PANEUROPEAN BENCHMARKING OF ELECTRICITY DISTRIBUTION COMPANIES

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
Our technical partners
4
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 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

10
Main results (1)
11
Main results (2)
12
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
Lowest Possible costs
Appropriate level of investments
21
Project timingFebruary 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_at_otsokuusistoconsulting.fi
• Mr. Mihai PAUN
• The Union of the Electricity Industry
  EURELECTRIC
• MPaun_at_eurelectric.org