Urbanisation City - Mixed - NonCity 1,6 1,4 1,2 1 0,8 Efficiency 0,6 0,4 0,2 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Main results (3)

  13. Main results (4)

  14. Main results (summary) • Performance from 100% to 45% * • Efficient companies in all regions of Europe • Efficient companies in all size categories • Sensitivity: robust model, but data uncertain • High satisfaction by participants (survey) * 3 low-end companies considered as outliers; at the top-end 2 companies outliers; 20% error margin

  15. Troubles & uncertainties • 22 different accounting legislations, 48 different internal accounting systems… • Guidelines & manual created for the project, to help report the various operating costs • Separating OPEX and CAPEX not always self-evident: ratio of CAPEX to OPEX: from 28% to 72%… • Allocation of overhead costs to operations also added to uncertainty • Different degree of unbundling complicates allocation • Labour costs: 10-fold difference between highest and lowest salaries

  16. CONCLUSIONS (1) • THE MAIN UNCERTAINTY IN THE BENCHMARKING STEMS FROM THE USE OF DIFFERENT ACCOUNTING PRINCIPLES • WELL DEFINED DATA IS A BASIC PREREQUISITE FOR ANY BENCHMARKING EXERCISE

  17. CONCLUSIONS (2) • THE CORRECTION FOR DIFFERENT LABOUR COST LEVELS IS PRAGMATIC – AND AN “EXACT” CORRECTION CANNOT BE DEFINED • The effect of labour cost level on the total performance is influenced by: • Average labour costs (wage level) • Productivity • Level of automation

  18. CONCLUSIONS (3) • THE DENSITY CORRECTION IS AN APPROXIMATION MADE TO COMPENSATE CITY COMPANIES • THE MODEL CAN BE IMPROVED – IN ORDER TO IMPROVE THE BENCHMARK AND TO INCREASE LEARNING

  19. What we got… • INDICATIVE benchmark of overall efficiency • Results NOT suitable to draw regulatory conclusions • Sharing of experience among participants • Improved understanding of benchmarking as a process • within participants • inside EURELECTRIC “BENCHMARKING IS FAR FROM BEING EXACT SCIENCE”

  20. CONCLUSIONSAims of Benchmarking are Important: High quality of supply Incentives for Companies Appropriate level of investments Lowest Possible costs

  21. 1 Project start-up 2 Adaptation of model to national conditions (questionnaire) 3 First work-shop 4 Data collection phase 5 Calcu-lations 6 Final work-shop 7 Last data adjust-ments 8 Final reports February March April May June July September Project timing:February – September 2002

  22. Distribution issues in EURELECTRIC • Networks Committee • WG “Distribution Issues”, chaired by Peter BIRKNER (Lech-Elektrizitätswerke AG) MORE INFORMATION AVAILABLE AT OUR CONFERENCE STAND! Two recent EURELECTRIC reports: • “Pan-European Benchmarking of Electricity Distribution Companies - Final Report” • “Business Trends in the European Power Industry - the Financial Situation of Distribution Business” BOTH REPORTS AVAILABLE AT OUR CONFERENCE STAND!

  23. THANK YOU FOR YOUR ATTENTION! Contacts: Mr. Otso KUUSISTO otso.kuusisto@otsokuusistoconsulting.fi Mr. Mihai PAUN The Union of the Electricity Industry – EURELECTRIC MPaun@eurelectric.org

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