PAN-EUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES

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

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Representing the European Electricity Industry at
Expert, Strategic and Policy-making Level
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Our technical partners
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48 companies from 22 countries were benchmarked

• MAIN PARTIES INVOLVED
• EURELECTRIC WG Distribution Benchmarking
• EURELECTRIC NE Finance Economics
• PA Consulting Group

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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

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Interest in International Benchmarking

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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

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Method used (2)
Cost drivers (indexed)
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Method used (3)

• Participating companies grouped by
• 1) Region
• North - South - East - Central
• 2) Size (number of customers)
• Large gt 300 000
• Medium 300 000 - 100 000
• Small lt 100 000
• 3) Level of urbanisation
• Nr of customers / km of low voltage line
• City gt 80
• Mixed 80 - 20
• Rural lt 20

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Main results (1)
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Main results (2)
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Main results (3)
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Main results (4)
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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

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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

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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

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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

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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

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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

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CONCLUSIONSAims of Benchmarking are Important
High quality of supply
Incentives for Companies
Lowest Possible costs
Appropriate level of investments
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Project timingFebruary September 2002
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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!

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• THANK YOU FOR YOUR ATTENTION!
• Contacts
• Mr. Otso KUUSISTO
• otso.kuusisto_at_otsokuusistoconsulting.fi
• Mr. Mihai PAUN
• The Union of the Electricity Industry
  EURELECTRIC
• MPaun_at_eurelectric.org